<PAGE>



                       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, 2002
                                       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: 703-752-0690
         Securities registered under Section 12(b) of the Exchange Act:

Title of each class                            Name of each Exchange on
----------------------                              which registered
None                                              -------------------
                                                   OTC Bulletin Board


         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 ( )

                                      1
<PAGE>


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: $2,181,315.

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, 2003, was
$17,438,000  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, 2002, a total of shares of 29,557,300 the registrant's common stock
(par  value,  $0001  per  share)  were  outstanding.

Documents incorporated by reference: None
Transitional Small Business Issuer: Yes ( ) No (X)
--------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>


ITEM NUMBER AND CAPTION
<S>                                                                                     <C>

                                                                                      Page
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>
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


                                      2
<PAGE>

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, LabQuotient, IntelliPhysician, IntelliHeart, and
IntelliSight. BloodQuotient is in development. 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 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. LabQuotient
provides immediate, appropriate tests for specific diagnoses. IntelliPhysician
is a web-based medical practice management system for clinics and hospitals that
improves patient care, reduces costs and electronically streamlines all medical
office functions. IntelliHeart is a web-based system that enhances a physician's
ability to follow-up patients suffering from ailments requiring ongoing
cardiology care, including the tracking of recall and advisory alerts.


                                      3
<PAGE>

IntelliSight is a web-based ophthalmology application that facilitates the
detailed capture of ophthalmology clinical and surgical data including Lasik
procedures. BloodQuotient will provide comparative analyses to blood banks. 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 payments 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, along with doctors, clinics and insurance companies,
are our primary market focus.

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, I-Link,
LabQuotient, IntelliPhysician, IntelliHeart, IntelliSight, BloodQuotient 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.


                                      4
<PAGE>
Our strategy includes the following key elements:
-    Continue  sales  and   installation  of   IntelliPhysician,   IntelliHeart,
     IntelliSight,  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;
-    Commence marketing of LabQuotient and BloodQuotient;
-    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.

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:

                                      5
<PAGE>

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, 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.


                                      6
<PAGE>

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
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


                                      7
<PAGE>

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.

LabQuotient provides immediate, appropriate tests for specific diagnoses.

IntelliPhysician is a web-based medical practice management system for clinics
and hospitals that improves patient care, reduces costs and electronically
streamlines all medical office functions.

IntelliHeart is a web-based system that enhances a physician's ability to
follow-up patients suffering from ailments requiring ongoing cardiology care,
including the tracking of recall and advisory alerts.

IntelliSight is a web-based ophthalmology application that facilitates the
detailed capture of ophthalmology clinical and surgical data including Lasik
procedures.

BloodQuotient (information is proprietary; product is in development) This
product will provide comparative analyses to blood banks.

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 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.

                                      8
<PAGE>

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 hospitals throughout the nation. 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,
IntelliPhysician, IntelliHeart, IntelliSight 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.

Contract Awards

We have a contract 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.

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


                                      9
<PAGE>

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
"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


                                      10
<PAGE>

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, I-Link Enterprise, IntelliPhysician,
IntelliHeart, and IntelliSight are 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 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.

                                      11
<PAGE>

Number of Employees/Contractors

As of March 31, 2003, we have 16 full and part-time time employees/contractors:

Department                              Number of Employees/Contractors
--------------                          ---------------------------------
Sales and Marketing                                       3
Operations and Product Development                        9
Administration                                            4

We have recruited seasoned technical administrators and engineers with
considerable experience in business and the software industry. Douglas A. Cohn,
our Chairman, President and Chief Executive Officer joined our Company in
November 1999. Director of Operations Laurence T. Burden joined the company in
March 2002.

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

COMPANY IN INITIAL STAGES

While we have been in existence for over seven years, we only entered the
production stage in 1999 for DataQual with and the interface engine and I-Link
Enterprise with its Central Data Reporting. To continue to grow and remain
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 DataQual Systems;
complete, sell and install new DataQuotient Systems, complete the installation
of I-Link Enterprise for the Alabama Hospital Association.

WE HAVE A LIMITED OPERATING HISTORY
UPON WHICH YOU MAY EVALUATE US

We began operations in 1993. As a 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, 2002, we
had an accumulated deficit of approximately $ 5 million. Before 1999, we
experienced significant losses in connection with the 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
OPERATIONS TO FUND OUR GROWTH PLANS

For the years ended December 31, 1999, 2000, 2001 and 2002, we made profits from
operations and investments. To fund our operations, we require a continuation of
this 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 HURT OUR BUSINESS

To manage our growth, we must implement 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.

                                      12
<PAGE>

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, 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 without a 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. We believe that our success will
depend 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 technical 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.


WE HAVE NOT PAID, BUT MAY PAY, DIVIDENDS

We have not paid cash dividends on our common stock, but may pay dividends in
the 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 INCORPORATION, BYLAWS, AND VIRGINIA
LAW COULD MAKE ACQUISITION OF US DIFFICULT

The Company is a Virginia corporation. Anti-takeover provisions of Virginia law
could make it more difficult for a third party to acquire control of us, even if
such change in control would be beneficial to 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
PRODUCTS--NEED FOR NEW TECHNOLOGY

Our business is almost exclusively 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. 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. LabQuotient is copyrighted, and and
BloodQuotient is in development.

                                      13
<PAGE>

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 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 LIABILITY

 Software products as complex as those 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.


                                      14
<PAGE>

EXTERNAL FACTORS COULD AFFECT OUR COMMON STOCK TRADING PRICE

Fluctuations in the trading price of our 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 VOLATILE AND SHAREHOLDERS MAY
NOT BE ABLE TO RESELL THEIR SHARES AT A PROFITABLE PRICE

In addition, the stock market in general has experienced extreme volatility that
often has been unrelated to the 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.

ITEM 2.  Description of Properties

At present, we lease 2,389 square feet of office space located at 8150 Leesburg
Pike, Suite 503, Vienna, Virginia 22182. These premises should suffice for our
administrative offices for the foreseeable future.

ITEM 3. Legal Proceedings

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. See Note 8 to the Financial Statements for discussion of litigation.

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

NONE

PART II

ITEM 5. Market for Common Equity and Related Stockholder Matters

Our Common Stock is traded on the NASDAQ Bulletin Board.
Our Common Stock was listed on the NASDAQ Bulletin Board on approximately April
16 of 1996.
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 2001, 2002 and the first quarter of 2003, our high and low prices were is
follows:

                                              HIGH            LOW
                                            -------         -------

2001
------
1/st/ Quarter                                1.88             .38
2/nd/ Quarter                                 .62             .28
3/rd/ Quarter                                 .36             .19
4/th/ Quarter                                 .42             .16



                                      15
<PAGE>

2002
------
1/st/ Quarter                                 .39             .19
2/nd/ Quarter                                 .77             .29
3/rd/ Quarter                                 .84             .32
4/th/ Quarter                                1.55             .74

2003
------
1/st/ Quarter                               1.37              .27

On May 16, 2002, the closing prices of our Common Stock were $0.63 bid and $0.64
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 1,571 holders of record of our Common Stock as of March 24,
2003, which figure does not take into consideration those shareholders whose
shares are held in the name of broker-dealers.

Common Stock Issued in 2002

From January through March 2002, the Company issued shares of common stock that
are subject to restrictions under Rule 144 of the Securities Act of 1933 as
follows: 80,000 shares in a warrant exercise at $.30 per share for $24,000,
125,000 shares in exchange for 1,000,000 shares of Veridien Corp. common stock.,
150,000 shares for contract labor. The Company purchased 700,000 shares for
$280,000.

 From April through June 2002, the Company issued shares of common stock that
are subject to restrictions under Rule 144 of the Securities Act of 1933 as
follows: 40,779 shares for employee purchases at various prices, 100,000 shares
at $.15 per share for $15,000 to a medical consultant, and 139,100 shares in a
warrant exercise at $.25 per share for $34,775.
 From July through September 2002, the Company did not issue any shares other
than as described below for stock distributions.

 From October through December 2002, the Company issued shares of common stock
that are subject to restrictions under Rule 144 of the Securities Act of 1933 as
follows: 50,000 shares in a warrant exercise at $.25 per share for $21,500,
43,000 shares at $.58 per share in exchange for credit on a payable of $24,942,
and 54,000 shares in a warrant exercise at $.39 per share for $21,060. The
Company purchased 65,307 shares for 10,000 Rule 144 shares in resolution of a
dispute.

 During 2002, the Company issued 997,511 shares of its common stock to
shareholders of record as of July 31, 2000, and August 31, 2000, respectively,
who submitted proof of ownership of the Company's common stock as of those dates
in accordance with the terms and conditions announced on July 12, 2000, and July
31, 2000 in a stock distribution program.

Warrants and Options Issued in 2002


                                      16
<PAGE>

In March 2002, the Company issued 345,000 two month warrants exercisable as
follows: $40,900 in cash and 100,000 H-Quotient, Inc., common stock in exchange
for 345,000 shares of H-Quotient, Inc., common stock which are subject to
restrictions under Rule 144 of the Securities Act of 1933. 189,100 shares were
exercised.

 In July 2002, the Company issued warrants to purchase shares of H-Quotient,
Inc., common stock, primarily in lieu of cash compensation for management, that
are subject to restrictions under Rule 144 of the Securities Act of 1933. These
include: 450,000 one-year warrants exercisable at $.30 each; 500,000 two-year
warrants exercisable at $.33 each; 300,000 two-year warrants exercisable at $.39
each; and 1,706,397 warrants to replace existing warrants exercisable at $.30
each. During the last two years, more than 10,000,000 warrants have been
eliminated because they expired, were called or executed.

In September 2002, the Company issued 10,000 warrants exercisable by September
25, 2003, at $.68 per share of H-Quotient, Inc., common stock which subject to
restrictions under Rule 144 of the Securities Act of 1933. In December 2002, the
Company issued 290,000 warrants of H-Quotient, Inc., common stock which subject
to restrictions under Rule 144 of the Securities Act of 1933exercisable monthly
through 2003 at prices ranging from $.90 to $1.23 per share in conjunction with
an acquisition.

Dividend

We have not paid any cash dividends on our Common Stock. Our Board of Directors,
but we may issue dividends in the future. At present 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, 2001 and 2000. 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.,  were exchanged for 7,526,284 shares of H Quotient, Inc., common
stock,  (par  value  $.0001).

Year  Ended  December  31,  2002, Compared With the Year Ended December 31, 2001

Revenues  for  the  year  ended  December  31, 2002, were $2,181,315 compared to
$746,462  for  the year ended December 31, 2001. The increase is attributable to
improved  sales.

                                      17
<PAGE>
Expenses  for  the  year  ended  December 31, 2002, increased to $1,199,901 from
$1,191,148  for  the year ended December 31, 2001. The increase resulted from an
increase  in  research  and  development  expenses.

Interest  expense for the year ended December 31, 2002, was $26,975, as compared
to  $45,957  for the year ended December 31, 2001. This resulted from retirement
of  notes.

Other  income  for  the year ended December 31, 2002, was ($281,062) compared to
$1,169,939  for  the  year ended December 31, 2001. The difference resulted from
the  markdown  of  securities  in  2002  and  the  sale of a subsidiary in 2001.

Net  Income  exclusive of other income for the year ended December 31, 2002, and
the  year  ended  December 31, 2001, were $981,414 and ($444,686), respectively,
and  net income exclusive of subsidiary sale and unrealized securities gains and
losses  for  the  year  ended December 31, 2002, and the year ended December 31,
2001,  were  $1,065,717 and $611,229 respectively, which were $.04 per share and
$.02  per  share  respectively.

Liquidity  and  Capital  Resources

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

Working  capital  at December 31, 2002, was $4,930,688 as compared to $3,889,710
at  December  31,  2001,  an  improvement  of  $1,040,978.

Cash and cash equivalents at December 31, 2002, were $11,503 compared to $6,491,
on  December  31, 2001. This resulted from the timing of receivable collections.
Receivables  at  December  31,  2002, were $2,157,688 as compared to $469,385 at
December  31,  2001.

During  the  year  ended  December  31,  2002,  we  generated -0- from investing
activities  as  compared to $1,087,164 for the year ended December 31, 2001. The
decrease  was  due  to  a  decline  in  portfolio  value.

During  the  year  ended  December  31,  2002,  we used net cash of $74,612 from
financing  activities  as  compared  to  generating  $464,145 for the year ended
December  31,  2001.  This  was  due  to  improved  earnings.

Plan  of  Operation  and  Financial  Condition

Payment  terms  are  defined  in  contracts  and  will  vary.

We  had,  at  December  31, 2002, working capital of $4,930,688. 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  the  exercise  of  outstanding  warrants. Management
believes  that  our current operational plans for the next 12 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.

The  major  capital expenditures we may incur are for personnel and equipment to
expand  and enhance sales, software development and customer support, as well as
associated  office  support  staff.

                                      18
<PAGE>








 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.

PART III

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.
<TABLE>
<CAPTION>

Name                       Age              Positions                                   Since
-------                   -----            -----------                                 -------
<S>                         <C>                   <C>                                    <C>

Douglas A. Cohn            57               Chairman, Director and                      1999
                                            Chief Executive Officer
                                            and President

J. Brian Copley            56               Secretary and Director                      2000

Jack Anderson              80               Treasurer and Director                      2000
</TABLE>


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 and President since October 2000. Mr. Cohn is
Jack Anderson's writing partner in the nationally syndicated column Jack
Anderson & Douglas Cohn's Washington Merry-Go-Round. He has been in the
writing/publishing business since 1985. 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, N.Y., 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, the
Vietnamese Cross of Gallantry and other medals. He is a syndicated writer and
speechwriter and has appeared numerous times on national television and radio
shows.

                                      19
<PAGE>

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. Anderson's fledling 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 was employed at the Ochsner Clinic from 1990 to
2001 when he became chief of Nephrology at the Cleveland Clinic in Westin, Fla.
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.

Section 16(a) Filing Compliance

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, 2002, 2001, 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

Name and Principal Position         Year    Annual Compensation        Long-Term Compensation
                                                                       Shares Underlying
                                                                       Warrants

<S>                                   <C>             <C>              <C>

Douglas A. Cohn
Chairman, CEO and President         2002             -0-               -0-
                                    2001             -0-               -0-
                                    2000             -0-               750,000
                                    1999             -0-               -0-
</TABLE>


                                      20

<PAGE>

Employment Agreements

None of the 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, 2002, certain information
with respect to the beneficial ownership of shares of Common Stock of: (i) each
person who is known to the Company to 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, 2003, the Company had 29,557,300 shares of
Common Stock outstanding

                                             Beneficially       Percent
Name and Address of Beneficial Owner           Owned (1)        of Class
------------------------------------           ---------        --------
Internet Guide Inc. (1).........................5,427,825       18.3%
Douglas A. Cohn (2).............................1,050,682        3.6%
Jack Anderson.................................... 100,000        0.3%
J. Brian Copley.................................. 628,800        2.1%
         All Directors and Officers as a group. 1,779,482        6.0%
         Total............................      5,935,639       24.3%


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. (1) Number of shares Beneficially Owned includes: 356,397 shares
issuable upon exercise of warrants exercisable until November 21, 2003, at a
price of $1.00, 250,000 shares issuable upon exercise of warrants exercisable
until August 31, 2003, at a price of $1.00 and 250,000 shares issuable upon
exercise of warrants exercisable until August 31, 2003, 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. (2) Number of shares Beneficially Owned includes
750,000 shares issuable upon exercise of warrants exercisable until November 30,
2003, 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.

ITEM 12. Certain Relationships and Related Transactions

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.

                                      21
<PAGE>

                                               HOQUOTIENT, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS


--------------------------------------------------------------------------------


                                                                PAGE


INDEPENDENT AUDITOR'S REPORT                                       F-2

FINANCIAL STATEMENTS

   Consolidated Balance Sheets                               F-3 - F-4

   Consolidated Statements of Income                               F-5

   Consolidated Statements of Shareholders' Equity                 F-6

   Consolidated Statements of Cash Flows                           F-7

   Notes to Consolidated Financial Statements                F-8 - F19



<PAGE>

INDEPENDENT AUDITOR'S REPORT



Board of Directors
HOQUOTIENT, INC. AND SUBSIDIARIES
McLean, Virginia


We have audited the accompanying Consolidated Balance Sheets of HOQUOTIENT, INC.
AND  SUBSIDIARIES  (the  "Company")  as of December  31, 2002 and 2001,  and the
related  Consolidated  Statements of Operations,  Shareholders'  Equity and Cash
Flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted  our audits in  accordance  with the 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 misstatements. 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  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
HOQUOTIENT,  INC. AND  SUBSIDIARIES  as of December  31, 2002 and 2001,  and the
results  of their  operations  and their  cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

Certain errors resulting in an overstatement of revenue,  an  understatement  of
operating  expenses and an  understatement  of other income were  discovered  by
management.  Accordingly,  the 2001 financial  statements  have been restated to
correct for these errors.

/s/ Aronson & Company

Rockville, Maryland
May 21, 2003

                                      F-2


<PAGE>

<TABLE>
<CAPTION>

                                                                                                       H-QUOTIENT, INC.

                                                                                           CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------------------------------------


                                                                                                         (Restated)
December 31,                                                                               2002             2001
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                 <C>

ASSETS

CURRENT ASSETS
Cash                                                                                         $ 11,503          $ 6,491
Investment in marketable securities                                                           486,540          887,361
Note receivable                                                                               139,869          510,095
Accounts receivable, less allowance for doubtful accounts of
$509,037 and $200,000 in 2002 and 2001, respectively                                        2,157,688          469,385
Prepaid expenses                                                                            2,629,000        2,672,188
-----------------------------------------------------------------------------------------------------------------------

TOTAL CURRENT ASSETS                                                                        5,424,600        4,545,520
-----------------------------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT, NET                                                                    51,024          134,193

CAPITALIZED SOFTWARE, NET                                                                      82,171          200,790

INVESTMENT                                                                                  1,717,138        1,717,138

OTHER ASSETS                                                                                   14,878           14,294
-----------------------------------------------------------------------------------------------------------------------

TOTAL OTHER ASSETS                                                                          1,865,211        2,066,415
-----------------------------------------------------------------------------------------------------------------------


TOTAL ASSETS                                                                              $ 7,289,811      $ 6,611,935
-----------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

</TABLE>

                                      F-3

<PAGE>

<TABLE>
<CAPTION>

                                                                                                     H-QUOTIENT, INC.

                                                                                          CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------------------------------



                                                                                                           (Restated)
                                                                                       2002                   2001
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                 <C>

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses                                                      $ 430,447        $ 515,195
Notes payable                                                                                 62,475          127,285
Unearned revenue                                                                                 990           13,330
----------------------------------------------------------------------------------------------------------------------

TOTAL CURRENT LIABILITIES                                                                    493,912          655,810
----------------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized, 100 shares issued
and outstanding                                                                                    -                -
Common stock, $.0001 par value, 90,000,000 shares authorized,
28,588,454 and 27,778,835 shares issued and outstanding at
December 31, 2002 and 2001, respectively                                                       2,859            2,779
Additional paid-in capital                                                                14,841,065       14,701,723
Subscription receivable                                                                      (52,385)        (562,480)
Accumulated deficit                                                                       (7,995,640)      (8,185,897)
----------------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY                                                                       6,795,899        5,956,125
----------------------------------------------------------------------------------------------------------------------



TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                               $ 7,289,811      $ 6,611,935
----------------------------------------------------------------------------------------------------------------------


The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

</TABLE>

                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                                                                                                      H-QUOTIENT, INC.

                                                                                    CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>            <C>


                                                                                                         (Restated)
Years Ended December 31,                                                                   2002             2001
-----------------------------------------------------------------------------------------------------------------------
REVENUES
Licensing revenues                                                                          $ 919,340        $       -
Maintenance and service income                                                              1,261,975          746,462
-----------------------------------------------------------------------------------------------------------------------
   TOTAL REVENUES                                                                           2,181,315          746,462
-----------------------------------------------------------------------------------------------------------------------

TOTAL OPERATING EXPENSES                                                                    1,199,901        1,191,148
-----------------------------------------------------------------------------------------------------------------------

INCOME (LOSS) FROM OPERATIONS                                                                 981,414         (444,686)
-----------------------------------------------------------------------------------------------------------------------

OTHER INCOME (EXPENSES)
Interest expense                                                                              (26,975)         (45,957)
Unrealized (loss) gain on securities                                                         (365,365)         114,024
Realized (loss) gain on securities                                                            (35,456)         153,323
Gain on sale of subsidiary                                                                          -          393,157
Other                                                                                         146,734          555,392
-----------------------------------------------------------------------------------------------------------------------

TOTAL OTHER INCOME (EXPENSES)                                                                (281,062)       1,169,939
-----------------------------------------------------------------------------------------------------------------------


NET INCOME BEFORE PROVISION FOR INCOME TAXES                                                  700,352          725,253

PROVISION FOR INCOME TAXES                                                                          -                -
-----------------------------------------------------------------------------------------------------------------------

NET INCOME                                                                                    700,352          725,253
-----------------------------------------------------------------------------------------------------------------------

NET INCOME PER COMMON SHARE
Basic                                                                                          $ 0.02           $ 0.03
Diluted                                                                                        $ 0.02           $ 0.03
Exclusive of unrealized gain (loss) on securities                                              $ 0.04           $ 0.02
WEIGHTED AVERAGE COMMON SHARES
Basic                                                                                      28,090,664       24,582,298
Diluted                                                                                    28,925,136       25,086,913




The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

</TABLE>

                                      F-5

<PAGE>
<TABLE>
<CAPTION>
                                                                                                             H-QUOTIENT, INC.

                                                                              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

------------------------------------------------------------------------------------------------------------------------------

December 31, 2002 and 2001
------------------------------------------------------------------------------------------------------------------------------

                                                                                                                     Total
                                              Common Stock            Additional                                 Shareholders'
                                       -----------------------------    Paid-in      Accumulated   Subscription     Equity
                                         Shares         Amount         Capital        Deficit      Receivable     (Deficit)
                                       ----------------------------------------------------------------------------------------
<S>                                       <C>               <C>            <C>            <C>         <C>            <C>

DECEMBER 31, 2000                        19,810,544        $ 1,982    $ 13,652,448  $ (9,473,630)           $ -   $ 4,180,800

ISSUANCE OF COMMON STOCK FOR:
Cash                                      2,579,869            258         799,111             -              -       799,369
Services/expenses                         1,770,000            177         235,750             -              -       235,927
Two, one-for-seven distributions          2,506,387            251            (251)            -              -             -

WARRANTS EXERCISED FOR:
Cash                                         22,162              2          14,774             -              -        14,776
Other                                     1,089,873            109            (109)            -              -             -

Subscription receivable                           -              -               -       562,480       (562,480)            -

NET INCOME FOR 2001                               -              -               -       725,253              -       725,253
------------------------------------------------------------------------------------------------------------------------------

DECEMBER 31, 2001                        27,778,835        $ 2,779    $ 14,701,723  $ (8,185,897)    $ (562,480)  $ 5,956,125

ISSUANCE OF COMMON STOCK FOR:
Cash                                        592,907             59         254,049             -              -       254,108
Services/expenses                           143,000             14          39,838             -              -        39,852
Securities                                  125,000             13          28,487             -              -        28,500

WARRANTS EXERCISED FOR:
Cash                                        150,000             15          32,985             -              -        33,000
Other                                       564,019             56          78,906             -              -        78,962

Forgiveness of note receivable             (700,000)           (70)       (284,930)            -              -      (285,000)

Repurchased securities                      (65,307)            (7)         (9,993)            -              -       (10,000)

Payment of Subscription
    receivable                                    -              -               -      (510,095)       510,095             -

NET INCOME FOR 2002                               -              -               -       700,352              -       700,352
------------------------------------------------------------------------------------------------------------------------------

DECEMBER 31, 2002                        28,588,454        $ 2,859    $ 14,841,065  $ (7,995,640)     $ (52,385)  $ 6,795,899
------------------------------------------------------------------------------------------------------------------------------


The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

</TABLE>

                                      F-6


<PAGE>
<TABLE>
<CAPTION>
                                                                                                      H-QUOTIENT, INC.

                                                                                                      STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------


                                                                                                         (Restated)
Years Ended December 31,                                                                   2002             2001
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>               <C>

CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                                 $ 700,352        $ 725,253
 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
 BY OPERATING ACTIVITIES
   Depreciation                                                                                83,169           92,165
   Amortization                                                                               118,619          115,315
   Bad debt expense                                                                           295,574                -
   Realized loss (gain) on securities                                                          35,456         (153,323)
   Unrealized loss (gain) on securities                                                       365,365         (114,023)
   CHANGES IN ASSETS AND LIABILITIES
    Accounts receivable                                                                    (1,983,877)        (304,473)
    Due from affiliates                                                                             -           24,236
    Costs and estimated earnings in excess of billings                                              -          518,977
    Prepaid expenses                                                                          413,414       (1,266,047)
    Deposits and other                                                                           (584)               -
    Accounts payable and accrued expenses                                                     (84,748)        (839,663)
    Due to affiliates                                                                               -          (50,077)
    Deferred revenue                                                                          (12,340)        (444,620)
-----------------------------------------------------------------------------------------------------------------------

NET CASH USED BY OPERATING ACTIVITIES                                                         (69,600)      (1,696,280)
-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sales of equity securities                                                     34,743          360,164
  Purchases of equity securities                                                              (34,743)               -
  Additions to property and equipment                                                               -          (20,000)
  Proceeds from note receivable                                                                     -          747,000
-----------------------------------------------------------------------------------------------------------------------

NET CASH PROVIDED BY INVESTING ACTIVITIES                                                           -        1,087,164
-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from sale of common stock                                                          139,422          814,145
  Repayments on notes payable                                                                 (64,810)        (350,000)
-----------------------------------------------------------------------------------------------------------------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                                      74,612          464,145
-----------------------------------------------------------------------------------------------------------------------

NET CHANGE IN CASH                                                                              5,012         (144,971)

CASH AT BEGINNING OF YEAR                                                                       6,491          151,462
-----------------------------------------------------------------------------------------------------------------------

CASH AT END OF YEAR                                                                          $ 11,503          $ 6,491
-----------------------------------------------------------------------------------------------------------------------



The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

</TABLE>

                                      F-7



<PAGE>

                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


1.   ORGANIZATION  AND SIGNIFICANT ACCOUNTING POLICIES

                    ORGANIZATION  -  HoQuotient,   Inc.  (the  "Company"),   was
                    incorporated  in the  Commonwealth of Virginia on Integrated
                    Healthcare  Systems,  Inc. ("IHS"). On June 14, May 12, 1999
                    as  a  wholly-owned  subsidiary  of  1999,  IHS  executed  a
                    downstream  merger  with  HoQuotient,  Inc. in which all the
                    issued and  outstanding  shares of common  stock of IHS were
                    exchanged  for an equal  number of shares of the  $.0001 par
                    value common  stock of the Company.  The Company sold HIS on
                    December 28, 2000. 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, Dataqual Group, Inc (sold June 30, 2001)
                    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 accounting principles general
                    accepted in the United States of America 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.

                    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.

                    The  Company  offers non-specific upgrades to customers with
                    annual  support  agreements for a specific product when they
                    are completed and available for release. If an upgrade leads
                    to  a  new  product,  the  upgrade is considered a new 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.

                                      F-8
<PAGE>

                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1.   ORGANIZATION  AND SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

                           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.

                           From time to time cash may exceed  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 securities, asset recovery
                           credits, accounts payable, accrued expenses, and debt
                           to  approximate  the  fair  value  of the  respective
                           assets and liabilities at December 31, 2002 and 2001.

                           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  has
                           capitalized   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>

                                                                                          2002             2001
                                                                                     ----------------- ----------------

                           Capitalized software                                     $       474,474   $       474,474
                           Accumulated amortization                                        (392,303)         (273,684)
                           -------------------------------------------------------- ----------------- ----------------
<S>                          <C>                                                             <C>           <C>

                           NET                                                      $        82,171   $       200,790
                           -------------------------------------------------------- ----------------- ----------------
</TABLE>

                           Amortization expense for the years ended December 31,
                           2002  and  2001  totaled   $118,619   and   $115,315,
                           respectively.

                           The  carrying  amount  of  acquired   technology  and
                           software 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.

                                      F-9

<PAGE>


                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                         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 effects 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  (PER  SHARE) - 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.

                         NEW ACCOUNTING STANDARDS NOT YET ADOPTED - Statement of
                         Financial  Accounting  Standards  No. 145, Recession of
                         FASB  Statements  No.  4, 44, and 64, Amendment of FASB
                         Statement No. 13 and Technical Corrections. The portion
                         of  this  Statement applicable to FASB Statement No. 4,
                         applies  to  fiscal years beginning after May 15, 2002.
                         The  other  elements of the Statement became applicable
                         during 2002. The portion of the Statement applicable to
                         Statement  No.  4,  Reporting  Gains  and  Losses  from
                         Extinguishment  of Debt, has the effect of changing the
                         accounting  for  gains  and  losses  from  debt
                         extinguishments  from  extraordinary  to  operating.

                         Statement  of  Financial  Accounting Standards No. 146,
                         Accounting  for  Costs Associated with Exit or Disposal
                         Activities.  This  Statement  nullifies Emerging Issues
                         Task  Force  Issue  No.  94-3,  which  required  the
                         recognition of a liability for an exit cost at the date
                         an  entity  made a commitment to an exit plan. SFAS No.
                         146  concludes  that  mere  commitment  to  a  plan, by
                         itself,  does  not  create an obligation to others that
                         meets  the  definition  of  a liability. This Statement
                         describes  the  costs  to  exit  an activity and when a
                         liability  for  those  costs should be recognized. This
                         Statement  is applicable to exit or disposal activities
                         initiated  after  December  31,  2002.

                         FASB  Interpretation No. 45, Guarantor's Accounting and
                         Disclosure  Requirements  for  Guarantees,  Including
                         Indirect  Guarantees  of  Indebtedness  of Others. This
                         Interpretation  supersedes  FASB  Interpretation No. 34
                         and requires a guarantor to recognize a liability for a
                         non-contingent  guarantee  based upon the fair value of
                         the  guarantee.  The  Interpretation  requires specific
                         disclosures  for  guarantees,  including  product
                         warranties,  and  indirect  guarantees.  This
                         Interpretation  is  applicable  to guarantees issued or
                         modified  after  December  31,  2002.

                                      F-10

<PAGE>

                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                    While  the  Company  has  not  yet  adopted  the  above  new
                    accounting standards,  management does not believe that they
                    will have a significant  impact on the  Company's  financial
                    position or results of operations upon adoption.

                    RECLASSIFICATIONS   -  Certain   2001   amounts   have  been
                    reclassified to conform to the 2002 presentation.

2.   INVESTMENTS  IN  SECURITIES

                    The  Company's   investments   in  securities   consists  of
                    marketable  securities  that the Company has  classified  as
                    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 16,218,042 and 17,399,251
                    shares of Veridien  Corporation  as of December 31, 2002 and
                    2001,  respectively,  that had a fair value of $486,540  and
                    $887,361, respectively.

3. NOTE RECEIVABLE

                    The note receivable consists of amounts due from the sale of
                    rights to sell a company  software system that was sold to a
                    former  officer  of  the  Company.  The  note  is  due as of
                    December 31, 2002.

4. PREPAID EXPENSES

                    Prepaid  expenses  at  December  31,  2002 and 2001  include
                    $2,629,000 of Asset Recovery Credits from SGD  International
                    Corp.  acquired  from  Veridien  Corporation.   The  credits
                    represent  amounts  that the  Company  expects to use in the
                    fulfillment  of  future  sales  contracts  and for  magazine
                    advertising.



<PAGE>


                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


5. PROPERTY AND            Property and equipment consists of the following:
   EQUIPMENT                                                                              2002             2001
                                                                                     ----------------- ----------------
<S>                           <C>                                                          <C>                   <C>

                           Office and computer equipment                            $       339,259   $       339,225
                           Furniture and fixtures                                            77,804            77,804
                           -------------------------------------------------------- ----------------- ----------------
                                                                                            417,063           417,029
                           Less: accumulated depreciation                                  (366,039)         (282,836)
                           -------------------------------------------------------- ----------------- ----------------

                                                                                    $        51,024   $       134,193
                           -------------------------------------------------------- ----------------- ----------------

                           Depreciation  expense of property and  equipment  was
                           $83,169 and $92,165 for the years ended  December 31,
                           2002 and 2001, respectively.

6. SHORT-TERM              Short-term debt consists of the following:
   DEBT                                                                                   2001             2000
                                                                                     ----------------- ----------------

                           Legal settlement with a law firm with interest at 9%.
                              The   Company  is  in  default  of  the  terms  of
                              settlement  of this  obligation.  The law firm has
                              taken no action to collect on this obligation.        $        62,475   $        62,475

                           Unsecured promissory notes payable with interest at
                              15%.                                                               -             64,810
                           -------------------------------------------------------- ----------------- ----------------

                                                                                    $        62,475   $       477,285
                           -------------------------------------------------------- ----------------- ----------------

</TABLE>

7.   COMMITMENTS AND LEASE CONTINGENCIES


                    COMMITMENTS - The Company  entered into a sixty-month  lease
                    agreement for office space beginning July 1, 2002. The lease
                    requires monthly payments of $4,878 plus a pro rata share of
                    taxes  and  operating  costs.  The  lease  calls for a fixed
                    escalation  of 3% per  annum.  The  Company  received a rent
                    abatement  for the first three  months of the lease.  Future
                    minimum  lease  payments as of December  31, 2000 under this
                    lease are as follows:

                           Year Ending
                           December 31                 Amount
                           ---------------------- -----------------

                                2003              $        59,408
                                2004                       61,191
                                2005                       63,026
                                2006                       64,917
                                2007                       32,938
                           ---------------------- -----------------

                           TOTAL                  $       282,480
                           ---------------------- -----------------

                                      F-12

<PAGE>

                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

                    Rent  expense  under all  operating  leases was  $55,377 and
                    $43,948  for the years  ended  December  31,  2002 and 2001,
                    respectively.

                    LITIGATION  - 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  Integrated  Systems  Technology,  Inc.
                    ("IST"),  formerly a wholly owned  subsidiary of the Company
                    for  employment  withholding  tax  liabilities.  It  is  the
                    opinion of counsel that there is no "alter ego" liability on
                    the part of the Company.  Since the filing of the Notice the
                    IRS has not  made any  effort  to  enforce  it  against  the
                    Company.  Management  removed the liability  during the year
                    ended  December  31, 2001 and the  $386,000 is included as a
                    reduction of expenses.

                    A suit with a former  customer  is  ongoing,  and a $340,000
                    reserve  has been  provided  for  this  item.  The  Company,
                    however,  expects to recover this sum and all other  amounts
                    due.

                    Other suits  arising in the ordinary  course of business are
                    pending  against  the  Company.   Management   believes  the
                    ultimate  outcome  of these  actions  will not  result  in a
                    material  adverse  effect  on  its  consolidated   financial
                    position.

8.    SHAREHOLDERS' EQUITY

                    From January  through March 2002,  the Company issued shares
                    of common stock that are subject to restrictions  under Rule
                    144 of the Securities Act of 1933 as follows:  80,000 shares
                    in a  warrant  exercised  at $.30  per  share  for  $24,000,
                    125,000 shares in exchange for 1,000,000  shares of Veridien
                    Corp.  common stock,  150,000 shares for contract labor. The
                    Company purchased 700,000 shares for $280,000.

                    From April through June 2002,  the Company  issued shares of
                    common stock that are subject to restrictions under Rule 144
                    of the Securities Act of 1933 as follows:  40,779 shares for
                    employee purchases at various prices, 100,000 shares at $.15
                    per share for $15,000 to a medical  consultant,  and 139,100
                    shares in a warrant exercised at $.25 per share for $34,775.

                    From July through  September 2002, the Company did not issue
                    any  shares  other  than  as   described   below  for  stock
                    distributions.

                                      F-13

<PAGE>

                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

8.   SHAREHOLDERS'  EQUITY  (CONTINUED)

                    From  October  through  December  2002,  the Company  issued
                    shares of common  stock  that are  subject  to  restrictions
                    under  Rule 144 of the  Securities  Act of 1933 as  follows:
                    50,000  shares in a warrant  exercise  at $.25 per share for
                    $21,500,  43,000  shares at $.58 per share in  exchange  for
                    credit on a payable of $24,942, a total of 552,128 shares at
                    various  prices  for  $225,563,  20,000  shares  in  warrant
                    exercised for $4,000,  a total of 370,919 shares in warrants
                    exercised  in  exchange  for  consideration  of $23,071  and
                    54,000  shares in a warrant  exercised at $.39 per share for
                    $21,060.  The Company  purchased  65,307  shares for $10,000
                    Rule 144 shares in resolution of a dispute.

                    During 2002, the Company issued 552,128 shares of its common
                    stock to  shareholders  of record as of July 31,  2000,  and
                    August  31,  2000,  respectively,  who  submitted  proof  of
                    ownership of the Company's common stock as of those dates in
                    accordance  with the terms and conditions  announced on July
                    12, 2000, and July 31, 2000 in a stock distribution program.

                    In February 2001,  warrant  certificates for the purchase of
                    1,089,873  shares of our common  stock were  exercised  at a
                    price  of $.48  per  share  in the  aggregate  of  $525,000.
                    Payment was made by delivery to us of a  promissory  note in
                    the  amount  of  $525,000  with an  interest  rate of 6% per
                    annum.  This note is collateralized by 834,434 shares of the
                    Company's stock. The note matured on December 31, 2001, with
                    a  balance   due  of   $510,095,   which  is   included   in
                    subscriptions  receivable  as a deduction  in  stockholders'
                    equity.  Also in February  2001, we issued 183,800 shares of
                    our common stock, which are restricted under Rule 144 of the
                    Securities  Act of 1933,  at $0.22122  per share in exchange
                    for $39,000  and  1,500,000  shares of Veridien  Corporation
                    common stock.

                    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.  The Company  issued  228,170 shares of common
                    stock that are subject to restrictions under Rule 144 of the
                    Securities  Act of 1933 at $.10 per  share in  exchange  for
                    $40,817 in cash and services.

                                      F-14

<PAGE>


                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

8.   SHAREHOLDERS'  EQUITY  (CONTINUED)

                    From April through June 2001, we issued  2,283,600 shares of
                    our common stock,  all of which is restricted under Rule 144
                    of the Securities Act of 1933 as follows:  350,000 shares at
                    $.205 per share to various  individuals  for services valued
                    at  $71,750;  500,000  shares at $.327 per share in exchange
                    for  $150,000  of SGD  Commercial  trade  credits and 90,000
                    shares of ROSS Corporation common stock; 1,110,000 shares to
                    the holder of  options  for  1,110,000  shares of our common
                    stock at $.35 in exchange  for  $388,500  of SGD  Commercial
                    trade credits; 63,600 shares of our common stock in exchange
                    for 509,188  shares of Veridien  Corp.  common stock at $.20
                    per share;  50,000  shares of our common  stock at $.205 per
                    share as payment of $10,250 in a loan discount expense for a
                    loan of $100,0000 from July 1, 2000, to May 4, 2001;  22,162
                    shares of our common  stock at $1.50 per share as payment of
                    a warrant exercise of $33,253;  100,000 shares of our common
                    stock at $.10 per share in exchange for $10,000 of services;
                    30,000  shares  of our  common  stock at $.50  per  share as
                    repayment of a $15,000 short term advance;  80,000 shares of
                    our common  stock at $.40 per share in exchange  for cash of
                    $32,000.

                    From July through  September  2001, we issued 573,619 shares
                    of our common stock,  all of which is restricted  under Rule
                    144 of the Securities Act of 1933 as follows:  47,619 shares
                    of our  common  stock at $0.105  per share to an  individual
                    investor in exchange for cash of $5,000;  150,000  shares of
                    our common at $.10 per share in exchange for interest credit
                    of $15,000;  41,000  shares of our common  stock in exchange
                    for 71,400 shares of ROSS  Corporation  common stock,  which
                    was  subsequently  sold;  and 335,000 of our common stock at
                    $0.15 per share in exchange for public  relations  services.
                    These  335,000  shares were issued in 23  certificates  with
                    additional restrictions that call for the share certificates
                    to be held in an attorney escrow account and released to the
                    shareholder at a rate of one certificate per month.

                    From October  through  December  2001,  we issued  1,492,650
                    shares of our common  stock at $.10 per share,  all of which
                    is restricted  under Rule 144 of the Securities Act of 1933.
                    These included  287,400 shares for securities  transactions,
                    35,000 shares to a consultant, 248,850 shares to a director,
                    200,000  for  prepaid  legal  expenses,  221,400  shares for
                    services,  and 500,000  shares as a reserve for  services or
                    acquisitions.

                    In 2001, the Company issued  2,506,387  shares of its common
                    stock to  shareholders  of  record  as of July 31,  2000 and
                    August  31,  2000  respectively,   who  submitted  proof  of
                    ownership of the Company's common stock as of those dates in
                    accordance  with the terms and conditions  announced on July
                    12, 2000 and July 31, 2000 in a stock distribution program.

                                      F-15

<PAGE>
                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>



8. SHAREHOLDERS'           A summary of warrant activity follows:
   EQUITY
   (CONTINUED)                                                         Exercise Period          Exercise   Number of
                                                                ------------------------------   Price       Shares
                                                                    From             To          Range      Reserved
                                                                -------------- --------------- ----------- -----------
<S>                           <C>                                   <C>           <C>             <C>          <C>

                           December 31, 2000 - Warrants                                                     6,219,601
                              outstanding
                           Issued during 2001                   November 2001    April 2002    $   .25        200,000
                           Exercised during 2001                                               $   .48-1.50(1,112,035)
                           Terminated during 2001                                                          (3,168,395)
                           ------------------------------------ -------------- --------------- ----------- -----------
                           December 31, 2001 - Warrants                                                     2,139,171
                           outstanding

                           Issued during 2002                   November 2002   October 2005   $   .69-1.50   802,296
                           Exercised during 2002                                               $   .22-1.31  (714,019)
                           Terminated during 2002                                                            (167,562)
                           ------------------------------------ -------------- --------------- ----------- -----------

                           December 31, 2002 - Warrants                                                     2,063,886
                           outstanding
                           ------------------------------------ -------------- --------------- ----------- -----------

</TABLE>

9.   STOCK BASED COMPENSATION PLAN

                    On November 15, 1999, the Company instituted a non-qualified
                    employee  stock  purchase  program under which all 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 year
                    ended  December  31, 2001,  4,929  shares 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 was recorded in
                    2001 in connection  with this  non-qualified  employee stock
                    purchase  program.  No shares  were  sold  under the plan in
                    2002.

                    Pursuant  to  SFAS  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.

10.  INCOME TAXES

                    The  effective  income  tax rate  varied  from  the  federal
                    statutory tax rate as follows:

                                                  2002             2001
                                             ----------------- ----------------

                     Statutory rate                 34.0%             34.0%
                     State rate                      6.0               5.0
                     Valuation allowance           (40.0)            (40.0)
                     ----------------------------------------- ----------------
                                                     0.0%              0.0%
                     ----------------------------------------- ----------------


                                      F-16

<PAGE>
                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


10.  INCOME TAXES    The deferred tax asset and the deferred tax liability is comprised of the following:
     (CONTINUED)
                                                                                    2001             2000
                                                                               ----------------- ----------------
<S>                                                                                <C>               <C>

                     Deferred tax asset:
                         Net operating loss carryforward                      $     1,975,695   $     2,394,074
                     -------------------------------------------------------- ----------------- ----------------
                     Valuation allowance                                           (1,975,695)       (2,394,074)

                     NET DEFERRED TAX ASSET (LIABILITY)                       $            -    $            -
                     -------------------------------------------------------- ----------------- ----------------

                    At  December  31,  2002,   the  Company  has   approximately
                    $5,550,000 in net operating loss carryforwards  which expire
                    at varying dates between the years 2009 and 2020. The annual
                    utilization of these carryforwards 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.

11.  NET INCOME  (LOSS)

                    The following data shows the amounts used in computing basic
                    and  diluted  net income  per PER SHARE  share for the years
                    ended December 31, 2002 and 2001:

                                                                                     2002        2001 (Restated)
                                                                                 ----------------- ----------------

                      Net income to common shareholders                        $       700,352   $       725,253
                      -------------------------------------------------------- ----------------- ----------------
                      Weighted average number of outstanding common                 28,090,604        24,582,298
                         shares-basic
                      Diluted effect of warrants to purchase common shares             834,472           504,615
                      -------------------------------------------------------- ----------------- ----------------
                      Diluted common shares outstanding                             28,925,136        25,086,913
                      -------------------------------------------------------- ----------------- ----------------

                      Basic
                      Income before income losses                              $          .02    $          .03
                      -------------------------------------------------------- ----------------- ----------------
                      Net income                                               $          .02    $          .03
                      --------------------------------------------------------   ----------------- ----------------

                      Diluted
                      Income before income losses                              $          .02    $          .03
                      -------------------------------------------------------- ----------------- ----------------
                      NET INCOME                                               $          .02    $          .03
                      -------------------------------------------------------- ----------------- ----------------
                      NET INCOME EXCLUSIVE OF UNREALIZED
                      GAIN (LOSS) ON SECURITIES                                $          .04    $          .02
</TABLE>
                                      F-17

<PAGE>
                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

12.  RELATED PARTY  TRANSACTIONS

                    During 2000, the Company made cash advances to an officer 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.

13.  SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENT OF CASH FLOW

                    Supplemental  disclosure of cash flows and noncash investing
                    and financing activities are as follows: Year ended December
                    31, 2002:

                    o    The Company paid interest of $0.

                    Year ended December 31, 2001:

                    o    The Company exchanged non-marketable  securities
                         valued   at   $40,660   for  cash   and   equity
                         securities.
                    o    The Company exchanged non-marketable  securities
                         valued at $163,500 for commercial  trade credits
                         and non-marketable securities.
                    o    The Company exchanged non-marketable  securities
                         valued at $12,750 equity securities.
                    o    The Company exchanged non-marketable  securities
                         valued at $5,945 for non-marketable securities.
                    o    The company paid interest of $45,957.

14.  SUBSEQUENT   EVENTS

                    In March 2003,  the Company  completed  the  acquisition  of
                    IntelliServices, Inc.


                                      F-18
<PAGE>
                                      H-QUOTIENT, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------



15.  RESTATEMENTS  AND RECLASSIFICATION

                    The  financial  statements  for the year ended  December 31,
                    2001 have been  restated  to correct  for errors  related to
                    cancellation   of  debt,   which   was   classified   as  an
                    extraordinary  item and should have been  included in income
                    from operations, and gain from marketable securities,  which
                    were  classified as available for sale securities and should
                    have been  classified as trading  securities  and unrecorded
                    liabilities.   In   addition,   certain   items   have  been
                    reclassified  in the  Consolidated  Statements of Operations
                    from  operating  expenses  to other  income  (expense).  The
                    effect of these  adjustments to the  accompanying  financial
                    statements are as follows:
<TABLE>
<CAPTION>


                                                                                        December 31, 2001
                                                                              -----------------------------------------

                                                                                As Previously
                                                                                   Reported           As Restated
                                                                              --------------------- -------------------
<S>                                     <C>                                               <C>               <C>
                           CONSOLIDATED BALANCE SHEET
                           ---------------------------
                              Accounts payable and accrued expenses             $     414,935        $     515,195
                              Accumulated other comprehensive
                                  income                                              114,024                -
                              Accumulated (deficit)                                (8,709,756)          (8,185,897)

                           CONSOLIDATED STATEMENT OF OPERATIONS
                           ------------------------------------
                              Revenue                                            $  1,122,818        $     746,462

                              Operating expenses                                      133,222            1,191,148

                              Other income
                                Unrealized gain on securities                           -                  114,024
                                Realized gain on securities                           107,850              153,323
                                Gain on sale of subsidiary                              -                  393,157
                                Other                                                   -                  555,392

                              Extraordinary losses                                    340,000                 -

                              Net Income                                              711,489              725,253


                                      F-19

</TABLE>


<PAGE>

SIGNATURES

Pursuant  to  the  requirements  of  the  Securities  Exchange  Act of 1934, the
Registrant  has  duly  caused  this  Report  to  be  signed on its behalf by the
undersigned,  thereunto  duly  authorized.
Date:  May  22,  2003.

H-QUOTIENT,  INC.

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


CERTIFICATION

I,  Douglas  Cohn,  Chief  Executive  Officer  of H-Quotient, Inc. certify that:

1.     I  have  reviewed  this annual report on Form 10-KSB of H-Quotient, Inc.;

2.     Based  on my knowledge, this quarterly report does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not misleading with respect to the period covered by this quarterly
report;

3.     Based  on  my  knowledge,  the  financial statements, and other financial
information  included  in  this quarterly report, fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods presented in this quarterly report.

4.     The  registrant's  other  certifying  officers  and I are responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Rules  13a-14  and  15d-14  of the Exchange Act) for the registrant and we have:

a)   designed  such  disclosure  controls and procedures to ensure that material
     information  relating  to  the  registrant,  including  its  consolidated
     subsidiaries,  is  made  known  to  us  by  others  within  those entities,
     particularly  during  the  period  in  which this quarterly report is being
     prepared;

b)   evaluated  the  effectiveness  of  the registrant's disclosure controls and
     procedures  as  of  a  date within 90 days prior to the filing date of this
     quarterly  report  (the  "Evaluation  Date");  and

c)   presented  in this quarterly report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation  Date;

5.     The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of  registrant's  board  of  directors  (or  persons  performing  the equivalent
function):

a)   all  significant  deficiencies  in  the  design  or  operation  of internal
     controls  which  could adversely affect the registrant's ability to record,
     process,  summarize  and  report financial data and have identified for the
     registrant's  auditors  any  material  weaknesses in internal controls; and

b)   any  fraud,  whether  or  not  material,  that involves management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls;  and

6.     The  registrant's  other certifying officers and I have indicated in this
quarterly  report  whether  or  not  there  were significant changes in internal
controls  or  in other factors that could significantly affect internal controls
subsequent  to  the date of our most recent evaluation, including any corrective
actions  with  regard  to  significant  deficiencies  and  material  weaknesses.


Date:  May  22,  2003

/s/  Douglas  A.  Cohn

-----------------------------------
(Douglas  Cohn,  Chairman  of  the  Board,  Chief  Executive  Officer  and Chief
Financial  Officer)

<PAGE>

CERTIFICATION  PUSUANT  TO
18  U.S.C.  SECTION  1350
AS  ADOPTED  PURSUANT  TO
SECTION  906  OF  THE  SARBANES-OXLEY  ACT  OF  2002

In  connection with the Quarterly Report of H-Quotient, Inc., on Form 10-QSB for
the quarter ending September 30, 2002, as filed with the Securities and Exchange
Commission  on  the date hereof (the "Report"), we, the Executive Vice President
of  Finance and the Chief Executive Officer of the Company, certify, pursuant to
and  solely  for  purposes  of  18  U.S.C.  Section 1350, as adopted pursuant to
Section  906  of  the  Sarbanes-Oxley  Act  of  2002,  that  to  the best of our
knowledge:

(1)  The  Report  fully complies with the requirements of Section 13(a) or 15(d)
     of  the  Securities  Exchange  Act  of  1934;  and

(2)  The  information  contained  in the Report fairly presents, in all material
     respects, the financial condition and results of operations of the Company.


Date:  May  22,  2003

/s/  Douglas  A.  Cohn

-----------------------------------
(Douglas  Cohn,  Chairman  of  the  Board,  Chief  Executive  Officer  and Chief
Financial  Officer)



<PAGE>