<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 June 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: 36,868,726 shares of
common stock, no par value, as of August 6, 2001.






<PAGE>



                                  MedQuist Inc.

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q

<TABLE>
<CAPTION>


<S>                                                                                                    <C>
PART I.  FINANCIAL INFORMATION                                                                          PAGE NO.
-------  ---------------------                                                                          --------

Item 1.  Consolidated Financial Statements

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

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

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

         Consolidated Statements of Cash Flows for the six months ended June 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                                         12

         Special Note Concerning Forward Looking Statements                                                12

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

Item 1.  Legal Proceedings                                                                                 13

Item 2.  Changes in Securities and Use of Proceeds                                                         13

Item 3.  Defaults upon Senior Securities                                                                   13

Item 4.  Submission of Matters to a Vote of Security Holders                                               13

Item 5.  Other Information                                                                                 13

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>


                                                                     June 30,        December 31,
                                                                      2001               2000
                                                                    ---------        ------------
                                                                   (Unaudited)

<S>                                                                 <C>              <C>
Assets
Current assets:
   Cash and cash equivalents                                        $ 112,379        $  77,321
   Cash equivalent with related party                                    --             20,044
   Accounts receivable, net of allowance of $3,530 and $3,565          73,720           75,155
   Prepaid expenses and other current assets                            9,506           12,099
                                                                    ---------        ---------
       Total current assets                                           195,605          184,619

Property and equipment - net                                           34,106           35,013

Other assets                                                            7,334            6,861

Intangible assets - net                                               138,786          123,408
                                                                    ---------        ---------

                                                                    $ 375,831        $ 349,901
                                                                    =========        =========

Liabilities and Shareholders' Equity

Current Liabilities:
   Current portion of long-term debt                                $   1,431        $     433
   Accounts payable                                                     4,872            4,232
   Accrued expenses                                                    23,785           23,985
                                                                    ---------        ---------
       Total current liabilities                                       30,088           28,650

Long-term debt                                                          1,081               22

Other liabilities                                                       1,124              704
Deferred income taxes                                                   1,153            2,719

Shareholders' equity:
   Common stock, no par value, 60,000 shares authorized,
        36,832 and 36,769 issued and outstanding                         --               --
   Additional paid-in capital                                         224,312          223,286
   Retained earnings                                                  118,153           94,648
   Deferred compensation                                                  (80)            (128)
                                                                    ---------        ---------
       Total shareholders' equity                                     342,385          317,806
                                                                    ---------        ---------
                                                                    $ 375,831        $ 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)




                                                  Six Months Ended
                                                      June 30,
                                              ---------------------------
                                                 2001              2000
                                              ---------         ---------

Revenue                                       $ 193,077         $ 183,501
                                              ---------         ---------

Costs and expenses:
   Cost of revenue                              142,676           130,424
   Selling, general and administrative            6,279             5,591
   Depreciation                                   7,887             6,961
   Amortization of intangible assets              4,281             3,610
   Restructuring charges                           (600)           (1,013)
   Lawsuit settlement                            (3,000)             --
                                              ---------         ---------
       Total costs and expenses                 157,523           145,573
                                              ---------         ---------
Operating income                                 35,554            37,928
Other income:
   Gain on sale of securities                      --               3,675
   Interest income, net                           2,665             1,468
                                              ---------         ---------
Income before income taxes                       38,219            43,071
Income tax provision                             14,714            17,228
                                              ---------         ---------
Net income                                    $  23,505         $  25,843
                                              =========         =========

Basic net income per common share             $    0.64         $    0.73
                                              =========         =========

Diluted net income per common share           $    0.62         $    0.70
                                              =========         =========







     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)




                                              Three Months Ended
                                                   June 30,
                                             -----------------------
                                               2001            2000
                                             --------       --------

Revenue                                      $ 97,978       $ 90,989
                                             --------       --------

Costs and expenses:
   Cost of revenue                             72,309         65,278
   Selling, general and administrative          3,184          2,728
   Depreciation                                 4,119          3,538
   Amortization of intangible assets            2,329          1,823
   Restructuring charges                         --           (1,013)
   Lawsuit settlement                            --             --
                                             --------       --------
       Total costs and expenses                81,941         72,354
                                             --------       --------
Operating income                               16,037         18,635
Other income:
   Interest income, net                         1,260            716
                                             --------       --------
Income before income taxes                     17,297         19,351
Income tax provision                            6,659          7,740
                                             --------       --------
Net income                                   $ 10,638       $ 11,611
                                             ========       ========

Basic net income per common share            $   0.29       $   0.33
                                             ========       ========

Diluted net income per common share          $   0.28       $   0.31
                                             ========       ========








     See Accompanying Notes to Condensed Consolidated Financial Statements.




                                       3
<PAGE>


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


                                                                                        Six Months Ended
                                                                                            June 30,
                                                                                     ----------------------
                                                                                        2001         2000
                                                                                     ---------    ---------

<S>                                                                                  <C>          <C>
Operating activities:
   Net income                                                                        $  23,505    $  25,843
   Adjustments to reconcile net income to net cash provided by operating
   activities, net of business acquisitions:
   Depreciation and amortization                                                        12,168       10,571
   Gain on sale of securities                                                             --         (3,675)
   Amortization of deferred compensation                                                    48           82
   Tax benefit for exercise of employee stock options                                      136        1,823
   Changes in assets and liabilities:
       Accounts receivable, net                                                          3,771        4,163
       Prepaid expenses and other current assets                                         4,011       (1,340)
       Other assets                                                                       (445)          (3)
       Accounts payable                                                                 (1,124)        (323)
       Accrued expenses                                                                   (458)      (3,661)
       Other liabilities                                                                   420          (43)
                                                                                     ---------    ---------
Net cash provided by operating activities                                               42,032       33,437
                                                                                     ---------    ---------

Investing activities:
   Purchases of property and equipment, net                                             (5,889)      (7,570)
   Purchase of investments                                                                --           (728)
   Investment in A-Life Medical, Inc.                                                     --         (6,049)
   Proceeds from sale of securities                                                       --          4,403
   Acquisitions, net of cash acquired                                                  (21,334)      (5,237)
                                                                                     ---------    ---------
Net cash used in investing activities                                                  (27,223)     (15,181)
                                                                                     ---------    ---------

Financing activities:
   Repayments of long-term debt                                                            (43)      (1,512)
   Proceeds from the exercise of common stock options                                      248        1,299
   Purchase and retirement of common stock, at cost                                       --        (15,466)
                                                                                     ---------    ---------
Net cash provided by (used in) financing activities                                        205      (15,679)
                                                                                     ---------    ---------

Net increase in cash, cash equivalents, and cash equivalent with
   related party                                                                        15,014        2,577

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                                                                     $ 112,379    $  64,601
                                                                                     =========    =========

Supplemental disclosure of cash flow information:
   Cash paid during period for:
       Interest                                                                      $      25    $      25
                                                                                     =========    =========
       Income taxes                                                                  $  11,006    $  12,819
                                                                                     =========    =========

</TABLE>



     See Accompanying Notes to Condensed Consolidated Financial Statements.

                                       4
<PAGE>


                         MedQuist Inc. and Subsidiaries
              Notes to Condensed Consolidated Financial Statements
                                  June 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 June 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 June 30, 2001, we completed 42 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 ("EIFT") 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity," as follows:

         Non-cancelable leases.................................     $3,835
         Severance.............................................      1,618
         Non-cancelable contracts and other 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                              (85)              ---                  ---                  (85)

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
   June 30, 2001:                             $   750            $    0               $    0               $  750
                                              =======            ======               ======               ======

</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 June 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 six months ended June 30, 2001, we completed five
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>

                                                               Six Months Ended June 30,
                                  -------------------------------------------------------------------------------
                                                 2001                                        2000
                                  -----------------------------------           ---------------------------------
                                     Net                    Per Share                         Net       Per Share
                                   Income       Shares       Amount             Income       Shares      Amount
                                   ------       ------       ------             ------       ------      ------
<S>                               <C>          <C>            <C>               <C>          <C>          <C>
Basic                             $23,505      36,811         $0.64             $25,843      35,584       $0.73

Effect of dilutive securities          --         811         (0.02)                 --       1,411       (0.03)
                                  -------      ------         ------            -------      ------      ------


Diluted                           $23,505      37,622         $0.62             $25,843      36,995       $0.70
                                  =======      ======         =====             =======      ======       =====


                                                               Three Months Ended June 30,
                                  -------------------------------------------------------------------------------
                                                 2001                                        2000
                                  -----------------------------------           ---------------------------------
                                     Net                    Per Share                         Net       Per Share
                                   Income       Shares       Amount             Income       Shares      Amount
                                   ------       ------       ------             ------       ------      ------
Basic                             $10,638      36,820         $0.29             $11,611      35,470       $0.33

Effect of dilutive securities          --         913         (0.01)                 --       1,593       (0.02)
                                  -------      ------         ------            -------      ------      ------


Diluted                           $10,638      37,733         $0.28             $11,611      37,063       $0.31
                                  =======      ======         =====             =======      ======       =====

</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 six months ended June 30, 2001 and 2000,
the Company recorded goodwill amortization of approximately $4.3 million and
$3.6 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 June 30, 2001 is approximately $89.5 million.


                                       7
<PAGE>

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.

         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 June 30, 2001, we had no cash in such an
investment. For the six months ended June 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>

                                                 Six Months Ended             Three Months Ended
                                                     June 30,                      June 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                             73.9             71.1          73.8             71.7
   Selling, general and administrative          3.3              3.0           3.2              3.0
   Depreciation                                 4.1              3.8           4.2              3.9
   Amortization of intangible assets            2.2              2.0           2.4              2.0
   Restructuring charges                       (0.3)            (0.6)           --             (1.1)
   Lawsuit settlement                          (1.6)              --            --               --
                                              -----            -----         -----            -----
   Operating income                            18.4             20.7          16.4             20.5
Gain on sale of securities                     --                2.0            --               --
Interest income, net                            1.4              0.8           1.3              0.8
                                              -----            -----         -----            -----
Income before income taxes                     19.8             23.5          17.7             21.3
Income tax provision                            7.6              9.4           6.8              8.5
                                              -----            -----         -----            -----
Net income                                     12.2%            14.1%         10.9%            12.8%
                                              =====            =====         =====            =====

</TABLE>

Six Months Ended June 30, 2001

Revenue. Revenue increased 5.2% from $183.5 million for the six months ended
June 30, 2000 to $193.1 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 9.4% from $130.4 million for the six
months ended June 30, 2000 to $142.7 million for the comparable 2001 period. As
a percentage of revenue, cost of revenue increased from 71.1% for the six months
ended June 30, 2000 to 73.9% for the comparable 2001 period. The increase
resulted primarily from costs associated with the ongoing development of our new
transcription platform.

                                       9
<PAGE>

Selling, general and administrative. Selling, general and administrative
expenses increased 12.3% from $5.6 million for the six months ended June 30,
2000 to $6.3 million for the comparable 2001 period. As a percentage of
revenues, selling, general and administrative expenses increased from 3.0% for
the six months ended June 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 13.3% from $7.0 million for the six
months ended June 30, 2000 to $7.9 million for the comparable 2001 period. As a
percentage of revenues, depreciation increased from 3.8% for the six months
ended June 30, 2000 to 4.1% for the comparable period in 2001. The increase was
due to increased capital purchases late in 2000.

Amortization. Amortization of intangible assets increased from $3.6 million for
the six months ended June 30, 2000 to $4.3 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 six months ended June 30, 2001, we revised our
accrual estimates for the restructuring reserves, which were established in
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 six months ended June 30, 2001, we settled a
lawsuit, in our favor, for $3.0 million, net of legal expenses.

Interest income, net. We had net interest income of $1.5 million for the six
months ended June 30, 2000 and net interest income of $2.7 million for the
comparable 2001 period. The increase is due to increased cash available for
investment.

Income tax provision. Income taxes decreased from $17.2 million or 40.0% of
income before income taxes to $14.7 million or 38.5% of income before income
taxes. The decrease primarily resulted from state tax planning.

Three Months Ended June 30, 2001

Revenue. Revenue increased 7.7% from $91.0 million for the three months ended
June 30, 2000 to $98.0 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 10.8% from $65.3 million for the
three months ended June 30, 2000 to $72.3 million for the comparable 2001
period. As a percentage of revenue, cost of revenue increased from 71.7% for the
three months ended June 30, 2000 to 73.8% for the comparable 2001 period. The
increase resulted primarily from costs associated with the ongoing development
of our new transcription platform.

Selling, general and administrative. Selling, general and administrative
expenses increased 16.7% from $2.7 million for the three months ended June 30,
2000 to $3.2 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 June 30, 2000 to 3.2% for the comparable 2001 period. The
increase primarily resulted from increased spending to support our existing and
new businesses.

                                       10
<PAGE>
Depreciation. Depreciation expense increased 16.4% from $3.5 million for the
three months ended June 30, 2000 to $4.1 million for the comparable 2001 period.
As a percentage of revenues, depreciation increased from 3.9% for the three
months ended June 30, 2000 to 4.2% for the comparable period in 2001. The
increase was due to increased capital purchases late in 2000.

Amortization. Amortization of intangible assets increased from $1.8 million for
the three months ended June 30, 2000 to $2.3 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 $716,000 for the three
months ended June 30, 2000 and net interest income of $1.3 million for the
comparable 2001 period. The increase is due to increased cash available for
investment.

Income tax provision. Income taxes decreased from $7.7 million or 40.0% of
income before income taxes to $6.6 million or 38.5% of income before income
taxes. The decrease primarily resulted from state tax planning.

Liquidity and Capital Resources

         At June 30, 2001, we had working capital of $165.5 million, including
$112.4 million of cash and cash equivalents. We maintain a $150 million deposit
facility with Philips, which allows us to invest excess funds at a rate of LIBOR
less 0.125%. During the six months ended June 30, 2001, our operating activities
provided cash of $42.0 million and during the six months ended June 30, 2000 our
operating activities provided cash of $33.4 million. The increase is primarily
due to increased cash receipts on accounts receivable and refunds on income
taxes paid.

         During the six months ended June 30, 2001, we used cash in investing
activities of $27.2 million, consisting of $5.9 million of capital expenditures
and $21.3 million for acquisitions accounted for under the purchase method.
During the six months ended June 30, 2000, we used cash for investing activities
of $15.2 million, consisting of $7.6 million of capital expenditures, $6.0
million investment in A-Life Medical, Inc., $5.2 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 six months ended June 30, 2001, net cash provided by
financing activities was $205,000. During the six months ended June 30, 2000,
cash used in financing activities was $15.7 million, consisting primarily of
$15.5 million from the purchase and retirement of MedQuist stock, $1.5 million
for repayment of long-term debt, partially offset by $1.3 million in proceeds
from the issuance of common stock and issuances in connection with employee
benefit plans.

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

Cash, cash equivalents and cash on deposit with related party        $112,379
  Average interest rate                                                  4.65%


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.

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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

(a)               On May 30, 2001, the Company held its Annual Meeting of
                  Shareholders. At that meeting, (a) the persons set forth below
                  were elected to serve and (b) The Stock Option Plan of 1992
                  was amended to increase the number of shares of common stock
                  for issuance thereunder by 1,000,000.
                  The number of votes cast for, against, as well as abstentions
                  and broker non-votes as to each such matter, including a
                  separate tabulation with respect to each director nominee was
                  as follows:

                  Director                     Votes For          Votes Against
                  ----------                   ---------          -------------
                  Hans M. Barella              34,690,836            313,740
                  Belinda W. Chew              34,690,871            313,705
                  David A. Cohen               34,689,181            315,395
                  William E. Curran            33,178,633          1,825,943
                  John A. Donohoe              34,689,181            315,395
                  Jan H.M. Hommen              34,690,821            313,755
                  Gerard J. Kleisterlee        33,183,533          1,821,043
                  A. Fred Ruttenberg           34,748,500            256,076
                  Richard H. Stowe             34,748,500            256,076
                  John H. Underwood            34,690,800            313,776
                  Erik J. Westerink            34,690,836            313,740

                  104,584 votes abstained and one was not voted.


                  Amendment to Stock Option Plan to increase number of shares:

                    33,713,135                     For
                     1,186,856                 Against
                       104,584               Abstained
                             1               Not Voted

(b)               On April 12, 2001, Koninklijke Philips Electronics, N.V.
                  signed a written consent of majority shareholder approving an
                  amendment to the Company's Amended and Restated Certificate of
                  Incorporation to eliminate the classification of the board of
                  directors.

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.


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

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




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







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