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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20049
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_______FORM 10-KSB/A_______
(Mark One) Amendment No.1
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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
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HoQUOTIENT, INC.
(Exact name of registrant as specified in its charter)
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Virginia 54-1947753
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification Number)
12030 Sunrise Valley Drive, Suite 205 20191
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 703-716-0100
Securities registered under Section 12(b) of the Exchange Act:
Name of each Exchange on
Title of each class Which registered
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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 ( )
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: $2,104,950
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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, 2000
was $29,581,992. 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, 2000, 12,659,867 shares of the registrant's common stock
(par value, $0001 per share) were outstanding.
Documents Incorporated by Reference
The definitive proxy statement of HoQuotient Inc. in connection with
the annual meting to be held on or about June 14, 2000 is incorporated by
reference into Part III of this Form 10-KSB.
Transitional Small Business Issuer: Yes ( ) No (X)
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Forward-Looking Statement Notice
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue." "estimate." "project." "intend." and similar
expressions are intended to identify forward-looking statements with the meaning
of Section 27(a) of the Securities Act of 1933 and Section 21(e) of the
Securities Act of 1934 regarding events, conditions, and financial trends that
may affect the Company's future plan of operations, business strategy, operating
results, and financial positions,. Persons reviewing this report are cautioned
that any forward-looking statements are not guarantees of future performance and
are subject to risks and uncertainties and that actual results may differ
materially from those included within the forward-looking statements as a result
of various factors. Such factors are discussed under the headings in "Item 1.
Business," and Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and also include general economic factors
and conditions that may directly or indirectly impact the Company's financial
condition or results of operations.
PART I
Item 1. Description of Business
The Company
HoQuotient, 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, ambulatory care centers, healthcare networks, in-home care
agencies, independent practice associations, clinics and extended care
facilities (sometimes herein referred to as "other healthcare 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/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 or other
healthcare facility network which is connected to a Central Data Repository. We
also provide software maintenance, system designs, consulting, installation,
training and support to our customers for all of our software products.
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Organization and Historical Background
HoQuotient, 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 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) software system Enterprise, 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, but
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 healthcare facilities local area
network (LAN), which acts as an intelligent data collection system, to extract,
cleanse, group and map hospital wide data. This data is then transmitted over an
Internet based Virtual Private Network to a Central Data Repository. We believe
there is a great need in the healthcare industry for products of this type, and
we intend to exploit that need.
Industry Background
Managed healthcare is having a significant impact on the $1 trillion
healthcare industry, and this impact will, in our view, increase in the coming
years. There is significant ongoing pressure to contain costs, which is changing
the structure of healthcare payment from traditional fee-for-service
reimbursements to contract care reimbursements such as "capitation". This is
creating a demand for the continuing analysis and reporting of clinical
treatments and their expected outcomes.
To implement a program of payment based on medical outcomes, patients
must be tracked on a continuous basis, and data must be readily available in
flexible digital form. This permits monitoring of procedures used in patient
treatment and the costs and results of those procedures. While the last 10 years
have brought a dramatic improvement in medical technology, there has yet to
emerge a comprehensive electronic information system providing a single
accessible set of records of a patient's care to the hospital or extended care
facility. The result is inefficiency, lack of coordination and, at times, danger
to the patient.
Information on patient treatments must be made accessible to doctors,
nurses and other medical decision-makers in a format that will help them to do
their jobs. This kind of clinical decision support requires the compilation and
integration of data from many sources within and outside the hospital. We
believe that this need will move healthcare providers to turn to more
sophisticated and comprehensive computer-based solutions to assist in the
medical management process.
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The increased demand for integrated information concerning patient care
has already made itself felt. The Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"), the principal national accreditation
organization for hospitals, and other private and government accrediting
organizations require increased availability of information on such matters as
the verification of physician credentials, quality improvement, risk management,
access to medical records and infection control. JCAHO has coupled these
increasingly stringent quality-control standards with a demand for delivery of
information through electronic filings. To meet these demands, hospitals and
other healthcare facilities are being forced to devote far greater attention and
resources to their data gathering and reporting programs concerning the delivery
of quality care than they have in the past.
There are approximately 20,000 extended care facilities, and according
to the American Hospital Association, there are now approximately 5,200
hospitals in the United States. These are our primary market focus.
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 management of risk, management of patients. We intend to
market DataQual, DataQuotient and I-Link Systems and other derived systems to
hospitals, extended care facilities, ambulatory care centers, healthcare
networks, in-home care agencies, independent practice associations and other
healthcare clinics.
Until recently we concentrated on the acute care hospital market,
which constitutes over 60% of the existing market for patient care information
delivery software. We have, most recently, begun to provide software systems to
the extended care market. Our strategy includes the following key elements:
o Continue sales and installation of DataQual with the I-Link
interface engine and provide enhancements of those products
through additional research and development;
o Begin sales and installations of DataQuotient with the I-Link
interface engine to extended care facilities;
o Continue sales and installation of I-Link Enterprise and the
Central Data Repository and enhancements of this product
through additional research and development;
o 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;
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o Maintenance of our existing client base by providing support,
software upgrades and consulting services;
o 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:
o DataQual - Quality Improvement System (QIS)
o DataQual - Risk Management System (RMS)
o 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:
o Quality Improvement
o Staff Credentialing
o Utilization Management
o 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.
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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:
o Risk management
o Staff credentialing
o Worker's compensation features
o Quality monitoring and adjustment
o 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.
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After risk related data capture at the hospital(s), DataQual- RMS can
feed information, using I-Link Enterprise, via an Internet based Virtual Private
Network into a Central Data Repository focused on risk, where risk information
analysis and reporting is performed. This analysis can incorporate other
hospitals privatized data and be shared with the hospitals for the purpose of
additionally reducing the risks associated with delivering cost-effective
quality healthcare.
The DataQual Risk Management System runs on an included Windows NT
server in a stand-alone or networked mode. It also is available with the I-Link
interface engine, which provides non-invasive data connectivity and data
interchange with any number of disparate hospital information systems available
in the hospital. With I-Link in place, the entire spectrum of staff, patient and
visitor information is made available for context analysis and reporting by the
Risk Management System. The RMS system thus provides a unified and cost
effective hospital Risk Management System.
I-Link interface engine
I-Link interface engine connects the DataQual quality and risk hospital
based data repositories to the disparate mainframe and client/server systems in
most hospitals, including the new automated patient records systems. This
recently redesigned interface engine is a non-invasive, intelligent software
module adhering to and complying with the healthcare industry standards for
electronic data interchange. I-Link is a sophisticated data capture tool, which
transfers data between disparate software applications, regardless of software
languages, operating systems or hardware platforms.
We can customize I-Link to automatically query any hospital system for
the specific data required and then send that data to the hospital DataQual
repository. I-Link creates an interface without invading or altering host
applications and without the need to know an application's software source code,
file layouts or structures. I-Link is designed to fully address and resolve a
broad range of real-time interface requirements within a hospital environment.
We believe that if combined, DataQual QMS, DataQual RMS, and I-Link
interface engine can meet the overall quality and risk data analysis and
reporting needs of hospitals and affiliated organizations.
DataQuotient
The DataQuotient system, like its sister system DataQual, is a modular
healthcare system that can supply many of an extended care facilities quality
and risk management and analytical and reporting needs. Built around a data
repository, a relational database that runs stand-alone or on local area
networks (LANs) at the facility, the system can gather data from any available
information systems, via the I-Link interface engine. DataQuotient then
integrates this data with pertinent quality and risk management data, performs
sophisticated analysis of the data and provides reports thereon, in either paper
or electronic form.
The software system is a bundled software system providing complete
quality and risk management for the extended care market. The System contains a
substantial portion of the functionality of the DataQual modules; Quality and
Risk Management, Utilization, Staff Credentialing and Infection Control, which
were combined into a single, full-function extended care facility quality and
risk 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.
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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 for all of the affiliated hospitals and
extended care facilities to use.
- -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 this hospital and extended
care facilities information via a private and secure Internet based Virtual
Private Network. The sophisticated, detailed and timely hospital/extended care
facility information is privacy formatted prior to sending to the Central Data
Repository. These repositories can be configured to contain information as
simple as liability risk incidents, up to one containing timely, complete
detailed hospital/extended care facility clinical, administrative and financial
information, including the DataQual and DataQuotient quality and risk data.
These I-Link Enterprise Central Data Repositories are used by hospital groups,
extended care groups, affiliated statewide hospital and extended care
organizations including hospital and extended care associations and insurance
carriers, for performance improvement measurement and statistical analysis
purposes.
Installation and Training
Installation includes system design, file creation, system
implementation, training, consulting and system start-up. Our installation and
training procedures are designed to instruct the hospital and extended care
customer in data entry, report generation and retrieval. Our operations group
finalizes the testing and system acceptance by the customer. Customer training
is conducted at the customer site and includes up to a proportionate number of
initial product training days, depending on the system and modules purchased.
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Support and Maintenance
We provide software maintenance, system design, consulting,
installation, training and support for all of our software products. Support
teams, which include quality improvement nurses, registered nurses,
communications and software technicians and program developers, assist customers
throughout the course of their relationship with us. We also provide toll free
telephone and on-site support. Software maintenance is provided to all of our
customers. Along with telephone and on-site support, software enhancements are
included under license contracts. Customer support personnel are available to
answer questions and solve operational difficulties. The customer support group
works closely with the field support personnel to solve customer problems
on-site.
Sales and Marketing
We generate sales opportunities through referrals, direct association
marketing, industry specific seminars, and trade conventions. Our sales staff
calls on potential customers to demonstrate the system and attempts to bring
software sales to closure.
To date, we have focused our marketing efforts on hospital and extended
care associations in the United States, liability insurance companies and
selected referral opportunities. We intend to continue our current marketing
efforts, however, no assurance can be given that we will be able to generate
sufficient funds from our operations to enable us to undertake such activities
on an expanded basis.
Management believes, based upon information received from JCAHO, that
healthcare provider's efforts for continuous quality improvement and total
quality management increasingly will not be limited to hospitals. Given this
market trend, management intends, given adequate financial resources, to market
the DataQual System to not only the hospital market segment but also to
ambulatory care centers, healthcare networks, in-home care agencies, independent
practice associations and clinics. We have in the past, sponsored an annual
national user conference, which includes seminars and training for DataQual
System users. Management believes it will continue sponsoring these conferences.
Customers
We have installed the DataQual System in over 100 public and privately
owned hospitals and currently support approximately 40 hospitals that use our
systems. In addition, we have installed DataQual Systems in 29 states including
Puerto Rico. Our client base ranges in bed size from 30 to over 1,500 beds.
We market our products and services to substantially all hospitals,
regardless of specialties, and all extended care facilities. We believe that the
DataQual and DataQuotient Systems, including the I-Link interface engine and the
I-Link Enterprise system, including the Central Data Repository, provides the
flexibility required for installation in most hospitals and extended care
facilities. We further believe that increasing portions of our sales of DataQual
are likely to be made in hospitals with 400 beds or less and to hospital
networks in both urban and rural areas. Our hospital customers include medical
teaching centers, government hospitals and large hospital groups. We also
believe, from our research, that the extended care marketplace is very
underserved in quality of care systems and will provide increasing portions of
our overall system sales.
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Recent Large Contract Awards
We have been awarded a number of contracts to automate the collection
of clinical healthcare information from hospitals throughout a state. The
largest contract is a statewide, five-year $3.1 million contract with the Ohio
Hospital Association ("OHA") to automate the collection, by a division of OHA
The Association for Hospitals and Health Systems, of its hospital clinical
information via an Internet based "virtual private network", to a statewide
Central Data Repository healthcare database. I-Link Enterprise, which uses this
virtual private network, changes a batch hospital service bureau system,
collecting billing data, into an on-line, data collection system for 189
statewide member hospitals, which are provided access to this data to facilitate
performance measurement strategies.
This agreement followed two other contracts with OHA. One to conduct
the pilot phase of the 1999 Data Collection System, which was successfully
completed, and one to process their 1998 data, which was completed successfully.
The second contract awarded, projected to be in excess of $1 million,
is to automate the collection of hospital risk incidents and to then implement a
centralized risk management and quality improvement system for the member
hospitals of the Alabama Hospital Association Trust (AHAT).
This project creates an Internet based Virtual Private Network risk
management and quality improvement healthcare data collection system for 85
statewide hospitals. This will create the first statewide, Internet-based
healthcare risk and quality data collection and management system of its kind.
With this system, we are transforming a statewide manual, risk data submission
process into a fully automated one, extending on into a system utilizing
DataQual and DataQuotient to provide full quality improvement and measurement.
By providing AHAT and its member hospitals and extended care facilities
with Internet access to a statewide, central source of timely risk event and
quality improvement information, we are producing a significant increase in the
hospitals and extended care facilities querying, tracking, reporting and
improvement capabilities. This combination of I-Link Enterprise and the DataQual
and DataQuotient System gives the AHAT members extensive tools to improve the
delivery of healthcare throughout the State of Alabama.
We also have signed a comprehensive marketing agreement with a state
hospital association. The first of its kind is with the Center for Health
Affairs, Inc., a wholly owned subsidiary of the New Jersey Hospital Association.
("NJHA") Under the agreement, the Princeton-based Center for Health Affairs will
market DataQual, Quality and Risk Management Systems; along with the new I-Link
interface engine to the 84 acute care members of the NJHA.
DataQual will be the tactical, quality improvement engine providing
NJHA's hospital members with staff credentialing, utilization review, risk
management and infection disease control functions, which are so integral to a
hospital's quality management activities. The joint marketing plan is to extend
the DataQual System into a statewide total quality improvement program for the
members of NJHA's Center for Health Affairs.
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Competition
The market for healthcare information systems is highly competitive. We
believe the principal competitive factors include the breadth and quality of
system and product offerings, access to proprietary data, the proprietary nature
of methodologies and technical resources, price and the effectiveness of
marketing and sales efforts.
We compete with larger vendors such as McKesson HBOC, Inc., HCIA, Inc.
and Eclipsys, Inc., and with vendors whose sizes are similar to ours, such as
Medical Information Data Systems, Inc. ("MIDS"), Cantor and Associates and
LANDACORP. DataQual competitors include McKesson HBOC, Inc., offering a quality
and risk overview only competing system; and MIDS, Cantor and Associates and
LANDACORP offering similar systems, but non-modular systems. I-Link Enterprise
competitors include HCIA, Inc. offering batch data collection services to
hospital associations and state governments and; Eclipsys providing central data
repositories along with a DataQual competing product.
Some of the 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.
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Our research and development expenditures for December 31, 1998 and
1999 were $69,308 and $352,311, respectively, which constituted approximately
33% and 16% of total revenues for such periods, respectively.
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 a copyright and trademark registration in the United
States for "DataQual" and "I-Link". In addition, our key employees and
independent contractors and distributors are required to sign nondisclosure and
secrecy agreements. Despite our efforts to protect these proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. Policing unauthorized use of
our products is difficult, and we may not be able to determine whether or the
extent, if any to which piracy of our software products may exist.
It may be possible for unauthorized third parties (including
competitors) to copy aspects of our products, whether or not in violation of our
rights. We believe that because of the complexity of the technical know-how
accumulated and possessed by us, our software management, key personnel, and the
rapid pace of technological change in the healthcare software industry, legal
protection is a less significant factor in our success than the knowledge,
ability and experience of our employees, the frequency of product enhancements
and the timeliness and quality of support services that we provide.
DataQual, DataQuotient, I-Link and I-Link Enterprise generally are sold
pursuant to software license agreements, which, in most cases, grant customers a
nonexclusive, nontransferable license to use our products at a specified site
and contains terms and conditions prohibiting the unauthorized reproduction or
transfer of our products.
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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.
Number of Employees
As of March 1, 2000, we have 26 full time employees:
Department Number of Employees
---------- -------------------
Sales and Marketing 3
Operations and Product Development 18
Administration 5
13
<PAGE>
We have recruited seasoned technical engineers with considerable
experience in the software industry. Alan W. Grofe', our President and Director
joined our Company in March of 1996. Prior to joining us he was President and
CEO of MarketLink, Inc. a direct marketing software company not affiliated with
our Company. Douglas A. Cohn, our Chairman and Chief Executive Officer joined
our Company in November 1999. He is also the President and Chief Executive
Officer of Internet Guide, Inc., a publishing firm that is affiliated with us
due to Internet Guide, Inc.'s ownership interest in us. Michael J. Black, our
former Chief Executive Officer and Chief Financial Officer is presently serving
in a consulting capacity until a new Chief Financial Officer is named. Mr. Black
has been with our Company since September 1994. We believe that our current
staffing, cost structure, and current operating plans will allow us an
opportunity to compete effectively as a supplier of information management
software to the hospital, extended care facilities and other healthcare markets.
Certain Factors That May Affect Future Results, Financial
Condition And The Market Price of Securities
<TABLE>
<CAPTION>
<S> <C>
COMPANY IN INITIAL STAGES While we have been in existence for over five years, we only entered the
production stage in 1999 for our principal products, DataQual and DataQuotient
with the interface engine and I-Link Enterprise with its Central Data Reporting.
To continue to grow and become profitable: we must promptly complete the upgrade
installations of DataQual in the presently licensed locations while continually
adding new licensees; through the assistance of our marketing partners, sell and
install new DataQual Systems; sell and install new DataQuotient Systems, complete
the installation of I-Link Enterprise for the Ohio Hospital Association and
Alabama Hospital Association.
WE HAVE A LIMITED OPERATING HISTORY We began operations in 1993. As a result, any evaluation of our prospects and us
UPON WHICH YOU MAY EVALUATE 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, 1999, we
had an accumulated deficit of approximately $9.4 million. We have experienced
significant losses in connection with our development and marketing of our new
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
WE NEED TO GENERATE ENOUGH CASH For the year ended December 31, 1998, we incurred a net loss of $1.1 million. For
FROM OPERATIONS TO FUND OUR the year ended December 31, 1999, we made a profit of $1.5 million, after
GROWTH PLANS extraordinary and investment income. To fund our operations, we require a
continuation of the 1999 results 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 To manage our growth, we must implement systems, and train and manage our
COULD HURT OUR BUSINESS employees. We may not be able to implement these action items in a timely manner
or at all. Our inability to manage growth effectively could have a material
adverse effect on our business, operating results and financial condition. There
can be no assurance that we will achieve our planned expansion goals, acquire new
contract awards, develop and market new products, manage our growth effectively,
or operate and service our existing and new business profitably.
WE FACE SUBSTANTIAL COMPETITION The market for healthcare information systems is fragmented but highly competitive
and such competition is expected to continue to increase. There are no substantial
barriers to entry in this market and we believe that the Company's ability to
compete depends upon many factors within and beyond its control. We believe the
principal competitive factors include the breadth and quality of software systems
and product offerings, access to proprietary data, the proprietary nature of our
methodologies and technical resources, 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, its Chairman and Chief Executive Officer and Alan
W. Grofe, its President and Chief Operating. The loss of either of them without
qualified replacements would have a material adverse effect on our ability to
conduct operations. We have not purchased "key man" insurance policies on either
of them.
OUR SUCCESS IS DEPENDENT ON OUR We believe that our success will depend on continued employment of our management
KEY PERSONNEL team. If one or more members of our executive management team were unable or
unwilling to continue in their present positions, our business, financial
condition and operating results could me materially adversely affected if we could
not find qualified replacements. Our success also depends on having trained
technical engineers. We will need to continue to hire additional personnel as our
business grows. Competition for qualified technicians personnel is strong
everywhere. Our business, financial condition and operating results will be
materially adversely affected if we cannot hire and retain suitable technical
personnel.
HISTORY OF LOSSES AND NEGATIVE Until the 4th Quarter of 1999, we have had continuous losses from operations and
WORKING CAPITAL negative cash flow for our entire history, as shown below:
Years Ended
12-31-98 12-31-99
-------- --------
Loss from Operations: $(1,010,665) $(196,311)*
* Before extraordinary income
</TABLE>
15
<PAGE>
Gains derived from debt reduction have resulted in a positive
working capital position of approximately $1.0 million at December 31, 1999.
<TABLE>
<CAPTION>
<S> <C>
PAST DUE PAYABLES, ACCRUED We presently have past due obligations for which there are claims and judgments
EXPENSES, CLAIMS AND JUDGMENTS totaling approximately $220,000, which is a reduction of $1.4 Million from
December 31, 1998. Negotiations are on-going to resolve these matters, some of
which are disputed. Critical services have not been suspended, nor has there been
cancellation of orders due to delays in product delivery as a result. We intend to
use cash generated from operations to pay our trade and creditors.
WE HAVE NOT PAID, AND WILL We have not paid cash dividends on our common stock and have no present intention
NOT PAY, CASH DIVIDENDS of paying cash dividends in the foreseeable future. It is the present policy of
the Board of Directors to retain all earnings to reinvest in the Company. See
"Dividends."
PROVISIONS OF OUR ARTICLES OF The Company is a Virginia corporation. Anti-takeover provisions of Virginia law
INCORPORATION, BYLAWS, AND could make it more difficult for a third party to acquire control of us, even if
VIRGINIA LAW COULD MAKE such change in control would be beneficial to shareholders. In addition, our
ACQUISITION OF US DIFFICULT 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 aquire us, even if doing so would be
beneficial for our shareholders.
DEPENDENCE ON LIMITED NUMBER OF Our business is almost exclusively dependent at this time on three products, the
PRODUCTS -- NEED FOR NEW DataQual System, with its I-Link interface engine and I-Link Enterprise, with its
TECHNOLOGY Central Data Repository, and DataQuotient. Although we plan to diversify our
product line for the healthcare industry by developing new software applications
to market to existing and new customers, the bulk of our sales during the next few
years will come from these three products. In evaluating the DataQual, I-Link
Enterprise and DataQuotient systems, investors and shareholders should also be
aware that we have a registered copyright on the DataQual System and a registered
service market on I-Link.
As advances occur generally in the fields of networking of computers and
integration of database information, we will need to keep pace by continuing to
enhance DataQual and its I-Link interface engine and I-Link Enterprise with its
Central Data Repository to accommodate these developments. There can be no
assurance that we will succeed in doing so.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 Software products as complex as those offered by us might contain undetected
LIABILITY 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.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
POTENTIAL FLUCTUATIONS IN PERIODIC Our revenues may be subject to significant variation from period to period due to
RESULTS the discretionary nature of healthcare software purchases and will be difficult to
predict. Further, although our product line includes products with sales prices
from $15,000 to over $200,000, the majority of our revenue is expected to be
derived from products with sales prices from $15,000 to $120,000. Product revenues
are difficult to forecast because the market for business healthcare software
products is evolving, and our sales cycle may vary substantially with each
customer. See "Management's Discussion and Analysis or Plan of Operations"
EXTERNAL FACTORS COULD AFFECT OUR Fluctuations in the trading price of our common stock and purchase warrants may
COMMON STOCK TRADING PRICE result from a number of factors, some of which are beyond our control, including:
o general economic and stock market conditions;
o actual or anticipated fluctuations in our operating results;
o changes in expectations as to our future financial performance or
o changes in financial estimates by securities analysts;
o earnings and other announcements by, and changes in market valuations of
other comparable companies and
o trading of our common stock and purchase warrants.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
OUR STOCK PRICE MAY BE EXTREMELY In addition, the stock market in general has experienced extreme volatility that
VOLATILE AND SHAREHOLDERS MAY often has been unrelated to the operating performance of particular companies.
NOT BE ABLE TO RESELL THEIR These broad market and industry fluctuations may adversely affect the trading
SHARES OR WARRANTS AT A price of our common stock and purchase warrants, regardless of our actual
PROFITABLE PRICE operating performance.
EXERCISE OF COMMON STOCK PURCHASE Prior to the annual report pursuant to various private placement offerings
WARRANTS MAY HAVE A DILUTIVE EFFECT 8,111,255 Common Stock Purchase Warrants were issued and are currently
ON OUR SHAREHOLDERS outstanding. These warrants will be exercisable from a one to five year period at
exercise prices ranging from $.75 to $7.00 per share. Certain of these warrants
may have certain dilutive effects because to holders of the Warrants will be given
the opportunity to profit from a rise in the market price of the underlying
securities with a resulting dilution in the interests of our other security
holders and future investors.
We have also agreed, at the request of the holders of the Warrants, under
certain circumstances, that we will register under federal and state
securities laws the Warrants or the securities underlying the Warrants.
Exercise of these registration rights may involve substantial expense to us.
Exercise of these registration rights may adversely affect the price of the
common stock.
</TABLE>
19
<PAGE>
ITEM 2. Properties
At present, we lease a 3,682 square feet of office space, located at
12030 Sunrise Valley Drive, Suite 205, Reston, Virginia 20191. We currently have
a two-year sub-lease, which ends on May 21, 2001. The rent is $8,898 a month.
These premises should suffice for our administrative offices for the foreseeable
future.
ITEM 3. Legal Proceedings
On January 10, 1997, the Internal Revenue Service ("IRS") filed in the
Circuit Court for the County of Fairfax, Virginia a Notice of Federal Tax Lien
in the amount of $386,234.73 against us for employment withholding tax
liabilities of Integrated Systems Technology, Inc. ("IST"), formerly a wholly
owned subsidiary of ours acquired in 1995. It is the opinion of our special
counsel, Carr Goodson Lee & Warner P.C., Washington D.C., that there is no
"alter ego" liability on the part of us and that the lien filed against us is
wrongful and should be released. We have made efforts to get the lien released
but the IRS has refused. In the meantime, the IRS since the filing of the Notice
has not made any effort to enforce it against us. In the event the lien is not
released, we may have to bring a suit against the IRS in the Federal courts for
wrongful levy.
Other suits arising in the ordinary course of business are pending
against us. We believe the ultimate outcome of these actions will not result in
a material adverse effect on our consolidated financial position, results of
operations or cash flows.
ITEM 4. Submission of Matter to a Vote of Security Holders
NONE
20
<PAGE>
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
(a) Our Common Stock is traded on the NASDAQ Bulletin Board.
(b) Our Common Stock was listed on the NASDAQ Bulletin Board on
approximately April 16 of 1996.
(c) Our Common Stock is approved for trading on the NASDAQ Over the Counter
Bulletin Board, trading under the stock symbol "HQNT". The chart below
breaks down the high bid and the low bid prices for each of the last 8
quarters (as reported by NASDAQ Trading & Market Services) which
quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not reflect actual transactions.
During 1998, 1999 and the first quarter of 2000, our high and low
prices were as follows:
HIGH LOW
---- ---
1998
----
1st Quarter 1.40 1.25
2nd Quarter 1.40 .59
3rd Quarter 2.00 .94
4th Quarter 2.75 .60
1999
----
1st Quarter 1.06 .50
2nd Quarter 3.93 .44
3rd Quarter 1.43 .56
4th Quarter 2.06 .50
2000
----
1st Quarter 7.06 1.46
On April 11, 2000, the closing prices of our Common Stock were $4.00
bid and $4.0625 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.
21
<PAGE>
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 820 holders of record of our Common Stock.
Common Stock Issued in 1999
Pursuant to a private placement of Common Stock under Regulation, Rule
504 of the Securities Act of 1933, we issued 1,937,078 shares of common stock
under Regulation D, Rule 504, at an aggregate price of $.51 per share in
exchange for $533,833 in cash and $457,704 in debt conversion and other
expenses. These shares were issued from January 1999 through November 1999.
Pursuant to the exercise of Common Stock Purchase Warrants issued in a
private placement and pursuant to a Regulation D, Rule 506 of the Securities Act
of 1933, we issued 460,000 shares of our common stock to holders of the warrants
upon exercise of 460,000 warrants at an issuance price of $.25 per share. These
warrants had previously been purchased at a price of $1.00 per warrant, for an
aggregate price of $1.25 per share, and pursuant to an agreement to reduce the
exercise price of the warrants from $.75 to $.25 per share for a period of 60
days. In conjunction with these transactions, we also issued 100,000 shares of
our common stock to the placement agent at $.50 per share, net of commissions
for $25,000 in cash.
In June 1999 we issued 99,000 shares of our common stock to holders of
warrants at an exercise price of $0.50 per share in exchange for debt repayment
and 30,000 shares of our common stock to a holder of warrants at an exercise
price of $0.75 per share in exchange for $22,500 in cash.
In August 1999 we issued 500,000 shares of our common stock that are
subject to the restrictions of Rule 144, of the Securities Act of 1933, at $2.00
per share in exchange for 153,245 shares of Internet Guide, Inc. ("IGI"), common
stock, which was issued under a Regulation A offering at $6.50 per share. In
September 1999 we used 28,893 of the IGI shares we received in the exchange to
retire $392,878 in notes payable, accrued expenses and accounts payable. As part
of the exchange agreement with IGI, we issued 250,000 warrants to purchase
250,000 shares of our common stock at an exercise price of $2.00 per share and
250,000 warrants to purchase 250,000 shares of our common stock at an exercise
price of $1.00 per share.
From September through October 1999 we issued a total of 161,160 shares
of our common stock, which are subject to the restrictions of Rule 144 of the
Securities Act of 1933 in exchange for an aggregate of $482,950 in notes payable
and accrued interest: 16,667 shares at $.84 per share; 41,500 shares at $.94 per
share; and 2,872 shares at $.78 per share.
From August through December 1999 we issued 552,909 shares of common
stock which are subject to restrictions under Rule 144 of the Securities Act of
1933 in exchange for an aggregate of $284,288 in cash, $50,000 in notes and
$35,000 in prepaid expenses as follows: 131,000 shares at $.50 per share;
390,909 shares @ $.69 per share and 40,000 shares at $.88 per share;
From November through December 1999 we issued 28,864 shares of common
stock which are subject to restrictions under Rule 144 of the Securities Act of
1933 in exchange for an aggregate of $28,293 in cash under terms of a special
employee stock purchase program under which employees could purchase stock at
the closing price at the end of each pay period from November 15 through
December 31, 1999 with the Company matching the shares on a one for one basis.
In the program, the following shares were issued: 10,762 shares at $.78 per
share, 11,732 shares at $.81 per share, 4,020 at $1.41 per share and 2,350 at
$2.00 per share. 28,864 shares were issued by the Company to employees under the
matching term of this program.
In December 1999, we issued 185,000 shares of common stock, which are
subject to restrictions under Rule 144 of the Securities Act of 1933 in exchange
for a note in the amount of $323,750, which is due by May 31, 2000, at $1.75 per
share.
In December 1999, we issued 2,999,750 shares of common stock upon the
exercise of warrants as follows: 2,999,750 shares of common stock were issued to
Internet Guide, Inc., an affiliate of the Chairman of the Board of Directors,
upon the exercise of a warrant held by the affiliate at an exercise price of
$1.00 per share in exchange for 461,500 shares of Internet Guide, Inc., common
stock, and 300,000 shares of common stock were issued to the holder of a warrant
at an exercise price of $.50 per share in exchange for $150,000 in marketable
securities
22
<PAGE>
Warrants Issued in 1999
In April 1999, we issued 399,000 warrants to purchase 399,000 shares of
our common stock at an exercise price of $.50 per share for financial services
rendered. Of these warrants 99,000 were exercised in June 1999 and 300,000 were
exercised in December 1999.
In September 1999, we issued 25,000 warrants to purchase 25,000 shares
of our common stock at an exercise price of $.75 per share to a Director in lieu
of compensation for serving as director for calendar year 1998. We also issued
1,000,000 warrants to purchase 1,000,000 shares of our common stock at an
exercise price of $.75 per share to officers for a period of five years. These
warrants were issued in lieu of the implementation of an executive management
stock option program.
In October 1999, we issued 200,000 warrants at an exercise price of
$1.00 per share for a three-year period to key outside professionals in exchange
for services rendered.
In November 1999, we issued 3,000,000 warrants to Internet Guide, Inc.,
an affiliate of our Chairman and Chief Executive Officer at an exercise price of
$1.00 per share for a period of one year. These warrants were exercised by
exchanging 461,500 shares of Internet Guide, Inc., common stock as
consideration.
In December 1999, we issued 356,147 warrants at an exercise price of
$1.00 per share for a period of three years to an affiliate of our Chairman and
Chief Executive Officer as consideration for services rendered in our debt
reduction program.
In December 1999, the Company issued 300,000 warrants at an exercise
price of $1.00 per share for a period of three years to key employees. The
warrants are issued in lieu of the Company implementing a formal stock option
program.
In December 1999, the Company issued 750,000 warrants to the Chairman
of the Board at an exercise price of $1.00 per share.
At December 31, 1999, warrants to purchase 13,746,255 shares of common
stock exercisable at varying dates through September 2004 at prices from $.75 to
$7.00 per share were outstanding. Of the 13,746,255, warrants, 7,526,784
warrants were issued by the Company to the holders of IHS common stock as of
June 14, 1999. Each warrant allows the holder to purchase one share of the
Company's common stock at $5.00 for a period of five years, expiring in June
2004.
Subsequent Events
On February 29, 2000, we announced an exchange of common stock for
approximately 5,000,000 Class A Redeemable Warrants issued to stock holders of
record on June 14, 1999, at a conversion rate of one share of common stock for
every seven warrants with accredited investors. In conjunction with this
exchange program, we announced a Call of the remaining Class A Warrants pursuant
to the call provisions of the Warrant with October 3, 2000, as the redemption
date.
23
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Dividend
Although we posted net operating profits for the 4th quarter of 1999,
we have not had net annual profits on operations and therefore are currently
proscribed under the Virginia Code from declaring dividends. We have not paid
any cash dividends on our Common Stock. Our Board of Directors has no present
intention of declaring any cash dividends, as we expect to re-invest all profits
in the business for additional working capital for continuity and growth. Our
Board of Directors 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
(To be filed with Amendment No. 1 to this Form 10-KSB)
ITEM 7. Financial Statements
(To be filed with Amendment No. 1 to this Form 10-KSB)
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
NONE
24
<PAGE>
PART III
ITEM 9. Directors, Executive Officers Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The information required by this Item is incorporated by reference from
the Company's definitive proxy statement to be filed with the Commission prior
to 120 days after December 31, 1999.
ITEM 10. Executive Compensation.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed with the Commission prior
to 120 days after December 31, 1999.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed with the Commission prior
to 120 days after December 31, 1999.
ITEM 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed with the Commission prior
to 120 days after December 31, 1999.
ITEM 13. Exhibits and Reports on Form 8-K
a) The following financial statements are filed as part of this
report:
Financial Statements.
1) Balance Sheet as of December 31, 1999.
2) Statements of Operations for the period ended
December 31, 1999 and 1998 and cumulative form
March 3, 1993, (date of inception) to December 31,
1999.
3) Statements of Cash Flows for the period ended
December 31, 1999 and 1998 and cumulative form
March 3, 1993(date of inception) to December 31,
1999.
4) Statements of Stockholders' Equity for the period
from march 3, 1993 (date of inception) to December
31,1999.
5) Notes to Financial Statements.
6) Independent Accountant's Report.
25
<PAGE>
b) Reports on Form 8-K
During the fiscal year ended December 31, 1999 the Company did not file
any Current Reports on Form 8-K.
c) Exhibits:
Exhibit
Number Description
------ -----------
3.1 Copy of the Certificate of Incorporation of the
predecessor corporation under the name of Travel
Technologies International, Inc. (1)
3.2 Copy of Restated Certificate of Incorporation of the
predecessor corporation, which among other things
changes its name to Traverse Technologies, Inc. (1)
3.3 Copy of Amendment to the Restated Certificate of
Incorporation, changing the name of the predecessor
corporation to Integrated Healthcare Systems, Inc.
(1)
3.4 Copy of the Certificate of Renewal of Integrated
Healthcare Systems, Inc. as filed with the State of
Delaware (2)
3.5 Copy of the By-Laws of the predecessor corporation
(1)
3.6 Copy of the Certificate of Incorporation of IHS of
Virginia, Inc. a wholly owned subsidiary. (2)
3.7 Copy of the Certificate of Renewal of the IHS of
Virginia, Inc as filed with the State of Delaware (2)
3.8 Copy of the By-Laws of IHS of Virginia, Inc. (2)
3.9 Copy of the Articles of Incorporation our Company as
filed with the State of Virginia on May 20, 1999 (2)
3.10 Plan of Merger between IHS and the Company effective
June 14, 1999. (2)
3.11 Articles of Merger effective June 14, 1999 as filed
with the State of Virginia (2)
3.12 Agreement of Merger as filed with State of Delaware
(2)
3.13 Copy of the By-Laws of the Company (2)
3.14 Certified copy of the Certificate of Incorporation of
The DataQual Group, Inc. a wholly owned subsidiary
920
3.15 Copy of the By-Laws of the DataQual Group, Inc. (2)
4.1 Form of Certificate evidencing shares of Common Stock
of the Company. (2)
4.2 Warrant Certificate for 325,000 warrants issued to
the Steven W. Bingaman 1996 Trust. (2)
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<PAGE>
4.3 Warrant Certificate for 40,000 warrants issued to
Asset Growth Partners, Inc. (2)
4.4 Warrant Certificate for 50,000 warrants issued to
Mark Wachs (2)
4.5 Warrant Certificate for 1,190,000 warrants issued to
Aesop Financial Corporation together with Assignment
thereof to Appleby Partners, Ltd. (2)
4.6 Form of 1995 Redeemable Bridge Warrants (2)
4.7 Form of Warrant Certificates issued to Investors,
Placement Agents and Investment Banker in 1997 and
1998 (2)
4.8 Form of Warrant Certificates issued to management
executives, and consultants (2)
4.9 Form of Class A Redeemable Common Stock Purchase
Certificate (2)
4.10 Warrant Agreement between the Company and the Warrant
Agent covering the Class A Common Stock Warrants (2)
10.1 Form of Software License and Support Agreement (2)
10.2 Form of Licensed Software Agreement (2)
10.3 Form of Software Maintenance Agreement (2)
10.4 Form of DataQual(R) for Windows and I-Link(sm)
Upgrade Addendum (2)
10.5 (a) Form of Executive Employment Agreement (2)
(b) Forms of Employment for key Employees (2)
10.6 Sublease Agreement dated as of May 21, 1999 (2)
21.1 Subsidiaries of Registrant (2)
23.1 Consent of Kaufman Davis PC for Annual Statement,
December 31, 1997 and 1998(2)
23.2 Consent of Kaufman Davis, PC for Annual Statement,
December 31, 1999
27.2 Financial Data Schedule for
(1) Incorporated by reference to the Company's Regulation Form 1-A Offering
Statement of Integrated Healthcare Systems, Inc. (the predecessor
corporation) filed on Form 1-A under the Securities Act of 1933 as
emended (file No. 24-3450).
(2) Incorporated by reference to the Company's Registration Statement on
Form 10-SB (File No. 001-15179).
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