SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20049
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FORM 10-QSB
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(Mark One)
|X|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the QUARTERLY PERIOD ENDED MARCH 31, 2002
Commission File No. 001-15179
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H.QUOTIENT, INC.
(Exact name of registrant as specified in its charter)
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Virginia 54-1947753
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification Number)
8150 Leesburg Pike, Suite 503 22182
Vienna, VA (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: 703-752-0690
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each Exchange on
None which registered
OTC Bulletin Board
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable date: 27,619,733 of its $.0001 par value
common stock as of April 30, 2002.
H-QUOTIENT, INC., AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2002
INDEX
1
PART I: FINANCIAL INFORMATION Page
Item 1: Financial Statements
Consolidated Balance Sheets as of
March 31, 2002 and December 31, 2001 3
Consolidated Statements of Operations
For the three-month periods ended
March 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the
three month periods ended March 31, 2002 and 2001
Notes to the Consolidated Financial Statements 5
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II: OTHER INFORMATION 7
Item 1: Legal Proceedings
Item 2: Changes in Securities 7-8
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2
H-Quotient, Inc. and Subsidiary
Consolidated Balance Sheets
December 31,
March 31, 2002 2001
(Unaudited) (Audited)
-------------- --------------
Assets
Current assets
Cash $ 5,616 $ 6,491
Investment in equity securities 2,471,788 2,604,499
Accounts receivable, less allowance for doubtful accounts
of $358,790, in 2002 and $200,000 in 2001 889,493 469,385
Prepaid expenses 2,672,188 2,672,188
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Total current assets 6,039,085 5,752,563
Property and equipment, net 126,174 134,193
Capitalized software, net 189,941 200,790
Deposits 19,294 14,294
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Total assets $ 6,374,494 $ 6,101,840
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued expenses 411,130 $ 414,935
Notes payable 131,121 127,285
Unearned revenue 13,330 13,330
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Total current liabilities 555,581 555,550
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Shareholders' equity
Preferred stock, 10,000,000 shares authorized,
100 shares issued and outstanding -- --
Common stock, $.0001 par value, 90,000,000 shares authorized,
27,478,211 and 27,778,835 shares issued and outstanding at
March 31, 2002 and 2001, respectively 2,748 2,779
Additional paid-in capital 14,535,747 14,815,747
Subscription receivable (282,480) (562,480)
Accumulated deficit (8,437,102) (8,709,756)
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Total shareholders' equity 5,818,913 5,546,290
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Total liabilities and shareholders' equity $ 6,374,494 $ 6,101,840
============ ============
See accompanying Notes to Consolidated Financial Statements.
3
H-Quotient, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31 2002 2001
Revenues $ 228,516 $ 273,861
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Operating expenses 35,523 267,280
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Income from operations 192,993 6,581
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Other income (expenses)
Interest expense (3,836) (3,868)
Unrealized loss on securities -- (164,035)
Realized gain on sale of securities 72,997 37,505
Interest income 10,500 --
Total other income (expense) 79,661 (130,398)
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Income (loss) before provision for income taxes 272,654 (123,818)
Provision for income taxes -- --
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Net income (loss) $ 272,654 $ (123,818)
============ ============
Net income (loss) per common share
Basic: $ 0.01 $ 0.01
Diluted: $ 0.01 $ 0.01
Weighted average common shares
Basic 25,670,455 20,491,843
============ ============
Diluted 25,982,650 22,093,797
See accompanying Notes to the Unaudited Condensed
Consolidated Financial Statements.
4
H-Quotient, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2002
2002 2001
Three Months Ended March 31 (Unaudited) (Unaudited)
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Net cash provided (used) in operating activities $(70,139) $ 21,331
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Net cash provided in investing activities 69,264 79,134
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Net cash (used) by financing activities -- (213,601)
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Net (decrease) in cash (875) (113,136)
Cash at beginning of period 6,491 151,462
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Cash at end of period $ 5,616 $ 38,326
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See accompanying Notes to Consolidated Financial Statements.
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H-Quotient, Inc., and Subsidiary
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Organization -- H-Quotient, Inc. (the "Company"), was incorporated in the
Commonwealth of Virginia on May 12, 1999 as a wholly-owned subsidiary of
Integrated Healthcare Systems, Inc. ("IHS"). On June 14, 1999, IHS executed a
downstream merger with H-Quotient, Inc. in which all the issued and outstanding
shares of common stock of IHS were exchanged for an equal number of shares of
the $.0001 par value common stock of the Company. The Company develops, markets,
installs and maintains integrated hardware and software systems to private and
public healthcare facilities throughout the United States.
2. Basis of Presentation -- The consolidated financial statements of the Company
include the accounts of its wholly owned subsidiary, Quotient Capital
Corporation. All significant inter-company balances and transactions have been
eliminated in consolidation.
The Consolidated Balance Sheets as of March 31, 2002 and 2001, the Consolidated
Statement of Operations for the three-month periods ended March 31, 2002 and
2001, and the Consolidated Statement of Cash Flows for the three-month periods
ended March 31, 2002 and 2001, have been prepared without audit. In the opinion
of management, all adjustments necessary to present fairly the financial
position as of March 31, 2002 and 2001, and results of operations and cash flows
for the three month period ended March 31, 2002 and 2001, and for all periods
then ended, have been recorded. All adjustments recorded were of a normal
recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto for the year ended December 31, 2001, included in the Company's
Annual Report on Form 10KSB for the year ended December 31, 2001.
The results of operations for the three-month period ended March 31, 2002, are
not necessarily indicative of results anticipated for the full year.
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Item 2: Management's Discussion and Analysis of the Financial Conditions and the
Results of Operations
Results of Operations
Three Months Ended March 31, 2002, Compared with Three Months Ended March 31,
2001:
Revenues for the three months ended March 31, 2002, decreased to $228,516
compared to $273,861 for the three months ended March 31, 2001. The decrease of
$45,345 is a result of investment gains and a broadened revenue base, including
a modified I-Link Enterprise, DataQual II and distribution services and the
elimination of money-losing contract.
Expenses
Interest expense for the three months ended March 31, 2002, was $3,836 compared
to $3,868 for the three months ended March 31, 2001. The negligible difference
is attributed to the continuity of the notes payable.
The unrealized gain on securities for the three months ended March 31, 2002, was
$-0- as compared to a loss of $164,035 for the three months ended March 31,
2001. The difference resulted from a lower cost basis in securities acquired
during the quarter.
Realized gains on the sale of securities were $72,997 for the three months ended
March 31, 2002, compared to $37,505 for the three months ended March 31, 2001.
Net profit for the three months ended March 31, 2002, was $272,654 compared to a
loss of ($123,818) for the three months ended March 31, 2001.
Liquidity and Capital Resources
We have funded our operations and working capital needs through profits and a
series of private equity and debt offerings, the exercise of investor warrants,
investments and payments received from customers.
Working capital at March 31, 2002, was $5,483,504 as compared to $5,197,013 at
December 31, 2001.
Cash and cash equivalents at March 31, 2002, were $5,616 as compared to $38,326
on March 31, 2001. This was due to a larger investment in equity securities.
During the quarter ended March 31, 2002, we generated $69,264 from investing
activities as compared to $79,134 for the quarter ended March 31, 2001. The
increase was due to lower purchase prices.
During the quarter ended March 31, 2002, we used net cash of $-0- from financing
activities as compared to ($213,601) for the quarter ended March 31, 2001.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
A suit with a significant customer is ongoing, and a $340,000 reserve has been
allocated. However, the Company expects to recover this sum and all other
amounts due from the customer.
Other suits arising in the ordinary course of business are pending against the
Company. Management believes the ultimate outcome of these actions will not
result in a material adverse effect on its consolidated financial position,
results of operations or cash flows.
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Item 2: Changes in Securities
In March, 2002, the Company issued 80,000 shares of common stock which are
subject to restrictions under Rule 144 of the Securities Act of 1933 in exchange
for $24,000.
In February, 2002, the Company issued 125,000 shares of common stock that are
subject to restrictions under Rule 144 of the Securities Act of 1933 in exchange
for 1,000,000 shares of Veridien Corp. common stock.
In March, 2002, the Company paid $280,000 for 700,000 shares of H-Quotient,
Inc., common stock.
In the three month period ended March 31, 2002, the Company issued 194,376
shares of its common stock to shareholders of record as of July 31, 2000 and
August 31, 2000, respectively, who submitted proof of ownership of the Company's
common stock as of those dates in accordance with the terms and conditions
announced on July 12, 2000 and July 31, 2000 in a stock distribution program.
In January, 2002, the Company acquired assets from three entities to enable us
to enter the healthcare distribution business. 1,000,000 shares of previously
issued stock was pledged as payment.
In March, 2002, the Company issued 345,000 two month warrants exercisable as
follows: $40,900 in cash and 100,000 H-Quotient, Inc., common stock in exchange
for 345,000 shares of H-Quotient, Inc., common stock which are subject to
restrictions under Rule 144 of the Securities Act of 1933.
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, thereunto duly authorized. Date: May 22, 2002.
H-QUOTIENT, INC.
By: /s/ Douglas A. Cohn
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Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer
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