SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20049
FORM 10-QSB
(Mark One)
|X|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
Commission File No. 001-15179
H.QUOTIENT, INC.
(Exact name of registrant as specified in its charter)
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:
Name of each Exchange on
Title of each class 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: 27,804,483 of its $.0001 par value
common stock as of October 31, 2002.
H-QUOTIENT, INC., AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2002
F-1
INDEX
PART I: FINANCIAL INFORMATION Page
Item 1: Financial Statements
Consolidated Balance Sheets as of
September 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations
For the nine month and three-month periods ended
September 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 2002 and 2001 5
Notes to the Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3: Controls and Procedures 7
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 8
Item 2: Changes in Securities 8
F-2
H-Quotient, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, December 31,
2002 2001
(Unaudited) (Audited)
------------ ------------
Assets
Current assets
Cash $ 15,218 $ 6,491
Investment in equity securities 2,476,559 2,604,499
Accounts receivable, less allowance for doubtful
accounts of $373,088 in 2002 and $200,000 in 2001 2,245,305 469,385
Prepaid expenses 2,637,387 2,672,188
------------ ------------
Total current assets 7,374,469 5,752,563
Property and equipment, net 110,136 134,193
Capitalized software, net 168,243 200,790
Deposits 19,294 14,294
------------ ------------
Total assets $ 7,672,142 $ 6,101,840
------------ ------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued expenses 319,051 $ 414,935
Notes payable 139,141 127,285
Unearned revenue -- 13,330
------------ ------------
Total current liabilities 458,192 555,550
------------ ------------
Shareholders' equity
Preferred stock, 10,000,000 shares authorized,
100 shares issued and outstanding -- --
Common stock, $.0001 par value, 90,000,000 shares
authorized, 27,536,895 and 27,778,835 shares issued and
outstanding at September 30, 2002, and December 31, 2001,
respectively 2,754 2,779
Additional paid-in capital 14,453,329 14,815,747
Subscription receivable (290,131) (562,480)
Accumulated deficit (6,952,002) (8,709,756)
------------ ------------
Total shareholders' equity 7,213,950 5,546,290
------------ ------------
Total liabilities and shareholders' equity $ 7,672,142 $ 6,101,840
------------ ------------
See accompanying Notes to Consolidated Financial Statements.
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H-Quotient, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
Nine Months Ended Three Months Ended
September 30 September 30
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues $ 1,869,477 $ 1,136,149 $ 1,121,670 $ 226,627
------------ ------------ ------------ ------------
Operating expenses 211,709 759,231 62,993 213,514
------------ ------------ ------------ ------------
Income from operations 1,657,768 376,918 1,058,677 13,113
------------ ------------ ------------ ------------
Other income (expenses)
Interest expense (11,856) (21,853) (4,068) (3,867)
Unrealized loss on securities -- -- -- --
Realized gain on sale of securities 86,040 440,079 -- 641,564
Interest income 25,802 -- 7,651 --
Total other income (expense) 99,986 418,226 3,583 637,697
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes 1,757,754 795,144 1,062,260 650,810
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ 1,757,754 $ 795,144 $ 1,062,260 $ 650,810
============ ============ ============ ============
Net income (loss) per common share
Basic: $ .07 $ .04 $ 0.04 $ 0.03
Diluted: $ .07 $ .03 $ 0.04 $ 0.03
Weighted average common shares
Basic 26,370,380 22,075,871 26,540,305 23,399,477
============ ============ ============ ============
Diluted 26,982,025 23,677,825 27,123,400 25,001,401
See accompanying Notes to the
Unaudited Condensed Consolidated Financial Statements.
F-4
H-Quotient, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2002
2002 2001
Nine Months Ended September 30 (Unaudited) (Unaudited)
--------- ---------
Net cash provided (used) in operating activities $ (99,103) $(717,699)
--------- ---------
Net cash provided in investing activities 55,930 --
--------- ---------
Net cash (used) by financing activities 51,900 594,909
--------- ---------
Net (decrease) in cash 8,727 (122,760)
Cash at beginning of period 6,491 151,462
--------- ---------
Cash at end of period $ 15,218 $ 28,672
========= =========
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 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 and insurance companies throughout the United
States and Canada.
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 September 30, 2002 and 2001, the
Consolidated Statement of Operations for the three-month periods ended September
30, 2002 and 2001, and the Consolidated Statement of Cash Flows for the
nine-month periods ended September 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 September 30, 2002 and 2001, and results of
operations and cash flows for the nine-month period ended September 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 September 30, 2002,
are not necessarily indicative of results anticipated for the full year.
See accompanying Notes to Consodlidated 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 Ended September 30, 2002, Compared with Three Months Ended
September 30, 2001:
Revenues for the three months ended September 30, 2002, increased to $1,121,670
compared to $226,627 for the three months ended September 30, 2001. The increase
of $895,043 is a result of a broadened revenue base for the Company's expanded
products and services.
Expenses
Interest expense for the three months ended September 30, 2002, was $4,068
compared to $3,867 for the three months ended September 30, 2001. The negligible
difference is attributed to the continuity of the notes payable.
The realized gain on the sale of securities was $-0- for the three months ended
September 30, 2002, compared to $641,564 for the three months ended September
30, 2001.
Net profit for the three months ended September 30, 2002, was $1,062,260
compared to $650,810 for the three months ended September 30, 2001.
Liquidity and Capital Resources
The company's needs are met by profits and investments.
Working capital at September 30, 2002, was $6,916,277 as compared to $5,197,013
at December 31, 2001.
Cash and cash equivalents at September 30, 2002, were $15,218 as compared to
$6,678 on September 30, 2001.
During the nine months ended September 30, 2002, we generated $55,930 from
investing activities as compared to -0- for the quarter ended September 30,
2001.
During the nine months ended September 30, 2002, we used net cash of $51,900
from financing activities as compared to $-0- for the nine months ended
September 30, 2001. This resulted from the exercise of warrants. The company now
relies upon income rather than stock sales to finance its operations.
Item 2: Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and, based on their evaluation, our principal executive officer and
principal financial officer have concluded that these controls and procedures
are effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
See accompanying Notes to Consolidated Financial Statements.
F-7
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
A suit to collect money due from a former customer is ongoing, and a $340,000
reserve has been allocated. However, the Company expects to recover this sum and
all other amounts due, though the customer is claiming offsetting and additional
amounts from the Company.
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 March 2002, the Company issued 80,000 shares of common stock that 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 were 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.
In July 2002, the Company issued warrants to purchase shares of H-Quotient,
Inc., common stock, primarily in lieu of cash compensation for management, that
are subject to restrictions under Rule 144 of the Securities Act of 1933. These
include: 450,000 one-year warrants exercisable at $.30 each; 500,000 two-year
warrants exercisable at $.33 each; 300,000 two-year warrants exercisable at $.39
each; and 1,706,397 warrants to replace existing warrants exercisable at $.30
each. During the last two years, more than 10,000,000 warrants have been
eliminated because they expired, were called or executed.
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: November 13, 2002.
H-QUOTIENT, INC.
By: /s/ Douglas A. Cohn
- ----------------------------------------------
Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer
See accompanying Notes to Consolidated Financial Statements.
F-8
CERTIFICATION
I, Douglas Cohn, Chief Executive Officer of H-Quotient, Inc. certify that:
1. I have reviewed this quarterly report on Form 10-QSB of H-Quotient,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 of the Exchange Act) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/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-9
CERTIFICATION PUSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of H-Quotient, Inc., on Form 10-QSB for
the quarter ending September 30, 2002, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), we, the Executive Vice President
of Finance and the Chief Executive Officer of the Company, certify, pursuant to
and solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: November 14, 2002
/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-10
H-Quotient, Inc. and Subsidiary
Notes to the Unaudited Condensed Consolidated Financial Statements
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F-11