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 JUNE 30, 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, Vienna, VA 22182
(Address and zip code of principal executive offices)
Registrant'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: 27,816,829 of its $.0001 par value
common stock as of July 31, 2002.
H-QUOTIENT, INC., AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
F-1
Page
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets as of
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations
For the six month and three-month periods ended
June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the
six month periods ended June 30, 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 7-8
Item 2: Changes in Securities 8
F-2
HoQuotient, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, December 31,
2002 2001
(Unaudited) (Audited)
=================================================================================================
Assets
Current assets
Cash $ 27,955 $ 6,491
Investment in equity securities 2,471,788 2,604,499
Accounts receivable, less allowance for doubtful
accounts of $357,759 in 2002 and $200,000 in 2001 1,181,433 469,385
Prepaid expenses 2,672,188 2,672,188
- -------------------------------------------------------------------------------------------------
Total current assets 6,353,364 5,752,563
Property and equipment, net 118,155 134,193
Capitalized software, net 179,092 200,790
Deposits 19,294 14,294
- -------------------------------------------------------------------------------------------------
Total assets $ 6,669,905 $ 6,101,840
=================================================================================================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued expenses 383,134 $ 414,935
Notes payable 135,073 127,285
Unearned revenue -- 13,330
- -------------------------------------------------------------------------------------------------
Total current liabilities 518,207 555,550
- -------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock, 10,000,000 shares authorized,
100 shares issued and outstanding -- --
Common stock, $.0001 par value, 90,000,000 shares authorized,
27,619,733 and 27,778,835 shares issued and outstanding at
June 30, 2002, and December 31, 2001, respectively 2,762 2,779
Additional paid-in capital 14,453,329 14,815,747
Subscription receivable (290,131) (562,480)
Accumulated deficit (8,014,262) (8,709,756)
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 6,151,698 5,546,290
- -------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 6,669,905 $ 6,101,840
=================================================================================================
See accompanying Notes to Consolidated Financial Statements.
F-3
HoQuotient, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
Six Months Ended Three Months Ended
June 30 June 30
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues $ 747,807 $ 909,522 $ 519,291 $ 635,661
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses 148,716 555,888 113,193 288,608
- -----------------------------------------------------------------------------------------------------------------------------------
Income from operations 599,091 353,634 406,098 347,035
- -----------------------------------------------------------------------------------------------------------------------------------
Other income (expenses)
Interest expense (7,788) (7,735) (3,952) (3,867)
Unrealized loss on securities -- (246,957) (82,922)
Realized gain on sale of securities 86,040 45,473 13,043 7,968
Interest income 18,151 -- 7,651 --
Total other income (expense) 96,403 (209,219) 16,742 (78,821)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes 695,494 144,415 422,840 268,232
Provision for income taxes -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 695,494 $ 144,415 $ 422,840 $ 268,232
===================================================================================================================================
Net income (loss) per common share
Basic: $ .03 $ .01 $ 0.02 $ 0.01
Diluted: $ .03 $ .01 $ 0.02 $ 0.01
Weighted average common shares
Basic 25,920,380 21,636,488 26,170,305 22,690,067
===================================================================================================================================
Diluted 26,163,025 23,238,442 26,343,400 24,292,021
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
F-4
HoQuotient, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2002
2002 2001
Six Months Ended June 30 (Unaudited) (Unaudited)
===============================================================================
Net cash provided (used) in operating activities $(80,720) $(717,699)
- -------------------------------------------------------------------------------
Net cash provided in investing activities 51,159 --
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net cash (used) by financing activities 51,900 594,909
- -------------------------------------------------------------------------------
Net (decrease) in cash 22,339 (122,760)
Cash at beginning of period 5,616 151,462
- -------------------------------------------------------------------------------
Cash at end of period $ 27,955 $ 28,702
===============================================================================
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
F-5
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 HoQuotient, 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, 2002 and 2001, the Consolidated
Statement of Operations for the three-month periods ended June 30, 2002 and
2001, and the Consolidated Statement of Cash Flows for the six-month periods
ended June 30, 2002 and 2001, have been prepared without audit. In the opinion
of management, all adjustments necessary to present fairly the financial
position as of June 30, 2002 and 2001, and results of operations and cash flows
for the six month period ended June 30, 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 June 30, 2002, are
not necessarily indicative of results anticipated for the full year.
See accompanying Notes to Consolidated Financial Statements.
F-6
Item 2: Management's Discussion and Analysis of the Financial Conditions and the
Results of Operations
Results of Operations
Three Months and Six Months Ended June 30, 2002, Compared with Three Months and
Six Months Ended June 30, 2001:
Revenues for the three months ended June 30, 2002, decreased to $519,291
compared to $635,661 for the three months ended June 30, 2001. The decrease of
$116,370 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 a money-losing contract.
Expenses
Interest expense for the three months ended June 30, 2002, was $3,952 compared
to $3,867 for the three months ended June 30, 2001. The negligible difference is
attributed to the continuity of the notes payable.
The unrealized gain on securities for the three months ended June 30, 2002, was
$-0- as compared to a loss of $82,922 for the three months ended June 30, 2001.
The difference resulted from a lower cost basis in securities acquired during
the first quarter of 2002.
Realized gains on the sale of securities were $13,043 for the three months ended
June 30, 2002, compared to $7,968 for the three months ended June 30, 2001.
Net profit for the three months ended June 30, 2002, was $422,840 compared to
$268,232 for the three months ended June 30, 2001.
Liquidity and Capital Resources
We previously 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. Now, most of the
company's needs are met by profits, investments and receivables.
Working capital at June 30, 2002, was $5,835,157 as compared to $5,197,013 at
December 31, 2001.
Cash and cash equivalents at June 30, 2002, were $27,955 as compared to $28,702
on June 30, 2001.
During the six months ended June 30, 2002, we generated $51,159 from investing
activities as compared to -0- for the quarter ended June 30, 2001.
During the six months ended June 30, 2002, we used net cash of $51,900 from
financing activities as compared to $594,909 for the quarter ended June 30,
2001. This occurred because the company now relies primarily upon income rather
than stock sales to finance its operations.
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.
See accompanying Notes to Consolidated Financial Statements.
F-7
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. 139,100 shares have
been exercised.
A former officer, who owes stock to the company, is claiming that he is owed
shares covered by an indemnity agreement.
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: August 20, 2002.
H-QUOTIENT, INC.
By: /s/ Douglas A. Cohn
- -----------------------
Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer
CERTIFICATION
I, Douglas Cohn, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of H-Quotient, Inc. on Form 10-QSB for the quarterly period ended June
30, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such Form
10-QSB fairly represents in all material respects the financial condition and
results of operations of H-Quotient, Inc.
/s/ Douglas A. Cohn
- -----------------------------------
(Douglas Cohn, Chairman of the Board, Chief Executive Officer
and Chief Financial Officer)
See accompanying Notes to Consolidated Financial Statements.
F-8