SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20059
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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 JUNE 30, 2003
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
---------------------- which registered
None -------------------
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: 31,420,413 of its $.0001 par value
common stock as of July 9, 2003.
Transitional small business disclosure format (check one) Yes: No: X
H-QUOTIENT, INC., AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 2003
INDEX
PART I: FINANCIAL INFORMATION Page
Item 1: Financial Statements
Consolidated Balance Sheets as of
June 30, 2003, and December 31, 2002 2
Consolidated Statements of Operations
For the six month and three month periods ended
June 30, 2003 and 2002 3
Condensed Consolidated Statements of Cash Flows for the
six month periods ended June 30, 2003 and 2002 4
Notes to the Consolidated Financial Statements 5
Item 2: Management's Discussion and Analysis or Plan of Operation 6
Item 3: Controls and Procedures 6
PART II: OTHER INFORMATION 7-8
Item 1: Legal Proceedings 7
Item 2: Changes in Securities 7
Item 3: Default Upon Senior Securities 8
Item 4: Submission of Matters To A Vote of Security Holders 8
Item 5: Other Information 8
Item 6: Exhibits and Reports on Form 8-K 8
1
HoQuotient, Inc. and Subsidiary
Consolidated Balance Sheets
December 31,
June 30, 2003 2002
(Unaudited) (Audited)
- ------------------------------------------------------------------------------------- ---------------- -----------------
Assets
Current assets
Cash $ 80,623 $ 11,503
Investment in marketable securities 1,083,927 486,540
Accounts receivable, less allowance for doubtful accounts of $467,482 and
$509,037, respectively 3,330,699 2,157,688
Inventory 371,340 -
Note receivable 139,869 139,869
Prepaid expenses 2,647,000 2,629,000
- ------------------------------------------------------------------------------------- ---------------- -----------------
Total current assets 7,653,458 5,424,600
Property and equipment, net 24,859 51,024
Capitalized software, net 328,176 82,171
Investment 2,393,638 2,213,138
Other Assets 14,878 14,878
- ------------------------------------------------------------------------------------- ---------------- -----------------
Total assets $ 10,415,009 $ 7,785,811
===================================================================================== ================ =================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued expenses 226,507 $ 361,872
Notes payable 62,475 62,475
Unearned revenue 25,768 990
- ------------------------------------------------------------------------------------- ---------------- -----------------
Total current liabilities 314,750 425,337
- ------------------------------------------------------------------------------------- ---------------- -----------------
Shareholders' equity
Preferred stock, 10,000,000 shares authorized,
100 shares issued and outstanding - -
Common stock, $.0001 par value, 90,000,000 shares authorized, 31,420,413 and
28,588,454 shares issued and outstanding at June 30, 2003 and December 31, 2002,
respectively 3,142 2,859
Additional paid-in capital 15,721,441 14,841,065
Subscription receivable (52,385) (52,385)
Accumulated deficit (5,571,939) (7,431,065)
- ------------------------------------------------------------------------------------- ---------------- -----------------
Total shareholders' equity 10,100,259 7,360,474
- ------------------------------------------------------------------------------------- ---------------- -----------------
Total liabilities and shareholders' equity $ 10,415,009 $ 7,785,811
===================================================================================== ================ =================
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
2
HoQuotient, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
Six Months Ended Three Months Ended
June 30 June 30
2003 2002 2003 2002
- --------------------------------------------------------------------- ------------- -------------- ------------- --------------
Revenues $ 1,658,772 $ 747,807 $ 904,105 $ 519,291
- --------------------------------------------------------------------- ------------- -------------- ------------- --------------
Operating expenses 318,227 148,716 183,297 113,193
- --------------------------------------------------------------------- ------------- -------------- ------------- --------------
Income from operations 1,340,545 599,091 720,808 406,098
- --------------------------------------------------------------------- ------------- -------------- ------------- --------------
Other income (expenses)
Interest expense (4,272) (7,788) (2,136) (3,952)
Unrealized gain on securities 523,489 - 361,309 -
Realized gain (loss) on sale of securities (636) 86,040 (636) 13,043
Interest income - 18,151 - 7,651
- --------------------------------------------------------------------- ------------- -------------- ------------- --------------
Total other income (expense) 518,581 96,403 358,537 16,742
- --------------------------------------------------------------------- ------------- -------------- ------------- --------------
Income before provision for income taxes 1,859,126 695,494 1,079,345 422,840
Provision for income taxes - - - -
- --------------------------------------------------------------------- ------------- -------------- ------------- --------------
Net income $ 1,859,126 $ 695,494 $ 1,079,345 $ 422,840
===================================================================== ============= ============== ============= ==============
Net income per common share
Basic: $ .07 $ .03 $ .04 $ 0.01
Diluted: $ .07 $ .03 $ .04 $ 0.01
Weighted average common shares
Basic 28,261,431 25,920,380 29,523,457 25,670,455
===================================================================== ============= ============== ============= ==============
Diluted 28,442,425 26,163,025 30,184,210 25,982,650
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3
HoQuotient, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2003
2003 2002
Six Months Ended June 30 (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided (used) in operating activities $ 60,956 $ (82,720)
- ------------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided in investing activities 8,164 51,159
- ------------------------------------------------------------------------------------- ---------------- -----------------
Net cash provided by financing activities - 53,900
- ------------------------------------------------------------------------------------- ---------------- -----------------
Net increase in cash 69,120 22,339
Cash at beginning of period 11,503 5,616
- ------------------------------------------------------------------------------------- ---------------- -----------------
Cash at end of period $ 80,623 $ 27,955
- ------------------------------------------------------------------------------------- ---------------- -----------------
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4
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 June 30, 2003 and 2002, the Consolidated
Statements of Operations for the six and three-month periods ended June 30, 2003 and
2002, and the Consolidated Statements of Cash Flows for the six-month periods
ended June 30, 2003 and 2002, have been prepared without audit. In the opinion
of management, all adjustments necessary to present fairly the financial
position as of June 30, 2003 and 2002, and results of operations and cash flows
for the three month periods ended June 30, 2003 and 2002, 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, 2002, included in the Company's
Annual Report on Form 10KSB for the year ended December 31, 2002.
The results of operations for the three-month period ended June 30, 2003, are
not necessarily indicative of results anticipated for the full year.
5
Item 2: Management's Discussion and Analysis or Plan of Operation
Results of Operations
Three Months Ended June 30, 2003, Compared with Three Months Ended June 30,
2002:
Revenues for the three months ended June 30, 2003, increased to $904,105
compared to $519,291 for the three months ended June 30, 2002. The increase of
$384,814 was a result of increased sales.
Revenues for the three months ended June 30, 2003, including other income,
increased to $1,262,642 compared to $536,033 for the three months ended June
30, 2002.
A quarterly dividend of $.01 per share was authorized for shareholders of record
on July 31, 2003.
Expenses
Interest expense for the three months ended June 30, 2003, was $2,136 compared
to $3,952 for the three months ended June 30, 2002. The negligible difference is
attributed to the continuity of the notes payable.
The unrealized gain on securities for the three months ended June 30, 2003, was
$361,309 as compared to $-0- for the three months ended June 30, 2002. The
difference resulted from an increase in the market value of the securities
portfolio.
Realized gains (losses) on the sale of securities were ($636) for the three
months ended June 30, 2003, compared to $13,043 for the three months ended June
30, 2002.
Net profit for the three months ended June 30, 2003, was $1,079,345 or $.04 per
share compared to $422,840 or $.02 per share for the three months ended June 30,
2002.
Liquidity and Capital Resources
We funded our operations and working capital needs through profits, payments
received from customers, and the exercise of warrants.
Working capital at June 30, 2003, was $7,338,708 as compared to $5,835,157 at
June 30, 2002. The improvement by $1,503,551 resulted primarily from operations
and investments.
Cash and cash equivalents at June 30, 2003, were $80,623 as compared to $27,955
on June 30, 2002.
During the quarter ended June 30, 2003, we generated $8,164 from investing
activities as compared to $51,159 for the quarter ended June 30, 2002.
During the quarter ended June 30, 2003, we used net cash of $0 from financing
activities as compared to $51,900 for the quarter ended June 30, 2002.
During the quarter ended March 31, 2003, we issued stock with a value of
$282,728 for software development activities that represent non-cash investing
and financing activities. There were no such activities in the quarter ended
March 31, 2002.
During the quarter ended June 30, 2003, we issued stock with a value of $551,840
for inventory and investments and warrant redemptions. There were no such
activities in the quarter ended June 30, 2002.
Item 3: Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined under
6
Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), within 90 days of the
filing date of this report. Based on their evaluation, our
principal executive officer and principal accounting officer
concluded that the Company's disclosure controls and procedures
are effective.
There have been no significant changes (including corrective
actions with regard to significant deficiencies or material
weaknesses) in our internal controls or in other factors that
could significantly affect these controls subsequent to the date
of the evaluation referenced in the above paragraph.
See certification pursuant to Sarbanes-Oxley Act of 2002 attached.
(b) Changes in internal controls.
None.
(c) Asset-Backed Issuers.
None.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
A suit with a previous customer is ongoing, and a $340,000 reserve has been
provided. 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.
Item 2: Changes in Securities
In January, 2003, warrants were exercised for 342,796 shares of common stock
that are subject to restrictions under Rule 144 of the Securities Act of 1933 in
exchange for $78,559 in cash.
In the three month period ended March 31, 2003, the Company issued 211,011
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 the three month period ended March 31, 2003, the Company issued 1,047,142
shares of its common stock subject to restrictions under Rule 144 of the
Securities Act of 1933 in exchange for $282,728 of LabQuotient development. The
price was based upon the market price of the stock at the date of the
transaction.
In January 2003, the Company issued 600,000 options pursuant to the acquisition
of IntelliServices, Inc., exercisable at 50,000 per month until December 31,
2003, for $738,000. In February 2003, the Company issued 2,613,461 options
subject to restrictions under Rule 144 of the Securities Act of 1933 pursuant to
the acquisition of IntelliServices, Inc., exercisable until December 31, 2005,
for $3,214,557. The option price of the stock is $1.23 per share.
In March 2003, the Company issued 1,200,000 warrants exercisable until December
31, 2003, as follows: $360,000 in cash for common stock in exchange for
1,200,000 shares of H-Quotient, Inc., common stock at $.30 per share which are
subject to restrictions under Rule 144 of the Securities Act of 1933. No
compensation expense was associated with the issuance of the warrants because of
their insignificant value.
In the three month period ended June 30, 2003, the Company issued 10,000 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.
7
In the three month period ended June 30, 2003, the Company issued 1,237,800
shares of its common stock in warrant exercises subject to restrictions under
Rule 144 of the Securities Act of 1933 in exchange for $371,340.
In the three month period ended June 30, 2003, the Company issued 361,000 shares
of its common stock subject to restrictions under Rule 144 of the Securities Act
of 1933 in exchange for investments.
In the three month period ended June 30, 2003, the Company issued 120,000 shares
of its common stock subject to restrictions under Rule 144 of the Securities Act
of 1933 in exchange for contract services of $36,000.
Item 3: Default Upon Senior Securities
None
Item 4: Submission of Matters To A Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
EXHIBITS:
99.1 Certification
99.2 Certification
Forms 8-K:
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 2003.
H-QUOTIENT, INC.
By: /s/ Douglas A. Cohn
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Douglas A. Cohn
Chairman of the Board, Chief Executive Officer, President and Chief Financial
Officer
8