<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-Q

                                -----------------

           (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                                -----------------

For the quarterly period                               Commission file number
ended September 30, 2001                               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)


                                 (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: 36,887,235 shares of
common stock, no par value, as of November 6, 2001.






<PAGE>



                                  MedQuist Inc.

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

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

         Consolidated Balance Sheets at September 30, 2001 (Unaudited) and                                 1
         December 31, 2000

         Consolidated Statements of Income for the nine months ended September 30, 2001                    2
         and 2000 (Unaudited)

         Consolidated Statements of Income for the three months ended September 30, 2001                   3
         and 2000 (Unaudited)

         Consolidated Statements of Cash Flows for the nine months ended September 30, 2001                4
         and 2000 (Unaudited)

         Notes to Condensed Consolidated Financial Statements (Unaudited)                                  5

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

Item 3.  Quantitative and Qualitative Disclosure About Market Risk                                        13

         Special Note Concerning Forward Looking Statements                                               13

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

Item 1.  Legal Proceedings                                                                                14

Item 2.  Changes in Securities and Use of Proceeds                                                        14

Item 3.  Defaults upon Senior Securities                                                                  14

Item 4.  Submission of Matters to a Vote of Security Holders                                              14

Item 5.  Other Information                                                                                14

Item 6.  Exhibits and Reports on Form 8-K                                                                 14

SIGNATURE                                                                                                 15
---------
</TABLE>


<PAGE>



                         MEDQUIST INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                September 30,   December 31,
                                                                                   2001            2000
                                                                                   ----            ----
                                                                                (Unaudited)
<S>                                                                             <C>               <C>
Assets
Current assets:
   Cash and cash equivalents                                                    $ 89,804          $ 77,321
   Cash equivalent with related party                                                ---            20,044
   Accounts receivable, net of allowance of $3,559 and
      $3,565                                                                      76,637            75,155
   Prepaid expenses and other current assets                                       8,653            12,099
                                                                                --------          --------
       Total current assets                                                      175,094           184,619

Property and equipment - net                                                      34,557            35,013

Other assets                                                                       8,363             6,861

Intangible assets - net                                                          169,466           123,408
                                                                                --------          --------

                                                                                $387,480          $349,901
                                                                                ========          ========
Liabilities and Shareholders' Equity

Current Liabilities:
   Current portion of long-term debt                                              $1,427              $433
   Accounts payable                                                                6,736             4,232
   Accrued expenses                                                               21,373            23,985
                                                                                --------          --------
       Total current liabilities                                                  29,536            28,650
                                                                                --------          --------

Long-term debt                                                                     1,089                22
                                                                                --------          --------

Other liabilities                                                                  1,088               704
                                                                                --------          --------

Deferred income taxes                                                              1,511             2,719
                                                                                --------          --------

Shareholders' equity:
   Common stock, no par value, 60,000 shares authorized,
        36,880 and 36,769 issued and outstanding                                     ---               ---
   Additional paid-in capital                                                    225,299           223,286
   Retained earnings                                                             129,013            94,648
   Deferred compensation                                                             (56)             (128)
                                                                                --------          --------
       Total shareholders' equity                                                354,256           317,806
                                                                                --------          --------
                                                                                $387,480          $349,901
                                                                                ========          ========
</TABLE>

     See Accompanying Notes to Condensed Consolidated Financial Statements.

                                       1



<PAGE>


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

<TABLE>
<CAPTION>
                                                                               Nine Months Ended
                                                                                 September 30,
                                                                             2001              2000
                                                                             ----              ----
<S>                                                                        <C>                <C>
Revenue                                                                    $295,772           $274,149
                                                                           --------           --------

Costs and expenses:
   Cost of revenue                                                          218,111            198,569
   Selling, general and administrative                                        9,607              8,311
   Depreciation                                                              12,265             10,703
   Amortization of intangible assets                                          6,840              5,467
   Restructuring charges                                                       (600)            (1,013)
   Lawsuit settlement                                                        (3,000)               ---
   Tender offer costs                                                           ---              6,255
                                                                           --------           --------
       Total costs and expenses                                             243,223            228,292
                                                                           --------           --------
Operating income                                                             52,549             45,857
Other income:
   Loss on sale of equipment                                                    ---                 (3)
   Gain on sale of securities                                                   ---              3,675
   Interest income, net                                                       3,327              2,650
                                                                           --------           --------
Income before income taxes                                                   55,876             52,179
Income tax provision                                                         21,511             22,802
                                                                           --------           --------
Net income                                                                 $ 34,365           $ 29,377
                                                                           ========           ========

Basic net income per common share                                          $   0.93           $   0.80
                                                                           ========           ========

Diluted net income per common share                                        $   0.91           $   0.79
                                                                           ========           ========
</TABLE>

     See Accompanying Notes to Condensed Consolidated Financial Statements.

                                       2




<PAGE>


                         MEDQUIST INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                  September 30,
                                                                             2001               2000
                                                                             ----               ----
<S>                                                                        <C>                 <C>
Revenue                                                                    $102,695            $90,648
                                                                           --------            -------

Costs and expenses:
   Cost of revenue                                                           75,435             68,145
   Selling, general and administrative                                        3,328              2,720
   Depreciation                                                               4,378              3,742
   Amortization of intangible assets                                          2,559              1,857
   Tender offer costs                                                           ---              6,255
                                                                                ---              -----
       Total costs and expenses                                              85,700             82,719
                                                                           --------            -------
Operating income                                                             16,995              7,929
Other income:
   Loss on sale of equipment                                                    ---                 (3)
   Interest income, net                                                         662              1,183
                                                                                ---              -----
Income before income taxes                                                   17,657              9,109
Income tax provision                                                          6,797              5,575
                                                                           --------            -------
Net income                                                                 $ 10,860            $ 3,534
                                                                           ========            =======

Basic net income per common share                                          $   0.29            $  0.10
                                                                           ========            =======

Diluted net income per common share                                        $   0.29            $  0.10
                                                                           ========            =======
</TABLE>

     See Accompanying Notes to Condensed Consolidated Financial Statements.

                                       3





<PAGE>


                         MEDQUIST INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                              Nine Months Ended
                                                                                                 September 30,
                                                                                                 -------------
                                                                                                2001       2000
                                                                                                ----       ----
<S>                                                                                            <C>        <C>
Operating activities:
   Net income                                                                                  $34,365    $29,377
   Adjustments to reconcile net income to net cash provided by operating
   activities, net of business acquisitions:
   Depreciation and amortization                                                                19,105     16,170
   Gain on sale of securities                                                                      ---     (3,675)
   Amortization of deferred compensation                                                            72        122
   Tax benefit for exercise of employee stock options                                              226     17,381
   Changes in assets and liabilities:
       Accounts receivable, net                                                                  3,361      1,123
       Prepaid expenses and other current assets                                                 5,279     (1,621)
       Other assets                                                                             (1,474)        (1)
       Accounts payable                                                                            138       (976)
       Accrued expenses                                                                         (3,272)   (17,866)
       Other liabilities                                                                           385        (62)
                                                                                                   ---       ----
Net cash provided by operating activities                                                       58,185     39,972
                                                                                               -------    -------

Investing activities:
   Purchases of property and equipment, net                                                     (9,713)   (12,947)
   Purchase of investments                                                                         ---       (728)
   Investment in A-Life Medical, Inc.                                                              ---     (6,051)
   Proceeds from sale of securities                                                                ---      4,403
   Acquisitions, net of cash acquired                                                          (56,104)    (7,628)
                                                                                               -------    -------
Net cash used in investing activities                                                          (65,817)   (22,951)
                                                                                               -------    -------

Financing activities:
   Repayments of long-term debt                                                                   (561)    (1,542)
   Proceeds from the exercise of common stock options                                              632     18,906
   Purchase and retirement of common stock, at cost                                                ---    (15,466)
                                                                                               -------    -------
Net cash provided by financing activities                                                           71      1,898
                                                                                               -------    -------

Net increase (decrease) in cash, cash equivalents, and cash equivalent with related party       (7,561)    18,919

Cash, cash equivalents and cash equivalent with related party, beginning of period              97,365     62,024
                                                                                               -------    -------

Cash, cash equivalents and cash equivalent with related party,  end of period                  $89,804    $80,943
                                                                                               =======    =======

Supplemental disclosure of cash flow information:
   Cash paid during period for:
       Interest                                                                                $    41    $    36
                                                                                               =======    =======
       Income taxes                                                                            $16,391    $17,364
                                                                                               =======    =======
</TABLE>
     See Accompanying Notes to Condensed Consolidated Financial Statements.

                                       4


<PAGE>


                         MedQuist Inc. and Subsidiaries
              Notes to Condensed Consolidated Financial Statements
                               September 30, 2001
          (Unaudited - amounts in thousands, except per share amounts)


Note 1. Basis of Presentation and Restructuring Charges
-------------------------------------------------------

         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, 2001 are not necessarily indicative of
the results of operations for the full year. Certain information in footnote
disclosures normally included in financial statements have been condensed or
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission.

         From 1995 through September 30, 2001, we completed 43 acquisitions. Six
acquisitions, including the acquisition of The MRC Group (MRC), were accounted
for as pooling of interests. Four of the acquisitions accounted for as pooling
of interests were material and, accordingly, we restated our financial
statements.

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

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

         The plan related primarily to the closure of several redundant customer
service centers as well as certain corporate offices in order to improve
operating efficiencies. The plan was completed in 1999. The severance costs are
attributable to 41 individuals from various levels of operational and senior
management. The activity in the restructuring account is as follows:

                                       5


<PAGE>
<TABLE>
<CAPTION>
                                                                                 Non-Cancelable
                                          Non-Cancelable                         Contracts and
                                            Leases            Severance         Other Exit Costs          Total
                                            ------            ---------         ----------------          -----

<S>                                            <C>               <C>                  <C>                  <C>
1998 Restructuring Charge                      $3,835            $1,618               $1,086               $6,539
Payments against Restructuring accrual:

                1998                                0              (567)                (410)                (977)
                1999                             (437)             (723)                 (17)              (1,177)
                2000                             (556)              (20)                 ---                 (576)
                2001                             (140)               --                  ---                 (140)

Revision to estimate recorded in 1999:         (1,492)             (182)                (659)              (2,333)
Revision to estimate recorded in 2000:           (471)              ---                  ---                 (471)
Revision to estimate recorded in 2001:            (44)             (126)                 ---                 (170)
                                               ------            ------               ------               ------

1998 Restructuring accrual balance, at
   September 30, 2001:                        $   695            $    0               $    0               $  695
                                              =======            ======               ======               ======

</TABLE>

         In 1997, MRC approved a separate management plan to close and/or merge
several redundant customer service centers in order to further reduce costs and
improve operating efficiencies. The plan was completed during 1998 and included
the cost of exiting certain facilities, primarily related to non-cancelable
leases, the disposition of fixed assets and employee severance costs. During
2001, we revised our accrual estimates and $430 of the restructure accruals were
reversed in connection with the revision. At September 30, 2001, the accrual has
been fully utilized.

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

         During 2000, we completed eight 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, 2001, we completed six
acquisitions accounted for using the purchase method. Pro forma information is
not presented as the acquisitions were not material to the Company.

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

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



                                       6
<PAGE>



         The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per share computations:
<TABLE>
<CAPTION>

                                                           Nine Months Ended September 30,
                                  ------------------------------------------------------------------------------
                                                  2001                                      2000
                                  ------------------------------------          --------------------------------
                                      Net                    Per Share            Net                  Per Share
                                    Income       Shares       Amount            Income      Shares        Amount
                                    ------       ------       ------            ------      ------        ------
<S>                               <C>          <C>            <C>               <C>          <C>          <C>
Basic                             $34,365      36,831         $0.93             $29,377      36,649       $0.80

Effect of dilutive securities         ---         872         (0.02)                ---         483       (0.01)
                                  -------      ------         -----             -------      ------       -----

Diluted                           $34,365      37,703         $0.91             $29,377      37,132       $0.79
                                  =======      ======         =====             =======      ======       =====
</TABLE>
<TABLE>
<CAPTION>

                                                       Three Months Ended September 30,
                                  -------------------------------------------------------------------------------
                                                  2001                                      2000
                                  ------------------------------------          --------------------------------
                                      Net                    Per Share            Net                  Per Share
                                    Income       Shares       Amount            Income      Shares        Amount
                                    ------       ------       ------            ------      ------        ------
<S>                               <C>          <C>            <C>               <C>          <C>          <C>
Basic                             $10,860      36,868         $0.29             $ 3,534      36,519       $0.10

Effect of dilutive securities         ---       1,002           ---                 ---         850         ---
                                  -------      ------         -----             -------      ------       -----

Diluted                           $10,860      37,870         $0.29             $ 3,534      37,369       $0.10
                                  =======      ======         =====             =======      ======       =====
</TABLE>

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

         On June 29, 2001, the Financial Accounting Standards board issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and Statement 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
provides for the discontinuance of amortization of goodwill effective January 1,
2002 and establishes methodologies for determining the impairment of the
carrying value of goodwill. During the nine months ended September 30, 2001 and
2000, the Company recorded intangible amortization of approximately $6.8 million
and $5.5 million, respectively. Management is currently evaluating the
methodologies for determining the impairment of the carrying value of goodwill.
Any adjustments as a result of the new impairment tests will be recorded as a
cumulative effective of a change in accounting principle effective January 1,
2002. Net unamortized goodwill at September 30, 2001 is approximately $110.6
million.

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

         During the year ended December 31, 2000, we repurchased 600 shares of
our outstanding Common Stock for $15,466 at an average price of $25.78 per
share. All Common Stock acquired was subsequently retired.

         In July 2000, Koninklijke Philips Electronics, N.V. (Philips) completed
a tender offer in which they acquired approximately 60% of MedQuist's
outstanding Common Stock for $51.00 per share.

                                       7
<PAGE>


         Since July 2000, Philips has purchased shares in the open market, at
various prices, which has increased their ownership in MedQuist stock to
approximately 71%.

Note 6. Cash, Cash Equivalent and Cash with Related Party
----------------------------------------------------------

         Cash and cash equivalents include cash and highly liquid investments
purchased with an original maturity of three months or less. Cash equivalent
with related party consists of cash deposited with Philips for the purpose of
optimizing income from temporary excess cash. We maintain a Deposit Facility
with Philips which allows us to invest up to $150 million at LIBOR less 0.125%,
for periods up to 365 days. At September 30, 2001, we had no cash in such an
investment. For the nine months ended September 30, 2001, we recorded
approximately $410 of interest income from this investment.

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

General
-------

         We are the leading national provider of medical transcription services.
Substantially all of our revenue to date has been derived from the provision of
medical transcription services, which we recognize when we render services and
deliver reports. We also derive revenue from services other than traditional
transcription services, such as coding revenue, interfacing fees, equipment
rentals, equipment sales, referral fees and commissions from strategic partners.
Fees for medical transcription services are based primarily on contracted rates
and revenue is recognized upon the rendering of services and delivery of
transcribed reports. Revenues from other sources are recognized when earned.

         Cost of revenue consists of all direct costs associated with providing
services, including payroll, telecommunications, repairs and maintenance, rent
and other direct costs. Most of our cost of revenue is variable in nature, but
includes certain fixed components. Selling, general and administrative expenses
include costs associated with our senior executive management, marketing,
accounting, legal and other administrative functions. Selling, general and
administrative expenses are mostly fixed in nature, but include certain variable
components.



                                       8
<PAGE>



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:
<TABLE>
<CAPTION>

                                                        Nine Months Ended                  Three Months Ended
                                                          September 30,                       September 30,
                                                          -------------                       -------------
                                                       2001             2000              2001             2000
                                                       ----             ----              ----             ----
<S>                                                   <C>              <C>               <C>              <C>
Revenue                                               100.0%           100.0%            100.0%           100.0%
Costs and expenses:
   Cost of revenue                                     73.7             72.5              73.5             75.2
   Selling, general and administrative                  3.3              3.0               3.2              3.0
   Depreciation                                         4.1              3.9               4.3              4.1
   Amortization of intangible assets                    2.3              2.0               2.4              2.0
   Restructuring charges                               (0.2)            (0.4)               --               --
   Lawsuit settlement                                  (1.0)              --                --               --
   Tender offer costs                                    --              2.3                --              6.9
                                                      -----            -----             -----            -----
Operating income                                       17.8             16.7              16.6              8.8
Gain on sale of securities                               --              1.3                --               --
Interest income, net                                    1.1              1.0               0.6              1.3
                                                      -----            -----             -----            -----
Income before income taxes                             18.9             19.0              17.2             10.1
Income tax provision                                    7.3              8.3               6.6              6.2
                                                      -----            -----             -----            -----
Net income                                             11.6%            10.7%             10.6%             3.9%
                                                      =====            =====             =====             ====
</TABLE>

Nine Months Ended September 30, 2001
------------------------------------

Revenue. Revenue increased 7.9% from $274.1 million for the nine months ended
September 30, 2000 to $295.8 million for the comparable 2001 period. The
increase resulted from increased sales to existing customers, sales to new
customers and additional revenue from acquisitions.

Cost of Revenue. Cost of revenue increased 9.8% from $198.6 million for the nine
months ended September 30, 2000 to $218.1 million for the comparable 2001
period. As a percentage of revenue, cost of revenue increased from 72.5% for the
nine months ended September 30, 2000 to 73.7% for the comparable 2001 period.
The increase resulted primarily from costs associated with the ongoing
development of our new transcription platform, partially offset by a reduction
in transcription related payroll and telephone expense.

Selling, general and administrative. Selling, general and administrative
expenses increased 15.6% from $8.3 million for the nine months ended September
30, 2000 to $9.6 million for the comparable 2001 period. As a percentage of
revenues, selling, general and administrative expenses increased from 3.0% for
the nine months ended September 30, 2000 to 3.3% for the comparable 2001 period.
The increase primarily resulted from increased spending to support our existing
and new businesses.

Depreciation. Depreciation expense increased 14.6% from $10.7 million for the
nine months ended September 30, 2000 to $12.3 million for the comparable 2001
period. As a percentage of revenues, depreciation increased from 3.9% for the
nine months ended September 30, 2000 to 4.1% for the comparable period in 2001.
The increase was due to increased capital purchases late in 2000.

                                       9
<PAGE>


Amortization. Amortization of intangible assets increased from $5.5 million for
the nine months ended September 30, 2000 to $6.8 million for the comparable 2001
period. The increase is attributable to the amortization of intangible assets
associated with the Company's acquisitions, which were accounted for using the
purchase method in 2000 and 2001.

Restructuring charge. During the nine months ended September 30, 2001, we
revised our accrual estimates for the restructuring reserves, which were
established in 1997 and 1998. As a result, $600,000 of the reserves were
reversed into income in 2001. We will continue to evaluate the restructuring
reserve estimates.

Lawsuit settlement. During the nine months ended September 30, 2001, we settled
a lawsuit, in our favor, for a non-recurring gain of $3.0 million, net of legal
expenses.

Interest income, net. We had net interest income of $2.7 million for the nine
months ended September 30, 2000 and net interest income of $3.3 million for the
comparable 2001 period. The increase is due to increased cash available for
investment, partially offset by decreased rates of return on liquid investments.

Income tax provision. Income taxes decreased from $22.8 million or 43.7% of
income before income taxes to $21.5 million or 38.5% of income before income
taxes. The decrease primarily resulted from state tax planning, and the majority
of the tender offer costs incurred during 2000 not being deductible for income
tax purposes.

Three Months Ended September 30, 2001
-------------------------------------

Revenue. Revenue increased 13.3% from $90.6 million for the three months ended
September 30, 2000 to $102.7 million for the comparable 2001 period. The
increase resulted from increased sales to existing customers, sales to new
customers and additional revenue from acquisitions.

Cost of Revenue. Cost of revenue increased 10.7% from $68.1 million for the
three months ended September 30, 2000 to $75.4 million for the comparable 2001
period. As a percentage of revenue, cost of revenue decreased from 75.2% for the
three months ended September 30, 2000 to 73.5% for the comparable 2001 period.
The decrease primarily resulted from the reduction of transcription related
payroll and telephone expense, partially offset by cost associated with ongoing
development of our new transcription platform.

Selling, general and administrative. Selling, general and administrative
expenses increased 22.4% from $2.7 million for the three months ended September
30, 2000 to $3.3 million for the comparable 2001 period. As a percentage of
revenues, selling, general and administrative expenses increased from 3.0% for
the three months ended September 30, 2000 to 3.2% for the comparable 2001
period. The increase primarily resulted from increased spending to support our
existing and new businesses.

Depreciation. Depreciation expense increased 17.0% from $3.7 million for the
three months ended September 30, 2000 to $4.4 million for the comparable 2001
period. As a percentage of revenues, depreciation increased from 4.1% for the
three months ended September 30, 2000 to 4.3% for the comparable period in 2001.
The increase was due to increased capital purchases late in 2000.


                                       10
<PAGE>

Amortization. Amortization of intangible assets increased from $1.9 million for
the three months ended September 30, 2000 to $2.6 million for the comparable
2001 period. The increase is attributable to the amortization of intangible
assets associated with the Company's acquisitions, which were accounted for
using the purchase method in 2000 and 2001.

Interest income, net. We had net interest income of $1.2 million for the three
months ended September 30, 2000 and net interest income of $662,000 for the
comparable 2001 period. The decrease is due to decreased rates of return on
liquid investments, partially offset by a greater amount of cash available for
investment.

Income tax provision. Income taxes increased from $5.6 million or 61.2% of
income before income taxes to $6.8 million or 38.5% of income before income
taxes. The increase in income tax expense resulted primarily from increased
pre-tax earnings partially offset by decreased effective tax rates resulting
from state tax planning.

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

         At September 30, 2001, we had working capital of $145.6 million,
including $89.8 million of cash and cash equivalents. During the nine months
ended September 30, 2001, our operating activities provided cash of $58.2
million and during the nine months ended September 30, 2000 our operating
activities provided cash of $40.0 million. The increase is primarily due to
increased cash receipts on accounts receivable and refunds on income taxes paid.

         During the nine months ended September 30, 2001, we used cash in
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. During the nine months ended September 30, 2000, we used cash for
investing activities of $23.0 million, consisting of $12.9 million of capital
expenditures, $6.1 million investment in A-Life Medical, Inc., $7.6 million for
acquisitions accounted for under the purchase method, $728,000 for the purchase
of investments, offset by $4.4 million in cash proceeds from the sale of
securities.

         During the nine months ended September 30, 2001, net cash provided by
financing activities was $71,000. During the nine months ended September 30,
2000, cash provided by financing activities was $1.9 million, consisting of
$18.9 million in proceeds from the issuance of Common Stock and issuances in
connection with employee benefit plans offset by $15.5 million from the purchase
and retirement of MedQuist stock, and $1.5 million for repayment of long-term
debt.


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<PAGE>


         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 Pronouncement
----------------------------

         On June 29, 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 provides for the discontinuance of amortization of
goodwill effective January 1, 2002 and establishes methodologies for determining
the impairment of the carrying value of goodwill. Management is currently
evaluating the methodologies for determining the impairment of the carrying
value of goodwill. Any adjustments as a result of the new impairment tests will
be recorded as a cumulative effect of a change in accounting principle effective
January 1, 2002.


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<PAGE>



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, 2001. For investment securities, the table presents principal
amounts and related weighted average interest rates (dollars in thousands).

Cash and cash equivalents                                   $89,804
  Average interest rate                                        4.21%


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; (13) our customers' and
suppliers' failure to be Year 2000 compliant; and (14) risks inherent in
diversifying into other businesses, such as from the acquisitions of 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.


                                       13

<PAGE>



 Part II Other Information

Item 1. - Legal Proceedings                                     - Not Applicable

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

Item 3. - Defaults upon Senior Securities                       - Not Applicable

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

Item 5. - Other Information

          MedQuist has chosen to obtain insurance coverage through
          Philips for general liability, property, business
          interruption, auto liability, umbrella and associated stop
          loss coverages. In consideration of this, MedQuist will pay
          Philips approximately $108,000 in 2001.

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

          a) Exhibits:
          b) The Company filed the following Reports on Form 8-K during the
             quarter for which this report is filed.

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

           July 25, 2001             Regulation FD Disclosure in connection with
                                     earnings release and conference call

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<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:  November 9, 2001                       By: /s/ Brian J. Kearns
                                                  -------------------------
                                                  Brian J. Kearns
                                                  Chief Financial Officer

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