8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

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

Date of Report (Date of Earliest Event Reported): May 12, 2008

MedQuist Inc.

(Exact Name of Issuer as Specified in Charter)

New Jersey	0-19941	22-2531298
(State or Other Jurisdiction of	(Commission File Number)	(I.R.S. Employer Identification
Incorporation or Organization)		Number)

1000 Bishops Gate Blvd., Suite 300	08054
Mt. Laurel, New Jersey	(Zip Code)
(Address of Principal Executive Offices)

(856) 206-4000

(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Item 2.02. Results of Operations and Financial Condition.

On May 12, 2008, MedQuist Inc., a New Jersey corporation (the “Company”), issued a press release announcing financial results for the first fiscal quarter ended March 31, 2008. The full text of the press release issued in connection with the announcement is attached hereto as Exhibit 99.1 and is incorporated by reference.

The information in this Current Report on Form 8-K, including the exhibit attached hereto, is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. Furthermore, the information in this Current Report on Form 8-K, including the exhibit, shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

(d)	The following exhibit relating to Item 2.02 is furnished with this report on Form 8-K:
99.1	Press Release of MedQuist Inc. issued on May 12, 2008.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.

Statements in this Current Report on Form 8-K regarding the Company’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of these risks and uncertainties, any of which could cause the Company’s actual results to differ from those contained in the forward-looking statement, see the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and discussions of potential risks and uncertainties in the Company’s subsequent filings with the SEC.

SIGNATURES

     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 hereunto duly authorized.

	MedQuist Inc.
Date: May 13, 2008	By:	/s/ Howard S. Hoffmann
		Name:	Howard S. Hoffmann
		Title:	President and Chief Executive Officer

EXHIBIT INDEX

Exhibit
Number		Exhibit
	99.1	Press Release of MedQuist Inc. issued on May 12, 2008.

EX-99.1

Exhibit 99.1

Press Release

MedQuist Reports First Quarter 2008 Results

MOUNT LAUREL, NJ – May 12, 2008 – MedQuist Inc. (Pink Sheets: MEDQ.PK), the largest Medical Transcription Service Organization (MTSO) in the world, on Friday, May 9^th, filed its Form 10-Q quarterly report with the U.S. Securities and Exchange Commission for the quarter ended March 31, 2008.

Revenue for the first quarter of 2008 was $83.7M compared with $89.1M in the first quarter of 2007. The decrease in revenue of $5.4M or 6% from the prior year period was primarily due to customer losses experienced during the second half of 2007. The operating loss for the quarter increased to a loss of $5.4M compared to a loss of $3.3M in the first quarter of 2007. “Our first quarter results were negatively impacted by increased costs associated with governmental investigations and proceedings and the defense of civil litigation matters. Excluding the cost of the billing investigation and legal proceedings, net, which was $6.4M in the first quarter of 2008 and $1.7M in the first quarter of 2007, our operating profit improved to a profit of $1.0M in the first quarter of 2008 compared to an operating loss of $1.6M in the first quarter of 2007. This improvement reflects the savings from our restructuring efforts in late 2007, as well as, the benefits of our expanded use of speech recognition technology,” said Howard Hoffmann, President and Chief Executive Officer.

Notable 1Q orders included the sale of our #1 rated SpeechQ for Radiology product to one of the largest multi-location hospital systems in the country and a new multi-year, multi-million dollar outsourcing services agreement with one of the country’s largest IDNs.

Cost of revenue declined faster than revenue reflecting both the company’s restructuring efforts and the expanded use of speech recognition technology. “At this point, we have over 40% of our volumes running through DocQspeech on our DocQment Enterprise Platform (DEP). We believe this important tool will help us continue to improve our margins over time,” said Hoffmann.

Selling general and administrative expenses declined $1.6M or 11% to $13.1M in the first quarter of 2008 compared to $14.7M in the first quarter of 2007. This decline reflects the benefits of the restructuring actions taken by the company during the second half of 2007.

Research and development expense increased $.7M or 20% to $4.1M in the first quarter of 2008 compared to $3.4M in the first quarter of 2007. The R&D increase reflects additional cost related to investments in our industry-leading DEP technology.

Cost of Investigation and Legal Proceedings, net, increased to $6.4M in the first quarter of 2008 compared to $1.7M in the first quarter of 2007. In addition to legal expenses, the first quarter of 2008 included a charge of $1.5M related to the proposed settlement of all claims related to the consolidated medical transcriptionists’ putative class action while the first quarter of 2007 included the benefit of $3.5M of insurance recoveries which were exhausted by the first quarter

of 2008. These two items generated the increased cost of investigation and legal proceedings in the first quarter of 2008.

In addition to the United States generally accepting accounting principles, or GAAP, results provided throughout this document, MedQuist has provided non-GAAP financial measurements. Management believes that the non-GAAP financial measures used to manage the business may provide users additional useful information. The tables attached to this press release include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a description of why the non-GAAP financial measures are useful to investors.

On or about April 21, 2008, MedQuist reached a tentative settlement of all claims related to the consolidated medical transcriptionists’ putative class action lawsuit in exchange for payment by MedQuist of $1.5 million plus certain injunctive relief. The court has been notified of the tentative settlement and the lawsuit has been stayed while the parties continue to negotiate the settlement documentation. The tentative settlement contemplates notice to a settlement class consisting of all medical transcriptionists paid by the line for the period from November 29, 1998 through execution of the settlement agreement and is conditioned on final approval by the court.

Forward-Looking Statements

This report contains forward-looking statement that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Exchange Act. These statements are only predictions and, as such, are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict, including, without limitation, the risk that a settlement is not ever reached in the consolidated medical transcriptionists’ putative class action lawsuit. For a discussion of these risks, uncertainties and assumptions, any of which could cause our actual results to differ from those contained in the forward-looking statement, see the section of MedQuist’s Annual Report on Form 10-K for the year ended December 31, 2007, entitled “Risk Factors” and discussions of potential risks and uncertainties in MedQuist’s subsequent filings with the Securities and Exchange Commission.

CONTACT: Kathleen Donovan, Chief Financial Officer, MedQuist Inc.
+1-856-206-4000
Web site: http://www.medquist.com

MedQuist Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited

	Three months ended
	March 31,
	2008			2007
Net revenues	$	83,725		$	89,066
Operating costs and expenses:
Cost of revenues		61,258			68,345
Selling, general and administrative		13,095			14,693
Research and development		4,119			3,442
Depreciation		2,928			2,539
Amortization of intangible assets		1,361			1,346
Cost of investigation and legal proceedings, net		6,398			1,741
Restructuring charges		—			256
Total operating costs and expenses		89,159			92,362
Operating loss		(5,434	)		(3,296	)
Equity in income of affiliated company		16			260
Other income		438			—
Interest income, net		1,288			2,102
Loss before income taxes		(3,692	)		(934	)
Income tax provision		725			952
Net loss	$	(4,417	)	$	(1,886	)
Net loss per share:
Basic	$	(0.12	)	$	(0.05	)
Diluted	$	(0.12	)	$	(0.05	)
Weighted average shares outstanding:
Basic		37,544			37,484
Diluted		37,544			37,484

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)

	(Unaudited)
	March 31,		December 31,
	2008		2007
Assets
Current assets:
Cash and cash equivalents	$	152,711	$	161,582
Accounts receivable, net of allowance of $4,168 and $4,359, respectively		52,124		48,725
Income tax receivable		737		815
Other current assets		8,109		7,920
Total current assets		213,681		219,042
Property and equipment, net of accumulated depreciation of $41,184 and $38,772, respectively		20,197		21,366
Goodwill		125,365		125,505
Other intangible assets, net of accumulated amortization of $43,234 and $45,209, respectively		41,721		42,262
Deferred income taxes		2,714		2,712
Other assets		6,830		6,885
Total assets	$	410,508	$	417,772
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	10,204	$	12,754
Accrued expenses		18,492		18,989
Accrued compensation		13,815		14,826
Customer accommodation and quantification		17,596		18,459
Deferred income tax liability — current		4,783		4,783
Deferred revenue		17,486		16,023
Total current liabilities		82,376		85,834
Deferred income taxes		15,862		15,151
Other non-current liabilities		2,055		2,143
Shareholders’ equity:
Common stock — no par value; authorized 60,000 shares; 37,544 and 37,544 shares issued and outstanding, respectively		236,504		236,412
Retained earnings		68,459		72,876
Accumulated other comprehensive income		5,252		5,356
Total shareholders’ equity		310,215		314,644
Total liabilities and shareholders’ equity	$	410,508	$	417,772

MedQuist Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Three months ended
	March 31,
	2008			2007
Operating activities:
Net loss	$	(4,417	)	$	(1,886	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization		4,289			3,885
Equity in income of affiliated company		(16	)		(260	)
Deferred income tax provision		719			710
Stock option expense		92			83
Provision for doubtful accounts		263			1,418
Asset writeoff charges		26			51
Changes in operating assets and liabilities excluding effects of acquisitions:
Accounts receivable		(3,700	)		(347	)
Income tax receivable		78			(91	)
Insurance receivable		—			(2,619	)
Other current assets		(189	)		58
Other non-current assets		70			(39	)
Accounts payable		(2,773	)		805
Accrued expenses		(746	)		(1,337	)
Accrued compensation		(999	)		409
Customer accommodation and quantification		(459	)		(2,046	)
Deferred revenue		1,441			(628	)
Other non-current liabilities		(70	)		1,930
Net cash (used in) provided by operating activities	$	(6,391	)	$	96
Investing activities:
Purchase of property and equipment		(1,837	)		(1,889	)
Capitalized software		(611	)		(217	)
Net cash used in investing activities		(2,448	)		(2,106	)
Financing activities:
Net cash provided financing activities		—			—
Effect of exchange rate changes		(32	)		7
Net decrease in cash and cash equivalents		(8,871	)		(2,003	)
Cash and cash equivalents — beginning of period		161,582			175,412
Cash and cash equivalents — end of period	$	152,711		$	173,409
Supplemental cash flow information:
Cash paid for income taxes	$	95		$	93
Accommodation payments paid with credits	$	404		$	689

MedQuist Inc. and Subsidiaries
Reconciliation of GAAP financial measures to the aforementioned non-GAAP financial measures
(In thousands, except per share amounts)
Unaudited

	Three months ended
	March 31,
	2008			2007
GAAP Operating (Loss)	$	(5,434	)	$	(3,296	)
Add: Cost of investigation and legal proceedings, net		6,398			1,741
Non-GAAP Operating Profit (Loss), excluding Cost of investigation and legal proceedings, net	$	964		$	(1,555	)