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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20049

                       ---------------------------------
                                  FORM 10-KSB
                       ---------------------------------
(Mark One)
    (X)

                    ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2000
                                      OR
    ( )
              TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

            For the Transition period from ________ to ____________

                        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                  22182
    Vienna, VA                                                (Zip Code)
    (Address of principal executive offices)

         Issuer's telephone number, including area code:  703-716-0100
        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
        Securities registered under Section 12(g) of the Exchange Act:
                   Common Stock, par value  $.0001 per share
                               (Title of class)
                   -----------------------------------------

     Check whether the issuer (a) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports). and (2)
has been subject to such filing requirements for the past 90 days. Yes (X)
No ( )

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)

     Revenues for its most recent fiscal year were:  $1,931,650

     The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing price of such stock, as of March 31, 2001
was $8,110,979. Non-Affiliates have been determined on the basis of holdings set
forth under Item 11 of this Annual Report on Form 10-KSB.

     At March 31, 2001, 20,915,798 shares of the registrant's common stock (par
value, $0001 per share) were outstanding.
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                  Documents incorporated by reference:  None
         Transitional Small Business Issuer:  Yes  (  )     No (X)

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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION                                                       Page
<S>                                                                           <C>
 Part I

 1.          Description of Business                                            3

 2.          Description of Properties                                         __

 3.          Legal Proceedings                                                 __

 4.          Submission of Matters to a Vote of Security Holders               __

 Part II

 5.          Market for Common Equity and Related Stockholder Matters          __

 6.          Management's Discussion and Analysis of Financial Condition
             and Result's of Operations                                        __

 7.          Financial Statements                                              __

 8.          Changes in and Disagreements with Accountants on Accounting
             and Financial Data                                                __

 Part III

 9.          Directors, Executive Officers, Promoters and Control              __

10.          Executive Compensation                                            __

11.          Security Ownership of Certain Beneficial Owners and Management    __

12.          Certain Relationships and Related Transactions                    __

13.          Exhibits and Reports on Form 8-K                                  __
</TABLE>

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                       Forward-Looking Statement Notice

     When used in this report, the words "may," "will," "expect," "anticipate,"
"continue." "estimate." "project." "intend." and similar expressions are
intended to identify forward-looking statements with the meaning of Section
27(a) of the Securities Act of 1933 and Section 21(e) of the Securities Exchange
Act of 1934 regarding events, conditions, and financial trends that may affect
the Company's future plans of operations, business strategy, operating results,
and financial position. Persons reviewing this report are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. Such factors are discussed under the headings in "Item 1. Business,"
and Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations," and also include general economic factors and conditions
that may directly or indirectly impact the Company's financial condition or
results of operations.

                                     PART I

Item 1.  Description of Business

The Company

     H.Quotient, Inc., is a software development company that specializes in
designing, creating and marketing cost-effective custom software, information
collection and intranet network systems for the healthcare industry. This
includes hospitals and other healthcare facilities such as ambulatory care
centers, healthcare networks, in-home care agencies, independent practice
associations, clinics and extended care facilities (sometimes herein referred to
as "extended care facilities"). We supply hospitals and extended care facilities
with an electronic information system that provides a single access to records
of a patient's care and medical history for the medical facility and its staff.
This information includes a compilation and integration of data from all the
various departments and many other sources within or outside the hospital or
extended care facility and provides a continuing analysis and reporting of each
patient's clinical treatments and results. This data can be transmitted over an
Internet based Virtual Private Network to a central repository and is readily
accessible to the healthcare facilities' medical staff. Our proprietary
technology includes: the DataQual(R) software system, the DataQuotient software
system with the I-Link(SM) interface engine and the I-Link(SM) Enterprise, a
server on the hospital's or extended care facility's network which is connected
to a Central Data Repository. We also provide our customers software
maintenance, system designs, consulting, installation, training and support for
all of our software products.

Organization and Historical Background

     H.Quotient, Inc. is a Virginia corporation, incorporated on May 12, 1999,
and is the successor by merger to Integrated Healthcare Systems, Inc. ("IHS")
which was a Delaware corporation organized in 1993 under the name of Travel
Technologies International, Inc. Our business and assets were owned and operated
by IHS until June 14, 1999, the effective date of the merger. Our principal
products consist of DataQual(R), DataQuotient, the I-Link(SM) interface system
and the I-Link(SM) Enterprise software system, which includes a central data
repository. DataQual is a software system designed to capture information

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on quality of care, risk management, costs and other aspects of the management
of patients in hospitals. DataQuotient is a software system designed to perform
many of the same care oversight functions as our DataQual system in extended
care facilities such as nursing homes. DataQual's and DataQuotient's companion
product, I-Link(SM), an interface engine, is designed to interconnect and
extract data from any and all healthcare facilities information systems in the
hospitals or extended care facilities. I-Link(SM) Enterprise is a system of
servers installed on the hospital's or other extended care facility's local area
network (LAN), which acts as an intelligent data collection system, to extract,
cleanse, group and map hospital wide data. This data is then transmitted over an
Internet based Virtual Private Network to a Central Data Repository. We believe
there is a great need in the healthcare industry for products of this type, and
we intend to exploit that need.

Industry Background

     Managed healthcare is having a significant impact on the $1 trillion
healthcare industry, and this impact will, in our view, increase in the coming
years. There is significant ongoing pressure to contain costs, which is changing
the structure of healthcare payment from traditional fee-for-service
reimbursements to contract care reimbursements such as "capitation". This is
creating a demand for the continuing analysis and reporting of clinical
treatments and their expected outcomes.

     To implement a program of payment based on medical outcomes, patients must
be tracked on a continuous basis, and data must be readily available in flexible
digital form. This permits monitoring of procedures used in patient treatment
and the costs and results of those procedures. While the last 10 years have
brought a dramatic improvement in medical technology, there has yet to emerge a
comprehensive electronic information system providing a single accessible set of
records of a patient's care to the hospital or extended care facility. The
result is inefficiency, lack of coordination and, at times, danger to the
patient.

     Information on patient treatments must be made accessible to doctors,
nurses and other medical decision-makers in a format that will help them to do
their jobs. This kind of clinical decision support requires the compilation and
integration of data from many sources within and outside the hospital. We
believe that this need will move healthcare providers to turn to more
sophisticated and comprehensive computer-based solutions to assist in the
medical management process.

     The increased demand for integrated information concerning patient care has
already made itself felt. The Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"), the principal national accreditation organization for
hospitals, and other private and government accrediting organizations require
increased availability of information on such matters as the verification of
physician credentials, quality improvement, risk management, access to medical
records and infection control. JCAHO has coupled these increasingly stringent
quality-control standards with a demand for delivery of information through
electronic filings. To meet these demands, hospitals and other healthcare
facilities are being forced to devote far greater attention and resources to
their data gathering and reporting programs concerning the delivery of quality
care than they have in the past.

     There are approximately 20,000 extended care facilities and according to
the American Hospital Association, there are now approximately 5,200 hospitals
in the United States. These are our primary market focus.


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Our Business Strategy

     Our long-term strategy is to become a leading provider of software
information products and services in the healthcare industry by responding to
the increased demand for information and data on quality of care, risk
management, costs and other matters concerning the management of
hospital/extended care facility patient care by the designing, development,
selling and maintenance of software systems which monitor the care of patients.
This will empower the hospitals to contain costs, increase efficiency, improve
the quality of care and manage risk and management of patients. We intend to
market DataQual, DataQuotient and I-Link Systems and other derived systems to
hospitals, extended care facilities, ambulatory care centers, healthcare
networks, in-home care agencies, independent practice associations and other
healthcare clinics.

     Until recently we concentrated on the acute care hospital market, which
constitutes over 60% of the existing market for patient care information
delivery software. We have, most recently, begun to provide software systems to
the extended care market. Our strategy includes the following key elements:

     .   Continue sales and installation of DataQual with the I-Link interface
         engine and provide enhancements of those products through additional
         research and development;
     .   Begin sales and installations of DataQuotient with the I-Link interface
         engine to extended care facilities;
     .   Continue sales and installation of I-Link Enterprise and the Central
         Data Repository and enhancements of this product through additional
         research and development;
     .   Expanded marketing of these products through direct implementation
         contracts and joint marketing agreements with additional hospital
         associations, nursing home associations and others, as well as the
         expansion of our direct sales efforts focused on individual and groups
         of hospitals and other types of healthcare facilities;
     .   Maintenance of our existing client base by providing support, software
         upgrades and consulting services;
     .   Expansion of our operations through strategic mergers and acquisitions.

     Additionally we continue: (1) the marketing of these products to existing
customers and future customers; (2) the installation of the products in newly
licensed facilities; and, (3) the maintenance and updating of systems already
installed.

Products

DataQual

     DataQual is a modular healthcare system that can supply many of a
hospital's quality and risk management and analytical and reporting needs. Built
around the DataQual Data Repository, a relational database that runs stand-alone
or on local area networks (LANs) at the hospital, the system can gather data
from all information systems in a hospital, via the I-Link interface engine.
DataQual then integrates this data with pertinent quality and risk management
data, performs sophisticated analysis of the data and provides reports thereon,
in either paper or electronic form.

     The software system runs on an included Windows NT server, allowing it to
economically meet the hospital quality improvement and risk management needs of
many different size institutions. Its modular technology allows smaller
hospitals to buy the DataQual components they need and add more as their needs
change or their budget allows. The system is an integrated, standard-based
technology, highly adaptable to changing demands.

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     Additionally, the DataQual system can take the hospital's sophisticated
quality and risk information that has been privacy formatted and send it, using
I-Link Enterprise, over an Internet based Virtual Private Network to our Central
Data Repository located at their affiliated healthcare group, to a state-wide
healthcare association and/or to an insurance company for performance
measurement and statistical analysis purposes.

     The DataQual system is composed of several modular systems and sub-systems:


          .  DataQual - Quality Improvement System (QIS)
          .  DataQual - Risk Management System (RMS)
          .  I-Link interface engine

DataQual - (QIS)

       DataQual QIS is a Windows-based, fully integrated software system, which
gathers and reports data on the quality of care delivered. The system automates
one of the most labor-intensive aspects of a hospital's operation: data
collection, assessment, tracking and reporting. DataQual QIS tracks the entire
quality improvement process from data collection, through data analysis and
problem identification to final problem resolution. The major modules available
with the DataQual QIS System are:

          .  Quality Improvement
          .  Staff Credentialing
          .  Utilization Management
          .  Infection Control

     Each module is priced and installable independently. This allows a hospital
to configure the system according to their initial quality improvement
requirements and then add other function system modules as they grow or as the
need arises. The system provides vital quality of care data to hospital
management and affiliated outside organizations for comparative analysis of
quality against costs in an era of great concern for the total quality of the
delivery of healthcare.

DataQual - (RMS)

     Tracking, comparing, reporting and evaluating the factors related to a
liability risk occurrence, incident or claim within or across hospitals is the
function performed by the DataQual Risk Management System (RMS). RMS brings
integrated occurrence, incident and claims tracking from hospital or groups of
hospitals through insurance carriers. RMS integrates into one unified risk
management system:

          .  Risk management
          .  Staff credentialing
          .  Worker's compensation features
          .  Quality monitoring and adjustment
          .  A risk data repository

     By capturing and tracking occurrences and incidents prior to becoming
claims, a hospital and its insurance carrier can identify the steps needed to
improve the quality of care delivered and, therefore,

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reduce risk occurrences and costs. This process improvement can have dramatic
effects on the delivery of healthcare and provide significant cost savings.

     After risk related data capture at the hospital(s), DataQual- RMS can feed
information, using I-Link Enterprise, via an Internet based Virtual Private
Network into a Central Data Repository focused on risk, where risk information
analysis and reporting is performed. This analysis can incorporate other
hospitals privatized data and be shared with the hospitals for the purpose of
additionally reducing the risks associated with delivering cost-effective
quality healthcare.

     The DataQual Risk Management System runs on an included Windows NT server
in a stand-alone or networked mode. It also is available with the I-Link
interface engine, which provides non-invasive data connectivity and data
interchange with any number of disparate hospital information systems available
in the hospital. With I-Link in place, the entire spectrum of staff, patient and
visitor information is made available for context analysis and reporting by the
Risk Management System. The RMS system thus provides a unified and cost
effective hospital Risk Management System.

I-Link interface engine

     I-Link interface engine connects the DataQual quality and risk hospital
based data repositories to the disparate mainframe and client/server systems in
most hospitals, including the new automated patient records systems. This
recently redesigned interface engine is a non-invasive, intelligent software
module adhering to and complying with the healthcare industry standards for
electronic data interchange. I-Link is a sophisticated data capture tool, which
transfers data between disparate software applications, regardless of software
languages, operating systems or hardware platforms.

     We can customize I-Link to automatically query any hospital system for the
specific data required and then send that data to the hospital DataQual
repository. I-Link creates an interface without invading or altering host
applications and without the need to know an application's software source code,
file layouts or structures. I-Link is designed to fully address and resolve a
broad range of real-time interface requirements within a hospital environment.

     We believe that if combined, DataQual QMS, DataQual RMS, and I-Link
interface engine can meet the overall quality and risk data analysis and
reporting needs of hospitals and affiliated organizations.

DataQuotient

     The DataQuotient system, like its sister system DataQual, is a modular
healthcare system that can supply many of an extended care facilities quality
and risk management and analytical and reporting needs. Built around a data
repository, a relational database that runs stand-alone or on local area
networks (LANs) at the facility, the system can gather data from any available
information systems, via the I-Link interface engine. DataQuotient then
integrates this data with pertinent quality and risk management data, performs
sophisticated analysis of the data and provides reports thereon, in either paper
or electronic form.

     The software system is a bundled software system providing complete quality
and risk management for the extended care market. The System contains a
substantial portion of the functionality of the DataQual modules; Quality and
Risk Management, Utilization, Staff Credentialing and Infection Control, which
were combined into a single, full-function extended care facility quality and
risk

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management system. DataQuotient runs on an included Windows NT server, and the
entire system can be leased on a monthly basis or purchased by the extended care
facility and is priced to the market. The system is an integrated, standards-
based technology, highly adaptable to changing demands of the extended care
marketplace.

     Additionally, the DataQuotient system can take facilities' quality and risk
information that has been privacy formatted and send it, using I-Link
Enterprise, over an Internet based Virtual Private Network to our Central Data
Repository located at their affiliated healthcare group, to an extended care
association and/or to an insurance company for performance measurement and
statistical analysis purposes.

I-Link Enterprise

     The I-Link Enterprise system automates the collection of real time hospital
and extended care facilities clinical information, including DataQual and
DataQuotient quality and risk information, and sends it via an Internet based
Virtual Private Network to a Central Data Repository healthcare database. This
virtual network, which uses an expanded version of our I-Link interface engine,
changes manual service bureau healthcare systems, which only collect
hospital/extended care facility billing data, into on-line, source data
collection systems for groups of hospitals and extended care facilities,
hospital association members or insurance company client hospitals.

     In-patient and outpatient clinical and quality and risk data is collected,
corrected, encrypted and sent, using I-Link Enterprise, to a client Central Data
Repository. Access to the data is then provided to affiliated hospital and
extended care facilities to facilitate performance improvement and measurement
strategies. Prior information collection methods utilized billing data, which
are many months to years old. This timely, very accurate tactical information,
which has not yet been transmuted into billing data, then becomes extremely
useful strategic information available for use by all of the affiliated
hospitals and extended care facilities.

-I-Link Enterprise's- Central Data Repository

     I-Link Enterprise is used to first gather, cleanse and map data and then
populate remote Central Data Repositories with the hospital and extended care
facilities information via a private and secure Internet based Virtual Private
Network. The sophisticated, detailed and timely hospital/extended care facility
information is privacy formatted prior to sending to the Central Data
Repository. These repositories can be configured to contain information as
simple as liability risk incidents, up to one containing timely, complete
detailed hospital/extended care facility clinical, administrative and financial
information, including the DataQual and DataQuotient quality and risk data.
These I-Link Enterprise Central Data Repositories are used by hospital groups,
extended care groups, affiliated statewide hospital and extended care
organizations including hospital and extended care associations and insurance
carriers, for performance improvement measurement and statistical analysis
purposes.

Installation and Training

     Installation includes system design, file creation, system implementation,
training, consulting and system start-up. Our installation and training
procedures are designed to instruct the hospital and extended care customer in
data entry, report generation and retrieval. Our operations group finalizes the
testing and system acceptance by the customer. Customer training is conducted at
the customer site and

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includes up to a proportionate number of initial product training days,
depending on the system and modules purchased.

Support and Maintenance

     We provide software maintenance, system design, consulting, installation,
training and support for all of our software products. Support teams, which
include quality improvement nurses, registered nurses, communications and
software technicians and program developers, assist customers throughout the
course of their relationship with us. We also provide toll free telephone and
on-site support. Software maintenance is provided to all of our customers. Along
with telephone and on-site support, software enhancements are included under
license contracts. Customer support personnel are available to answer questions
and solve operational difficulties. The customer support group works closely
with the field support personnel to solve customer problems on-site.

Sales and Marketing

     We generate sales opportunities through referrals, direct association
marketing, industry specific seminars, and trade conventions. Our sales staff
calls on potential customers to demonstrate the system and attempts to bring
software sales to closure.

     To date, we have focused our marketing efforts on hospital and extended
care associations in the United States, liability insurance companies and
selected referral opportunities. We intend to continue our current marketing
efforts, however, no assurance can be given that we will be able to generate
sufficient funds from our operations to enable us to undertake such activities
on an expanded basis.

     Management believes, based upon information received from JCAHO, that
healthcare provider's efforts for continuous quality improvement and total
quality management increasingly will not be limited to hospitals. Given this
market trend, management intends, given adequate financial resources, to market
the DataQual System to not only the hospital market segment but also to
ambulatory care centers, healthcare networks, in-home care agencies, independent
practice associations and clinics. We have in the past, sponsored an annual
national user conference, which includes seminars and training for DataQual
System users. Management believes it will continue sponsoring these conferences.

Customers

     We have installed the DataQual System in over 100 public and privately
owned hospitals and currently support approximately 25 hospitals that use our
systems. In addition, we have installed DataQual Systems in 29 states including
Puerto Rico. Our client base ranges in bed size from 30 to over 1,500 beds.

     We market our products and services to substantially all hospitals,
regardless of specialties, and all extended care facilities. We believe that the
DataQual and DataQuotient Systems, including the I-Link interface engine and the
I-Link Enterprise system, including the Central Data Repository, provides the
flexibility required for installation in most hospitals and extended care
facilities. We further believe that increasing portions of our sales of DataQual
are likely to be made in hospitals with 400 beds or less and to hospital
networks in both urban and rural areas. Our hospital customers include medical
teaching centers, government hospitals and large hospital groups. We also
believe, from our research, that the extended care marketplace is very
underserved in quality of care systems and will provide increasing portions of
our overall system sales.

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Recent Contract Awards

     We have been awarded a number of contracts to automate the collection of
clinical healthcare information from hospitals throughout a state. The largest
contract is a statewide, five-year $3.0 million contract with the Ohio Hospital
Association ("OHA") to automate the collection, hospital clinical information
via an Internet based Virtual Private Network, to a statewide Central Data
Repository healthcare database. I-Link Enterprise, which uses this virtual
private network, changes a batch hospital service bureau system, collecting
billing data, into an on-line, data collection system for 189 statewide member
hospitals, which are provided access to this data to facilitate performance
measurement strategies.

     This agreement followed two other contracts with OHA. One to conduct the
pilot phase of the 1999 Data Collection System, which was successfully
completed, and one to process their 1998 data, which was completed successfully.

     The second contract awarded is to automate the collection of hospital risk
incidents and to then implement a centralized risk management and quality
improvement system for the member hospitals of the Alabama Hospital Association
Trust (AHAT).

     This project creates an Internet based Virtual Private Network risk
management and quality improvement healthcare data collection system for 85
statewide hospitals. This will create the first statewide, Internet-based
healthcare risk and quality data collection and management system of its kind.
With this system, we are transforming a statewide manual, risk data submission
process into a fully automated one, extending on into a system utilizing
DataQual and DataQuotient to provide full quality improvement and measurement.

     By providing AHAT and its member hospitals and extended care facilities
with Internet access to a statewide, central source of timely risk event and
quality improvement information, we are producing a significant increase in the
hospitals and extended care facilities querying, tracking, reporting and
improvement capabilities. This combination of I-Link Enterprise and the DataQual
and DataQuotient System gives the AHAT members extensive tools to improve the
delivery of healthcare throughout the State of Alabama.

     We also have signed a comprehensive marketing agreement with a state
hospital association. The first of its kind is with the Center for Health
Affairs, Inc., a wholly owned subsidiary of the New Jersey Hospital Association.
("NJHA") Under the agreement, the Princeton-based Center for Health Affairs will
market DataQual, Quality and Risk Management Systems; along with the new I-Link
interface engine to the 84 acute care members of the NJHA.

     DataQual will be the tactical, quality improvement engine providing NJHA's
hospital members with staff credentialing, utilization review, risk management
and infection disease control functions, which are so integral to a hospital's
quality management activities. The joint marketing plan is to extend the
DataQual System into a statewide total quality improvement program for the
members of NJHA's Center for Health Affairs.


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Competition

     The market for healthcare information systems is highly competitive. We
believe the principal competitive factors include the breadth and quality of
system and product offerings, access to proprietary data, the proprietary nature
of methodologies and technical resources, price and the effectiveness of
marketing and sales efforts.

     We compete with larger vendors such as McKesson HBOC, Inc., HCIA, Inc. and
Eclipsys, Inc., and with vendors whose sizes are similar to ours, such as
Medical Information Data Systems, Inc. ("MIDS"), Cantor and Associates and
LANDACORP. DataQual competitors include McKesson HBOC, Inc., offering a quality
and risk overview only competing system; and MIDS, Cantor and Associates and
LANDACORP offering similar systems, but non-modular systems. I-Link Enterprise
competitors include HCIA, Inc. offering batch data collection services to
hospital associations and state governments and; Eclipsys providing central data
repositories along with a DataQual competing product.

     Some of our existing and potential competitors have significantly greater
research, development, financial, technical, marketing and personnel resources
and more extensive business experience than we do. As the market for our
products and services further develops, additional competitors may enter the
market and competition may intensify. There can be no assurance that we will be
able to maintain the quality of our software information products and services
relative to those of our competitors or continue to develop and market our
systems and services effectively or to compete successfully in new markets. We
are not aware of any recent announcements made on behalf of any of our
competitors or recent entrants into the healthcare information systems market,
which, in either case, would have a material adverse impact on our operating
results or financial position.

Software Research and Development

     We conduct research and development to enhance and expand our existing
product offerings. The open, modular design of the both the DataQual and
DataQuotient Systems allows us to develop additional features rapidly and to
modify the systems to accommodate customers in different environments. I-Link
Enterprise development utilizes similar modularity and object oriented
programming strategies.

     Research and development priorities are derived from a combination of
strategic marketing requirements and customers' requests for additional
capabilities. New modules and enhancements are coordinated to optimize the
system as a whole and to ensure complete integration of the various
applications. We plan to continue development of the DataQual and DataQuotient
Systems with the I-Link interface engine and I-Link Enterprise, with the Central
Data Repository by continuing to expand the system's oversight and reporting
capabilities and information monitoring capabilities. This research and
development effort is focused on both existing products and new product
offerings. Although most of our products have been developed internally, we
believe that we can respond to changing market requirements more quickly by
acquiring complementary products or by licensing them for distribution either as
elements of our developed products or under private labels.

     The healthcare software industry is subject to rapid technological advances
and changes in client requirements. Our future success will depend to a
substantial degree upon our ability to enhance our current products and develop
and introduce new products that keep pace with technological developments,
respond to evolving client requirements, and continue to achieve market
acceptance. (See

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"Certain Factors That May Affect Future Results.... - Dependence on Limited
Number of Products--Need for New Technology" and "Risks of Our Business -New and
Uncertain Markets").

Intellectual Property

     We regard the technology incorporated in our products as proprietary.
However, like many other software companies, we do not hold any patents and rely
upon a combination of copyright, trademark and trade secret laws and contractual
restrictions to protect our rights in the software products. To date, our policy
has been to pursue copyright protection for the software and related
documentation. We have copyright and trademark registration in the United States
for "DataQual" and "I-Link". In addition, our key employees and independent
contractors and distributors are required to sign nondisclosure and secrecy
agreements. Despite our efforts to protect these proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. Policing unauthorized use of
our products is difficult, and we may not be able to determine whether or the
extent, if any to which piracy of our software products may exist.

     It may be possible for unauthorized third parties (including competitors)
to copy aspects of our products, whether or not in violation of our rights. We
believe that because of the complexity of the technical know-how accumulated and
possessed by us, our software management, key personnel, and the rapid pace of
technological change in the healthcare software industry, legal protection is a
less significant factor in our success than the knowledge, ability and
experience of our employees, the frequency of product enhancements and the
timeliness and quality of support services that we provide.
     DataQual, DataQuotient, I-Link and I-Link Enterprise generally are sold
pursuant to software license agreements, which, in most cases, grant customers a
nonexclusive, nontransferable license to use our products at a specified site
and contains terms and conditions prohibiting the unauthorized reproduction or
transfer of our products.

Government Regulation

     Our products and services are not currently subject to government
regulation per se. However, the United States Food and Drug Administration
("FDA") has promulgated a draft policy for the regulation of certain computer
products as medical devices under the 1976 Medical Device Amendments to the
Federal Food, Drug and Cosmetic Act. To the extent that computer software is
considered a medical device under the policy, computer software manufacturers
could be required, depending on the product, to (i) register and list their
products with the FDA, (ii) notify the FDA of, and demonstrate to the FDA, the
product's substantial equivalence to other products on the market before
marketing such product, and/or (iii) obtain FDA approval of such product by
demonstrating safety and effectiveness before marketing the product. In
addition, such products would be subject to other statutory controls, including
those relating to good manufacturing practices and adverse experience reporting.
Although it is not possible to anticipate the final form of the FDA's policy
with regard to computer software, we expect that, whether or not the draft is
finalized, the FDA is likely to become increasingly active in the regulation of
computer software intended for use in clinical settings.

     The United States healthcare industry is subject to extensive government
regulation relating to such matters as facility expansion, capital expenditures
and reimbursement policies. There can be no assurance that reimbursement for our
systems and services will be or continue to be available or that future
reimbursement policies of Medicare, the Healthcare Maintenance Organizations
("HMO") and other third party payers will not adversely affect our ability to
sell our systems and services on a profitable basis. The effect of future
legislation and government regulation upon prospective clients

                                       12
<PAGE>

may, in certain circumstances, have a material adverse effect upon our business.
Conversely, changes in the regulatory environment have increased, and may
continue to increase, the needs of healthcare organizations for cost-effective
information management, thereby increasing the demand for our products and
services. In addition, comprehensive federal healthcare reform legislation
could, depending on the form in which such legislation may in the future, be
enacted, have a substantial impact on our business. We cannot predict the
impact, if any, of future legislation and government regulation on our business.

Product Warranty

     We provide a limited warranty for a period of 90 days that our software is
free from defects in material and workmanship and operates substantially in
accordance with functional specifications. We are not responsible for any defect
caused by the user having made any changes or misused or damaged its programs or
for damages in excess of amounts paid by the user to us. To date we have not
experienced any financial loss due to our warranties and, to our knowledge,
there have been no warranty claims filed or threatened. See "Certain Factors
That May Affect Future Results ... - Risk of Product Defects; Product Liability"

Compliance with Environmental Laws

     We have had no need to spend monies on compliance with local, state or
federal environmental laws.

Number of Employees

     As of May 24, 2001, we have 10 full time employees:

               Department                                   Number of Employees
               ----------                                   -------------------
               Sales and Marketing                                    1
               Operations and Product Development                     7
               Administration                                         2

     We have recruited seasoned technical engineers with considerable experience
in the software industry. Douglas A. Cohn, our Chairman, President and We
believe that our current staffing, cost Chief Executive Officer joined our
Company in structure, and current operating plans will allow November 1999. He
is also the President and us an opportunity to compete effectively as a Chief
Executive Officer of Internet Guide, Inc., supplier of information management
software to the a publishing firm. hospital, extended care facilities and other
healthcare markets.

Certain Factors That May Affect Future Results, Financial Condition And The
Market Price of Securities

COMPANY IN INITIAL     While we have been in existence for over six years, we
STAGES                 only entered the production stage in 1999 for our
                       principal products, DataQual with the interface engine
                       and I-Link Enterprise with its Central Data Reporting. To
                       continue to grow and become profitable: we must promptly
                       complete the upgrade installations of DataQual in the
                       presently licensed locations while continually adding new
                       licensees; through the assistance of our marketing
                       partners, sell and install new

                                      13
<PAGE>

                                        DataQual Systems; complete, sell and
                                        install new DataQuotient Systems,
                                        complete the installation of I-Link
                                        Enterprise for the Ohio Hospital
                                        Association and Alabama Hospital
                                        Association.

WE HAVE A LIMITED OPERATING HISTORY     We began operations in 1993. As a
UPON WHICH YOU MAY EVALUATE US          result, any evaluation of our prospects
                                        and us will be based on a limited
                                        operating history. In addition, our
                                        products have been recently developed
                                        and marketed and our business strategy
                                        has been revised. Consequently, our
                                        historical results of operations may not
                                        give you an accurate indication of our
                                        future results of operation or
                                        prospects.

WE HAVE AN ACCUMULATED DEFICIT          We have incurred substantial losses
                                        since inception. As of December 31,
                                        2000, we had an accumulated deficit of
                                        approximately $ 9.4 million. We have
                                        experienced significant losses in
                                        connection with our development and
                                        marketing of our new products. See
                                        "Management's Discussion and Analysis of
                                        Financial Condition and Results of
                                        Operations - Liquidity and Capital
                                        Resources."

WE NEED TO GENERATE ENOUGH CASH FROM    For the year ended December 31, 1999, we
OPERATIONS TO FUND OUR GROWTH PLANS     incurred a loss from operations of
                                        $230,019, but we made a profit of
                                        $1,040,025, after extraordinary income.
                                        For the year ended December 31, 2000, we
                                        incurred a loss from operations of
                                        $393,717 and made a profit of $1,203,228
                                        after other income primarily from gains
                                        on the sale of securities, and
                                        extraordinary income. To fund our
                                        operations, we require a continuation of
                                        the 2000 operating trend or additional
                                        financing or a substantial increase in
                                        the number of contract awards to
                                        generate additional operating revenue.
                                        There can be no assurance, however, that
                                        our liquidity goals will be reached in
                                        the immediate future, if ever.

OUR INABILITY TO MANAGE GROWTH COULD    To manage our growth, we must implement
HURT OUR BUSINESS                       systems, and train and manage our
                                        employees. We may not be able to
                                        implement these action items in a timely
                                        manner or at all. Our inability to
                                        manage growth effectively could have a
                                        material adverse effect on our business,
                                        operating results and financial
                                        condition. There can be no assurance
                                        that we will achieve our planned
                                        expansion goals, acquire new contract
                                        awards, develop and market new products,
                                        manage our growth effectively, or
                                        operate and service our existing and new
                                        business profitably.

WE FACE SUBSTANTIAL COMPETITION         The market for healthcare information
                                        systems is fragmented but highly
                                        competitive and such competition is
                                        expected to continue to increase. There
                                        are no substantial barriers to entry in
                                        this market and we believe that the
                                        Company's ability to compete depends
                                        upon many factors within and beyond its
                                        control. We believe the principal
                                        competitive factors include the breadth
                                        and quality of software systems and
                                        product offerings, access to proprietary
                                        data, the proprietary nature of our
                                        methodologies and technical resources,

                                       14
<PAGE>

                                        pricing and the effectiveness of
                                        marketing and sales efforts.

DEPENDENCE ON KEY PERSONNEL.            As a small company, we are highly
                                        dependent on certain key employees, in
                                        particular on Douglas A. Cohn, our
                                        Chairman, President and Chief Executive
                                        Officer. The loss of Mr. Cohn a without
                                        qualified replacement would have a
                                        material adverse effect on our ability
                                        to conduct operations. We have not
                                        purchased a "key man" insurance policy
                                        on him.

OUR SUCCESS IS DEPENDENT ON OUR KEY     We believe that our success will depend
PERSONNEL                               on continued employment of our
                                        management team. If one or more members
                                        of our executive management team were
                                        unable or unwilling to continue in their
                                        present positions, our business,
                                        financial condition and operating
                                        results could me materially adversely
                                        affected if we could not find qualified
                                        replacements. Our success also depends
                                        on having trained technical engineers.
                                        We will need to continue to hire
                                        additional personnel as our business
                                        grows. Competition for qualified
                                        technicians personnel is strong
                                        everywhere. Our business, financial
                                        condition and operating results will be
                                        materially adversely affected if we
                                        cannot hire and retain suitable
                                        technical personnel.


HISTORY OF LOSSES AND NEGATIVE          We have had continuous losses from
WORKING CAPITAL                         operations and negative cash flow for
                                        our entire history, as shown below:

                                                            Years Ended
                                                     12-31-99        12-31-00
                                                    ---------       ---------
          Loss from Operations:                     $(230.019)*     $(393,717)*

     * Before other income and extraordinary income

PAST DUE PAYABLES, ACCRUED              At December 31, 2000 past due
EXPENSES, CLAIMS AND JUDGMENTS          obligations for which there are claims
                                        and judgments totaling approximately
                                        $470,000, which is a reduction of
                                        $296,000 from December 31, 1999.
                                        Negotiations are on-going to resolve
                                        these matters, some of which are
                                        disputed. Critical services have not
                                        been suspended, nor has there been
                                        cancellation of orders due to delays in
                                        product delivery as a result. We intend
                                        to use cash generated from operations to
                                        pay our trade creditors.

WE HAVE NOT PAID, AND WILL NOT PAY,     We have not paid cash dividends on our
CASH DIVIDENDS                          common stock and have no present
                                        intention of paying cash dividends in
                                        the foreseeable future. It is the
                                        present policy of the Board of Directors
                                        to retain all earnings to reinvest in
                                        the Company. See "Dividends."

PROVISIONS OF OUR ARTICLES OF           The Company is a Virginia corporation.
                                        Anti-takeover provisions of Virginia law
                                        could make it more difficult for a third
                                        party to acquire

                                       15
<PAGE>

INCORPORATION, BYLAWS, AND VIRGINIA     control of us, even if such change in
LAW COULD MAKE ACQUISITION OF US        control would be beneficial to
DIFFICULT                               shareholders. In addition, our articles
                                        of incorporation provide that our Board
                                        of Directors may issue preferred stock
                                        without shareholder approval. The
                                        issuance of preferred stock could make
                                        it more difficult for a third-party to
                                        acquire us, even if doing so would be
                                        beneficial for our shareholders.

RISKS OF OUR BUSINESS

DEPENDENCE ON LIMITED NUMBER OF         Our business is almost exclusively
PRODUCTS--NEED FOR NEW TECHNOLOGY       dependent at this time on three
                                        products, the DataQual System, with its
                                        I-Link interface engine and I-Link
                                        Enterprise, with its Central Data
                                        Repository, and DataQuotient. Although
                                        we plan to diversify our product line
                                        for the healthcare industry by
                                        developing new software applications to
                                        market to existing and new customers,
                                        the bulk of our sales during the next
                                        few years will come from these three
                                        products. In evaluating the DataQual, I-
                                        Link Enterprise and DataQuotient
                                        systems, investors and shareholders
                                        should also be aware that we have a
                                        registered copyright on the DataQual
                                        System and a registered service market
                                        on I-Link.

                                        As advances occur generally in the
                                        fields of networking of computers and
                                        integration of database information, we
                                        will need to keep pace by continuing to
                                        enhance DataQual and its I-Link
                                        interface engine and I-Link Enterprise
                                        with its Central Data Repository to
                                        accommodate these developments. There
                                        can be no assurance that we will succeed
                                        in doing so.

NEW AND UNCERTAIN MARKETS               The markets for healthcare software and
                                        services are relatively new, and it is
                                        difficult to predict the rate at which
                                        these markets will grow or whether new
                                        or increased competition will result in
                                        market saturation. If demand for
                                        healthcare software products fails to
                                        grow, or grows more slowly than
                                        anticipated, or if the market becomes
                                        saturated with competitors, our
                                        operations will be materially and
                                        adversely affected.

INCREASING COMPETITION                  There are limited barriers to entry in
                                        the healthcare software industry in
                                        which we operate. This market is
                                        extremely competitive and can be
                                        significantly influenced by the product
                                        developments and pricing decisions of
                                        its largest participants. We have at
                                        least three active competitors that are
                                        now selling patient information
                                        management systems similar to DataQual
                                        and competitors selling statewide
                                        patient hospital billing information
                                        systems and services similar to I-Link
                                        Enterprise. Others may appear in the
                                        future as the advantages of this kind of
                                        healthcare patient information database
                                        aggregation and integration and
                                        reporting system become apparent to
                                        hospitals and others in the healthcare
                                        management field. Many of our potential
                                        competitors are large software
                                        development and marketing companies

                                       16
<PAGE>

                                        who are fully capable of developing new
                                        software products that would offer
                                        substantial competition to DataQual,
                                        DataQuotient and I-Link Enterprise.
                                        There can, therefore, be no assurance
                                        that we will have the financial
                                        resources, technical expertise marketing
                                        and support capabilities to continue to
                                        compete successfully in this market.

GOVERNMENT REGULATION                   The confidentiality of patient records
                                        and the circumstances under which these
                                        records may be released are subject to
                                        substantial governmental regulation
                                        governing both the disclosure and use of
                                        this information. While we believe that
                                        the DataQual, DataQuotient and I-Link
                                        Enterprise Systems comply with existing
                                        rules in substantially all
                                        jurisdictions, additional, more
                                        restrictive rules governing the
                                        dissemination of medical record
                                        information may require substantial
                                        changes in the systems in the future and
                                        result in substantial costs to us. In
                                        addition, the U.S. Food and Drug
                                        Administration (the "FDA") have
                                        promulgated a draft policy for the
                                        regulation of certain computer products
                                        as medical devices. It is not possible
                                        at this time to anticipate the final
                                        form of the FDA's policy with regard to
                                        computer software, but we expect that,
                                        whether or not this draft policy is
                                        finalized, the FDA is likely to become
                                        increasingly active in regulating
                                        software intended for use in the
                                        healthcare industry. Our products could
                                        become subject to extensive regulation
                                        by the FDA.

RISK OF PRODUCT DEFECTS; PRODUCT        Software products as complex as those
LIABILITY                               offered by us might contain undetected
                                        errors or failures when first introduced
                                        or when new versions are released.
                                        Although we have not experienced
                                        material adverse effects resulting from
                                        any errors to date, there can be no
                                        assurance that, despite testing by us
                                        and by current and potential customers,
                                        errors will not be found in new versions
                                        of our products after commencement of
                                        shipments, resulting in loss of or delay
                                        in market acceptance, which could have a
                                        material adverse effect upon our
                                        business, operating results and
                                        financial condition. Although we do not
                                        maintain an "errors and omissions"
                                        insurance policy, our license agreements
                                        with our customers typically contain
                                        limited warranty provisions designed to
                                        limit our exposure to potential product
                                        liability claims. While we have not
                                        experienced product liability claims to
                                        date, the license and maintenance of our
                                        software products may entail the risk of
                                        successful claims. A successful product
                                        liability claim brought against the
                                        Company could have a material adverse
                                        effect on our business, operating
                                        results and financial condition.

POTENTIAL FLUCTUATIONS IN PERIODIC      Our revenues may be subject to
RESULTS                                 significant variation from period to
                                        period due to the discretionary nature
                                        of healthcare software purchases and
                                        will be difficult to predict. Further,
                                        although our product line includes
                                        products with sales prices from $15,000
                                        to over $200,000, the majority of our
                                        revenue is expected to be derived from
                                        products with sales prices from $15,000
                                        to $120,000. Product revenues are
                                        difficult to forecast because the market
                                        for business healthcare software
                                        products is evolving, and our sales
                                        cycle may vary substantially with

                                       17
<PAGE>

                                        each customer. See "Management's
                                        Discussion and Analysis or Plan of
                                        Operations"

MAINTAINING A MARKET FOR THE            The Shares of the common stock have been
SECURITIES MAY NOT BE POSSIBLE IN       traded on the OTC Bulletin and there has
THE FUTURE                              been no other public market for our
                                        common stock or purchase warrants. We
                                        cannot predict the extent to which
                                        investor interest in the Company will
                                        lead to the development or maintenance
                                        of a trading market or how liquid that
                                        trading market might become. If a
                                        trading market does not develop or is
                                        not sustained, it may be difficult for
                                        the shareholders to sell their shares of
                                        common stock at a price that is
                                        attractive to them.


EXTERNAL FACTORS COULD AFFECT OUR       Fluctuations in the trading price of our
COMMON STOCK TRADING PRICE              common stock and purchase warrants may
                                        result from a number of factors, some of
                                        which are beyond our control, including:
                                        .  general economic and stock market
                                           conditions;
                                        .  actual or anticipated fluctuations in
                                           our operating results;
                                        .  changes in expectations as to our
                                        future financial performance or changes
                                        in financial estimates by securities
                                        analysts;
                                        .  earnings and other announcements by,
                                           and changes in market valuations of
                                           other comparable companies and
                                        .  trading of our common stock and
                                           purchase warrants.

OUR STOCK PRICE MAY BE EXTREMELY        In addition, the stock market in general
VOLATILE AND SHAREHOLDERS MAY NOT BE    has experienced extreme volatility that
ABLE TO RESELL THEIR SHARES OR          often has been unrelated to the
WARRANTS AT A PROFITABLE PRICE          operating performance of particular
                                        companies. These broad market and
                                        industry fluctuations may adversely
                                        affect the trading price of our common
                                        stock and purchase warrants, regardless
                                        of our actual operating performance.

EXERCISE OF COMMON STOCK PURCHASE       At December 31, 2000, there were common
WARRANTS MAY HAVE A DILUTIVE EFFECT     stock purchase warrants outstanding and
ON OUR SHAREHOLDERS                     an option to purchase 680,000 restricted
                                        shares of common stock at the lesser of
                                        the trading price on the date of
                                        exercise or $1.00 per share, but in no
                                        event less than $0.35 per share. The
                                        warrants will be exercisable from a one
                                        to five year period at exercise prices
                                        ranging from $.6875 to $5.00 per share
                                        from a period beginning June 1998 to
                                        October 2005. Certain of these warrants
                                        and the option may have dilutive effects
                                        because holders of the warrants and the
                                        option would be given the opportunity to
                                        profit from a possible rise in the
                                        market price of the underlying
                                        securities with a resulting dilution in
                                        the interests of our other security
                                        holders and future investors.

                                        We have also agreed, at the request of
                                        the holders of the Warrants, under
                                        certain circumstances, that we will
                                        register under federal and state
                                        securities laws the Warrants or the
                                        securities underlying the Warrants.

                                       18
<PAGE>

                                        Exercise of these registration rights
                                        may involve substantial expense to us.
                                        Exercise of these registration rights
                                        may adversely affect the price of the
                                        common stock.

                                       19
<PAGE>

ITEM 2.  Description of Properties

       At present, we lease a 2,389 square feet of office space, located at 8150
Leesburg Pike, Suite 503, Vienna, Virginia 22182. We currently have a nineteen
month sub-lease, which ends on June 30, 2002. The rent is $4,392 a month. These
premises should suffice for our administrative offices for the foreseeable
future.

ITEM 3.  Legal Proceedings

       On January 10, 1997, the Internal Revenue Service ("IRS") filed in the
Circuit Court for the County of Fairfax, Virginia a Notice of Federal Tax Lien
in the amount of $386,234.73 against us for employment withholding tax
liabilities of Integrated Systems Technology, Inc. ("IST"), formerly a wholly
owned subsidiary of ours acquired in 1995. It is the opinion of counsel, that
there is no "alter ego" liability on the part of us and that the lien filed
against us is wrongful and should be released. We have made efforts to get the
lien released but the IRS has refused. In the meantime, the IRS since the filing
of the Notice has not made any effort to enforce it against us. In the event the
lien is not released, we may have to bring a suit against the IRS in the Federal
courts for wrongful levy.

       A suit was filed on May 17, 200, by Cynthia Newbold as Trustee of The
Steven W. Bingaman 1996 Trust alleging that restrictions be removed from certain
stock certificates owned by the trust, and that certain shares be issued to the
trust. The restrictions have been removed, and the claim for approximately
500,000 shares from last year's one-for-seven distributions is being assessed by
counsel. The company does not believe there to be any financial liability in the
case.

       A contract dispute of $350,000 with Marketing Enterprises, Inc., is
set for arbitration. The company is vigorously defending the action.

       Actions by Sallie E. Buck for $500,000 and the Department of Labor for
$80,000 were dismissed by the courts.

       Other suits arising in the ordinary course of business are pending
against us. We believe the ultimate outcome of these actions will not result in
a material adverse effect on our consolidated financial position, results of
operations or cash flows.

ITEM 4.  Submission of Matter to a Vote of Security Holders

         NONE

                                       20
<PAGE>

                                    PART II

ITEM 5.  Market for Common Equity and Related Stockholder Matters

(a)     Our Common Stock is traded on the NASDAQ Bulletin Board.

(b)     Our Common Stock was listed on the NASDAQ Bulletin Board on
        approximately April 16 of 1996.

(c)     Our Common Stock is approved for trading on the NASDAQ Over the Counter
        Bulletin Board, trading under the stock symbol "HQNT". The chart below
        breaks down the high bid and the low bid prices for each of the last 9
        quarters (as reported by NASDAQ Trading & Market Services) which
        quotations reflect inter-dealer prices, without retail mark-up, mark-
        down or commission, and may not reflect actual transactions.

     During 1998, 1999 and the first quarter of 2000, our high and low prices
were is follows:



                                   HIGH       LOW
                                   ----       ---

1999
----
1/st/ Quarter                      1.06       .50
2/nd/ Quarter                      3.93       .44
3/rd/ Quarter                      1.43       .56
4/th/ Quarter                      2.06       .50

2000
----
1/st/ Quarter                      7.06      1.47
2/nd/ Quarter                      5.78      2.66
3/rd/ Quarter                      5.59      1.50
4/th/ Quarter                      1.78       .59

2001
----
1/st/ Quarter                      1.84       .38


     On May 24, 2001, the closing prices of our Common Stock were $0.35 bid and
$0.39 asked, as quoted on the NASDAQ OTC Bulletin Board.

     The Articles of Incorporation authorize the issuance of 100,000,000 shares
consisting of 90,000,000 shares of Common stock and 10,000,000 shares of Series
Preferred Stock. The Common Stock has a par value of $0.0001 per share and the
series Preferred Stock shall have such par value, as the Board of Directors
shall determine. No Preferred Stock shares have been issued.

     At the time of the merger, effective June 14, 1999, the certificate of
incorporation of the predecessor corporation, Integrated Healthcare Systems,
Inc., formed in March of 1993 authorized the issuance of 50,000,000 shares of
common stock having a par value of $0.0001 per share.

     There are approximately 1,363 holders of record of our Common Stock as of
April 27, 2001, which figure does not take into consideration those shareholders
whose shares are held in the name of broker-dealers.


                                       21
<PAGE>

Common Stock Issued in 2000

     In January 2000, 50,000 shares of common stock were issued to the holder of
a warrant at an exercise price of $0.75 per share in exchange for $37,500 in
cash.

     In January 2000, the Company issued 3,800 shares of common stock at $ 2.625
per share to a director of the Company in exchange for $9,975 in cash.

     In February 2000, 325,000 shares of common stock were issued to the holder
of a warrant at an exercise price of $0.75 per share in exchange for $243,750 in
cash.

     In February 2000, the Company issued  10,000 shares of common stock at
$ 2.375 per share in exchange for $23,750 in cash.

     In March 2000, the Company issued 4,415 shares of common stock which are
subject to restrictions under Rule 144 of the Securities Act of 1933 in exchange
for $ 35,320 less $ 13,797 in debt forgiveness at $ 4.875 per share.

     From March through July 2000, the Company issued 33,550 shares of common
stock to the holders of Class A Redeemable Warrants at an exercise price of
$5.00 per share in exchange for $167,750 in cash.

     In March 2000, the Company issued a total of 258,309 shares of common stock
to the holders of warrants, in exchange for an aggregate of $208,808 which
included $108,808 in cash and $100,000 in marketable securities as follows:
8,309 shares at an exercise price of $1.06 per share and 250,000 shares at an
exercise price of $0.80 per share.

     In March 2000, the Company issued 3,000 shares of common stock at $ 3.00
per share in exchange for $ 9,000 in cash.

     From March through September 2000 the Company issued 113,273 shares of
common stock in exchange for an aggregate of $125,851 for prepaid and current
year expenses as follows: 15,000 shares at $2.00 per share; 20,000 shares at
$1.55 per share; 5,000 shares at $1.33 per share; 13,273 shares at $1.00 per
share and 60,000 shares at $0.75 per share.

     In April 2000, 1,007,795 shares of common stock were issued to the holders
of 1,384,971 warrants exercisable as follows: 575,000 at $1.00 per share;
200,000 at $1.50 per share and 619,971 at $2.00 per share, in exchange for
$536,236 in cash and the return of 387,176 warrants valued at $4.08 per share as
of the date of the transaction.

     In May and September 2000, the Company issued 819,617 shares of its common
stock in exchange for 5,737,319 Class A Redeemable warrants at a conversion rate
of one share of common stock for every seven warrants received in the exchange
pursuant to the Exchange Program announced February 29, 2000 in which the
warrant holders participating in the exchange program agreed to a two year
restriction on selling the shares under Rule 144 of the Securities Act of 1933.

     In May 2000, 50,000 shares were issued to the holder of a warrant at an
exercise price of $0.75 per share in exchange for $37,500 in cash.

     In July and August 2000, the Company issued 3,857,289 shares of its common
stock to shareholders of record as of July 31, 2000 and August 31, 2000
respectively, who submitted proof of

                                       22
<PAGE>

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 July 2000, the Company issued 75,000 shares of common stock at $ 1.00
per share in exchange for $75,000 in cash.

     In August 2000, the Company issued 107,667 shares of common stock at $ 0.23
per share in exchange for $25,000 in cash.

     In September 2000, the Company issued 415,000 shares of common stock in
 exchange for $622,500 in commercial trade credits.

     In October 2000, 22,162 shares were issued to the holder of a warrant at an
exercise price of $1.50 per share in exchange for $33,243 in cash.

     In December 2000, the Company issued an aggregate of 281,300 shares of its
common stock to a former officer and director as payment for accrued salary and
repayment of debt and other expenses totaling $126,092.



Warrants and Options Issued in 2000

     In August 2000, we issued 75,000 warrants to purchase 75,000 shares of our
common stock at $1.00 per share for a period of one year in connection with the
warrant holder's purchase of 75,000 shares of our common stock at $1.00 per
share. We issued 30,000 warrants to purchase 30,000 shares of our common stock
at $3.02 per share. The warrant holder exercised 11,000 warrants at $3.02 per
share in November 2000.

     In October 2000, we issued 200,000 warrants to purchase 200,000 shares of
our common stock at an exercise price of $.6875 per share and 200,000 warrants
to purchase 200,000 shares of our common stock at an exercise price of $1.00 per
shares to two former Officers and Directors for a period of fives years and two
years respectively. These warrants were issued in lieu of the implementation of
an executive management stock option program.

     In September 2000, we granted an option to a company to purchase 680,000
shares of our common stock at the lower of $1.00 per share or the lowest trade
price on the date of exercise, but not less than $0.35 per share. The option
expires on December 31, 2001. In May 2001, the option was exercised at $0.35 per
share in exchange for commercial trade credits valued at $238,000.



                                       23
<PAGE>

Subsequent Events

On February 8, 2001, warrant certificates for the purchase of 834,434 shares of
the Company's common stock were exercised at a price of $.63 per share in the
aggregate of $525,000. Payment was made by delivery to the Company of a
promissory note in the amount of $525,000 with an interest rate of 6% per annum.
The note matures on December 31, 2001.

On March 29, 2001, the Company filed Form S-8 in which 395,000 shares owned by a
former officer and director were registered under the Securities Act of 1933,
and is subject to a selling restriction for shares sold in the open market
through registered broker-dealers whereby no more than five percent of the
previous day's trading volume or 5,000 shares of the registered common stock may
be sold in open market transactions.


Dividend

     We have not had net annual profits on operations and therefore are
currently proscribed under the Virginia Code from declaring dividends. We have
not paid any cash dividends on our Common Stock. Our Board of Directors has no
present intention of declaring any cash dividends, as we expect to re-invest all
profits in the business for additional working capital for continuity and
growth. Our Board of Directors, upon considering the conditions then existing,
including our earnings, financial condition, capital requirements, and other
factors will determine the declaration and payment of dividends in the future.

ITEM 6.  Management's Discussion and Analysis or Plan of Operations

     The following "Discussion and Analysis" provides information which
management believes is relevant to an assessment and understanding of the of the
Company's consolidated results of operation and financial condition for the
years ended December 31, 2000 and 1999. The discussion should be read in
connection with the audited consolidated financial statements of the Company and
accompanying notes.

Material Changes in Results of Operations   Overview

     H.Quotient, Inc. is a Virginia corporation, incorporated on May 20, 1999,
and is the successor by merger to Integrated Healthcare Systems, Inc. ("IHS")
which was a Delaware corporation organized in 1993 under the name of Travel
Technologies International, Inc. Our business, which we acquired from IHS
through the merger, is the designing, development, selling and maintenance of
computer software systems for the management of patient care in hospitals and
extended care facilities.

     Our business and assets were owned and operated by IHS until June 14, 1999
the effective date of a downstream merger between the companies. The 7,526,284
shares of outstanding common stock (par value $.0001) of Integrated Healthcare
Systems, Inc. was exchanged for 7,526,284 shares of H Quotient, Inc. common
stock, (par value $.0001).

Year Ended December 31, 2000 Compared With the Year Ended December 31, 1999

     Revenues for the year ended December 31, 2000 increased to $1,931,650 from
$1,537,535 for the year ended December 31, 1999. The increase of $394,115,
resulted primarily from the sale of

                                       24
<PAGE>

marketing rights for DataQuotient and completion of the software delivery phase
under contracts for I-Link Enterprise software systems and emphasizing the
related services and installations of our I-Link Enterprise system. .

     The cost of sales and services for the year ended December 31, 2000
increased to $578,899 from $543,130 for the year ended December 31, 1999. The
increase of $35,769 resulted primarily from an increase in the technical and
support staff associated with implementing new contracts, which was partially
offset by capitalized research and development costs.

     Selling and marketing expenses for the year ended December 31, 2000
decreased to $258,429 from $259,044 for the year ended December 31, 1999. This
decrease of $615 was the result of maintaining the primary marketing outreach
approach as implemented in the previous year.

     General and administrative expenses for the year ended December 31, 2000
increased to $1,488,039 from $965,380 for the year ended December 31, 1999. The
increase of $522,659 resulted primarily from increases in consulting fees,
personnel expenses, depreciation and capitalized research and development costs.

     Interest expense for the year ended December 31, 2000 was $38,706, as
compared to $107,636 for the year ended December 31, 1999. The decrease of
$68,930 in interest expense resulted primarily from reductions in notes payable
in our debt settlement efforts in 1999 in which $1,062,000 of our outstanding
notes payable were paid.

     Interest income for the year ended December 31, 2000 was $28,176, as
compared to $5,695 for the year ended December 31, 1999.

     Other income for the year ended December 31, 2000 showed an increase in
other income of $1,505,011, net, from $96,463 for the year ended December 31,
1999. The income increase resulted from a realized gain on sales of securities
of $1,851,497, which was offset by an unrealized loss on the sale of securities
of $(357,034) and miscellaneous income of $21,078, which was derived from
credits received on expense adjustments with creditors.

     Extraordinary gains, net for the year ended December 31, 2000 was $91,934
as compared to $1,275,332 for the year ended December 31, 1999. The decrease of
$1,183,388 resulted from a reduction in debt settlements in 2000 over the
activities in 1999.

     Net Income for the year ended December 31, 2000 and the year ended
December 31, 1999 were $1,203,228 and $1,040,025, respectively.

Liquidity and Capital Resources

     We have funded our operations and working capital needs through a series of
private equity and debt offerings, the exercise of investor warrants,
investments and payments received from customers.

     Working capital at December 31, 2000 was $3,696,428 as compared to
$1,050,283 at December 31, 1999, an improvement of $2,646,145.

     Cash and cash equivalents at December 31, 2000 were $151,462, an increase
of $135,733 from December 31, 1999. During the year ended December 31, 2000, we
generated $124,537 net cash in our

                                       25
<PAGE>

operating activities as compared to using $348,005 for the year ended December
31, 1999. This net change in cash provided from operations of $472,542 was the
result of an increase in operating revenue and was offset by an increase in
operating revenue and proceeds from the sale of trading securities. We had a
decrease accounts receivable of $506,812, a decrease in accounts payable of
$108,102 and a decrease in accrued expenses of $683,230. These improvements are
the result of improvement in collection and administrative procedures, augmented
by the sale of a subsidiary.

     During the year ended December 31, 2000, we generated $322,445 from
investing activities as compared to using $415,163 for the year ended December
31, 1999. The increased in cash provided of $737,608 from investing activities
primarily resulted from an increase of $760,136 in proceeds from the sale of
equity securities and proceeds from notes receivable of $340,000. The increase
was partially offset by a decrease in intangible assets from capitalized
research and development costs of $299,456. The increase in cash provided was
partially offset by net increases of $135,117 in the acquisition of computer
equipment.

     During the year ended December 31, 2000, we used net cash of $311,249 from
financing activities as compared to generating $777,121 for the year ended
December 31, 1999. The decrease of $1,088,370 resulted from redemptions of stock
of $1,915,106 that was offset by proceeds of $1,669,103 generated from the sales
of common stock and the exercise of investor warrants.

Plan of Operation and Financial Condition

     Our sales of Dataqual and related service contracts are billed net due upon
receipt. Payment terms on I-Link Enterprise contracts are defined in the
contract and will vary. It is our practice to require a substantial payment upon
signing of any long term contract.

     We had, at December 31, 2000, working capital of $3,696,428. We believe
that cash generated from operations will be totally sufficient to fund our
current operations. We anticipate that it will be likely that we will continue
to raise additional funds through additional equity offerings and exercise of
outstanding warrants. It is possible that we may have to curtail our current
operations and delay and/or cancel our business plans. However, management
believes that our current operational plans for the next twelve months will not
be curtailed or delayed because of the lack of sufficient financing. If
additional financing is required, there can be no assurances that we will be
able to obtain such additional financing, on terms acceptable to us and at the
times required by us, or at all.

     We have frequently not been able to make timely payments to our trade and
other creditors. As of December 31, 2000, we had past due obligations for which
there were claims and judgments of approximately $470,000. This is a reduction
of $296,000 from December 31, 1999. Deferred payment terms have been negotiated
with many of our vendors and critical services have not been suspended, nor has
there been cancellation of orders due to delays in product delivery as a result.
We intend to use the cash generated from operations, marketable securities we
own and our own common stock to complete paying the past due amounts. We may
have an opportunity to discount or reduce some of the trade and other creditor's
debts and further increase income from debt forgiveness.

     We lease office space on a nineteen month sublease basis and could be
required to move and/or add more space after this period. The major capital
expenditures we may incur are for computers and related local area network
hardware and software and travel for sales representatives and key support and
installation personnel. We also intend to invest approximately $300,000 in
personnel and equipment to expand and enhance sales, software development and
customer support, as well as associated office support staff.

                                       26
<PAGE>

     We believe that our current staffing plan, including our expansion
strategy, cost structure, and current operating plans will allow us an
opportunity to compete effectively as a supplier of information management
software to the hospital market and possibly attain profitability in future
periods.

Net Operating Loss

     For federal income tax purposes, we have net operating loss carryforwards
of approximately $6,700,000 as of December 31, 2000. This carryforward expires
between the years 2009 and 2020. The use of our net operating loss carryforwards
to offset taxable income, if achieved, may be subject to specified annual
limitations.

ITEM 7.  Financial Statements

     The financial statements of the Company appear at the end of this report
beginning with the Index to Financial Statements on Page F-1.

ITEM 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

     Our former auditor's, Kaufman Davis, PC resigned as our auditors on
November 9, 2000. The former auditor's report for the years ended December 31,
1998 and 1997 respectively was qualified in that the report contained a going
concern opinion regarding uncertainty due to our then working capital deficit.
The report for the years ended December 31, 1999 and 1998 respectively did not
contain an adverse opinion, a disclaimer of opinion or was qualified as to
uncertainty, audit scope, or accounting principle. There were no disagreements
between us and Kaufman Davis, PC on any matter of accounting principles which,
if it had not been resolved to the satisfaction of Kaufman Davis, PC, would have
caused reference to the subject matter of the disagreement in connection with
its report.

     Our board of directors accepted Kaufmann Davis, PC's resignation and on
December 15, 2000 appointed Aronson, Fetridge and Weigle, PC as our new auditors

                                   PART III

                                       27
<PAGE>

ITEM 9.  Directors, Executive Officers Promoters and Control Persons; Compliance
         with Section 16(a) of the Exchange Act

Directors & Officers

     The Following table set forth the names, ages and positions with the
Company of each of the directors and officers of the Company.

     Name                Age             Positions                    Since
     ----                ---             ---------                    -----
     Douglas A. Cohn      55             Chairman, Director and       1999
                                         Chief Executive Officer

     Alan Grofe'          55             President, Chief Operating
                                         Officer and Director         1996

     Michael J. Black     47             Secretary, Chief Financial
                                         Officer and Director         1994

     J. Brian Copley      55             Secretary and Director       2000

     Jack Anderson        77             Treasurer and Director       2000

     All executive officers are elected by the Board of Directors and hold
office until the next Annual Meeting of Shareholders and until their successors
are elected and qualify.

     The following is information on the business experience of each director
and officer.

Douglas A. Cohn

     Douglas A. Cohn has been Chairman of the Board and Chief Executive Officer
of this Company since October, 1999. He is also Founder of Internet Guide, Inc.,
and it's Chairman of the Board of Directors, President, Chief Executive Officer
and Publisher. Mr. Cohn is Jack Anderson's writing partner in the nationally
syndicated column Jack Anderson & Douglas Cohn's Washington Merry-Go-Round. He
is the president of American Publisher Corporation, which publishes five
nationally-distributed publications and syndicates writers and cartoonists to
newspapers. He has been in the publishing business since 1985 and publishing
five publications beginning in 1989. He is the author of Jackson's Valley
Campaign with Maps from West Point Atlas of American Wars. Mr. Cohn, a 1968
graduate of the U.S. Military Academy at West Point, NY volunteered for service
in Vietnam, where he was wounded. Retired from the service as a result of those
wounds, he was awarded the Silver Star (twice), the Purple Heart and other
medals. He is a syndicated writer and speech writer and has appeared numerous
times on national television and radio shows.

Jack Anderson

Jack Anderson has been a director of the Company since April 2000 and Treasurer
since October 2000. Mr. Anderson won a Pulitzer Prize in 1973. "When Ronald
Reagan sought to discover the most trusted and most widely-read journalist in
the United States, his private pollster, Richard Wirthlin, ran a national survey
and concluded that Jack Anderson was that writer." - Advertising Age, Dec. 6,
1982. Mr.

                                       28
<PAGE>

Anderson's fledgling newspaper career was interrupted by World War II, during
which he served with Chinese guerrillas and the Merchant Marine. Following the
war, he joined the Washington, D.C., staff of Drew Pearson, the influential
radio broadcaster and columnist. Eventually, he took over the column (which he
and Douglas Cohn continue to this day)and succeeded in exposing the Mafia, Sen.
Joseph McCarthy, misdeeds of President Richard Nixon (Pulitzer Prize), the ITT-
Dita Beard Scandal and CIA plots. He founded the Utah State University School of
the Future, and with industrialist J. Peter Grace (of Grace Commission fame), he
formed Citizens Against Government Waste. He appeared on Good Morning America
for nine years. Currently, he is the Washington editor of Parade Magazine, and
continues his syndicated column.

J. Brian Copley

Dr. J. Brian Copley has been a director since April 2000 and secretary of the
Company since October 2000. He is the vice chairman, Dept. of Medicine, and
chief of Nephrology at the Ochsner Clinic in New Orleans, La. He has been
employed at the Ochsner Clinic since 1990. He is a 1968 graduate of the U.S.
Military Academy at West Point, N.Y., and a 1976 honors graduate of the
University of Washington School of Medicine at Seattle, Wash. Dr. Copley was
awarded the Bronze Star, Vietnamese Cross of Gallantry and other medals for
service in Vietnam. He is a retired colonel. Dr. Copley is the author or co-
author of more than 50 articles and studies. He is a much sought-after speaker
on the lecture circuit.


Alan W. Grofe'

     Alan W. Grofe was President until October 8, 2000 and a director until
December 6, 2000. He had been President of the Company since May 15, 1996 and
Executive Vice President, Secretary and a director of the Company since April
1996. From March 1993 to March 1997, Mr. Grofe' was President and Chief
Executive Officer of MarketLink, Inc., a direct marketing software company not
affiliated with the Company. From 1991 to 1993, Mr. Grofe' served as President
of CCS, Inc., a direct marketing service bureau and from 1989 to 1991, as Vice
President and Chief Operating Officer of Warren & Lewis, a venture capital firm.
Prior to that time, he managed the Federal Computer Conferences; a series of
computer industry trade shows, for Information Development Corporation from 1988
to 1989. And from 1980 to 1987, he was account manager and later Director of
Federal Systems Operations for Motorola Computer Systems, for whom he worked in
both the healthcare industry and in computer sales to the government.

Michael J. Black

     Michael J. Black was Secretary, Chief Financial Officer until October 8,
2000 and a director until June 16, 2000. He had been employed as a key executive
of the Company since September 1994. He was Chairman from January 1996
untilNovember 1999. From 1991 to September 1994, Mr. Black was a consultant for
Asset Growth Partners, Inc., an investment banking firm, working on mergers and
acquisitions, equity and debt financing and strategic planning, primarily for
technology companies. From 1989 to 1991 he served as vice president of finance
for NMI Network Systems, Inc./The Account Data Group before that as president
and founder of The Account Data Group. Both of these companies were involved in
various aspects of computer systems integration.

Section 16(a) Filing Compliance

                                       29
<PAGE>

     Section 16(a) of the Securities Exchange Act of 1934 requires officers and
directors of the Company and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in their ownership on Form 3, 4, and 5 with the Securities and
Exchange Commission, and forward copies of such filings to the Company.

ITEM 10.  Executive Compensation.

     The following table sets forth information concerning the compensation paid
during the Company's fiscal years ended December 31, 2000, 1999, and 1998 to the
Company's Chief Executive Officer and all other executive officers whose base
salaries during the year were in excess of $100,000 (collectively, "Named
Executive Officers").

<TABLE>
<CAPTION>
                              Summary Compensation Table

                                           Annual Compensation              Long-Term Compensation
                                           -------------------              ----------------------
                                                                            Shares
                                                                            Underlying
Name and Principal Position                Year      Salary ($)             Warrants (#)
---------------------------                ----      ----------             ------------
<S>                                        <C>       <C>                    <C>
Douglas A. Cohn........................    12/31/00         -0-                 -00
  Chairman & CEO                           12/31/99         -0-             750,000


Alan W. Grofe............................  12/31/00    145,000              200,000
  President, Chief Operating               12/31/99    110,068              750,000
    Officer                                12/31/98    145,000              250,000

Michael J. Black ........................  12/31/00    120,000              200,000
   Chief Financial Officer,                12/31/99    111,440              750,000
 Treasurer, and Corporate Secretary        12/31/98    145,000              250,000
</TABLE>

     The following table contains information concerning common stock purchase
warrants granted to the Named Executive Officers during the fiscal year ended
December 31, 2000. No stock options were granted during the period.

<TABLE>
<CAPTION>
                                      Warrant Grants in Last Fiscal Year

                                                           Number of   Percentage
                                                           Securities  of Total
                                                           Underlying  Warrants     Exercise   Expiration
                                                           Warrants    Granted (1)  Price (2)     Date
                                                           ----------  -----------  ---------     ----
<S>                                                        <C>         <C>          <C>        <C>
   Alan W. Grofe................................           100,000         25%       $.6875     10/15/05
                                                           100,000         25%       $ 1.00     10/15/02


   Michael J. Black.............................           100,000         25%       $.6875     10/15/05
                                                           100,000         25%       $ 1.00     10/15/02
</TABLE>

(1)  Based on an aggregate of 400,000 warrants granted to employees in the
     fiscal year ended December 31, 2000, including warrants granted to the
     Named Executive Officers.

(2)  The exercise price of each grant is equal to or greater than the fair
     market value of the Company's Common Stock on the date of the grant.

                                       30

<PAGE>

     The following table sets forth certain information concerning exercisable
and unexercisable warrants held as of December 31, 2000 by each of the Named
Executive Officers:

<TABLE>
<CAPTION>
                        Aggregate Warrants Exercises in Last Fiscal Year and Fiscal Year-end Warrant Values

                                                                                    Number of
                                                                              Unexercised Warrants         In-the-Money Warrants (1)
                                                                         ------------------------------    -------------------------
                                                                         Exercisable      Unexercisable    Exercisable  Unexrcisable
                                                                         -----------      -------------    -----------  ------------
<S>                                                                      <C>              <C>              <C>          <C>
   Douglas A. Cohn..................................................        750,000            -0-           $679,650        -0-
   Alan W. Grofe....................................................        950,000            -0-           $860,890        -0-
   Michael J. Black (2).............................................        900,000            -0-           $815,580        -0-
</TABLE>

(1)  Based on the difference between the closing price on December 31, 2000
     ($.9062) and the exercise price of the outstanding warrants.


Employment Agreements

     As of December 31, 2000 employment agreements with Alan W. Grofe and
Michael J. Black expired. There are now no employment agreements in effective
with us.

     On January 1, 1998, the Company entered into an employment with Alan W.
Grofe' to serve as The President and Chief Operating Officer, and a Director of
the Company for a term commencing January 1, 1998 and ending December 31, 2000.
Mr. Grofe' was director of the Company from April 16, 1996. The agreement
provided for a salary of $145,000 per annum and for stock options under the
Company Stock Option Plan or, if there was no such plan, he would be granted
warrants, exercisable immediately for 60 months, to purchase a minimum of
100,000 to a maximum of 250,000 shares of Common Stock at an exercise price of
not less than the most recently issued warrants. The agreement also contained
restrictive covenants restricting Mr. Grofe' for two years, after termination of
his employment from competing with the Company and soliciting Company employees
or customers.

     On January 1, 1998, the Company entered into an employment agreement with
Michael J. Black to serve as the Chairman of the Board and Chief Executive
Officer for a term commencing January 1, 1998 and ending December 31, 2000. Mr.
Black was Chairman of the Company from May 15, 1996 to November 16, 1999.
Pursuant to a letter agreement dated November 16, 1999, Mr. Black would no
longer serve as Chairman and Chief Executive Officer but would continue as the
Chief Financial Officer of the Company until June 1, 2000, to transition certain
duties, at a salary of $10,000 per month. Pursuant to the original agreement,
Mr. Black was be granted warrants, exercisable immediately for 60 months, to
purchase a minimum of 100,000 to a maximum of 250,000 shares of Common Stock at
an exercise price of not less than the most recently issued warrants. The
agreement also contained restrictive covenants restricting Mr. Black for two
years after termination of his employment from competing with the Company and
soliciting Company employees or customers.

     None of the other Company's executive officers have existing employment
agreements. Any previous employment agreements between the Company and its
executive officers have either lapsed or have been rescinded, and no new
agreements have been executed.

ITEM 11.  Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth, as of December 31, 2000, certain
information with respect to the beneficial ownership of shares of Common Stock
of: (i) each person who is known to the Company to

                                       31
<PAGE>

be the beneficial owner of more than five percent of the Company's Common Stock,
(ii) each Director of the Company and Named Executive Officer, and (iii) all
directors and executive officers of the Company as a group. As of March 31,
2001, the Company had 21,019,311 shares of Common Stock outstanding

<TABLE>
<CAPTION>
                                                                       Beneficially       Percent
   Name and Address of Beneficial Owner                                 Owned (1)         of Class
   ------------------------------------                                 ---------         --------
<S>                                                                     <C>               <C>
   The Steven W. Bingaman 1996 Trust (2)................................   3,088,106        14.8%
          551 Fifth Avenue, Suite 1625
          New York, N.Y. 10176

   Internet Guide Inc. (3)..............................................   4,156,157        19.9%
          P.O. BOx TT
          McLean, VA 22101

   Douglas A. Cohn (4)..................................................   1,050,682         5.0%
   Alan W. Grofe (5)....................................................   1,240,205         5.9%
   Michael J. Black (6).................................................   1,320,635         6.3%
   Jack Anderson........................................................          -0-        0.0%
   J. Brian Copley......................................................       3,800        0.02%
   All Directors and Officers as a group................................   3,611,522        17.3%

          Total.........................................................  11,055,785        51.6%
</TABLE>

_____________________________
(1)  Shares of the Company's Common Stock which any person or entity set forth
     in this table has a right to acquire, pursuant to the exercise of options
     or warrants, are deemed to be outstanding for the purpose of computing the
     percentage ownership of such person or entity, but are not deemed
     outstanding for the purpose of computing the percentage ownership of any
     other person or entity.

(2)  Number of shares Beneficially Owned includes 3,288,106 shares of common
     stock of which 1,568,471 shares are owned by Appleby Partners, Ltd..
     Appleby Partners, Ltd. has the sole power not only to vote and direct the
     disposition of the shares of common stock and warrants held by it but also
     has the sole power to vote and direct the disposition of 1,643,478 shares
     of common stock held by the Steven W. Bingaman 1996 Trust.

(3)  Number of shares Beneficially Owned includes: 356,397 shares issuable upon
     exercise of warrants exercisable until November 21, 2002 at a price of
     $1.00, 250,000 shares issuable upon exercise of warrants exercisable until
     August 31, 2002 at a price of $1.00 and 250,000 shares issuable upon
     exercise of warrants exercisable until August 31, 2002 at a price of $2.00
     all held by such entity.  This does not include warrants to purchase
     750,000 shares of common stock owned by Douglas A. Cohn, the Chairman and
     Chief Executive Officer of the Company and of Internet Guide, Inc. in his
     individual capacity.  Mr. Cohn disclaims beneficial ownership of the shares
     of the Company common stock and warrants held by Internet Guide, Inc.
     except to the extent of his pecuniary interest therein.

(4)  Number of shares Beneficially Owned includes 750,000 shares issuable upon
     exercise of warrants exercisable until November 30, 2002 at a price of
     $1.00 each held by Mr. Cohn.  This does not include warrants to purchase
     856,397 shares of common stock owned by Internet Guide, Inc. and Mr. Cohn
     disclaims beneficial ownership thereof except to the extent of his
     pecuniary interest therein, if any.

(5)  Number of shares Beneficially Owned includes:  250,000 shares issuable upon
     exercise of warrants until May 31, 2003 at a price of $.75 each, 500,000
     shares issuable upon exercise of warrants until September 18, 2004 at a
     price of $.75 each, 100,000 shares issuable upon exercise of warrants until
     October 15, 2005 at a price of $.6875 each and 100,000 shares issuable upon
     exercise of warrants until October 15, 2002.

(6)  Number of shares Beneficially Owned includes: 100,000 shares issuable upon
     exercise of warrants until October 15, 2005 at a price of $.6875 each and
     100,000 shares issuable upon exercise of warrants until October 15, 2002.


     ITEM 12.  Certain Relationships and Related Transactions

                                       32
<PAGE>

     Many of the transactions during the last two years between the Company and
any of its officers, directors, principal stockholders or their affiliates are
the issuance of common stock to certain of the Company's officers described in
the Registration Statement on Form 10-SB incorporated by reference at "Recent
Sales of Unregistered Securities", described at page 54, the issuance of
warrants to certain of the Company's officers, described in "Executive
Compensation" at page 45, the issuance of warrants to a certain director of the
Company described in "Executive Compensation" at page thereof, the issuance of
warrants to Aesop Financial Corporation, described in "Description of the
Company's Securities" at and the lease of computer equipment from Aesop,
described in "Description of Properties" at page 41 thereof. Aesop Financial
Corporation is a wholly owned subsidiary of Appleby Partners, Ltd., which is a
principal stockholder as set forth in "Principal Stockholders" at page 42.

On February 8, 2001, a former officer and director exercised 700,000
warrants in exchange for a promissory note in the amount of $525,000.  The
warrants held anti-dilution rights and were eligible to receive stock
distributions from the July 31, 2000 and August 31, 2000 Stock Distribution
programs.

ITEM 13.  Exhibits and Reports on Form 8-K

     a)  The following financial statements are filed as part of this report:
         Financial Statements.
               1)  Balance Sheet as of December 31, 2000 and 1999.
               2)  Statements of Operations for the years ended December 31,
                   2000 and 1999.
               3)  Statements of Cash Flows for the years ended December 31,
                   2000 and 1999.
               4)  Statements of Stockholders' Equity (deficit) for the years
                   ended December 31, 2000 and 1999.
               5)  Notes to Financial Statements.
               6)  Independent Accountant's Report.
     b)  Reports on Form 8-K

     The Company filed the following Current Reports on Form 8-K during the
last quarter of the period covered by this report:  On November 16, 2000, a
report stating that Kaufman Davis, PC, the Company's auditors had resigned
November 9, 2000, and a report was filed on December 21, 2000, announcing
that Aronson, Fetridge & Weigle, PC was engaged to be the Company's
auditors for the year ending December 31, 2000.


     c)  Exhibits:



     Exhibit
     Number    Description
     ------    -----------

     3.1       Copy of the Certificate of Incorporation of the predecessor
               corporation under the name of Travel Technologies International,
               Inc. (1)
     3.2       Copy of Restated Certificate of Incorporation of the

                                       33
<PAGE>

               predecessor corporation, which among other things changes its
               name to Traverse Technologies, Inc. (1)
     3.3       Copy of Amendment to the Restated Certificate of Incorporation,
               changing the name of the predecessor corporation to Integrated
               Healthcare Systems, Inc. (1)
     3.4       Copy of the Certificate of Renewal of Integrated Healthcare
               Systems, Inc. as filed with the State of Delaware (2)
     3.5       Copy of the By-Laws of the predecessor corporation (1)
     3.6       Copy of the Certificate of Incorporation of IHS of Virginia, Inc.
               a wholly owned subsidiary. (2)
     3.7       Copy of the Certificate of Renewal of the IHS of Virginia, Inc as
               filed with the State of Delaware (2)
     3.8       Copy of the By-Laws of IHS of Virginia, Inc. (2)
     3.9       Copy of the Articles of Incorporation our Company as filed with
               the State of Virginia on May 20, 1999 (2)
     3.10      Plan of Merger between IHS and the Company effective June 14,
               1999. (2)
     3.11      Articles of Merger effective June 14, 1999 as filed with the
               State of Virginia (2)
     3.13      Copy of the By-Laws of the Company (2)
     3.12      Agreement of Merger as filed with State of Delaware (2)
     23.2      Certified copy of the Certificate of Incorporation of The
               DataQual Group, Inc. a wholly owned subsidiary 920
     3.15      Copy of the By-Laws of the DataQual Group, Inc. (2)
     4.1       Form of Certificate evidencing shares of Common Stock of the
               Company. (2)
     4.2       Warrant Certificate for 325,000 warrants issued to the Steven W.
               Bingaman 1996 Trust. (2)
     4.3       Warrant Certificate for 40,000 warrants issued to Asset Growth
               Partners, Inc. (2)
     4.4       Warrant Certificate for 50,000 warrants issued to Mark Wachs (2)
     4.5       Warrant Certificate for 1,190,000 warrants issued to Aesop
               Financial Corporation together with Assignment thereof to Appleby
               Partners, Ltd. (2)
     4.6       Form of 1995 Redeemable Bridge Warrants (2)
     4.7       Form of Warrant Certificates issued to Investors, Placement
               Agents and Investment Banker in 1997 and 1998 (2)
     4.8       Form of Warrant Certificates issued to management
               executives, and consultants (2)
     4.9       Form of Class A Redeemable Common Stock Purchase
               Certificate (2)
     4.10      Warrant Agreement between the Company and the Warrant Agent
               covering the Class A Common Stock Warrants (2)
     10.1      Form of Software License and Support Agreement (2)
     10.2      Form of Licensed Software Agreement (2)
     10.3      Form of Software Maintenance Agreement (2)
     10.4      Form of DataQual(R) for Windows and I-Link(sm) Upgrade Addendum
               (2)

                                       34
<PAGE>

     10.5      (a) Form of Executive Employment Agreement (2)
               (b) Forms of Employment for key Employees (2)
     10.6      Sublease Agreement dated as of May 21, 1999 (2)
     21.1      Subsidiaries of Registrant (2)
     23.2      Consent of Kaufman Davis PC for Annual Statement, December 31,
               1997 and 1998(2)
     23.3      Consent of Kaufman Davis, PC for Annual Statement, December 31,
               1999
     23.4      Consent of Aronson, Fetridge & Weigle, PC for Annual Statement,
               December 31, 2000


          (1)  Incorporated by reference to the Company's Regulation Form 1-A
               Offering Statement of Integrated Healthcare Systems, Inc. (the
               predecessor corporation) filed on Form 1-A under the Securities
               Act of 1933 as emended (file No. 24-3450).

          (2)  Incorporated by reference to the Company's Registration Statement
               on Form 10-SB (File No. 001-15179).

          (3)  Incorporated by reference to our Quarterly Report on Form 10-QSB,
               for the fiscal quarter ended June 30, 2000.

          (4)  Incorporate by reference to our Quarterly Report on Form 10-QSB
               for the fiscal quarter ended September 30, 2000.

                                       35
<PAGE>

                                                 Quotient, Inc. And Subsidiaries

                               Table of Contents


================================================================================

<TABLE>
<CAPTION>
                                                                      Page
<S>                                                             <C>

Independent Auditor's Report                                           F-2

Independent Auditor's Report - prior year                              F-3

Financial Statements

  Consolidated Balance Sheets                                    F-4 - F-5

  Consolidated Statements of Operations                          F-6 - F-7

  Consolidated Statements of Stockholders' Equity (Deficit)            F-8

  Consolidated Statements of Cash Flows                          F-9 - F-10

  Notes to Consolidated Financial Statements                   F-11 - F-26
</TABLE>

                                      F-1
<PAGE>

Independent Auditor's Report


To the Board of Directors
H.Quotient, Inc.
Vienna, Virginia

We have audited the accompanying Consolidated Balance Sheet of H.Quotient, Inc.
and Subsidiaries (the "Company") as of December 31, 2000, and the related
Consolidated Statements of Operations, Shareholders' Equity, and Cash Flows for
the year then ended.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.  The financial
statements of H.Quotient, Inc. and Subsidiaries as of December 31, 1999, were
audited by other auditors whose report dated May 11, 2000 expressed an
unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 2000 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
H.Quotient, Inc. and Subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

ARONSON, FETRIDGE & WEIGLE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS

Rockville, Maryland
May 23, 2001

                                      F-2
<PAGE>

                        Report of Independent Auditors


To the Board of Directors
H-Quotient, Inc.
Reston, Virginia

We have audited the accompanying consolidated balance sheet of H-Quotient, Inc.
and Subsidiaries (the Company) as of December 31, 1999, and the related
consolidated statements of operations, shareholders' equity (accumulated
deficit), and cash flows for the year then ended.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of H-Quotient, Inc. and
Subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.



Kaufman Davis, PC
Certified Public Accountants
Bethesda, MD


May 11, 2000

                                      F-3
<PAGE>

<TABLE>
<CAPTION>
===========================================================================================================

December 31,                                                                          2000             1999
-----------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>
Assets

Current assets
  Cash                                                                          $  151,462       $   15,729
  Investment in equity securities                                                2,598,637        2,915,322
  Accounts receivable, less allowance for doubtful accounts of $18,790,
     in 2000 and 1999                                                              164,912          671,724
  Due from affiliates                                                               24,236                -
  Costs and estimated earnings in excess of billings on uncompleted
    contracts                                                                      518,977           36,145
  Notes receivable                                                                 747,000                -
  Prepaid expenses                                                               1,732,694           41,503
-----------------------------------------------------------------------------------------------------------

Total current assets                                                             5,937,918        3,680,423

Property and equipment, net                                                        206,358           77,031

Capitalized software, net                                                          316,105          371,959

Deposits                                                                            14,294           68,631
-----------------------------------------------------------------------------------------------------------


Total assets                                                                    $6,474,675       $4,198,044
===========================================================================================================
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                                     Consolidated Balance Sheets

<TABLE>
<CAPTION>
=============================================================================================================

December 31,                                                                          2000               1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>
Liabilities and Shareholders' Equity

Current liabilities
  Accounts payable                                                             $   356,445       $    464,547
  Accrued expenses                                                                 898,153          1,561,383
  Due to affiliates                                                                 50,077                  -
  Short-term debt                                                                  477,285            275,130
  Billings in excess of costs and estimated earnings on uncompleted
     contracts                                                                           -            205,302
  Deferred revenues                                                                459,530            123,778
-------------------------------------------------------------------------------------------------------------

Total current liabilities                                                        2,241,490          2,630,140
-------------------------------------------------------------------------------------------------------------

Commitments and contingencies

Shareholders' equity
  Preferred stock, 10,000,000 shares authorized, 100                                                        -
     shares issued and outstanding
  Common stock, $.0001 par value, 90,000,000 shares authorized,
     19,810,544 and 12,464,866 shares issued and outstanding at December
     31, 2000 and 1999, respectively                                                 1,982              1,247
  Additional paid-in capital                                                    13,652,448         12,191,130
  Accumulated deficit                                                           (9,421,245)       (10,624,473)
-------------------------------------------------------------------------------------------------------------

Total shareholders' equity                                                       4,233,185          1,567,904
-------------------------------------------------------------------------------------------------------------

Total liabilities and shareholders' equity                                     $ 6,474,675       $  4,198,044
=============================================================================================================
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                      F-5
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                           Consolidated Statements of Operations

<TABLE>
<CAPTION>
============================================================================================================

Years Ended December 31,                                                            2000              1999
------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>
Revenues
 Software sales                                                                 $  591,731        $1,040,312
 Maintenance and service income                                                    548,600           497,223
 Sale of marketing rights                                                          791,319                 -
------------------------------------------------------------------------------------------------------------

Total revenues                                                                   1,931,650         1,537,535
------------------------------------------------------------------------------------------------------------

Operating expenses
 Cost of sales and services                                                        578,899           543,130
 Selling and marketing                                                             258,429           259,044
 General and administrative                                                      1,488,039           965,380
------------------------------------------------------------------------------------------------------------

Total operating expenses                                                         2,325,367         1,767,554
------------------------------------------------------------------------------------------------------------

Operating loss                                                                    (393,717)         (230,019)
------------------------------------------------------------------------------------------------------------

Other income (expenses)
 Interest expense                                                                  (38,706)         (107,636)
 Unrealized loss on securities                                                    (357,034)          (33,751)
 Realized gain on sale of securities                                             1,851,497            93,903
 Interest income                                                                    28,176             5,695
 Gain on disposals of equipment                                                          -             1,550
 Other                                                                              21,078            34,961
------------------------------------------------------------------------------------------------------------

Total other income (expense)                                                     1,505,011            (5,278)
------------------------------------------------------------------------------------------------------------

Income (loss) before provision for income taxes and extraordinary item           1,111,294          (235,297)

Provision for income taxes                                                               -                 -
------------------------------------------------------------------------------------------------------------

Income (loss) before extraordinary item                                          1,111,294          (235,979)

Extraordinary gains                                                                 91,934         1,275,322
------------------------------------------------------------------------------------------------------------

Net income                                                                      $1,203,228        $1,040,025
------------------------------------------------------------------------------------------------------------
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                      F-6
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                               Consolidated Statements of Operations (Continued)

<TABLE>
<CAPTION>
=============================================================================================================

Years Ended December 31,                                                            2000              1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>
Net income (loss) per common share
 Basic:
 Net income loss before extraordinary item                                      $      0.07       $     (0.03)
-------------------------------------------------------------------------------------------------------------

 Net income                                                                     $      0.08       $      0.13
-------------------------------------------------------------------------------------------------------------

 Diluted:
 Net income (loss) before extraordinary item                                    $      0.06       $     (0.03)
-------------------------------------------------------------------------------------------------------------

 Net income                                                                     $      0.07       $       .09
-------------------------------------------------------------------------------------------------------------

Weighted average common shares
 Basic                                                                           16,123,896         7,841,237
-------------------------------------------------------------------------------------------------------------

 Diluted                                                                         17,725,850        11,531,284
-------------------------------------------------------------------------------------------------------------
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                      F-7
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                       Consolidated Statements of Shareholders' Equity (Deficit)

================================================================================

<TABLE>
<CAPTION>
Years Ended December 31, 2000 and 1999
------------------------------------------------------------------------------------------------------------------------
                                                                                                               Total
                                                                             Additional                    Shareholders'
                                                         Common Stock          Paid-in      Accumulated        Equity
                                                   ----------------------
                                                       Shares      Amount      Capital        Deficit        (Deficit)
                                                   ---------------------------------------------------------------------
<S>                                                  <C>          <C>       <C>            <C>             <C>
December 31, 1998                                     5,110,705    $  511    $ 7,489,905    $(11,664,498)    $(4,174,082)

Issuance of common stock for:
 Cash                                                 1,584,280       158        847,859               -         848,017
 Services/expenses                                      661,844        66        372,772               -         372,838
 Securities                                             500,000        50        499,950               -         500,000
 Notes                                                  257,727        26        384,489               -         384,515
 Debt conversion                                        361,560        36        248,407               -         248,443

Warrants exercised for:
 Cash                                                   590,000        59        162,441               -         162,500
 Securities                                           3,299,750       331      3,149,420               -       3,149,751
 Debt conversion                                         99,000        10         49,490               -          49,500
 Less: shares sold in exchange for note receivable
  (See note 4)                                                -         -     (1,013,603)              -      (1,013,603)
Net income for 1999                                           -         -              -       1,040,025       1,040,025
------------------------------------------------------------------------------------------------------------------------

December 31, 1999                                    12,464,866     1,247     12,191,130     (10,624,473)      1,567,904

Issuance of common stock for:
 Cash                                                   206,552        21        149,619               -         149,640
 Services/expenses                                      814,503        82        879,088               -         879,170
 Debt conversion                                          4,415         -         21,523               -          21,523
 Two, one-for-seven distributions                     3,857,289       386           (386)              -               -

Warrants exercised for:
 Cash                                                 1,621,816       162      1,164,625               -       1,164,787
 Securities                                             125,000        12         99,988               -         100,000
 Other                                                  819,617        82            (82)              -               -

Payment of Company debts by shareholder                       -         -         98,436               -          98,436
Redemption of stock                                    (317,814)      (31)    (1,915,075)              -      (1,915,106)
Issue of stock for acquisition                          214,300        21            (21)              -               -

Add: note receivable collection on shares sold in
 1999                                                         -         -        963,603               -         963,603

Net income for 2000                                           -         -              -       1,203,228       1,203,228
------------------------------------------------------------------------------------------------------------------------

December 31, 2000                                    19,810,544    $1,982    $13,652,448    $ (9,421,245)    $ 4,233,185
------------------------------------------------------------------------------------------------------------------------
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                      F-8
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                           Consolidated Statements of Cash Flows

================================================================================

<TABLE>
<CAPTION>
Years Ended December 31,                                                           2000              1999
------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>               <C>
Cash flows from operating activities
 Net income                                                                    $ 1,203,228       $ 1,040,025
Adjustments to reconcile net income to net cash used in operating
 activities
 Depreciation                                                                       70,192            55,147
 Amortization                                                                      108,709            49,660
 Gain on sale of equipment                                                               -            (1,550)
 Stock and warrants issued for current expenses                                    146,006           272,494
 Proceeds from sale of trading securities                                          484,989                 -
 Unrealized loss on securities                                                     357,034            33,751
 Realized gain on sale of securities                                            (1,851,497)          (93,903)
 Extraordinary gains                                                               (91,934)       (1,275,322)
 (Increase) decrease in
   Accounts receivable                                                             506,812          (601,392)
   Due from affiliates                                                             (24,236)            9,985
   Costs and estimated earnings in excess of billings                             (482,832)          (36,145)
   Prepaid expenses                                                                105,247            (6,503)
   Deposits                                                                         54,337           (64,040)
 Increase (decrease) in
   Accounts payable                                                                (79,719)         (234,501)
   Accrued expenses                                                               (562,319)          413,434
   Due to affiliates                                                                50,077                 -
   Billings in excess of costs and estimated earnings                             (205,302)          205,302
   Deferred revenues                                                               335,752          (114,447)
------------------------------------------------------------------------------------------------------------
Net cash provided (used) in operating activities                                   124,537          (348,005)
------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
 Proceeds from sale of equity securities                                           760,136                 -
 Purchases of equity securities                                                   (500,317)                -
 Additions to property and equipment                                              (199,519)          (64,402)
 Proceeds from sale of equipment                                                         -             1,550
 Proceeds from note receivable                                                     340,000                 -
 Advances under note receivable                                                    (25,000)                -
 Capitalized software                                                              (52,855)         (352,311)
------------------------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities                                   322,445          (415,163)
------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
 Proceeds from sale of common stock                                              1,319,103         1,007,121
 Proceeds from notes payable                                                       350,000                 -
 Repayment of notes payable                                                        (65,246)         (230,000)
 Redemptions                                                                    (1,915,106)                -
------------------------------------------------------------------------------------------------------------
Net cash provided (used) financing activities                                     (311,249)          777,121
------------------------------------------------------------------------------------------------------------
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                      F-9
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                               Consolidated Statements of Cash Flows (Continued)

================================================================================

<TABLE>
<CAPTION>
Years Ended December 31,                                                            2000             1999
-----------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>
Net increase in cash                                                              $135,733          $13,953

Cash at beginning of year                                                           15,729            1,776
-----------------------------------------------------------------------------------------------------------

Cash at end of year                                                               $151,462          $15,729
-----------------------------------------------------------------------------------------------------------
</TABLE>

         See accompanying Notes to Consolidated Financial Statements.

                                     F-10
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

1.  Organization     Organization - H.Quotient, Inc. (the "Company"), was
    and significant  incorporated in the Commonwealth of Virginia on May 12,
    accounting       1999 as a wholly-owned subsidiary of Integrated Healthcare
    policies         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.

                     Basis of Presentation - The consolidated financial
                     statements of the Company include the accounts of its
                     wholly owned subsidiaries, IHS of Virginia, Inc. (sold
                     December 28, 2000) (see note 15) Dataqual Group, Inc and
                     Quotient Capital Corporation. All significant intercompany
                     balances and transactions have been eliminated in
                     consolidation.

                     Use of Estimates - The preparation of consolidated
                     financial statements in conformity with general accepted
                     accounting principles requires management to make estimates
                     and assumptions that affect the reported amounts of assets
                     and liabilities at the date of the financial statements and
                     the associated amounts of revenues and expenses during the
                     period reported. Actual results could differ from the
                     estimates.

                     Revenue Recognition - The Company sells software systems
                     under noncancelable sales agreements. Revenue from a
                     software system sale is recognized when a sales agreement
                     is in force, the product has been delivered, the sales
                     price is fixed and determinable, and collectibility is
                     reasonably assured. If a software system sale includes
                     multiple elements, the sale price is allocated to each
                     element according to its actual selling price.

                     Revenues from software system sales requiring significant
                     modification or customization are recognized using the
                     percentage of completion method based on the costs incurred
                     relative to total estimated costs.

                     Contract costs include all direct material, labor costs,
                     subcontract and those indirect costs related to contract
                     performance, such as equipment cost, supplies, insurance,
                     payroll taxes and other general costs. General,
                     administrative and overhead costs are charged to expense as
                     incurred. Provision for estimated losses on uncompleted
                     contracts are made in the period in which such losses are
                     determined. Changes in job performance, job conditions,
                     estimated profitability, and final contract settlements may
                     result in revisions to costs and income, which are
                     recognized in the period in which the revisions are
                     determined.

                                      F-11
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================


1.  Organization     The Company offers non-specific upgrades to customers with
    and significant  annual support agreements for a specific product when they
    accounting       are completed and available for release. If an upgrade
    policies         leads to a new product, the upgrade is considered a new
    (continued)      sale.

                     Revenues from consulting services are recognized as
                     performed. Revenues derived from maintenance contracts are
                     initially deferred and recognized as revenue ratably over
                     the terms of the contracts, which are typically from one to
                     two years.

                     Deferred Revenue - Deferred revenue represents either
                     billings related to, or payments received from customers,
                     for software system sales prior to customer delivery and
                     acceptance, and maintenance service fees billed in advance.

                     Cash Equivalents - For the purposes of the consolidated
                     statements of cash flows, the Company considers all highly
                     liquid debt instruments purchased with a maturity of three
                     months or less at the time of purchase to be cash
                     equivalents.

                     Throughout the year cash and cash equivalents exceeded
                     federally insured limits. Management does not believe that
                     this results in any significant credit risk.

                     Fair Value of Financial Instruments - The Company considers
                     the recorded value of its financial assets and liabilities,
                     consisting principally of contracts receivable, investments
                     in equity securities, accounts payable, accrued expenses,
                     and debt to approximate the fair value of the respective
                     assets and liabilities at December 31, 2000 and 1999.

                     Property and Equipment - Property and equipment are stated
                     at cost. Depreciation of property and equipment is
                     determined using the straight-line method over an estimated
                     useful life of three years.

                     Capitalized Software Costs - The Company capitalizes
                     software development costs incurred subsequent to the
                     internal release of the product for acceptance testing.
                     Upon the general release of the product to customers,
                     development costs for that product are amortized over
                     periods not exceeding four years, based on the economic
                     life of the product. Capitalized software costs consist of
                     the following:

<TABLE>
<CAPTION>
                                                                2000           1999
                                                            --------------------------
                     <S>                                    <C>            <C>
                     Capitalized software                   $   474,474    $   421,619
                     Accumulated amortization                  (158,369)       (49,660)
                     -----------------------------------------------------------------

                     Net                                    $   316,105    $   371,959
                     =================================================================
</TABLE>

                                      F-12
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================


1.  Organization     Amortization expense for the years ended December 31, 2000
    and significant  and 1999 totaled $108,709 and $49,660, respectively.
    accounting
    policies         The carrying amount of acquired technology and software
    (continued)      development is periodically reviewed by the Company for
                     impairment. Impairment is recognized when the future gross
                     revenues from products, reduced by the estimated future
                     costs of completing and disposing of that product,
                     including the costs of maintenance and customer support
                     required at the time of sale, is less than the carrying
                     amount of that product.

                     Income Taxes - Income taxes are provided for the tax
                     effects of transactions reported in the financial
                     statements and consist of taxes currently due plus deferred
                     taxes. Deferred taxes are recognized for differences
                     between the basis of assets and liabilities for financial
                     statement and income tax purposes. Deferred tax assets and
                     liabilities represent the future tax return consequences of
                     those differences, which will either be deductible or
                     taxable when the assets and liabilities are recovered or
                     settled. Deferred taxes are also recognized for operating
                     losses and tax credits that are available to offset future
                     taxable income. The Company evaluates the likelihood of
                     realization of deferred tax assets and provides an
                     allowance where, in management's opinion, it is more likely
                     than not that the asset will not be realized.

                     Net Income (Loss) - Basic earnings per share is computed by
                     dividing net income by the weighted average number of
                     shares outstanding for the period. Diluted earnings per
                     share include the dilutive effect of warrants and
                     contingent shares.

2.  Investments in   The Company's investment in equity securities consists of
    equity           marketable securities that the Company has classified as
    securities       trading securities and common stock in a closely held
                     Company that is a shareholder of the Company and
                     is reported at cost.

                     The trading securities consist of 12,687,500 and 1,550,000
                     shares of Veridien Corporation as of December 31, 2000 and
                     1999, respectively, that had a fair value of $792,969 and
                     $116,250, respectively. The unrealized loss on this
                     investment as of December 31, 2000 and 1999 was $357,034
                     and $33,751, respectively.

                                      F-13
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

2.  Investments in   The investment in the stock of a shareholder of
    equity           the Company consists of 310,516 and 430,626 shares of
    securities       common stock of Internet Guide, Inc. ("Internet Guide")
    (continued       as of December 31, 2000 and 1999, respectively. These
                     shares are carried at cost of $1,804,288 and $2,799,072, as
                     of December 31, 2000 and 1999. In December 2000, the
                     Company acquired 79,890 shares of Internet Guide stock in
                     an exchange of a marketable security that was valued at
                     $305,216, the fair value of the stock exchanged on the date
                     of the exchange. The Company sold 138,500 shares of
                     Internet Guide in September 2000 for $1,800,000, consisting
                     of $732,000 of notes receivable from unrelated parties and
                     $1,068,000 of commercial trade credits. A gain of $899,750
                     was recognized on the sale. In addition, in September 2000,
                     the Company exchanged 61,500 shares of Internet Guide stock
                     at $6.50 per share, an aggregate of $800,000, for 8,000,000
                     shares of the common stock of Veridan Corporation. No gain
                     or loss was recognized on the exchange.

                     During 1999, the Company acquired 615,346 shares of
                     Internet Guide stock at $6.50 per share and sold 184,720
                     shares in transactions that resulted in a realized gain of
                     $93,903.

3.  Notes            Notes receivable at December 31, 2000, consist of a note
    receivable       from an employee for a cash advance of $15,000 and a group
                     of notes from Canadian individuals that totaled $732,000
                     and were due at various dates in 2000 and 2001. On May 4,
                     2001, the $732,000 of notes were exchanged for $382,000 of
                     commercial trade credits and a $350,000 note payable to the
                     other party to the exchange transaction.

4.  Prepaid          Prepaid expenses at December 31, 2000 include $1,068,000 of
    expenses         Asset Recovery Credits from SGD International Corp. and
                     $622,500 of Cash Collateral Credits issued by SGD
                     International Corp. acquired from Veridien Corporation. The
                     credits represent amounts that the Company expects to use
                     in the fulfillment of future sales contracts.

5.  Property and     Property and equipment consists of the following:
    equipment

<TABLE>
<CAPTION>
                                                                           2000           1999
                                                                       --------------------------
                     <S>                                               <C>             <C>
                     Office and computer equipment                     $   339,225    $   190,218
                     Furniture and fixtures                                 57,804          7,291
                     ----------------------------------------------------------------------------
                                                                           397,029        197,509
                     Less: accumulated depreciation                       (190,671)      (120,478)
                     ----------------------------------------------------------------------------

                                                                       $   206,358    $    77,031
                     ============================================================================
</TABLE>

                     Depreciation expense of property and equipment was $70,192
                     and $55,147 for the years ended December 31, 2000 and 1999,
                     respectively.

                                      F-14
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

<TABLE>
<CAPTION>
6.  Short-term       Short-term debt consists of the following:
    debt                                                                      2000               1999
                                                                           ------------------------------
                     <S>                                                   <C>                <C>
                     Unsecured note payable to 967474 Ontario, Inc.
                         with interest at 12%, due March 28, 2001          $   350,000        $         -

                     Unsecured note payable to a bank with interest at
                         prime plus 1%.                                              -             70,000

                     Legal settlement with a law firm with interest at
                         9%. The Company is in default of the terms of
                         settlement of this obligation.                         62,475            105,000

                     Unsecured non-interest bearing demand note
                         payable to an individual.                                   -             35,320

                     Unsecured promissory notes payable with interest
                         at 15%. These notes are in default                     64,810             64,810
                     ------------------------------------------------------------------------------------

                                                                           $   477,285        $   275,130
                     ====================================================================================

7.  Uncompleted      Costs incurred on uncompleted contracts               $   725,164        $   463,104
    contracts        Gross profit recognized to date on uncompleted
                         contracts                                             720,657            440,532
                     Less: Billings to date                                   (926,838)        (1,072,793)
                     ------------------------------------------------------------------------------------

                     Net                                                   $   518,977        $  (169,157)
                     ====================================================================================

                     Included in the accompanying consolidated balance sheets
                     under the following captions:

                     Costs and estimated earnings in excess of billings
                         on uncompleted contracts                          $   518,977        $    36,145
                     Billings in excess of cost and estimated earnings
                         on uncompleted contracts                                    -           (205,302)
                     ------------------------------------------------------------------------------------

                                                                           $   518,977        $  (169,157)
                     ====================================================================================
</TABLE>

                                      F-15
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

8.  Commitments      Lease Commitments - The Company entered into a nineteen
    and              month lease agreement for office space beginning December
    contingencies    1, 2000. The lease requires monthly payments of $4,294 plus
                     a pro rata share of taxes and operating costs. Future
                     minimum lease payments as of December 31, 2000 under this
                     lease are as follows:

                     Year ending
                     December 31
                     --------------------------------------------------

                     2001                                   $    51,531
                     2002                                        25,766
                     --------------------------------------------------

                     Total                                  $    77,297
                     --------------------------------------------------

                     Rent expense under all operating leases was $105,386 and
                     $81,146 for the years ended December 31, 2000 and 1999,
                     respectively.

                     On January 10, 1997 the Internal Revenue Service ("IRS")
                     filed in the Circuit Court for the County of Fairfax,
                     Virginia a Notice of Federal Tax Lien in the amount of
                     $386,234 against the Company for employment withholding tax
                     liabilities of Integrated Systems Technology, Inc. ("IST"),
                     formerly a wholly owned subsidiary of the Company. It is
                     the opinion of the Company's legal counsel that there is no
                     "alter ego" liability on the part of the Company and that
                     the lien filed against the Company is wrongful and should
                     be released. The Company continues their efforts to get the
                     lien released. Since the filing of the Notice the IRS has
                     not made any effort to enforce it against the Company. In
                     the event the lien is not released, the Company may have to
                     bring a suit against the IRS in federal court for wrongful
                     levy.

                     On May 17, 2001, a stockholder filed a law suit against the
                     Company alleging that restrictions be removed from certain
                     stock certificates owned by the stockholder, and that
                     certain shares be issued to the stockholder. The
                     restrictions have been removed, and the claim for
                     approximately 500,000 shares from the year 2000 one-for-
                     seven stock distributions is being assessed by counsel. The
                     Company does not believe there to be any financial
                     liability in the case.

                     Other suits arising out of 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.


9.  Shareholders'    In January 2000, 50,000 shares of common stock were issued
    equity           to the holder of a warrant at an exercise price of $0.75
                     per share in exchange for $37,500 in cash.

                     In January 2000, the Company issued 3,800 shares of common
                     stock at $2.625 per share to a director of the Company in
                     exchange for $9,975 in cash.

                     In February 2000, 325,000 shares of common stock were
                     issued to the holder of a warrant at an exercise price of
                     $0.75 per share in exchange for $243,750 in cash.

                                     F-16
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

                     In February 2000, the Company issued 10,000 shares of
                     common stock at $2.375 per share in exchange for $23,750 in
                     cash.

9.  Shareholders'    In March 2000, the Company issued 4,415 shares of common
    equity           stock which are subject to restrictions under Rule 144 of
    (continued)      the Securities Act of 1933 in exchange for $35,320 less
                     $13,797 in debt forgiveness at $4.875 per share.

                     From March through July 2000, the Company issued 33,550
                     shares of common stock to the holders of Class A Redeemable
                     Warrants at an exercise price of $5.00 per share in
                     exchange for $167,750 in cash.

                     In March 2000, the Company issued a total of 258,309 shares
                     of common stock to the holders of warrants, in exchange for
                     an aggregate of $208,808 which included $108,808 in cash
                     and $100,000 in marketable securities as follows: 8,309
                     shares at an exercise price of $1.06 per share and 250,000
                     shares at an exercise price of $0.80 per share.

                     In March 2000, the Company issued 3,000 shares of common
                     stock at $3.00 per share in exchange for $9,000 in cash.

                     From March through September 2000 the Company issued
                     113,273 shares of common stock in exchange for an aggregate
                     of $125,851 for prepaid and current year expenses as
                     follows: 15,000 shares at $2.00 per share; 20,000 shares at
                     $1.55 per share; 5,000 shares at $1.33 per share; 13,273
                     shares at $1.00 per share and 60,000 shares at $0.75 per
                     share.

                     In April 2000, 1,007,795 shares of common stock were issued
                     to the holders of 1,384,971 warrants exercisable as
                     follows: 575,000 at $1.00 per share; 200,000 at $1.50 per
                     share and 619,971 at $2.00 per share, in exchange for
                     $536,236 in cash and the return of 387,176 warrants valued
                     at $4.08 per share as of the date of the transaction.

                     In May and September 2000, at par value the Company issued
                     819,617 shares of its common stock at par value in exchange
                     for 5,737,319 Class A Redeemable warrants at a conversion
                     rate of one share of common stock for every seven warrants
                     received in the exchange pursuant to the Exchange Program
                     announced February 29, 2000 in which the warrant holders
                     participating in the exchange program agreed to a two year
                     restriction on selling the shares under Rule 144 of the
                     Securities Act of 1933.

                     In May 2000, 50,000 shares were issued to the holder of a
                     warrant at an exercise price of $0.75 per share in exchange
                     for $37,500 in cash.

                                      F-17
<PAGE>


                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

                     From June through December 2000, the Company purchased
                     317,814 shares of its common stock and sold 214,300 shares
                     leaving a balance of 103,514 shares held by the Company at
                     December 31, 2000.

                     In July and August 2000, the Company issued 3,857,289
                     shares of its common stock to shareholders in two, one-for-
                     seven distributions.

9.  Shareholders'    In July 2000, the Company issued 75,000 shares of common
    equity           stock at $ 1.00 per share in exchange for $75,000 in cash.
    (continued)
                     In August 2000, the Company issued 107,667 shares of common
                     stock at $ 0.23 per share in exchange for $25,000 in cash.

                     In September 2000, the Company issued 415,000 shares of
                     common stock in exchange for $622,500 in commercial trade
                     credits.

                     In September 2000, the Company granted an option to a
                     company to purchase 680,000 shares of the Company's common
                     stock at the lower of $1.00 per share or the lowest trade
                     price on the date of exercise but not less than $.35 per
                     share. The purchase price may be satisfied, at the
                     discretion of the grantee by either cash or commercial
                     trade credits. The option expires on December 31, 2001 if
                     not exercised. In May 2001, the option was exercised for
                     $.35 per share with payment made with commercial trade
                     credits valued at $238,000.

                     In October 2000, 22,162 shares were issued to the holder of
                     a warrant at an exercise price of $1.50 per share in
                     exchange for $33,243 in cash.

                     In December 2000, the Company issued an aggregate of
                     281,300 shares of its common stock to a former officer and
                     director as payment for accrued salary and repayment of
                     debt and other expenses totaling $126,092.

                     During 2000, an officer/stockholder of the Company paid
                     certain debts of the Company totaling $98,436. This amount
                     has been recorded as additional paid-in capital in the
                     Statement of Stockholders' Equity.

                     From January through October 1999, the Company issued
                     1,877,800 shares of common stock pursuant to a Regulation D
                     offering at an effective price of $0.50 per share in
                     exchange for $564,833 in cash, $100,000 in debt conversion
                     and $323,706 in other expenses. A price adjustment reduced
                     the issuance price of 446,389 shares from $0.60 to $0.50
                     per share and resulted in a pro-rata issuance of an
                     additional 59,278 shares.

                     In April 1999, the Company issued 399,000 warrants at an
                     exercise price of $0.50 per share for a five year period
                     for financial services rendered.

                                      F-18
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

                     In May and June 1999, the Company issued 460,000 shares of
                     common stock to holders of warrants issued under a
                     Regulation D offering upon exercise of warrants at a price
                     of $0.25 per share. These warrants were originally
                     purchased at $1.00 per warrant, for an aggregate price of
                     $1.25 per share. In conjunction with the warrant exercise
                     transactions, the Company issued 100,000 shares of common
                     stock to the placement agent at $0.25 per share, net of
                     commissions of $25,000 in cash.

9.  Shareholders'    On June 4, 1999, the Company adopted a plan of merger under
    equity           which each share of outstanding common stock of Integrated
    (continued)      Healthcare Systems, Inc. became convertible into one fully
                     paid and nonassessable share of H.Quotient, Inc. common
                     stock. Under the plan, the authorized capital stock of
                     H.Quotient, Inc. is 100,000,000 shares consisting of
                     90,000,000 shares of common stock, $0.0001 par value and
                     10,000,000 shares of preferred stock, of which 100 shares
                     of H.Quotient, Inc. were issued to Integrated Healthcare
                     Systems, Inc. each such share being entitled to one vote.

                     In June 1999, the Company issued 7,526,284 Class A
                     redeemable warrants at an exercise price of $5.00 per share
                     for a period of four years. These warrants were issued to
                     all shareholders of record as of June 14, 1999 as part of
                     the merger of that date (See Note 1).

                     In June 1999, the Company issued 99,000 shares of common
                     stock to the holder of a warrant at an exercise price of
                     $.50 per share in exchange for debt repayment of $49,500.
                     Additionally, 30,000 shares of common stock were issued to
                     the holder of a warrant at an exercise price of $0.75 per
                     share in exchange for $22,500 in cash.

                     In August 1999, the Company issued 500,000 shares of common
                     stock at $1.00 per share, which are subject to restrictions
                     under Rule 144 of the Securities Act of 1933 in exchange
                     for 153,245 shares of common stock of Internet Guide, Inc.,
                     valued at $500,000. Additionally, the Company issued
                     250,000 warrants at an exercise price of $1.00 per share
                     for a period of three years and 250,000 warrants at an
                     exercise price of $2.00 per share for a period of three
                     years.

                     From August through December 1999, the Company issued
                     552,909 shares of common stock which are subject to
                     restrictions under Rule 144 of the Securities Act of 1933
                     in exchange for an aggregate of $279,788 in cash, $50,000
                     in notes and $35,000 in prepaid expenses as follows:
                     122,000 shares at $0.50 per share; 390,909 shares at $0.69
                     per share and 40,000 shares at $0.88 per share.

                                      F-19
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

                     From September through October 1999, the Company issued a
                     total of 161,560 shares of common stock, which are subject
                     to restrictions under Rule 144 of the Securities Act of
                     1933, in exchange for an aggregate of $249,259 less
                     $100,816 in debt forgiveness as follows: 16,667 shares at
                     $0.84 per share; 41,500 shares at $0.94 per share; 36,205
                     shares at $0.78 per share and 67,188 shares at $1.00 per
                     share.

                     In September 1999, the Company issued 1,050,000 warrants at
                     an exercise price of $0.75 per share to officers and an
                     outside director of the Company for a period of five years.
                     These warrants were issued to the officers in lieu of the
                     Company implementing an executive management stock option
                     plan and to the outside director for serving on the Board
                     of Directors.

9.  Shareholders'    In October 1999, the Company issued 200,000 warrants at an
    equity           exercise price of $1.00 per share for a three year period
    (continued)      to key outside non-employees in exchange for services
                     rendered.

                     From November through December 1999, the Company issued
                     28,864 shares of common stock subject to restrictions
                     pursuant to the stock purchase program. Under this plan,
                     employees can purchase common stock of the Company at the
                     closing price at the end of each pay period from November
                     15 through December 31, 1999, with the Company matching the
                     shares on a one for one basis. The following shares were
                     issued: 10,762 shares at $0.78 per share; 11,732 shares at
                     $0.81 per share; 4,020 shares at $1.41 per share and 2,350
                     at $2.00 per share.

                     In November 1999, the Company issued 3,000,000 warrants to
                     Internet Guide, Inc., an affiliate of the Chairman of the
                     Board at an exercise price of $1.00 per share for a period
                     of one year.

                     In November 1999, the Company issued 356,147 warrants at an
                     exercise price of $1.00 per share for a period of three
                     years to an affiliate of the Chairman of the Board as
                     consideration for services rendered.

                     In December 1999, the Company issued 2,999,750 shares of
                     common stock (to Internet Guide, Inc.) upon the exercise of
                     warrants at an exercise price of $1.00 per share. In
                     exchange, the Company received 461,500 shares of Internet
                     Guide, Inc. common stock.

                     In December 1999, the Company issued 300,000 shares of
                     common stock were issued to the holder of a warrant at an
                     exercise price of $0.50 per share in exchange for $150,000
                     in marketable securities.

                                      F-20
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

                     In December 1999, the Company issued 185,000 shares of
                     common stock which are subject to restrictions under Rule
                     144 of the Securities Act of 1933 at $1.75 per share.

                     In December 1999, the Company issued 28,118 warrants to
                     note-holders at an exercise price of $1.06 per share for a
                     period of three years in exchange for debt forgiveness of
                     $26,725 plus accrued interest.

                     In December 1999, the Company issued 300,000 warrants at an
                     exercise price of $1.00 per share for a period of three
                     years to key employees. The warrants were issued in lieu of
                     the Company implementing a formal stock option program.

9.  Shareholders'    In December 1999, the Company issued 750,000 warrants to
    equity           the Chairman of the Board at an exercise price of $1.00 per
    (continued)      share. The warrants are exercisable by the officer as
                     follows: 250,000 are exercisable from December 1999 through
                     December 2002, 250,000 are exercisable from December 2000
                     through December 2003, and 250,000 warrants are exercisable
                     after December 2001, provided the officer is employed by
                     the Company at December 31, 2001.

                     A summary of warrant activity follows:

<TABLE>
<CAPTION>
                                                          Exercise Period             Exercise      Number of
                                                   ------------------------------       Price        Shares
                                                         From           To              Range       Reserved
                                                   -----------------------------------------------------------
                     <S>                           <C>               <C>             <C>            <C>
                     December 31, 1998 - Warrants
                     outstanding                                                                     4,009,971
                     Issued during 1999                  April 1999     September    $  .50-5.00    14,109,549
                                                                             2004
                     Exercised during 1999                                           $  .25-1.00    (3,988,750)
                    ------------------------------------------------------------------------------------------
                     December 31, 1999 - Warrants
                     outstanding                                                                    14,130,770

                     Issued during 2000               November 2000  October 2005    $  .69-1.50       505,000
                     Exercised during 2000                                           $  .75-2.00    (2,100,442)
                     Exchanged for common stock                                      $      5.00    (5,207,889)
                     Terminated during 2000                                          $ 1.00-7.00    (1,107,838)
                    ------------------------------------------------------------------------------------------

                     December 31, 2000 - Warrants
                     outstanding                                                                     6,204,351
                    ==========================================================================================
</TABLE>


10. Stock based      On November 15, 1999, the Company instituted a non-
    compensation     qualified employee stock purchase program under which all
    plan             employees could purchase restricted common stock from the
                     Company at a purchase price equivalent to the closing price
                     on the date of purchase. Under this program, the Company
                     matched all stock purchases on a one for one basis. During
                     the years ended December 31, 2000 and 1999, 4,929 and
                     28,864 shares, respectively, were purchased at prices
                     ranging from $0.63 per share to $2.38 per share with the
                     Company issuing an equivalent amount under the matching
                     terms. Compensation expense totaling $4,726 and $28,293 was
                     recorded in 2000 and 1999, respectively, in connection with
                     this non-qualified employee stock purchase program.

                                      F-21
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

                     Pursuant to SFAF No. 123 "Accounting for Stock-based
                     Compensation", the Company has elected to account for its
                     stock purchase warrants and other equity instruments under
                     APB Opinion 25 "Accounting for Stock Issued to Employees"
                     and adopt the disclosure only provisions of SFAS No. 123.
                     Under APB 25, no compensation costs are recognized because
                     the exercise price is equal to the fair market price of the
                     common stock on the date of grant. Under SFAS No. 123,
                     stock purchase warrants are valued at grant date using the
                     Black-Scholes valuation model. Had compensation costs been
                     determined as prescribed by SFAS No. 123, the Company's net
                     earnings and earnings per share would not have changed,
                     since the stock purchase warrants were considered to have
                     little or no value.

11.  Extraordinary   During 2000, the Company settled various debts with
     gains           creditors having recorded balances of $233,703 for cash
                     payments of $120,246 and 4,415 shares of Company stock
                     valued at $21,523.

11.  Extraordinary   During 1999, the Company settled debts to creditors
     gains           totaling $2,337,646. These debts were settled by issuing
     (continued)     common stock of the Company with a fair value of $653,081,
                     paying cash of $215,000 and selling equity securities of
                     Internet Guide, Inc. held by the Company for $194,243. The
                     settlement of this debt resulted in an extraordinary gain
                     of $1,275,322.

12.  Income taxes    The effective income tax rate varied from the federal
                     statutory tax rate as follows:

<TABLE>
<CAPTION>
                                                                                2000                     1999
                                                                               ------------------------------
                     <S>                                                       <C>                      <C>
                     Statutory rate                                              34.0%                   34.0%
                     State rate                                                   5.0                     5.0
                     Accruals not currently deductible                            -                       5.7
                     Legal settlement expenses                                    -                     (13.6)
                     Capitalized software costs                                   1.8                   (11.3)
                     Officer's compensation                                       -                       7.2)
                     Long-term capital loss carryover                           (47.6)                   (3.5)
                     Unrealized loss on securities                               11.6                     -
                     Other                                                        3.5                    (1.7)
                     Valuation allowance                                         (8.3)                   (7.4)
                                                                               ------------------------------
                                                                                  0.0%                    0.0%
                                                                               ==============================
</TABLE>

                     The deferred tax asset and the deferred tax liability is
                     comprised of the following:

<TABLE>
<CAPTION>
                                                                                2000                     1999
                                                                               ------------------------------
                     <S>                                                       <C>              <C>
                     Deferred tax asset:
                     Expenses not currently deductible for tax purposes        $    7,328       $     406,492
                     Capital loss carryfoward                                           -             572,801
                     Net operating loss carryfoward                             2,629,493           3,055,717
                   ------------------------------------------------------------------------------------------
                                                                                2,636,821           4,035,010
                     Valuation allowance                                       (2,663,821)         (4,035,010)
                   ------------------------------------------------------------------------------------------
</TABLE>

                                      F-22
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

<TABLE>
                     <S>                                                       <C>              <C>
                     Gross deferred tax assets                                         -                 -
                     Gross deferred tax liability                                      -                 -
                   ---------------------------------------------------------------------------------------
                     Net deferred tax asset (liability)                        $       -        $        -
                   =======================================================================================
</TABLE>

                     At December 31, 2000, the Company has approximately
                     $6,700,000 in net operating loss carryfowards which expire
                     at varying dates between the years 2009 and 2020. The
                     annual utilization of these carryfowards are significantly
                     limited under Section 382 of the Internal Revenue Code as a
                     result of ownership changes experienced by the Company. A
                     valuation allowance equal to the total deferred tax asset
                     has been established in each period due to the uncertainty
                     regarding the realization of the net deferred tax assets.

12.  Income taxes    Approximately, $1,275,000 in net operating loss
     (continued)     carryforwards were utilized to offset federal and states
                     income taxes estimated at $498,000 relating to the
                     extraordinary item in 1999.

13.  Net income      The following data shows the amounts used in computing
     (loss) per      basic and diluted net income (loss) per share for the years
     share           ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                          2000           1999
                                                                               ------------------------------
                   <S>                                                         <C>                <C>
                     Net income to common shareholders                             $ 1,203,228    $ 1,040,025
                   ==========================================================================================
                     Weighted average number of outstanding common shares-basic    $16,123,896    $ 7,841,237
                     Diluted effect of warrants to purchase common shares            1,601,954      3,690,047
                   ------------------------------------------------------------------------------------------
                     Diluted common shares outstanding                              17,725,850     11,531,284
                   ==========================================================================================

                     Basic
                     Income (loss) before extraordinary item                       $       .07    $      (.03)
                   ==========================================================================================
                     Net income (loss)                                             $       .08    $       .13
                   ==========================================================================================

                     Diluted
                     Income (loss) before extraordinary item                       $       .06    $       .03
                   ==========================================================================================
                     Net income                                                    $       .07    $       .09
                   ==========================================================================================
</TABLE>

                                      F-23
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

14.  Related party   During 2000, the Company made cash advances to an officer
     transactions    of the Company and two company's controlled by the officer,
                     one of whom is Internet Guide. The net amount due to the
                     Company at December 31, 2000 was $24,236. There are no
                     specified terms of repayment for these advances. In
                     addition, during 2000 various officers and shareholders
                     advanced funds to the Company. At December 31, 2000, the
                     Company owed $25,077 to an officer and shareholder of the
                     Company and $25,000 to an individual that is a shareholder
                     of the Company. These advances do not accrue interest and
                     have no specified terms of payment.

                     In December 1999, the Company loaned an officer and
                     director of the Company $50,000 to purchase shares of
                     common stock of the Company (at $.6875 per share) on an
                     unsecured promissory note that is due upon demand, but no
                     later than December 31, 2000. During 2000, a new note was
                     issued extending the due date to December 31, 2001. The
                     note accrues interest at a rate of eight percent (8%) per
                     annum. The note receivable has been reflected as a
                     reduction of additional paid-in capital at December 31,
                     2000 and 1999.

14.  Related party   On December 31, 1999, the Company sold 150,000 shares of
     transactions    common stock of Internet Guide, Inc. at $10.375 per share
     (continued)     and 185,000 shares of common stock of the Company at $1.75
                     per share plus had debt of $70,833 paid on behalf of the
                     Company, in exchange for a promissory note totaling
                     $1,950,883. The promissory note is secured by underlying
                     securities and collateralized by additional securities held
                     by a third-party Trust. The promissory note accrues
                     interest at an annual rate of seven percent (7%) calling
                     for payments in January, February and March 2000. The
                     payment terms were renegotiated calling for two equal
                     payments on April 30th and May 31st, 2000. The Company has
                     accounted for these transactions in 1999 as if the Company
                     exchanged common shares of common stock of the Company for
                     a promissory note receivable. As these transactions are
                     considered related party transactions, accordingly, any
                     gain resulting from this sale has been deferred and will be
                     recognized in earnings in the period paid, and the
                     promissory note receivable has been offset against paid-in-
                     capital. The promissory note was subsequently paid on May
                     20, 2000 via cash of $330,000 and stocks in publicly traded
                     companies with a fair value of $1,648,800. As a result, the
                     gain has been recognized in the year ended December 31,
                     2000 and the note receivable has been credited to paid-in
                     capital.

                     In 1995, the Company accrued salary to an officer of the
                     Company in the amount of $68,833. In 1998, an additional
                     accrual of $31,167 relating to salary was made for two
                     officers of the Company. In January 1999, these obligations
                     were paid through the issuance of 200,000 shares of common
                     stock in connection with a Regulation D offering (See Note
                     8).

                                      F-24
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

15.  Sale of         On December 28, 2000, the Company sold HIS of Virginia,
     subsidiary      Inc., a wholly-owned subsidiary to an affiliate of a former
                     officer and director in exchange for the assumption of
                     $791,319 in liabilities for which the subsidiary was
                     obligated and the granting of a license to resell certain
                     of the Company's software products. The Company has
                     recognized this transaction as revenue from sale of
                     marketing rights in 2000.

16.  Supplemental    Supplemental disclosure of cash flows and noncash investing
     information to  and financing activities are as follows:
     consolidated
     Statements of   Year ended December 31, 2000:
     Cash Flows

                     .   The Company received equity securities valued at
                         $1,620,883 as partial payment on a promissory note
                         receivable of $1,950,883 entered into in 1999 (Note
                         14). Deferred gain at December 31, 1999 of $987,230
                         related to the promissory note was recognized in 2000.

                     .   The Company exchanged non-marketable equity securities
                         valued at $399,750 for marketable equity securities. No
                         gain or loss was recognized on this transaction.

                     .   The Company exchanged non-marketable securities for
                         notes receivable of $732,000 and commercial trade
                         credits of $1,068,000.

                     .   Common stock was issued for commercial trade credits
                         valued at $622,500.

                     .   Common stock was issued in payment of current expenses
                         and prepaid expenses totaling $105,938 and settlement
                         of debts to various creditors totaling $21,523.

                     .   Company stock was used by a shareholder to settle
                         $101,337 of liabilities on behalf of the Company.

                     .   The Company paid interest of $10,911 in 2000.

                     Year ended December 31, 1999:

                     .   The Company issued 3,799,750 shares of common stock in
                         exchange for investments in equity securities of
                         $3,009,897.

                     .   The Company issued 1,434,562 shares of common stock in
                         satisfaction of certain debts totaling $462,449 and in
                         payment of current expenses totaling $272,494.

                     .   The Company issued 27,352 warrants to settle debts
                         totaling $26,725 with various creditors.

                     .   A promissory note receivable of $1,950,883 was entered
                         into for 185,000 shares of common stock of the Company
                         at $1.75 per share, 150,000 shares of Internet Guide,
                         Inc. common stock at $10.375 per share and a receivable
                         of $70,883.

                     .   The Company paid interest of $10,000 in 1999.

                                      F-25
<PAGE>

                                               H.Quotient, Inc. and Subsidiaries

                                      Notes to Consolidated Financial Statements

================================================================================

17.  Significant     The Company derived a significant portion of its sales from
     customers       one customer. Sales from this customer totaled $904,432 and
                     $1,171,135 during the years ended December 31, 2000 and
                     1999, respectively, representing 79% and 76% of total sales
                     for these years exclusive of revenue from sale of marketing
                     rights (Note 15). As of December 31, 2000, accounts
                     receivable from this customer totaled $70,000.

18.  Subsequent      On February 8, 2001, warrant certificates for the purchase
     events          of 834,434 shares of the Company's common stock were
                     exercised at a price of $.63 per share in the aggregate of
                     $525,000. Payment was made by delivery to the Company of a
                     promissory note in the amount of $525,000 with an interest
                     rate of 6% per annum. The note matures on December 31,
                     2001.

                     On March 29, 2001, the Company filed Form S-8 in which
                     395,000 shares owned by a former officer and director were
                     registered under the Securities Act of 1933, and is subject
                     to a selling restriction for shares sold in the open market
                     through registered broker-dealers whereby no more than five
                     percent of the previous day's trading volume or 5,000
                     shares of the registered common stock may be sold in open
                     market transactions.

                                      F-26
<PAGE>

                                  SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Vienna,
State of Virginia, on May 29, 2001.

                                   H-QUOTIENT, INC.



                                   By:       /s/  Douglas A. Cohn
                                      ------------------------------------------
                                             Chairman of the Board and
                                             Chief Executive Officer

         Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Reston,
State of Virginia, on May 24, 2000.

            Signature                                  Title
            ---------                                  -----

By:      /s/  Douglas A. Cohn                   Chairman of the Board,
   ---------------------------------
              Douglas A. Cohn            President and Chief Executive Officer

By:      /s/  J. Brian Copley                   Secretary, and Director
   ---------------------------------

By:      /s/  Jack Anderson                       Treasuer and Director
   ---------------------------------
              Jack Anderson