884497--3/17/2008--MEDQUIST

related topics

{system, service, information}

{financial, litigation, operation}

{control, financial, internal}

{stock, price, operating}

{personnel, key, retain}

{product, market, service}

{cost, contract, operation}

{stock, price, share}

{property, intellectual, protect}

{acquisition, growth, future}

{cost, regulation, environmental}

{regulation, government, change}

We are subject to ongoing investigations, which could require us to pay substantial fines or other penalties or subject us to sanctions and we cannot predict the timing of developments in these matters. Several lawsuits have been filed against us involving our billing practices and other related matters and the outcome of these lawsuits may have a material adverse effect on our business, financial condition, results of operations and cash flows. The continuing time, effort, and expense relating to the allegations raised regarding our past billing practices and the development and implementation of improved internal controls and procedures may have an adverse effect on our business. Our ability to expand our business and properly service our customers depends on our ability to effectively manage our domestic production capacity, including our ability to recruit, train and retain qualified MTs and maintain high standards of quality service in our operations, which we may not be able to do. We are reviewing strategic alternatives which could impact our operating results, our stock price and our business. If the electronic health records (EHR) companies produce solutions acceptable to large hospital systems for the creation of electronic clinical documentation that are not based on the conversion of voice to text, the overall demand for medical transcription services could be reduced. We have experienced significant management turnover. We have not complied with Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) for our fiscal year ended December 31, 2004. Current and prospective investors, customers and employees may react adversely to the allegations concerning our billing practices. We compete with many others in the market for medical transcription services which may result in lower prices for our services, reduced operating margins and an inability to maintain or increase our market share and expand our service offerings. We may pursue future transactions which could require us to incur debt and assume contingent liabilities and expenses, and we may not be able to effectively integrate new operations. Our success will depend on our ability to adopt and integrate new technology into our DEP, to improve our production capabilities and expand the breadth of our service offerings, as well as our ability to address any unanticipated problems with our information technology systems, which we may not be able to do quickly, or at all. Due to the critical nature of medical transcription to our customers operations, potential customers may be reluctant to outsource or change service providers as a result of the cost and potential for disruption in services which may inhibit our ability to attract new customers. If our intellectual property is not adequately protected, we may lose our market share to our competitors and be unable to operate our business profitably. We are dependent on third party speech recognition software incorporated in certain of our technologies, and impaired relations with such third party or the inability to enhance such third party software over time could harm our business. If we fail to comply with extensive contractual obligations and applicable laws and government regulations governing the handling of patient identifiable medical information, including those imposed on our customers in connection with HIPAA, we could suffer material losses or be negatively impacted as a result of our customers being subject to material penalties and liabilities. Proposed legislation and possible negative publicity may impede our ability to utilize global service capabilities. Philips owns approximately 69.6% of our outstanding common stock, and its interests may conflict with the interests of our other shareholders. Our stock trades on the over-the-counter Pink Sheets market which may decrease the liquidity of our common stock.

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884497--3/17/2008--MEDQUIST_INC