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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
      Commission
          file numberended September
        30, 2002
      0-19941 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.) Five
          Greentree Centre, Suite 311, Marlton, NJ 08053(Address of principal executive offices)     
          (Zip Code) (856)810-8000(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: 37,078,036 shares of common stock, no par value, as of November 11, 2002.



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MEDQUIST
  INC. AND SUBSIDIARIES

INDEX TO
  QUARTERLY REPORT ON FORM 10-Q

|PART
        I.        FINANCIAL INFORMATION | PAGE
      NO.                                                                             
|-------------------------------------------- | -------------------------------------------------------------------------------------------
|                                             |                                                                                            
|Item
      1.                                | Consolidated
      Financial Statements                                                    
|                                             |                                                                                            
|                                             | Consolidated
      Balance Sheets at September 30, 2002 (Unaudited) and                    
|                                             | December
      31, 2001                                                                    
|                                             |                                                                                            
|                                             | Consolidated
      Statements of Income for the Nine Months Ended September 30, 2002       
|                                             | and
      2001 (Unaudited)                                                                 
|                                             |                                                                                            
|                                             | Consolidated
      Statements of Income for the Three Months Ended September 30, 2002      
|                                             | and
      2001 (Unaudited)                                                                 
|                                             |                                                                                            
|                                             | Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30, 2002   
|                                             | and
      2001 (Unaudited)                                                                 
|                                             |                                                                                            
|                                             | Notes
      to Consolidated Financial Statements (Unaudited)                               
|                                             |                                                                                            
|Item
      2.                                | Managements
      Discussion and Analysis of Financial Condition and Results of Operations
|                                             |                                                                                            
|Item
      3.                                | Quantitative
      and Qualitative Disclosure About Market Risk                            
|                                             |                                                                                            
|Item
      4.                                | Controls
      and Procedures                                                              
|                                             |                                                                                            
|                                             | Special
      Note Concerning Forward Looking Statements                                   
|                                             |                                                                                            
|PART
      II.      OTHER INFORMATION        |                                                                                            
|                                             |                                                                                            
|Item
      1.                                | Legal
      Proceedings                                                                    
|                                             |                                                                                            
|Item
      2.                                | Changes
      in 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
      and Reports on Form 8-K                                                     
|                                             |                                                                                            
|SIGNATURE                                    | 21                                                                                         
|                                             |                                                                                            
|SECTION
      302 CERTIFICATIONS             | 22                                                                                         

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MEDQUIST
  INC. AND SUBSIDIARIES 
  CONSOLIDATED BALANCE SHEETS(In thousands)

|                                                                                                          | September
        30, |         |   | December
        31, |        
|--------------------------------------------------------------------------------------------------------- | --------------------- | ------- | - | -------------------- | -------
|                                                                                                          | 2002                  |         |   | 2001                 |        
|                                                                                                          |                       |         |   |                      |        
|                                                                                                          | (Unaudited)           |         |   | (Note
        5)     |        
|Assets                                                                                                    |                       |         |   |                      |        
|                                                                                                          |                       |         |   |                      |        
|Current assets:                                                                                           |                       |         |   |                      |        
|Cash and cash
      equivalents                                                                           | $                     | 83,972  |   |                      | $      
|Accounts receivable,
      net of allowance of $5,691 and $5,148                                          | 87,736                |         |   | 78,429               |        
|Deferred income
      taxes                                                                               | 6,178                 |         |   |                      | 6,178  
|Prepaid expenses
      and other current assets                                                           | 8,560                 |         |   |                      | 1,714  
|                                                                                                          |                       |         |   |                      |        
|Total
      current assets                                                                                |                       | 186,446 |   |                      | 172,655
|Property and
      equipment, net                                                                         | 38,602                |         |   | 34,167               |        
|Deferred income
      taxes                                                                               | 13,182                |         |   | 20,197               |        
|Other assets                                                                                              | 7,586                 |         |   |                      | 7,292  
|Goodwill                                                                                                  |                       | 136,927 |   |                      | 110,584
|Other intangible
      assets, net                                                                        | 75,539                |         |   | 57,219               |        
|                                                                                                          |                       |         |   |                      |        
|                                                                                                          | $                     | 458,282 |   |                      | $      
|                                                                                                          |                       |         |   |                      |        
|Liabilities
      and Shareholders Equity                                                                |                       |         |   |                      |        
|                                                                                                          |                       |         |   |                      |        
|Current liabilities:                                                                                      |                       |         |   |                      |        
|Current portion
      of long-term debt                                                                   | $                     | 34      |   |                      | $      
|Accounts payable                                                                                          | 9,630                 |         |   |                      | 4,562  
|Deferred revenue                                                                                          | 15,863                |         |   |                      | 333    
|Accrued expenses                                                                                          | 30,660                |         |   | 30,990               |        
|                                                                                                          |                       |         |   |                      |        
|Total
      current liabilities                                                                           | 56,187                |         |   | 36,952               |        
|                                                                                                          |                       |         |   |                      |        
|Long-term debt                                                                                            |                       | 55      |   |                      |        
|                                                                                                          |                       |         |   |                      |        
|Other liabilities                                                                                         | 1,342                 |         |   |                      | 1,187  
|                                                                                                          |                       |         |   |                      |        
|Commitments
      and contingencies                                                                       |                       |         |   |                      |        
|                                                                                                          |                       |         |   |                      |        
|Shareholders
      equity:                                                                               |                       |         |   |                      |        
|Common
      stock, no par value, 60,000 shares authorized,37,077
      and 36,889 issued and outstanding |                       |         |   |                      |        
|                                                                                                          | 229,033               |         |   | 225,503              |        
|Retained earnings                                                                                         |                       | 171,204 |   |                      | 137,361
|Deferred compensation                                                                                     |                       | (8      | ) |                      |        
|Accumulated
      other comprehensive income                                                              |                       | 469     |   |                      |        
|                                                                                                          |                       |         |   |                      |        
|Total
      shareholders equity                                                                          |                       | 400,698 |   |                      | 362,887
|                                                                                                          |                       |         |   |                      |        
|                                                                                                          | $                     | 458,282 |   |                      | $      
|                                                                                                          |                       |         |   |                      |        

See
  Accompanying Notes to Consolidated Financial Statements.

1

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

|                                              | Nine
        Months Ended |        
|--------------------------------------------- | ------------------------- | -------
|                                              | September
        30,     |        
|                                              |                           |        
|                                              | 2002                      |        
|                                              |                           |        
|                                              |                           |        
|Revenue                                       | $                         | 357,355
|                                              |                           |        
|Costs and expenses:                           |                           |        
|Cost
      of revenue, excluding depreciation | 268,320                   |        
|Selling,
      general and administrative     |                           | 14,073 
|Research
      and development                |                           | 1,426  
|Depreciation                                  |                           | 13,697 
|Amortization
      of intangible assets       |                           | 5,086  
|Restructuring
      (credits)                 |                           |       
|Other
      (income)                          |                           |       
|                                              |                           |        
|Total
      costs and expenses                | 302,602                   |        
|                                              |                           |        
|Operating income                              |                           | 54,753 
|Equity in losses
      of investee            |                           | (674   
|Interest income,
      net                    |                           | 950    
|                                              |                           |        
|Income before
      income taxes              |                           | 55,029 
|Income taxes                                  |                           | 21,186 
|                                              |                           |        
|Net income                                    | $                         | 33,843 
|                                              |                           |        
|Basic net income
      per common share       | $                         | 0.91   
|                                              |                           |        
|Diluted net
      income per common share     | $                         | 0.89   
|                                              |                           |        

See
  Accompanying Notes to Consolidated Financial Statements.

2

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

|                                              | Three
        Months Ended |        
|--------------------------------------------- | -------------------------- | -------
|                                              | September
        30,      |        
|                                              |                            |        
|                                              | 2002                       |        
|                                              |                            |        
|                                              |                            |        
|Revenue                                       | $                          | 129,750
|                                              |                            |        
|Costs and expenses:                           |                            |        
|Cost
      of revenue, excluding depreciation | 99,056                     |        
|Selling,
      general and administrative     |                            | 6,891  
|Research
      and development                |                            | 1,426  
|Depreciation                                  |                            | 5,113  
|Amortization
      of intangible assets       |                            | 1,772  
|                                              |                            |        
|Total
      costs and expenses                | 114,258                    |        
|                                              |                            |        
|Operating income                              | 15,492                     |        
|Equity in losses
      of investee            |                            | (243   
|Interest income,
      net                    |                            | 261    
|                                              |                            |        
|Income before
      income taxes              | 15,510                     |        
|Income taxes                                  |                            | 5,971  
|                                              |                            |        
|Net income                                    | $                          | 9,539  
|                                              |                            |        
|Basic net income
      per common share       | $                          | 0.26   
|                                              |                            |        
|Diluted net
      income per common share     | $                          | 0.25   
|                                              |                            |        

See
  Accompanying Notes to Consolidated Financial Statements.

3

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MEDQUIST
  INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS
  OF CASH FLOWS(UNAUDITED)
  (In thousands)

|                                                                                                                     | Nine
        Months Ended |       
|-------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------
|                                                                                                                     | September
        30,     |       
|                                                                                                                     | 2002                      |       
|                                                                                                                     |                           |       
|                                                                                                                     |                           |       
|Operating activities:                                                                                                |                           |       
|Net
      income                                                                                                     | $                         | 33,843
|Adjustments
      to reconcile net income to net cash provided byoperating activities, net of business acquisitions:
|Depreciation
      and amortization                                                                                  |                           | 18,783
|Equity
      in losses of investee                                                                                   |                           | 674   
|Pension
      contributions payable in Common Stock                                                                  |                           | 277   
|Amortization
      of deferred compensation                                                                          |                           | 23    
|Tax
      benefit for exercise of employee stock options                                                             |                           | 802   
|Changes
      in assets and liabilities, excluding effects of acquisitions                                           |                           |       
|Accounts
      receivable, net                                                                                       |                           | 7,556 
|Prepaid
      expenses and other current assets                                                                      |                           | (611  
|Other
      assets                                                                                                   |                           | (72   
|Accounts
      payable                                                                                               |                           | 794   
|Deferred
      revenue                                                                                               |                           | (989  
|Accrued
      expenses                                                                                               |                           | (2,428
|Other
      liabilities                                                                                              |                           | 155   
|                                                                                                                     |                           |       
|Net cash provided
      by operating activities                                                                      |                           | 58,807
|                                                                                                                     |                           |       
|Investing activities:                                                                                                |                           |       
|Purchases
      of property and equipment                                                                            | (12,116                   | )     
|Investment
      in A-Life Medical, Inc.                                                                             |                           | (892  
|Acquisitions,
      net of cash acquired                                                                             | (48,518                   | )     
|Net cash used
      in investing activities                                                                          | (61,526                   | )     
|                                                                                                                     |                           |       
|Financing activities:                                                                                                |                           |       
|Repayments
      of long-term debt                                                                                   |                           | (2,138
|Proceeds
      from the exercise of common stock options                                                             |                           | 488   
|Proceeds
      from issuance of Common Stock                                                                         |                           | 1,864 
|                                                                                                                     |                           |       
|Net cash provided
      by financing activities                                                                      |                           | 214   
|                                                                                                                     |                           |       
|Effect of exchange
      rate changes                                                                                |                           | 143   
|                                                                                                                     |                           |       
|Net decrease
      in cash and cash equivalents                                                                      |                           | (2,362
|Cash and cash
      equivalents, beginning of period                                                                 |                           | 86,334
|                                                                                                                     |                           |       
|Cash and cash
      equivalents, end of period                                                                       | $                         | 83,972
|                                                                                                                     |                           |       
|Supplemental
      disclosure of cash flow information:                                                              |                           |       
|Cash
      paid during period for:                                                                                   |                           |       
|Interest
      expense                                                                                               | $                         | 160   
|                                                                                                                     |                           |       
|Income
      taxes                                                                                                   | $                         | 18,758
|                                                                                                                     |                           |       

See
  Accompanying Notes to Consolidated Financial Statements.

4

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MedQuist
  Inc. and SubsidiariesNotes to Consolidated Financial
  Statements
  September 30, 2002(Unaudited  amounts in thousands,
  except per share amounts)

Note 1. Business and
  Basis of Presentation

MedQuist Inc. is the
    leading national provider of medical transcription services to the healthcare
    industry in the United States. We entered this business in May 1994 through
    the acquisition of a medical transcription services company. Since this date
    we have completed an additional 49 acquisitions. MedQuist Inc. is a majority
    owned subsidiary of Koninklijke Philips Electronics N.V. (Philips). The information set
    forth in these statements is unaudited. The information reflects all adjustments
    that, in the opinion of management, are necessary to present a fair statement
    of operations of MedQuist Inc. and its consolidated subsidiaries for the periods
    indicated. Results of operations for the interim periods ended September 30,
    2002 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.


Note 2. Acquisitions

During 2001, we completed
    seven acquisitions accounted for using the purchase method. Pro forma information
    is not presented as the acquisitions were not material to the Company. During the nine months
    ended September 30, 2002, we completed five acquisitions accounted for using
    the purchase method. A summary of the allocation of the purchase price to
    net assets acquired is as follows:


|Accounts receivable               | $       | 16,863 |  
|--------------------------------- | ------- | ------ | -
|Prepaid and other                 |         | 6,235  |  
|Property and equipment            |         | 6,016  |  
|Deposits                          |         | 5      |  
|Goodwill                          |         | 22,835 |  
|Other intangible assets           |         | 23,406 |  
|Accounts payable                  |         | (4,275 | )
|Deferred revenue                  | (16,519 | )     
|Accrued expenses                  |         | (5,976 | )
|Debt                              |         | (72    | )
|                                  |         |       
|Cash paid for acquisition         |         |        |  
|including
      transaction costs | $       | 48,518 |  
|                                  |         |       

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Included in the 2002 acquisitions was the acquisition of
    Lanier Healthcare, LLC (Lanier) on July 1, 2002, for $38.0 million
    in cash. The following unaudited proforma information is presented as if the
    Lanier acquisition had been completed on January 1, 2001. All other acquisitions
    in 2002 were not material to the Company.


|                       | Nine
        Months Ended |         | Three
        Months Ended |  
|---------------------- | ------------------------- | ------- | -------------------------- | -
|                       | September
        30,     |         | September
        30,      |  
|                       |                           |         |                            |  
|                       | 2002                      |         | 2001                       |  
|                       |                           |         |                            |  
|                       |                           |         |                            |  
|Revenue                | $                         | 398,139 |                            | $
|Net Income             |                           | 33,764  |                            |  
|Basic net income       |                           |         |                            |  
|per
      common share | $                         | 0.91    |                            | $
|Diluted net income     |                           |         |                            |  
|Per
      common share | $                         | 0.89    |                            | $

In
  the nine months ended September 30, 2002, we adjusted goodwill and deferred
  income taxes by $3,509 relating to accounting for certain previously completed
  stock acquisitions. Revenue
  is derived from the sale and implementation of voice-capture and document management
  solutions and maintenance service of these products. We recognize revenue and
  profit on sales and implementation utilizing the percentage of completion method.
  With regard to service contracts, which is arranged separate from the product
  sale, the typical arrangement spans twelve months. We recognize revenue on the
  service contracts on a straight line method over the term of the underlying
  service contract.


Note 3. Restructuring Charges

In December 2001, we approved a
  restructuring plan associated with the roll out of our new transcription platform.
  The plan includes the closure of several operating facilities in order to improve
  operating efficiencies. Costs associated with the plan of approximately $1,468
  were recognized in 2001 in accordance with Emerging Issues Task Force (EITF)
  Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
  and Other Costs to Exit an Activity." The components of the restructuring charge
  and associated activity is as follows:


|                                                     | Non-Cancelable 
          Leases |       |   | Severance |   |     | Total | 
|---------------------------------------------------- | -------------------------------- | ----- | - | --------- | - | --- | ----- | 
|                                                     |                                  |       |   |           |   |     |       | 
|                                                     |                                  |       |   |           |   |     |       | 
|2001 Restructuring charge                            | $                                | 1,343 |   |           | $ | 125 |       | 
|Payments against restructuring
      accrual in 2002 |                                  | (440  | ) |           |   | (36 | )     | 
|                                                     |                                  |       |   |           |   |     |       | 
|                                                     |                                  |       |   |           |   |     |       | 
|Accrual at September
      30, 2002                  | $                                | 903   |   |           | $ | 89  |       | 
|                                                     |                                  |       |   |           |   |     |       | 

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In November 2001, we completed the purchase of a medical
    transcription company. In connection with this acquisition, we established
    a restructure reserve of $1,790. The components of the restructuring charge
    and associated activity is as follows:


|                                              | Non-Cancelable
        Leases |       |   | Severance |      |     | Total | 
|--------------------------------------------- | ----------------------------- | ----- | - | --------- | ---- | --- | ----- | 
|                                              |                               |       |   |           |      |     |       | 
|                                              |                               |       |   |           |      |     |       | 
|2001 Restructuring charge                     | $                             | 1,599 |   |           | $    | 191 |       | 
|Payments
      against restructuring accrual:
|2001                                          |                               | (85   | ) |           |      |    |       | 
|2002                                          |                               | (498  | ) |           | (181 | )   |       | 
|                                              |                               |       |   |           |      |     |       | 
|                                              |                               |       |   |           |      |     |       | 
|Accrual at September
      30, 2002           | $                             | 1,016 |   |           | $    | 10  |       | 
|                                              |                               |       |   |           |      |     |       | 

In December 1998, the Companys
  board of directors approved managements restructuring plan associated
  with another entity. The components of the restructuring charge and associated
  activity is as follows:


|                                              | Non-Cancelable
        Leases |       |   | Severance |      |       | Non-Cancelable
        Contracts and
        Other Exit Costs |  |      | Total |  
|--------------------------------------------- | ----------------------------- | ----- | - | --------- | ---- | ----- | ------------------------------------------------------------- |  | ---- | ----- | -
|                                              |                               |       |   |           |      |       |                                                               |  |      |       |  
|                                              |                               |       |   |           |      |       |                                                               |  |      |       |  
|1998 Restructuring Charge                     | $                             | 3,835 |   |           | $    | 1,618 |                                                               |  | $    | 1,086 |  
|Payments
      against Restructuring accrual:
|1998                                          |                               |      |   |           |      | (567  | )                                                             |  |      | (410  | )
|1999                                          |                               | (437  | ) |           |      | (723  | )                                                             |  |      | (17   | )
|2000                                          |                               | (556  | ) |           |      | (20   | )                                                             |  |      |      |  
|2001                                          |                               | (164  | ) |           |      |      |                                                               |  |      |      |  
|2002                                          |                               | (135  | ) |           |      |      |                                                               |  |      |      |  
|                                              |                               |       |   |           |      |       |                                                               |  |      |       |  
|                                              |                               |       |   |           |      |       |                                                               |  |      |       |  
|Revision to estimate
      recorded in 1999   | (1,492                        | )     |   |           | (182 | )     |                                                               |  | (659 | )     |  
|Revision to estimate
      recorded in 2000   |                               | (471  | ) |           |      |      |                                                               |  |      |      |  
|Revision to estimate
      recorded in 2001   |                               | (44   | ) |           |      | (126  | )                                                             |  |      |      |  
|                                              |                               |       |   |           |      |       |                                                               |  |      |       |  
|                                              |                               |       |   |           |      |       |                                                               |  |      |       |  
|Accrual at September
      30, 2002           | $                             | 536   |   |           | $    |      |                                                               |  | $    |      |  
|                                              |                               |       |   |           |      |       |                                                               |  |      |       |  

In 1997, an acquired
    entity had 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. During 2001,
    we revised our accrual estimates and $430 of the restructure accruals were
    reversed in connection with the revision. At December 31, 2001, the accrual
    had been fully utilized.


Note 4. Business Combinations
  and Intangibles

In June 2001, the Financial
    Accounting Standards Board issued SFAS No. 141, "Business Combinations" and
    SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires
    that all business combinations consummated after June 30, 2001 be accounted
    for under the purchase method of accounting. SFAS No. 142 requires that goodwill
    and intangible assets with indefinite lives will no longer be amortized, but
    are reviewed at least annually for impairment. The amortization provisions
    of SFAS No. 142 apply to goodwill and intangible


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assets acquired after June 30, 2001. With respect to goodwill
  and intangible assets acquired prior to July 1, 2001, we adopted SFAS No. 142
  effective January 1, 2002.

The carrying amount of acquired intangible assets
    as of September 30, 2002 is as follows:


|                      |             |  |                                   |         |                                |   |                               
|--------------------- | ----------- |  | --------------------------------- | ------- | ------------------------------ | - | ------------------------------
|                      | Life        |  | Gross
      Carrying
      Amount |         | Accumulated
      Amortization |   | Net
        Book
        Value
|                      |             |  |                                   |         |                                |   |                               
|                      |             |  |                                   |         |                                |   |                               
|Goodwill              | NA          |  | $                                 | 151,469 |                                | $ | 14,542                        
|Customer Lists        | 10-25 years |  |                                   | 76,960  |                                |   | 12,282                        
|Noncompete Agreements | 1.5-5 years |  |                                   | 11,218  |                                |   | 7,828                         
|Other                 | 3-5 years   |  |                                   | 13,504  |                                |   | 6,033                         
|                      |             |  |                                   |         |                                |   |                               
|                      |             |  | $                                 | 253,151 |                                | $ | 40,685                        
|                      |             |  |                                   |         |                                |   |                               

Reported net income for the nine
  and three months ended September 30, 2002 and September 30, 2001 exclusive of
  amortization expense related to goodwill is as follows:


|                                                | Nine
        Months Ended
        September 30, |        | Three
        Months Ended
        September 30, |  
|----------------------------------------------- | ----------------------------------------------- | ------ | ------------------------------------------------ | -
|                                                |                                                 |        |                                                  |  
|                                                | 2002                                            |        | 2001                                             |  
|                                                |                                                 |        |                                                  |  
|                                                |                                                 |        |                                                  |  
|Net income, as reported                         | $                                               | 33,843 |                                                  | $
|                                                |                                                 |        |                                                  |  
|Add back:                                       |                                                 |        |                                                  |  
|Goodwill
      amortization, net of tax         |                                                 |       |                                                  |  
|                                                |                                                 |        |                                                  |  
|Adjusted net income                             | $                                               | 33,843 |                                                  | $
|                                                |                                                 |        |                                                  |  
|                                                |                                                 |        |                                                  |  
|Basic net income per
      common share:        |                                                 |        |                                                  |  
|Basic
      net income per share, as reported   | $                                               | 0.91   |                                                  | $
|Impact
      of goodwill amortization           |                                                 |       |                                                  |  
|                                                |                                                 |        |                                                  |  
|Adjusted
      basic net income per share       | $                                               | 0.91   |                                                  | $
|                                                |                                                 |        |                                                  |  
|                                                |                                                 |        |                                                  |  
|Diluted net income per
      common share:      |                                                 |        |                                                  |  
|Diluted
      net income per share, as reported | $                                               | 0.89   |                                                  | $
|Impact
      of goodwill amortization           |                                                 |       |                                                  |  
|                                                |                                                 |        |                                                  |  
|Adjusted
      diluted net income per share     | $                                               | 0.89   |                                                  | $
|                                                |                                                 |        |                                                  |  

Pursuant to SFAS No. 142, we tested
  goodwill for impairment in the second quarter of 2002 and we have determined
  there has not been any impairment.


Note 5. Investment in A-Life
  Medical, Inc.

In January 2002, we increased our
  ownership in A-Life Medical, Inc. (A-Life) to 28.1 percent of the outstanding
  voting shares of A-Life. As such, effective January 2002 we began accounting
  for the investment under the equity method of accounting. In accordance with
  Accounting Principles Board Opinion (APB) No. 18, the prior year financial statements
  have been retroactively adjusted. The previously reported net income for the
  three and nine months ended September 30, 2001 has been decreased by $248 and
  $816, respectively, to reflect the equity in losses of A-Life during these periods.
  The impact of the retroactive adjustments is to decrease previously reported
  diluted net income per common share by $0.01 and $0.02 for the three and nine
  month periods ended September 30, 2001, respectively. The carrying amount of
  our investment in A-Life has also been adjusted to reflect our percentage ownership
  in the losses incurred by A-Life during the period we maintained the cost basis
  investment. Accordingly, we


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reduced our investment by $1,923 with a corresponding offset
  to retained earnings. In addition, because A-Life had negative book value at
  the time of our change to the equity basis of accounting, the entire remaining
  adjusted investment was allocated to intangible assets, of which $1 million
  was allocated to acquired software. The acquired software is being amortized
  over three years. The remaining amount was recorded as goodwill, which was $3.8
  million as of September 30, 2002.

On June 28, 2002, we further increased our ownership in A-Life
    to 31.6%.


Note 6. 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:


|                              | Nine
        Months Ended September 30, |       
|----------------------------- | --------------------------------------- | ------
|                              |                                         |       
|                              | 2002                                    |       
|                              |                                         |       
|                              | NetIncome                               |       
|                              |                                         |       
|Basic                         | $                                       | 33,843
|                              |                                         |       
|Effect of dilutive securities |                                         |      
|                              |                                         |       
|                              |                                         |       
|Diluted                       | $                                       | 33,843
|                              |                                         |       

For the nine months
    ended September 30, 2002 and 2001, options to acquire 3,203 and 2,320 shares
    of Common Stock, respectively, were outstanding but were not included in the
    computation of diluted net income per share. These shares were not included
    in the computation because the exercise prices of the options were greater
    than the average market prices for Common Stock during the periods.


|                              | Three
        Months Ended June 30, |      
|----------------------------- | ----------------------------------- | -----
|                              |                                     |      
|                              | 2002                                |      
|                              |                                     |      
|                              | NetIncome                           |      
|                              |                                     |      
|Basic                         | $                                   | 9,539
|                              |                                     |      
|Effect of dilutive securities |                                     |     
|                              |                                     |      
|                              |                                     |      
|Diluted                       | $                                   | 9,539
|                              |                                     |      

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For the three months ended September 30, 2002 and 2001, options
    to acquire 3,206 and 2,093 shares of Common Stock, respectively, were outstanding
    but were not included in the computation of diluted net income per share.
    These shares were not included in the computation because the exercise prices
    of the options were greater than the average market prices for Common Stock
    during the periods.


Note 7. Related Party
  Transactions

In the fourth quarter
    of 2000, the Company began participating in a deposit facility established
    by Philips which allowed investments up to $150 million to earn interest at
    LIBOR less 0.125 percent, for periods up to 365 days. The Company withdrew
    all funds invested in this related-party deposit facility in the second quarter
    of 2001 and, at December 31, 2001, the Company had no such investment. The
    facility terminated in February 2002. Interest income earned on cash deposited
    with Philips was $403 for the year ended December 31, 2001, all of which was
    earned in the six months ended June 30, 2001. MedQuist incurred costs
    of $1,933 with Philips during the nine months ended September 30, 2001, related
    to a licensing agreement entered into to provide for the integration and use
    of certain Philips speech recognition technology into our business. This agreement
    was amended in January 2002, which required a $150 up front payment in addition
    to a fee based on a per payroll line basis. Through September 30, 2002, the
    $150 has been paid and there have been no fees incurred on a payroll line
    basis. The agreement expires on May 22, 2005. In addition to the revision
    to the license agreement, MedQuist entered into a consulting agreement with
    Philips. This agreement calls for Philips to aid MedQuist with the integration
    of its speech and transcription technologies. Under this agreement, MedQuist
    has incurred costs of $190 for the nine months ended September 30, 2002. Presently all business
    insurance coverages, with the exception of worker's compensation, are provided
    by Philips. For the nine months ended September 30, 2002, we have incurred
    $133 in premiums with Philips under these policies. Philips also sells dictation
    related equipment to MedQuist and for the nine months ended September 30,
    2002 we have incurred $706 in costs for such equipment. Management believes
    that the transactions with Philips are on an arms-length basis.


Note 8. Commitments
  and Contingencies

During the nine months
    ended September 30, 2002 there have been no items that significantly impact
    the Companys commitments and contingencies as disclosed in the notes
    to the 2001 annual financial statements as filed on Form 10-K.


Note 9. New Accounting
  Pronouncements

In August 2001, the
    Financial Accounting Standards Board issued SFAS No. 143, "Accounting for
    Asset Retirement Obligations" (effective for fiscal years beginning after
    June 15, 2002). SFAS No. 143 addresses accounting and reporting for obligations
    associated with the retirement of tangible
  long-lived assets and retirement of assets. We currently do not expect that
  the adoption of SFAS No. 143 will have a significant impact on our consolidated
  financial position and results of operations.


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In August 2001, the Financial Accounting Standards Board
    issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
    Assets", which establishes a single accounting model, based on the framework
    established in SFAS No. 121, "Accounting for the Impairment or Disposal of
    Long-Lived Assets", and resolves significant implementation issues related
    to SFAS No. 121. SFAS No. 144 superceded SFAS No. 121 and Accounting Principles
    Board Opinion No. 30, "Reporting the Results of Operations - Reporting the
    Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual
    and Infrequently Occurring Events and Transactions". We adopted SFAS No. 144
    in 2002. The adoption of SFAS No. 144 did not have a material impact on our
    consolidated financial condition or results of operations.
  In June 2002, the Financial Accounting Standards Board issued
    SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS
    No. 146 addresses the recognition, measurement and reporting of costs associated
    with exit and disposal activities, including restructuring activities. SFAS
    No. 146 also addresses recognition of certain costs related to terminating
    a contract that is not a capital lease, costs to consolidate facilities or
    relocate employees and termination of benefits provided to employees that
    are involuntarily terminated under the terms of a one-time benefit arrangement
    that is not an ongoing benefit arrangement or an individual deferred compensation
    contract. SFAS No. 146 is effective for exit or disposal activities that are
    initiated after December 31, 2002. Adoption of SFAS No. 146 is not expected
    to have an impact on the financial position or results of operations of the
    Company.


Note 10. Segment Information

MedQuist manages its business in two segments; services and
    solutions. While the two segments are closely related, the services segment
    is largely comprised of transcription and coding services, while the solution
    segment is comprised of sale and service of voice products.
  Segment information is presented in accordance with SFAS
    131, Disclosure about Segments of an Enterprise and Related Information.
    This standard is based on a management approach, which requires segmentation
    based on the Companys internal organization and disclosure of revenue
    and operating income based on internal accounting methods. The Companys
    financial reporting systems present various data for management to run the
    business, including profit and loss statements. However, this standard does
    not require an enterprise to report information that is not prepared for internal
    use, if reporting it would be impractical.


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Nine Months Ended September
  30,

|                             |   |          |  |           |        |                   |   |              |   |         |        
|---------------------------- | - | -------- |  | --------- | ------ | ----------------- | - | ------------ | - | ------- | -------
|2002                         |   | Services |  | Solutions |        | IntersegmentItems |   | Consolidated |  
|                             |   |          |  |           |        |                   |   |              |   |         |        
|Revenue                      | $ | 339,810  |  | $         | 17,633 |                   | $ | (88          | ) | $       | 357,355
|Cost of revenue,             |   |          |  |           |        |                   |   |              |   |         |        
|excluding
      depreciation |   | 256,277  |  |           | 12,131 |                   |   | (88          | ) | 268,320 |        
|                             |   |          |  |           |        |                   |   |             
|Gross profit                 | $ | 83,533   |  | $         | 5,502  |                   | $ |             |   | $       | 89,035 
|                             |   |          |  |           |        |                   |   |             

|                             |   |         |  |  |     |  |  |   |  |   |         | 
|---------------------------- | - | ------- |  |  | --- |  |  | - |  | - | ------- | 
|2001                         |   |         |  |  |     |  |  |   |  |   |         | 
|                             |   |         |  |  |     |  |  |   |  |   |         | 
|Revenue                      | $ | 295,772 |  |  | N/A |  |  |  |  | $ | 295,772 | 
|Cost of revenue,             |   |         |  |  |     |  |  |   |  |   |         | 
|excluding
      depreciation |   | 218,111 |  |  |    |  |  |  |  |   | 218,111 | 
|                             |   |         |  |  |     |  |  |   | 
|Gross profit                 | $ | 77,661  |  |  | N/A |  |  |  |  | $ | 77,661  | 
|                             |   |         |  |  |     |  |  |   |  |   |        

Three Months Ended September
  30,

|2002                         |   | Services |  | Solutions |        | IntersegmentItems |   | Consolidated |  
|---------------------------- | - | -------- |  | --------- | ------ | ----------------- | - | ------------ | -
|                             |   |          |  |           |        |                   |   |              |  
|Revenue                      | $ | 112,205  |  | $         | 17,633 |                   | $ | (88          | )
|Cost of revenue,             |   |          |  |           |        |                   |   |              |  
|excluding
      depreciation |   | 87,013   |  |           | 12,131 |                   |   | (88          | )
|                             |   |          |  |           |        |                   |   |             
|Gross profit                 | $ | 25,192   |  | $         | 5,502  |                   | $ |             |  
|                             |   |          |  |           |        |                   |   |             

|2001                         |   |         |  |  |     |  |  |   |  |   |         | 
|---------------------------- | - | ------- |  |  | --- |  |  | - |  | - | ------- | 
|                             |   |         |  |  |     |  |  |   |  |   |         | 
|Revenue                      | $ | 102,695 |  |  | N/A |  |  |  |  | $ | 102,695 | 
|Cost of revenue,             |   |         |  |  |     |  |  |   |  |   |         | 
|excluding
      depreciation |   | 75,435  |  |  |    |  |  |  |  |   | 75,435  | 
|                             |   |         |  |  |     |  |  |   |  |  
|Gross profit                 | $ | 27,260  |  |  | N/A |  |  |  |  | $ | 27,260  | 
|                             |   |         |  |  |     |  |  |   |  |  

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A
  reconciliation of MedQuists consolidated segment gross profit to consolidated
  income before income taxes is as follows:


|                                          |                                        |        |                                         |       
|----------------------------------------- | -------------------------------------- | ------ | --------------------------------------- | ------
|                                          | Nine
        Months EndedSeptember 30, |        | Three
        Months EndedSeptember 30, |       
|                                          | 2002                                   |        | 2001                                    |       
|                                          |                                        |        |                                         |       
|Consolidated segment
      gross profit   | $                                      | 89,035 |                                         | $     
|Selling, general and
      administrative | (14,073                                | )      |                                         | (9,607
|Research and development                  |                                        | (1,426 | )                                       |       
|Depreciation                              | (13,697                                | )      | (12,265                                 | )     
|Amortization of intangible
      assets   |                                        | (5,086 | )                                       |       
|Restructuring credits                     |                                        |       |                                         |       
|Other income, net                         |                                        | 276    |                                         |       
|                                          |                                        |        |                                         |       
|Income before income
      taxes          | $                                      | 55,029 |                                         | $     
|                                          |                                        |        |                                         |       



|Item
      2. | Managements
      Discussion and Analysis of Financial Condition and Results of Operations
|------------- | -------------------------------------------------------------------------------------------

General

Critical Accounting
  Policies and Estimates

Management Discussion
    and Analysis of Financial Condition and Results of Operations are based on
    our Consolidated Financial Statements, which have been prepared in accordance
    with accounting principles generally accepted in the United States of America.
    The preparation of these financial statements requires management to make
    estimates and assumptions which affect the reported amounts of assets, liabilities,
    revenue, expense, and related disclosures. Management bases its estimates
    on historical experience and on various other assumptions that are believed
    to be reasonable under the circumstances, the results of which form the basis
    for making judgments about the carrying values of assets and liabilities. Management believes
    the following critical accounting policies affect its more significant estimates
    and assumptions used in the preparation of its consolidated financial statements.


Revenue Recognition

A substantial portion
    of our revenue is derived from providing medical transcription services, which
    we recognize when services are rendered. These services are based primarily
    on contracted rates. A portion of our revenue is derived from the sale and
    implementation of voice-capture and document management solutions, and maintenance
    service of these products. We recognize revenue and profit on sales and implementation
    utilizing the percentage of completion method. With regard to service contracts,
    which is arranged separate from the product sale, the typical arrangement
    spans 12 months. We recognize revenue on the service contracts on a straight
    line method over the term of the underlying service contract.


Bad Debt

We estimate allowances
    for doubtful accounts receivables based on historical experience and evaluation
    of the financial condition of the customers. Historically, our estimates have
    been adequate to cover accounts receivable exposure. If circumstances
  related to our estimates change, we may need to record additional allowances.


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Valuation of Goodwill,
  Other Intangible Assets and Other Long-Lived Assets

We assess goodwill,
    other intangible assets, and other long-lived assets for recoverability whenever
    events or changes in circumstances indicate their carrying value may not be
    recoverable through the estimated undiscounted future cash flows resulting
    from the use of the assets. When we determine that the carrying value of goodwill,
    other intangible assets, and other long-lived assets may not be recoverable,
    we measure impairment by using the projected discounted cash flow method to
    determine fair value with a discount rate we determine to be commensurate
    with the risk inherent in our current business. When impairment is determined,
    it is recorded as a charge against earnings in the period when recognized.


Deferred Taxes

We record a valuation
    allowance to reduce our deferred tax assets to the amount that is more likely
    than not to be realized. We have considered future taxable income and prudent
    and feasible tax planning strategies in determining the need for a valuation
    allowance. In the event we were to determine that we could not realize all
    or part of our net deferred tax assets in the future, an adjustment to the
    deferred tax assets would be charged to earnings in the period such determination
    is made. Likewise, if we later determine that it is more likely than not that
    the net deferred tax assets would be realized, the previously provided valuation
    reserve would be reversed.


Results of Operations

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


|                                              |                                        |   |  |                                         |  
|--------------------------------------------- | -------------------------------------- | - |  | --------------------------------------- | -
|                                              | Nine
        Months EndedSeptember 30, |   |  | Three
        Months EndedSeptember 30, |  
|                                              | 2002                                   |   |  | 2001                                    |  
|Revenue                                       | 100.0                                  | % |  | 100.0                                   | %
|Costs and expenses:                           |                                        |   |  |                                         |  
|Cost
      of revenue, excluding depreciation | 75.1                                   |   |  | 73.7                                    |  
|Selling,
      general and administrative     | 4.0                                    |   |  | 3.3                                     |  
|Research
      and development                | 0.4                                    |   |  |                                        |  
|Depreciation                                  | 3.8                                    |   |  | 4.1                                     |  
|Amortization
      of intangible assets       | 1.4                                    |   |  | 2.3                                     |  
|Restructuring
      (credits)                 |                                       |   |  | (0.2                                    | )
|Other
      (income)                          |                                       |   |  | (1.0                                    | )
|                                              |                                        |   |  |                                         |  
|Operating income                              | 15.3                                   |   |  | 17.8                                    |  
|Equity in losses of
      investee            | (0.2                                   | ) |  | (0.3                                    | )
|Interest income, net                          | 0.3                                    |   |  | 1.1                                     |  
|                                              |                                        |   |  |                                         |  
|Income before income
      taxes              | 15.4                                   |   |  | 18.6                                    |  
|Income taxes                                  | 5.9                                    |   |  | 7.3                                     |  
|                                              |                                        |   |  |                                         |  
|Net income                                    | 9.5                                    | % |  | 11.3                                    | %
|                                              |                                        |   |  |                                         |  

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Nine Months Ended
  September 30, 2002

Revenue.Revenue
  increased 20.8% from $295.8 million for the nine months ended September 30,
  2001 to $357.4 million for the comparable 2002 period. Revenue from the services
  segment increased 14.9% from $295.8 million for the nine months ended September
  30, 2001 to $339.8 million for the comparable 2002 period. The increase is the
  result of acquisitions made in 2001 and 2002. Revenue from the solutions segment
  were $17.6 million for the nine months ended September 30, 2002 and are the
  result of the acquisition of Lanier on July 1, 2002.

Cost of Revenue, excluding
  depreciation. Cost of revenue increased 23.0% from $218.1 million for the
  nine months ended September 30, 2001 to $268.3 million for the comparable 2002
  period. As a percentage of revenue, cost of revenue increased from 73.7% for
  the nine months ended September 30, 2001 to 75.1% for the comparable 2002 period.
  Cost of revenue from the services segment increased from $218.1 million or 73.7%
  of revenue for the nine months ended September 30, 2001 to $256.3 million or
  75.4% of revenue. The increase primarily resulted from payroll, transcription
  and benefit costs, in addition to costs associated with development of our new
  transcription platform. Cost of revenue for the solutions segment was $12.1
  million or 68.8% of revenue for the nine months ended September 30, 2002. The
  cost of revenue for the solutions segment resulted from the acquisition of Lanier
  on July 1, 2002.

Selling, general and
  administrative.Selling, general and administrative expenses increased 46.5%
  from $9.6 million for the nine months ended September 30, 2001 to $14.1 million
  for the comparable 2002 period. As a percentage of revenues, selling, general
  and administrative expenses increased from 3.3% for the nine months ended September
  30, 2001 to 3.9% for the comparable 2002 period. Of the increase in expense
  between comparable periods $3.3 million of the increase results from the Lanier
  acquisition and largely relates to the cost of the sales force. The remaining
  $1.2 million increase is the result of increased costs to support operations.

Research and development.
  Research and development costs were $1.4 million for the nine months ended September
  30, 2002. These costs relate entirely to Lanier, which was acquired on July
  1, 2002.

Depreciation. Depreciation
  expense increased 11.7% from $12.3 million for the nine months ended September
  30, 2001 to $13.7 million for the comparable 2002 period. As a percentage of
  revenues, depreciation decreased from 4.1% for the nine months ended September
  30, 2001 to 3.8% for the comparable period in 2002. The increase in expense
  was due to increased capital purchases to support the increased revenue base.
  As a percentage of revenue, depreciation decreased as a result of our ability
  to reduce certain voice capture component expenditures through our acquisition
  of Digital Voice, Inc. early in 2001.

Amortization of intangible
  assets. Amortization of intangible assets decreased from $6.8 million for
  the nine months ended September 30, 2001 to $5.1 million for the comparable
  2002 period. The decrease is attributable to the elimination of goodwill amortization
  in accordance with SFAS 142 reflecting a $2.5 million reduction of amortization
  partially offset by $742,000 of amortization of other intangibles associated
  with the Company's acquisitions in 2001 and 2002, which were accounted for using
  the purchase method.

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Equity in losses
  of investee. As a result of our increased ownership
  in A-Life to 28.1% of the outstanding voting shares of A-Life, we are required
  to reflect the investment under the equity method of accounting. As a result,
  for the nine months ended September 30, 2002, we recognized a loss on this investment
  of $674,000. This loss was the result of amortization of $250,000 related to
  $1 million of the investment being allocated to acquired software and $424,000
  related to our share of A-Life's operating loss. Our equity in the losses of
  A-Life for the nine months ended September 30, 2001 was $816,000. On June 28,
  2002, we further increased our ownership in A-Life to 31.6%.

Interest income, net.
  We had net interest income of $3.3 million for the nine months ended September
  30, 2001 and net interest income of $950,000 for the comparable 2002 period.
  The decrease is due to decreased rates of return on cash and cash equivalents.

Income taxes. Income
  taxes decreased from $21.5 million for the nine months ended September 30, 2001
  to $21.2 million for the comparable 2002 period. The decrease in income taxes
  resulted primarily from decreased pre-tax earnings in the nine months ended
  September 30, 2002.

Three Months Ended
  September 30, 2002

Revenue.Revenue
  increased 26.3% from $102.7 million for the three months ended September 30,
  2001 to $129.8 million for the comparable 2002 period. Revenue from the services
  segment increased 9.3% from $102.7 million for the three months ended September
  30, 2002 to $112.2 million for the comparable 2002 period. The increase is the
  result of the acquisitions made in late 2001 and 2002. Revenue from the solutions
  segment were $17.6 million for the three months ended September 30, 2002 and
  are the result of the acquisition of Lanier on July 1, 2002.

Cost of Revenue, excluding
  depreciation.Cost of revenue increased 31.3% from $75.4 million for the
  three months ended September 30, 2001 to $99.1 million for the comparable 2002
  period. As a percentage of revenue, cost of revenue increased from 73.5% for
  the three months ended September 30, 2001 to 76.3% for the comparable 2002 period.
  Cost of revenue from the services segment increased from $75.4 million or 73.5%
  of revenue for the three months ended September 30, 2001 to $87.0 million or
  77.5% of revenue for the comparable 2002 period. The increase primarily resulted
  from payroll, transcription and benefit costs in addition to costs associated
  with development of our new transcription platform. Cost of revenue for the
  solutions segment was $12.1 million or 68.8% of revenue for the three months
  ended September 30, 2002. The cost of revenue for the solutions segment resulted
  from the acquisition of Lanier on July 1, 2002.

Selling, general and
  administrative. Selling, general and administrative expenses increased 107.0%
  from $3.3 million for the three months ended September 30, 2001 to $6.9 million
  for the comparable 2002 period. As a percentage of revenues, selling, general
  and administrative expenses increased from 3.2% for the three months ended September
  30, 2001 to 5.3% for the comparable 2002 period. Of the increase in expense
  between comparable periods, $3.3 million of the increase results from the Lanier
  acquisition and largely relates to the cost of the sales force. The remaining
  $600,000 increase is the result of increased costs to support the operations.

Research and development.
  Research and development costs were $1.4 million for the three months ended
  September 30, 2001. These costs relate entirely to Lanier, which was acquired
  on July 1, 2002.

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Amortization of intangible
  assets. Amortization of intangible assets decreased from $2.6 million for
  the three months ended September 30, 2001 to $1.8 million for the comparable
  2002 period. The decrease is attributable to the elimination of goodwill amortization
  in accordance with SFAS 142 reflecting $874,000 reduction of amortization, partially
  offset by $87,000 of amortization of other intangibles associated with the Company's
  acquisitions in 2001 and 2002, which were accounted for using the purchase method.

Equity in losses of
  investee. As a result of our increased ownership in A-Life to 28.1% of the
  outstanding voting shares of A-Life, we are required under APB No. 18 to reflect
  the investment under the equity method of accounting. As a result, for the three
  months ended September 30, 2002, we recognized a loss in this investment of
  $243,000. This loss was the result of amortization of $83,000 related to $1
  million of the investment being allocated to acquired software and $160,000
  related to our share of A-Life's operating loss. Our equity in the losses of
  A-Life for the three months ended September 30, 2001 was $248,000. On June 28,
  2002, we further increased our ownership in A-Life to 31.6%.

Interest income, net.
  We had net interest income of $662,000 for the three months ended September
  30, 2001 and net interest income of $261,000 for the comparable 2002 period.
  The decrease is due to decreased rates of return on liquid investments.

Income taxes. Income
  taxes decreased from $6.8 million for the three months ended September 30, 2001
  to $6.0 million for the comparable 2002 period. The decrease in income taxes
  resulted from decreased pre-tax earnings. .

Liquidity and Capital
  Resources

At September 30, 2002,
  we had working capital of $130.3 million, including $84.0 million of cash and
  cash equivalents. During the nine months ended September 30, 2002, our operating
  activities provided cash of $58.8 million and during the nine months ended September
  30, 2001 our operating activities provided cash of $58.2 million. The increase
  is primarily due to increased collections in accounts receivable, partially
  offset by decreases in our accrued expenses and an increase in prepaid expenses.

During the nine months
  ended September 30, 2002, we used cash in investing activities of $61.5 million,
  consisting of $12.1 million of capital expenditures and $48.5 million for acquisitions
  accounted for under the purchase method and $892,000 of additional investments
  in A-Life. During the nine months ended September 30, 2001, we used cash for
  investing activities of $65.8 million, consisting of $9.7 million of capital
  expenditures and $56.1 million for acquisitions accounted for under the purchase
  method.

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During the nine months ended September 30, 2002, net cash
    provided by financing activities was $214,000. During the nine months ended
    September 30, 2001, cash provided by financing activities was $71,000. We believe that our cash and cash equivalents generated from
    operations and our borrowing capacity will be sufficient to meet our current
    working capital and capital expenditure requirements.


New Accounting Pronouncements

In August 2001, the Financial
  Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement
  Obligations" (effective for fiscal years beginning after June 15, 2002). SFAS
  No. 143 addresses accounting and reporting for obligations associated with the
  retirement of tangible long-lived assets and retirement of assets. We currently
  do not expect that the adoption of SFAS No. 143 will have a significant impact
  on our consolidated financial position and results of operations. In August 2001, the Financial
  Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment
  or Disposal of Long-Lived Assets", which establishes a single accounting model,
  based on the framework established in SFAS No. 121, "Accounting for the Impairment
  or Disposal of Long-Lived Assets", and resolves significant implementation issues
  related to SFAS No. 121. SFAS No. 144 superceded SFAS No. 121 and Accounting
  Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting
  the Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual
  and Infrequently Occurring Events and Transactions". We adopted SFAS No. 144
  in 2002. The adoption of SFAS No. 144 did not have a material impact on our
  consolidated financial condition or results of operations. In June 2002, the Financial
  Accounting Standards Board issued SFAS No. 146, Accounting for Exit or
  Disposal Activities. SFAS No. 146 addresses the recognition, measurement
  and reporting of costs associated with exit and disposal activities, including
  restructuring activities. SFAS No. 146 also addresses recognition of certain
  costs related to terminating a contract that is not a capital lease, costs to
  consolidate facilities or relocate employees and termination of benefits provided
  to employees that are involuntarily terminated under the terms of a one-time
  benefit arrangement that is not an ongoing benefit arrangement or an individual
  deferred compensation contract. SFAS No. 146 is effective for exit or disposal
  activities that are initiated after December 31, 2002. Adoption of SFAS No.
  146 is not expected to have an impact on the financial position or results of
  operations of the Company.


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 September 30, 2002. For investment
  securities, the table presents principal amounts and related weighted average
  interest rates (dollars in thousands).


|Cash and cash equivalents   | $ | 83,972 |  
|--------------------------- | - | ------ | -
|Average
      interest rate |   | 1.4    | %

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Item 4. Controls and
  Procedures

Within ninety days prior
  to the filing of this Report, the Companys Chief Executive Officer and
  Chief Financial Officer evaluated the effectiveness of the design and operation
  of the Companys disclosure controls and procedures, which are designed
  to insure that the Company records, processes, summarizes and reports in a timely
  and effective manner the information required to be disclosed in the reports
  filed with or submitted to the Securities and Exchange Commission. Based upon
  this evaluation, they concluded that, as of the date of the evaluation, the
  Companys disclosure controls are effective. Since the date of this evaluation,
  there have been no significant changes in the Companys internal controls
  or in other factors that could significantly affect those controls.


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. We also have referred you to this note in other written or oral disclosures
  we have made. These statements include forward-looking language such as will
  likely result, may, are expected to, is
  anticipated, estimated, projected, intends
  to, "consensus earnings estimates," 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) inability to complete
  and assimilate acquisitions of businesses; (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 medical transcription for substantially all of our 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, including
  without limitation, the impact of the Health Information Portability and Accountability
  Act ("HIPAA"); (11) infringement on the proprietary rights of others; (12) our
  failure to comply with confidentiality requirements; and (13) risks inherent
  in diversifying into other businesses, such as from the acquisitions of Lanier
  and DVI (digital dictation equipment), Speech Machines (ASP transcription platform
  and business) and entering into the medical record coding reimbursement business.
  When considering these forward-looking statements, you should keep in mind these
  risk factors and other cautionary statements in this report, 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 or elsewhere. Other risk factors and cautionary statements
  are set forth in our other filings with the SEC, and you are encouraged to read
  those.


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Part II Other Information

|Item
      1. - | Legal
      Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | - None
|--------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       
|Item 2. -       | Changes in Securities
      and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | - None
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       
|Item 3. -       | Defaults upon Senior
      Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | - None
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       
|Item 4. -       | Submission of Matters
      to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | - None
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       
|Item
      5. - | Other
      Information a) Section
        202 Disclosure to Investors
      Pursuant to Section
          202 of the Sarbanes-Oxley Act of 2002, the Company discloses that its
          audit committee has approved the performance of tax services by its
          auditor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Item
      6. - | Exhibits
        and Reports on Form 8-K
      a) Exhibits:
      Exhibit 10.29.1
           Employment Agreement, dated December 22, 2000 between Lanier
          Healthcare, LLC and Dennis M. Mahoney, filed herewith, and Amendment
          to Employment Agreement, dated July 1, 2002 between Lanier Healthcare,
          LLC and Dennis M. Mahoney, filed herewith.
        Exhibit 10.29.2
           Confidentiality and Non-Solicitation Agreement, dated as of July
          1, 2002 between MedQuist Transcriptions, Ltd. and Dennis M. Mahoney,
          filed herewith.
        Exhibit 10.30
           Employment Agreement, dated as of August 19, 1998 between Signal
          Transcriptions Network, Inc., and Robin K. Stults, filed herewith.
        Exhibit 99.1
           Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002.
        Exhibit 99.2
           Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002.
      b) The Company filed
        the following Reports on Form 8-K





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|File
        Date     |  | Item
      Reported                            
|--------------------- |  | -----------------------------------------------
|                      |  |                                                
|July
        16, 2002 |  | Change in Registrants
      Certified Public   
|                      |  | Accountant                                     
|July 25,
        2002 |  | Regulation
      FD Disclosure in connection   
|                      |  | with earnings
      release and conference call

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: November 14,
      2002 | By: /s/Brian
        J. Kearns
|                              | Brian J. Kearns               
|                              | Chief Financial Officer       





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|I,
      David A. Cohen, President and Chief Executive Officer, certify that:                                                                                                                                                                                                                                                     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.                                                                                                                                                                                                                                                                                                                                
|2.                                                                                                                                                                                                                                                                                                                                
|3.                                                                                                                                                                                                                                                                                                                                
|4.                                                                                                                                                                                                                                                                                                                                
|a)
        designed such disclosure controls and procedures to ensure that material
        information relating to the registrant, including its consolidated subsidiaries,
        is made known to us by others within those entities, particularly during
        the period in which this quarterly report is being prepared;
|b)
        evaluated the effectiveness of the registrant's disclosure controls and
        procedures as of a date within 90 days prior to the filing date of this
        quarterly report (the "Evaluation Date"); and                                                                                                          
|c)
        presented in this quarterly report our conclusions about the effectiveness
        of the disclosure controls and procedures based on our evaluation as of
        the Evaluation Date;                                                                                                                                
|5.                                                                                                                                                                                                                                                                                                                                
|a)
        all significant deficiencies in the design or operation of internal controls
        which could adversely affect the registrant's ability to record, process,
        summarize and report financial data and have identified for the registrant's
        auditors any material weaknesses in internal controls; and 
|b)
        any fraud, whether or not material, that involves management or other
        employees who have a significant role in the registrant's internal controls;
        and                                                                                                                                                 
|6.                                                                                                                                                                                                                                                                                                                                
|Date:
      November 14, 2002                                                                                                                                                                                                                                                                                                     

|/s/David
      A. Cohen                    
|-------------------------------------------
|David
      A. Cohen                       
|President
      and Chief Executive Officer

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|I,
      Brian J. Kearns, Chief Financial Officer, certify that:                                                                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.                                                                                                                                                                                                                                                                                                                        
|2.                                                                                                                                                                                                                                                                                                                        
|3.                                                                                                                                                                                                                                                                                                                        
|4.                                                                                                                                                                                                                                                                                                                        
|a)
      designed such disclosure controls and procedures to ensure that material
      information relating to the registrant, including its consolidated subsidiaries,
      is made known to us by others within those entities, particularly during
      the period in which this quarterly report is being prepared;
|b)
      evaluated the effectiveness of the registrant's disclosure controls and
      procedures as of a date within 90 days prior to the filing date of this
      quarterly report (the "Evaluation Date"); and                                                                                                        
|c)
      presented in this quarterly report our conclusions about the effectiveness
      of the disclosure controls and procedures based on our evaluation as of
      the Evaluation Date;                                                                                                                              
|5.                                                                                                                                                                                                                                                                                                                        
|a)
      all significant deficiencies in the design or operation of internal controls
      which could adversely affect the registrant's ability to record, process,
      summarize and report financial data and have identified for the registrant's
      auditors any material weaknesses in internal controls; and 
|b)
      any fraud, whether or not material, that involves management or other employees
      who have a significant role in the registrant's internal controls; and                                                                                                                                                     
|6.                                                                                                                                                                                                                                                                                                                        
|Date:
      November 14, 2002                                                                                                                                                                                                                                                                                             

|/s/Brian
      J. Kearns     
|-----------------------------
|Brian
      J. Kearns        
|Chief
      Financial Officer

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