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 number
ended March 31, 1998                                              0-19941


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


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


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


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


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


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No ___

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 10,999,841 shares of
common stock, no par value, as of April 28, 1998.


<PAGE>


                                  MedQuist Inc.

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q




PART I.  FINANCIAL INFORMATION
-------  ---------------------
                                                                        PAGE NO.
                                                                        --------
Item 1.  Consolidated Financial Statements

         Consolidated Balance Sheets at March 31, 1998 (Unaudited)
         and December 31, 1997                                             1

         Consolidated Statements of Income for the three months
         ended March 31, 1998 and 1997 (Unaudited)                         2

         Consolidated Statements of Cash Flows for the three months
         ended March 31, 1998 and 1997 (Unaudited)                         3

         Notes to Consolidated Financial Statements (Unaudited)            4

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                         6

         Special Note Concerning Forward Looking Statements                9

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

Item 1.  Legal Proceedings                                                10

Item 2.  Changes in Securities                                            10

Item 3.  Defaults upon Senior Securities                                  10

Item 4.  Submission of Matters to a Vote of Security Holders              10

Item 5.  Other Information                                                10

Item 6.  Exhibits and Reports on Form 8-K                                 10

SIGNATURE                                                                 11
--------- 


<PAGE>


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

<TABLE>
<CAPTION>
                                                               March 31,    December 31,
                                                                 1998          1997
                                                              -----------   ------------
                                                              (Unaudited)
<S>                                                           <C>           <C>    
Assets
Current assets:
  Cash and cash equivalents                                      $13,609      $12,334
    Accounts receivable, net of allowance of $433 and $439        19,770       19,822
    Deferred Income Taxes                                            693          693
    Prepaid expenses and other current assets                        146          132
                                                                 -------      -------
       Total current assets                                       34,218       32,981

Property and equipment - net                                      10,024        9,783

Intangible assets - net                                           48,132       47,489

Other assets                                                         545          552
                                                                 -------      -------
                                                                 $92,919      $90,805
                                                                 =======      =======

Liabilities and Shareholders' Equity

Current liabilities:
     Current portion of long-term debt                           $   429      $ 3,773
     Accounts payable                                              1,073        1,095
     Accrued payroll                                               3,813        2,815
     Accrued expenses                                              3,427        2,575
                                                                 -------      -------
       Total current liabilities                                   8,742       10,258
                                                                 -------      -------
Long-term debt                                                        52        1,404
                                                                 -------      -------
Other liabilities                                                    520          544
                                                                 -------      -------
Deferred income taxes                                              2,282        2,282
                                                                 -------      -------

Shareholders' equity:
     Common stock, no par value, 30,000 shares authorized,
         10,986 and 10,674 issued and outstanding                   --           --
     Additional paid-in capital                                   61,790       59,428
     Retained earnings                                            19,533       16,889
                                                                 -------      -------
       Total shareholders' equity                                 81,323       76,317
                                                                 -------      -------
                                                                 $92,919      $90,805
                                                                 =======      =======
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

                                       1

<PAGE>


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



                                                           THREE MONTHS ENDED
                                                               MARCH 31,
                                                         -----------------------
                                                          1998            1997
                                                          ----            ----

Revenues                                                 $27,396         $18,621
                                                         -------         -------

Costs and expenses:
  Cost of revenues                                        20,211          13,714
  Selling, general and administrative                      1.357           1,059
  Depreciation                                             1,075             754
  Amortization of intangible assets                          440             350
                                                         -------         -------
     Total operating expenses                             23,083          15,877
                                                         -------         -------
Operating income                                           4,313           2,744
Interest expense                                              14              63
                                                         -------         -------
Income before income taxes                                 4,299           2,681
Income tax provision                                       1,655           1,046
                                                         -------         -------
Net income                                               $ 2,644         $ 1,635
                                                         =======         =======

Basic Income Per Common Share                            $  0.24         $  0.16
                                                         =======         =======

Diluted Income Per Common Share                          $  0.23         $  0.15
                                                         =======         =======




See Accompanying Notes to Consolidated Financial Statements.

                                       2

<PAGE>


                         MEDQUIST INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                                                                 MARCH 31,
                                                                          -----------------------
                                                                            1998           1997
                                                                            ----           ----
<S>                                                                       <C>            <C>     
Operating activities:
     Net income                                                           $  2,644       $  1,635
     Adjustments to reconcile net income to net cash provided
       by operating activities:
     Depreciation and amortization                                           1,515          1,109
     Changes in assets and liabilities net of effect of acquisition:
     Accounts receivable, net                                                   52           (987)
     Prepaid expenses and other current assets                                 (14)          (179)
     Other assets                                                                6           --
     Accounts payable                                                          (22)           (34)
     Accrued payroll                                                         1,092            578
     Accrued expenses                                                          859            556
     Other liabilities                                                         (17)           (24)
                                                                          --------       --------
         Net cash provided (used in) by operating activities                 6,115          2,654
                                                                          --------       --------

Investing activities:
     Purchases of property and equipment, net                               (1,233)          (881)
     Acquisitions, net of cash acquired                                     (1,101)           (56)
                                                                          --------       --------
       Net cash used in investing activities                                (2,334)          (937)
                                                                          --------       --------

Financing activities:
Repayments of long-term debt                                                (3,319)          --
     Repayments of obligations under capital leases                            (89)           (78)
     Net proceeds from issuance of common stock                               --               20
     Proceed from the exercise of common stock options                         902           --
     Repurchase of common stock                                               --             (467)
                                                                          --------       --------
       Net cash used in financing activities                                (2,506)          (525)
                                                                          --------       --------
Net increase in cash and cash equivalents                                    1,275          1,192
                                                                          --------       --------
Cash and cash equivalents, beginning of period                              12,334          8,878
                                                                          --------       --------
Cash and cash equivalents, end of period                                  $ 13,609       $ 10,070
                                                                          ========       ========

Supplemental disclosure of cash flow information:
     Cash paid during period for:
       Interest                                                           $     59       $     62
                                                                          ========       ========

       Income taxes                                                       $    818       $    102
                                                                          ========       ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

                                       3
<PAGE>


                         MedQuist Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                     Three Month Period Ended March 31, 1998
                    (Unaudited - dollar amounts in thousands)

Note 1.  Basis of Presentation

     The information set forth in these statements is unaudited. The information
reflects all adjustments, consisting only of normal recurring adjustments, that,
in the opinion of management, are necessary to present a fair statement of
operations of MedQuist Inc. (the "Company"), and its consolidated subsidiaries
for the periods indicated. Results of operations for the interim periods ended
March 31, 1998 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.

     On September 9, 1997, the Company effected a three for two stock split. All
share data presented herein has been adjusted to reflect the stock split.


Note 2.  Acquisitions

     During 1997, the Company completed five acquisitions. The acquisitions have
been accounted for using the purchase method. Pro forma information is not
presented as these acquisitions are not material to the Company.

     During 1998, the Company completed one acquisition. The acquisition has
been accounted for using the purchase method. Pro forma information is not
presented as this acquisition is not material to the Company.


Note 3.  Income Per Common Share

     In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This statement establishes new standards for computing and presenting
earnings per share and requires the restatement of prior year amounts. The
Company adopted SFAS No. 128 effective December 31, 1997.

     Basic income per share is calculated by dividing net income by the weighted
average number of shares of Common stock outstanding for the period. Diluted
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 effect 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 income per share computations for income
from continuing operations:

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                          Three Months Ended March 31,
                        -----------------------------------------------------------------
                                     1998                             1997
                        --------------------------------  -------------------------------
                                               Per Share                        Per Share
                        Income      Shares       Amount    Income     Shares      Amount
                        ------      ------       ------    ------     ------      ------
<S>                     <C>         <C>         <C>       <C>         <C>         <C>   
Basic                   $2,644      10,871      $ 0.24    $1,635      10,340      $ 0.16

Effect of dilutive
  Securities              --           614       (0.01)     --           791       (0.01)
                        ------      ------      ------    ------      ------      ------

Diluted                 $2,644      11,485      $ 0.23    $1,635      11,131      $ 0.15
                        ======      ======      ======    ======      ======      ======
</TABLE>

Note 4.  New Accounting Pronouncement

     In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will have no effect on the Company's financial statements.


Note 5.  Shareholders' Equity

     On September 9, 1997, the Company effected a three for two stock split for
all shares of common stock.


                                       5

<PAGE>




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

General

     The Company is a leading national provider of electronic transcription and
healthcare information solutions.

     Fees for transcription related services are based primarily on contracted
rates, and revenue is recognized upon the rendering of services and delivery of
reports. Cost of revenues consists of all direct costs associated with providing
transcription related services, including payroll, telecommunications, software
customization, repairs and maintenance, rent and other direct costs. Selling,
general and administrative expenses include costs associated with the Company's
senior executive management, marketing and sales, finance, legal and other
administrative functions.


Results of Operations

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

                                                       Three Months Ended
                                                           March 31,
                                                      -------------------
                                                       1998         1997 
                                                      ------       ------
Revenues....................................          100.0%       100.0%
                                                      ------       ------
Costs and expenses:
  Cost of revenues..........................           73.8         73.6
  Selling, general and administrative.......            5.0          5.7
  Depreciation..............................            3.9          4.1
  Amortization of intangible assets.........            1.6          1.9
                                                      ------       ------
Operating income............................           15.7         14.7
Interest expense............................            0.1          0.3
                                                      ------       ------
Income before income taxes..................           15.6         14.4
Income tax provision........................            6.0          5.6
                                                      ------       ------
Net income .................................            9.6%         8.8%
                                                      ======       ======


                                       6


<PAGE>




Three Months Ended March 31, 1998 and 1997

Revenues. Revenues increased 47.1% to $27.4 million for the three months
ended March 31, 1998 from $18.6 million in the comparable 1997 period. The $8.8
million increase reflected approximately $6.0 million of additional revenues
generated from new and existing clients, and $2.8 million of revenues from the
Company's 1997 and 1998 medical transcription acquisitions.

Cost of Revenues. Cost of revenues increased from $13.7 million in the
three months ended March 31, 1997 to $20.2 million in the comparable 1998
period. As a percentage of revenues, cost of revenues increased slightly from
73.6% in the first quarter of 1997 to 73.8% for the comparable 1998 period. The
percentage increase in cost of revenues primarily resulted from the impact of a
1997 acquisition with a higher level of direct costs than the Company's base
business.

Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.4 million for the three months ended March 31, 1998
from $1.1 million in the comparable 1997 period. As a percentage of revenues,
selling, general and administrative expenses decreased from 5.7% in the first
quarter of 1997 to 5.0% in the comparable 1998 period. The decrease in selling,
general and administrative expenses is due to the ability of the Company to
leverage its overhead expenses.

Depreciation. Depreciation expense increased from $754,000 for the three
months ended March 31, 1997 to $1.1 million for the comparable 1998 period. As a
percentage of revenue, depreciation remained relatively consistent at 3.9% for
the three months ended March 31, 1998 compared to 4.1% for the comparable period
in 1997.

Amortization. Amortization of intangible assets was $440,000 for the three
months ended March 31, 1998 as compared to $350,000 for the comparable 1997
period. The increase is attributable to the amortization of intangible assets
associated with the Company's five acquisitions completed in 1997 and one
acquisition completed in 1998. As a percentage of revenue, amortization
decreased from 1.9% for the three months ended March 31, 1997 as compared to
1.6% in the same period for 1998.

Interest. Interest expense decreased from $63,000 for the three months
ended March 31, 1997 to $14,000 for the comparable 1998 period.

                                       7

<PAGE>

Liquidity and Capital Resources

     At March 31, 1998, the Company had working capital of $25.5 million,
including $13.6 million of cash and cash equivalents. During the three months
ended March 31, 1998, the Company's operating activities provided cash of $6.1
million as compared to $2.7 million during the comparative prior year three
month period. The increase in cash provided by operating activities was
primarily related to increases in net income and less of an increase in accounts
receivable in 1998.

     During the three months ended March 31, 1998, the Company purchased $1.2
million of capital equipment and completed the acquisition of one medical
transcription business. These expenditures were financed through cash flows from
operations.

     In January 1998, the Company paid in full $3.3 million in subordinated
promissory notes issued in connection with certain of the 1997 acquisitions.

         For the three  months  ended March 31, 1998  option  holders  exercised
223,000 options to purchase common stock.  The exercises  generated  $902,000 in
cash proceeds.

     On April 23, 1997, the Company amended its borrowing facility with Chase
Manhattan Bank (the "Chase Facility"). The Chase Facility provides for a $10
million senior unsecured revolving credit facility expiring April 23, 2000. The
revolver bears interest at resetting rates selected by the Company from various
alternatives. The interest rate alternatives are either (i) the greater of (x)
prime rate, (y) the federal funds rate plus 0.5% (z) the bank's certificate of
deposit rate plus 1%, or (ii) LIBOR plus 0.75%. The Chase Facility also allows
for the Company to finance up to 100% of any acquisitions of companies that are
in the business of providing transcriptions-related services. The financing of
these acquisitions may be carved out of the revolving credit facility and
amortized over five year periods (20 consecutive quarters). Each acquisition
term loan that is created would permanently reduce the remaining revolving
credit commitment by a like amount.

     In addition to acquisitions, the revolver can be used for working capital
and general corporate purposes. To the extent any amounts under the revolver are
repaid, other than acquisition term loans, the Company may reborrow such
amounts. The Chase Facility includes certain financial and other covenants
applicable to the Company, including limitations on capital expenditures and
dividends.

     The Company believes that cash flow generated from the Company's operations
and its borrowing capacity under the Chase Facility should be sufficient to meet
its current working capital and capital expenditure requirements. Additional
funds may be required in connection with future acquisitions, if any.

                                       8


<PAGE>

Year 2000 Compliance

     The company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether computer systems will properly recognize data sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The company
relies on its systems in operating and monitoring all aspects of its business.
The company also relies on the external systems of its customers, suppliers and
other organizations with which it does business. Management is in the process of
assessing its internal and external systems to assure the company is prepared
for the year 2000. Management does not anticipate that the company will incur
significant expenses or be required to invest heavily in computer systems
improvements to be year 2000 compliant. However, significant uncertainty exists
concerning the potential costs and effects associated with any year 2000
compliance. To date, no material issue has been identified as they relate to the
company's efforts to identify year 2000 issues. However, despite the company's
efforts thus far to address year 2000 compliance, the company cannot guarantee
that all internal or external systems will be compliant, or that its business
will not be materially adversely affected by any such non-compliance.


Special Note Concerning Forward Looking Statements

     Other than the historical Financial Information and related Notes contained
in Part I, Item 1 hereof, this Report, including, without limitation,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in any such forward-looking statements as a result of various risks,
including, without limitation, the dependence on a single line of business;
rapid technological change; inability to expand into new markets; inability to
make and successfully integrate acquisitions; inability to attract and retain
key personnel and transcriptionists; the effects of regulatory changes in the
healthcare industry; the potential for significant fluctuations in operating
results; and the potential volatility of the Company's common stock.

                                       9

<PAGE>

                           Part II - Other Information


<TABLE>
<S>           <C>                                                           <C>
Item 1. -     Legal Proceedings                                             - Not Applicable

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

Item 3. -     Default upon Senior Securities                                - Not Applicable

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

Item 5. -     Other Information                                             - Not Applicable

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

              a) Exhibits:

                 Financial Data Schedule                                          27.0

              b) Reports on Form 8-K                                        - Not Applicable
</TABLE>


                                       10


<PAGE>


                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                             MedQuist Inc.
                                             Registrant

Date:
     --------------------------
                                             By:  /s/ John R. Emery
                                                -------------------------------
                                                John R. Emery
                                                  Chief Financial Officer

                                       11
<PAGE>