HITSGALORE COM INC, 10-K, 2000-05-31

HITSGALORE COM INC
10-K, 2000-05-31
HEALTH SERVICES

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________

Commission File Number 000-26668

HITSGALORE.COM, INC.
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(Exact name of Registrant as specified in its charter)

FLORIDA 65-0036344
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

10134 6th Street, Suite J, Rancho Cucamonga, CA 91730
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(Address of principal executive offices)

Registrant's telephone number, including area code (909) 481-8821

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
preceding 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 __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X _

The aggregate market value of the voting and non-voting common equity stock held
by non-affiliates of the registrant on March 31, 2000, (based on the average of
the high and low bid prices of such stock on the over-the-counter securities
market) was approximately $27,228,419.

The number of outstanding shares of the registrant's common stock, $.001 par
value, as of March 31, 2000 was 48,245,687.

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Item 2. BUSINESS.

Corporate History-

Hitsgalore.com, a Nevada corporation ("Old Hitsgalore.com") was organized in
July 1998 and on March 19,1999 merged in a reverse merger transaction with
Systems Communication, Inc., a Florida corporation, and the name of the
surviving corporation was changed to Hitsgalore.com, Inc. (see "The
Reorganization" and "The Merger").

General Business History-

The Reorganization-

Immediately prior to the merger with Old Hitsgalore.com, described below (the
"Merger"), the Company completed a reorganization. As part of the
reorganization, the Company declared a share consolidation (a reverse split) of
its then issued and outstanding common stock, options, warrants and other rights
to purchase its common stock. The reverse split reduced each seven shares of
common stock outstanding to one share. The reverse split also applied to all
outstanding options, warrants, convertible securities and other rights to
acquire the Company's common stock. The effect of the reverse split was such
that the Company would have approximately 8,000,000 shares of common stock
issued and outstanding, assuming exercise of all such options, warrants and
other rights.

The Company also transferred its then existing business, properties and assets,
to International Healthcare Solutions, Inc., a Florida corporation organized by
the Company for this purpose ("IHSI"). In consideration for the transfer, the
Company received twenty million shares of IHSI, constituting all of the
outstanding common stock of IHSI, thus making IHSI a wholly owned subsidiary of
the Company. The Company also declared a dividend in kind, payable in all of the
shares of IHSI common stock, to the Company's stockholders of record on April 6,
1999. In furtherance of the dividend, the ISHI common stock was transferred into
a constructive trust for the benefit of the Company's stockholders. The IHSI
common stock is to be distributed to the Company's stockholders entitled to
receive the dividend when a registration statement covering the distribution
under the Securities Act of 1933 becomes effective. IHSI has ceased all
operations and there is no assurance that a registration will be filed.

In connection with the transfer of the Company's previous business, properties
and assets to IHSI, IHSI assumed all the obligations, debts and liabilities of
the Company that existed at that time. Accordingly, IHSI became jointly and
severally liable with the Company for such obligations, debts and liabilities.
Until all of such obligations, debts and liabilities are satisfied or the
Company is released therefrom, the Company has a security interest in the assets
transferred to IHSI.

As of the date of the Merger, Systems Communications, Inc. was subject to an
Involuntary Petition under Chapter 7 of the U.S. Bankruptcy Code that had been
filed in June 1998. The Petition did not include Old Hitsgalore.com and was
dismissed on April 20, 1999 by the U.S. Bankruptcy Court.

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The Merger-

On March 19, 1999 (the "Effective Date"), the Company and Old Hitsgalore.com,
completed the Merger pursuant to the Merger and Reorganization Agreement. In the
Merger, Old Hitsgalore.com was merged into the Company, Old Hitsgalore.com's
outstanding common stock was converted into 37,675,000 shares of the Company's
common stock, and the Company changed its name to Hitsgalore.com, Inc.

For accounting purposes, the Merger of Old Hitsgalore.com has been treated as a
recapitalization of Old Hitsgalore.com, with Old Hitsgalore.com as the acquirer.
See also "Item 4. Submission of Matters to a Vote of Security Holders - Absence
of Stockholder Approval of the Merger".

Acquisition of Internet-related Assets of Solvere, Inc.

On April 20, 1999 the Company completed the purchase of all rights, title and
interest in the internet-related assets owned or under development by Solvere,
Inc. ("Solvere"), a closely held Delaware corporation. The assets acquired
included all computer equipment, software and internet technology, including,
but not limited to all of Solvere's e-commerce, web-based e-mail, multimedia
distribution system and shopping cart technology. The purchase price consisted
of 100,000 shares of its common stock that was assigned a value of $367,200 and
$100,000 in cash.

Current Business-

The Company is presently engaged in the business of operating a
business-to-business e-commerce exchange matching buyers and sellers of products
and services and as a internet, business-to-business search engine and provider
of services which the Company describes as Portal Services. The Company strives
to provide porn-free search results and does not accept or encourage any porn or
adult-content listings on its site.

Old Hitsgalore.com was organized on July 21, 1998, and launched the search
engine website at www.hitsgalore.com in 1998. As an internet search engine for
business-to business commerce, the Company provides a searchable database to
businesses bringing people ("hits") to their websites. The Company launched its
e-commerce exchange website at www.HBX2000.com in the first quarter of 2000. The
Company's revenues are principally derived from the sale of portal service
sponsorships, membership keyword bid and rank rights and fees related to its
business-to-business exchange.

Products and Services-

Hitsgalore Business Exchange 2000 ("HBX2000")-

On February 29, 2000 the Company launched its new Hitsgalore Business Exchange
2000 website at www.HBX2000.com. The Company has filed for U.S. patent
protection of its business-to-business e-commerce model. The HBX2000 is a B2B
Internet exchange whereby a trade organization provides pre-qualified "one none"
sales introductions to companies listed with the HBX2000, thus matching buyers
and sellers of products and services. The HBX2000 generates revenue from monthly
listing fees that companies pay to be listed on the HBX2000 exchange. Fees range
from $500 to $15,000 per month.

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The Company initiated the HBX2000 Local City Brokers program in April 2000.
Under the program, Local City Brokers contact local businesses and introduce
them to the HBX2000.com. As an authorized broker for the HBX2000, the Local City
Broker will have full access to a "live floor trader" on the HBX2000 who can
match both buyers and sellers for the local businesses.

Hitsgalore Portal Services-

The Company's portal services currently include free banners, free lifetime
banner placements, free banner generation, free voice banners, free internet
voice mail, free E-mail and a music portal.

In order to obtain any of the portal services, the new member registers with
Hitsgalore.com and provides certain relevant information, including a
description of the business or service provided by the user, and the contact
information for the business (location, phone number, email address, etc). This
enables the Company to provide quality business leads to its portal services
sponsors. As a result of the Company's business model, both the Company and the
sponsor achieve value by building a database of potential customers.

Sponsorships. Under the portal services sponsorship program, sponsors acquire
the right to "give away" the Company's portal services in exchange for lead
generation. The sponsor is required to deposit a minimum of $99.00 with
Hitsgalore.com in order to participate in the sponsorship program. The deposit
is non-refundable. When a member orders a portal service, the sponsor, selected
on a rotation basis from the Hitsgalore.com website, pays for the portal service
on the basis of an agreed upon "point" system, charged to the sponsors' account.

The participating sponsor receives an email of the ordering member's relevant
business information. When the deposit is fully utilized, the Company bills the
sponsor for additional sponsorship fees.

Bid and Rank. Under the Keyword Bid & Rank Program, a provider of products or
services can choose where they appear on the search engine results page of a
selected "keyword". With the Keyword Bid & Rank program offered by
Hitsgalore.com, the website operator can ensure their placement on the results
page but pay only for those "click-throughs" that actually visit their site as a
result of a search at Hitsgalore.com. The bidding process starts at $0.01 per
click-through and each time someone is outbid, they receive email messages
notifying them of that fact. Thus, the bidding becomes "real-time". Each keyword
sponsor can have an unlimited number of keywords and has the ability to bid on
each.

Local City Editions. The Company has links at its website to Local City Editions
("LCEs"). Through the LCEs, Hitsgalore.com is able to localize search results.
The LCEs can also contain local content, such as articles and stories about the
local market, as well as pertinent links to other local city information such as
weather, sports and other media channels. During early 1999 the Company sold
LCEs to 37 persons, but ceased selling LCEs as a result of a large sale of LCEs
to the Life Foundation Trust ("LFT") in April 1999. LFT defaulted in its
obligation to pay for the LCEs produced for it (see "Subsequent Events").
Through March 2000 the Company had developed approximately 1,000 separate LCEs.
The Company is in the process of modifying the local city editions to primarily
be operated internally and to complement the HBX2000 Local City Brokers program
described above, and the Company has offered refunds to all non-LFT buyers of
LCEs. It is unknown how many buyers of the LCEs will accept the refund offer,
but the Company believes its reserve of $184,664 at 12/31/99 is sufficient to
cover all such refunds.

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Other Products and Services. The Company is also developing the capability to
provide high-quality motivational audio clips from many of the world's most
recognizable motivational speakers and authors, allowing users to hear a 2-5
minute motivational clip as a portal service. The Company would also have the
right to sell motivational products from one of the world's largest and oldest
providers of motivational books and tapes through its website. Offering of these
motivational products and services has been delayed due to the need for further
technological developments necessary to host the large audio files, and the
desire of the Company to re-evaluate and coordinate the product with the
Company's business-to-business e-commerce.

Employees-

At 12/31/99 the Company had approximately 20 employees and 5 contract
programmers on staff.

ITEM 2. PROPERTIES.

The Company does not own any properties. All office space is leased and consists
of approximately 4,358 square feet in its facilities located in Rancho
Cucamonga, CA. The Company believes that its leased facilities are adequate for
its current needs and that additional suitable facilities will be available, as
required.

ITEM 3. LEGAL PROCEEDINGS.

On May 13, 1999, May 16, 1999 and June 11, 1999, separate putative class action
suits were filed against the Company, Mr. Steve Bradford and Mr. Dorian Reed in
the United States District Court, Central District of California (Case Nos.
99-5060, 99-5151R and 99-6925R, respectively), involving the purchase of the
Company's securities during periods specified in the complaints. On September
20, 1999, the Court entered an order consolidating the three lawsuits into one
and appointing the lead plaintiff and lead counsel for the consolidated lawsuit
(the "Consolidation Order"). Pursuant to the Consolidation Order, on or about
October 8, 1999, a single consolidated amended class action complaint (the
"Amended Complaint") was filed by the plaintiffs in the consolidated putative
class action under Case No. 99-5060R.

The Amended Complaint attempted to assert claims for violations of the federal
securities laws against the Company and Messrs. Bradford and Reed based on
alleged misrepresentations and omissions of fact purportedly made in the
Company's press releases and certain SEC filings during the period from February
17, 1999 through August 24, 1999 (the "Class Period"). The Defendants believe
the claims to be without merit, have vigorously contested the lawsuit, and
successfully moved to dismiss the Amended Complaint, which Complaint was
dismissed by the Court on December 20, 1999.

On January 11, 2000, Plaintiffs filed their second consolidated amended class
action complaint (the "2nd Amended Complaint"), to which the Defendants again
responded with a motion to dismiss.

On February 23, 2000, the Court entered its Order Granting Defendant's Motion to
Dismiss With Prejudice, effectively terminating the action before the District
Court. The Plaintiff's filed a Notice of Appeal, appealing the Order dismissing
the case to the U.S. Court of Appeals for the Ninth Circuit. The appeal is at
the early stage, and a decision is not expected until the end of this year or in
2001. It is not possible to predict the likely outcome of the appeal, the
outcome of the case if the appeal is granted, or the likelihood or amount of any
losses, if any, in the event of an adverse outcome.

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On April 20, 1999 the U.S. Bankruptcy Court dismissed an Involuntary Petition
under Chapter 7 of the U.S. Bankruptcy Code filed against Systems
Communications, Inc., on June 1, 1998 in the United States Bankruptcy Court for
the Middle District of Florida (Case No. 98-09299-8P7). The proceeding did not
involve Old Hitsgalore.

The Company was also subject to various other legal and administrative
proceedings As of December 31, 1999, the Company had accrued liabilities
totaling approximately $1.7 million for loss contingencies related to these
proceedings. Amounts provided, as of December 31, 1999, are estimates and, as
such, are subject to change upon final resolution. For a more complete
discussion of legal proceedings, see Note 15 to the consolidated financial
statements included elsewhere herein.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders during 1999 or
during the first quarter of 2000.

Absence of Stockholder Approval of the Merger-

The Company's stockholders of record immediately prior to the Effective Date
have not approved the merger of Old Hitsgalore.com into the Company. Approval by
the Company's stockholders would not have been required under Florida corporate
law, but for the change of the Company's name in the Articles of Merger to
Hitsgalore.com, Inc. from Systems Communications, Inc. The Company has been
advised by counsel that the Merger is deemed, nevertheless, to be effective as a
merger in fact (a defacto merger). A defacto merger may be voidable by action or
vote of a majority of the Company's stockholders at the date of the merger,
although stockholders are not given a right by Florida law to seek avoidance of
the Merger. Absent such statutory right, only the state has authority to seek
avoidance of the Merger. The Company does not believe that either a majority of
such stockholders or the state would seek to overturn the Merger.

The Company intends to call a special meeting of all record owners of the
Company's common stock at the date of the Merger and who had the right to vote
on the Merger. The special meeting will be called and conducted in accordance
with the Bylaws of the Corporation. The Company will distribute an information
statement to stockholders in accordance with the requirements of Section 14(c)
of the Securities Exchange Act of 1934, as amended, ("Exchange Act"). The
purpose of the special meeting will be to obtain a ratification of the Merger by
a vote of a majority of such stockholders. The Company intends to call the
special meeting as soon as practicable. For reasons described below, the Company
believes a majority of such stockholders will vote in favor of ratification of
the Merger.

Dissenters' rights-

Under Florida law, stockholders dissenting from the merger have the right,
called "dissenters' rights", to elect to receive the fair value of ownership in
a party to the merger in lieu of the shares which they would receive or retain
in the merger. In general, the fair value of the dissenter's interest in the
merger party is determined by an independent appraisal of the merger party's
business and assets, and is not determined by the market value of the party's
shares in the public market. Accordingly, a stockholder of the Company
immediately prior to the merger who votes against ratification of the merger

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would be entitled, upon demand in accordance with governing law, to exercise
dissenters' rights. The Company intends to acknowledge dissenters' rights
beginning at and from the date the Company obtains a valid ratification vote on
the merger. The Company believes that no stockholder entitled to elect
dissenters' rights will do so in view of the fact that (i) any shares that such
stockholder may receive from the Company in the dividend spin off of the common
stock of IHSI, subject to registration of the shares under the Securities Act,
would represent the same percentage of ownership in the entire, same business
conducted by the Company immediately prior to the Merger, as was then
represented by the stockholder's stock in the Company immediately prior to the
Merger, and (ii) the probable appraisal value of the Company's business and
assets immediately prior to the Merger is expected to be insignificant.
Furthermore, the Company believes the market value of the Company's common stock
in the public securities market immediately following the Merger, as well as at
the date hereof, exceeds the probable appraisal value of the Company's business
and assets immediately prior to the Merger.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

Prior to April 27, 2000, the Company's common stock was quoted under the stock
symbol "HITT" on the OTC Bulletin Board and over the counter market. Effective
April 27, 2000, the Company's common stock is quoted under the stock symbol
"HITTE" on the OTC Bulletin Board and over the counter market.

The following table sets forth the approximate high and low bid quotations for
the Company's Common Stock for each quarter during the last two years. For
periods prior to the Merger, such high and low bid quotations have been adjusted
for the reverse stock split, in the ratio of one share for each seven shares,
declared effective as of the close of business on March 18, 1999. These bid
quotations are inter-dealer prices without retail markup, mark-down or
commission, and may not represent actual transactions.

Quarter ended High bid Low bid
------------- ---------- ---------

March 31, 1998 3.94 0.91

June 30, 1998 2.31 0.63

September 30, 1998 0.98 0.14

December 31, 1998 0.63 0.07

March 31, 1999 5.43 0.22

June 30, 1999 20.69 3.81

September 30, 1999 7.06 1.88

December 31, 1999 4.00 1.06

The high and low bid quotations for the Company's common stock on March 31, 2000
were $1.69 and $1.31 per share, respectively.

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As of March 31, 2000 the Company had approximately 656 registered owners of its
common stock and approximately 4,000 shareholders.

There are no restrictions on the declaration or payment of dividends or any
provisions that restrict dividends. The payment by the Company of dividends in
the future rests within the discretion of the Company's Board of Directors and
will depend, among other things, upon the Company's earnings, its capital
requirements, its financial condition and other relevant factors. The Company
has not paid any cash dividends on its common stock. Effective as of April 6,
1999, the Company declared a dividend in kind to its stockholders of 20,000,000
shares of common stock of International Healthcare Solutions, Inc. Distribution
of these dividends is subject to the effectiveness of registration statements
under the Securities Act of 1933, as amended, which are to be filed by IHSI.
There is no assurance as to whether or not these dividends will be distributed
to the stockholders entitled to receive the dividends.

Immediately following the Reorganization there were 7,301,259 shares of common
stock outstanding. The total number of shares issued pursuant to the Merger were
approximately 46,000,000. During the period from the Merger through December 31,
1999 the Company issued shares of common stock in the following transactions:

The Company issued a total of 2,362,397 shares for cash and in connection with
the conversion of options, warrants and other rights outstanding as of the date
of the merger or issued in connection with the merger for total cash
consideration of approximately $1,873,610. In addition, the Company issued
37,071 shares in settlement or satisfaction of accounts payable or other
liabilities outstanding at the date of the Merger totaling $676,303.

The Company issued 2,000,000 shares to the Life Foundation Trust, an accredited
private investor, in exchange for a subscription receivable totaling $10
million. The buyer has defaulted in its payment obligations (see "Subsequent
Events").

The Company issued 100,000 shares as part of the acquisition of the Internet
division of Solvere, Inc. in April, 1999. Of these shares 100,000 shares were in
exchange for intangible assets $367,000 ($3.67 per share) based on the market
price of the company's stock at the date of the transaction. In addition 20,000
shares were issued to one or more individuals related to Solvere in exchange for
their services in the transaction and subsequent to the acquisition. The Company
has expensed $40,000 for these services.

The Company sold 86,957 shares to an accredited private investor in exchange for
$100,000 ($1.15 per share).

ITEM 6. SELECTED FINANCIAL DATA.

The following selected historical financial data has been derived from the
financial statements of Hitsgalore.com, Inc. as of December 31, 1999 and 1998,
for the year ended December 31, 1999 and the period from inception (July 21,
1998) to December 31, 1998. Hitsgalore.com, a Nevada corporation ("Old
Hitsgalore.com"), was merged into Systems Communications, Inc., effective as of
March 19, 1999 and the Company's name was changed to Hitsgalore.com, Inc. For
accounting purposes, the acquisition of Old Hitsgalore.com has been treated as a
recapitalization of Old Hitsgalore.com, with Old Hitsgalore.com as the acquirer.
As a result of the merger, the historical financial statements and operations of
Old Hitsgalore.com became those of the Company.

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INCOME STATEMENT DATA:

Period from
Year Ended Inception to
December 31, December 31,
1999 1998
---- ----

Net revenues $ 7,395,959 $ 17,779
Bad debt expense 6,900,000 --
Total costs and expenses 10,020,420 16,520
Net income (loss) (2,624,461) 1,007
Basic earnings (loss) per share (0.08) 0.07
Diluted earnings (loss) per share (0.08) 0.06

BALANCE SHEET DATA:
December 31,
--------------------
1999 1998
---- ----
Current assets $ 7,078 $ 1,984
Current liabilities 2,969,522 30,727
Total assets 640,504 31,734
Total liabilities 2,983,909 30,727
Stockholders' equity (deficit):
Convertible preferred stock 54,764 --
Common stock 48,289 --
Additional paid in capital 2,809,589 --
Retained earnings (deficit) (5,256,047) 1,007
Total Stockholders' equity (deficit) (2,343,405) 1,007

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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Net revenues

Net revenues increased substantially from period to period. The increase was due
to the sale of LCEs to the Life Foundation Trust ("LFT") and the Company having
a full year of operations in 1999. Total net revenues from LFT in 1999 were
$7,000,000 or 94.65% of total net revenues.

Bad debt expense

On April 17, 2000, LFT defaulted on its payment obligations to the Company under
an agreement dated April 15, 1999 (the "Agreement") and an early payment
agreement dated February 16, 2000 (the "Early Payment Agreement").

Under the Agreement, LFT was to pay $10,000,000 for the purchase of 2,000,000
shares of the Company's common stock and $10,000,000 for the development of LCEs
of the Company's web site. As of March 31, 2000, the Company had fulfilled its
obligations under the Agreement. The Agreement provided for payment in full on
April 15, 2000. The payment obligation is secured by a security interest and
lien on an undivided interest in a collection of Aden stamps (the
"Collectibles"). The Collectibles are held in safekeeping by an independent
trust company located in New York, NY.

The Early Payment Agreement provided for the payment of $3,500,000 on or before
February 21, 2000 and $16,500,000, in one or more installments, over a period of
thirty days following the date of the initial payment due under the Early
Payment Agreement.

As a result of the default by LFT, the Company has retained counsel to explore
its options with respect to liquidating the Collectibles in payment of monies
due under the Agreement. The liquidation process may be protracted and it is too
early to estimate with any degree of certainty the Company's likelihood of
recovery. Because of the uncertainty of collection on the LFT obligation, the
Company wrote off its receivable from LFT and recorded bad-debt expense of $6.9
million in 1999. The Company is not expecting to report any additional revenues
from the LFT transaction in 2000.

Selling, general and administrative expenses

Selling, general and administrative expenses increased substantially from period
to period. The increase was due to the growth in operations during 1999. The
most significant categories of expenses incurred during the year were
advertising costs of approximately $453,000, personnel expenses of approximately
$963,000 and professional fees of approximately $413,000. Personnel expenses
reflect higher levels of employees related to increased business activity and
the payment of compensation to the Company's officers. In the 1998 period, the
Company's officers were not compensated. Professional fees in 1999 reflect legal
costs related to the class action suits brought against the Company and the
lawsuits and proceedings that existed at the date of the merger with Systems
Communications, Inc. Professional fees also include the cost of the Company's
independent certified accountants and web site programmers under contract.

Depreciation and amortization

The change in depreciation and amortization reflects capital expenditures in
1999 of $444,910 compared to $31,663 during the period from inception to
December 31, 1998.

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LIQUIDITY AND CAPITAL RESOURCES

The Company has required a substantial amount of working capital to fund its
business. During 1999, the Company's short-term borrowings increased by $524,000
and the Company raised approximately $1.9 million from the issuance of stock and
from the exercise of options and warrants outstanding at the time of the merger
or granted in connection with the merger. The Company had a 1999 operating loss
of approximately $2.6 million and expects to report operating losses in both the
first and second quarters of 2000. Profitability in the third and fourth
quarters of 2000 will depend largely on the Company's ability to develop,
enhance and market its services and products.

The Company does not presently have the cash, working capital and commitments
for additional equity investments to sustain its current level of operations.
Therefore, the Company will need to raise additional funds in order to fund and
accelerate expansion, enhance its products and services and support marketing
initiatives. There can be no assurance that additional financing will be
available on favorable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, the Company may not be able to fund its
business operations. Such inability could have a material adverse effect on the
Company's business, results of operations and financial condition.

IMPACT OF INFLATION

The impact of inflation on the costs of the Company, and the ability to pass on
cost increases to its customers over time is dependent upon market conditions.
The Company is not aware of any inflationary pressures that have had any
significant impact on the Company's operations over the past several years and,
the Company does not anticipate that inflationary factors will have a
significant impact on future operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

PAGE
----

Independent Auditors' Report 14

Balance Sheets as of December 31, 1999 and 1998 15

Statements of Operations for the year ended December 31, 1999
and for the period from inception (July 21, 1998)
to December 31, 1998 16

Statements of Changes in Stockholders' Deficit for
the year ended December 31, 1999 and for the period from
inception (July 21, 1998) to December 31, 1998 17

Statements of Cash Flows the year ended December 31, 1999
and for the period from inception (July 21, 1998)
to December 31, 1998 19

Notes to Financial Statements 20

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Hitsgalore.com, Inc.
Rancho Cucamonga, CA

We have audited the balance sheets of Hitsgalore.com, Inc. as of December 31,
1999 and 1998, and the related statements of operations, changes in
stockholders' deficit and cash flows for the year ended December 31, 1999 and
for the period from inception (July 21, 1998) to December 31, 1998. 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 audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hitsgalore.com, Inc. at
December 31, 1999 and 1998, and the results of its operations and cash flows for
the year ended December 31, 1999 and for the period from inception (July 21,
1998) to December 31, 1998, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that
Hitsgalore.com, Inc. will continue as a going concern. As more fully described
in Note 3, the Company incurred an operating loss in 1999 and as of December 31,
1999 has a working capital and stockholders' equity deficiency. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.

/s/ Pender Newkirk & Company

Tampa, Florida
May 15, 2000

HITSGALORE.COM, INC.
BALANCE SHEETS
DECEMBER 31, 1999 and 1998
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
ASSETS

Cash $ 2,223 $ 1,013
Other current assets 4,855 971
------------- -------------
Total current assets 7,078 1,984
Property and equipment, net of accumulated
depreciation of $81,233 and $1,883,
respectively 284,151 29,750
Intangible assets, net of accumulated amortization
of $116,425 in 1999 349,275 --
------------- -------------
Total assets $ 640,504 $ 31,734
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Short-term borrowings $ 524,000 $ --
Due to officers and stockholders 65,000 2,250
Note payable 4,788 5,000
Accounts payable and accrued expenses 289,974 778
Allowance for cancellations and refunds 184,664 --
Accrued compensation and employee benefits 174,471 --
Borrowings from affiliated company -- 22,699
Merger liabilities assumed 1,726,625 --
------------- -------------
Total current liabilities 2,969,522 30,727
------------- -------------
Long-term portion of note payable 14,387 --
------------- -------------
Commitments and contingencies

Stockholders' equity (deficit):

Class B convertible preferred stock, stated
value and liquidation preference - $1.00 per
share; authorized 10,000,000 shares, issued
and outstanding 100,000 shares in 1999 54,764 --
Common stock, $0.001 par value in 1999, no
par value in 1998; authorized 50,000,000 shares
in 1999 and 25,000 shares in 1998; issued and
outstanding 48,289,848 shares in 1999 and
15,000 shares in 1998 48,289 --
Additional paid-in capital 2,809,589 --
Retained earnings (deficit) (5,256,047) 1,007
------------- -------------
Total stockholders' equity (deficit) (2,343,405) 1,007
------------- -------------
Total liabilities and stockholders' equity $ 640,504 $ 31,734
============= =============
See Notes to Financial Statements
</TABLE>

14
<PAGE>

HITSGALORE.COM, INC.
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE PERIOD FROM INCEPTION (JULY 21, 1998) TO DECEMBER 31, 1998

Year Ended Inception to
December 31, December 31,
1999 1998
---- ----

Net Revenues $ 7,395,959 $ 17,779
------------- -------------
Costs and expenses:
Bad debt expense 6,900,000 --
Selling, general and administrative
expenses 2,926,398 14,111
Depreciation and amortization 195,775 1,883
Interest income (expense), net (1,753) 526
------------- -------------
Total costs and expenses 10,020,420 16,520
------------- -------------
Income before income taxes (2,624,461) 1,259
Provision for income taxes -- (252)
------------- -------------
Net income (loss) $ (2,624,461) $ 1,007
============= =============

Basic (loss) earnings per share $ (0.08) $ 0.07
============= =============
Diluted (loss) earnings per share $ (0.08) $ 0.06
============= =============

See Notes to Financial Statements.

15
<PAGE>
<TABLE>

HITSGALORE.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE PERIOD FROM INCEPTION (JULY 21, 1998) TO DECEMBER 31, 1998

<CAPTION>
CLASS A CLASS B COMMON
PREFERRED PREFERRED STOCK
----------------- ----------------- ------
SHARES AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at Inception, July 21, 1998 -- $ -- -- $ -- --
Issuance of stock -- -- -- -- 15,000
------- ------ ------- -------- ----------

Balance at December 31, 1998 -- -- -- -- 15,000
Merger and reorganization 500,000 55,000 100,000 54,764 45,755,380
Liquidation of merger
liabilities assumed -- -- -- -- 37,071
Issuance of stock for cash
and upon exercise of warrants -- -- -- -- 2,362,397
Purchase of assets -- -- -- -- 100,000
Return of stock in
settlement of debt (500,000) (55,000) -- -- --
Issuance of stock as
compensation -- -- -- -- 20,000
Merger shares retired -- -- -- -- (2,000,000)
Shares issued to LFT, net of
subscription receivable -- -- -- -- 2,000,000
Stock issue costs -- -- -- -- --
Net loss -- -- -- -- --
------- ------ ------- -------- ----------
-- -- 100,000 $ 54,764 48,289,848
======= ====== ======= ======== ==========
</TABLE>

16
<PAGE>
<TABLE>

HITSGALORE.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE PERIOD FROM INCEPTION (JULY 21, 1998) TO DECEMBER 31, 1998

COMMON Retained
STOCK Additional Earnings
------ Paid-In (Accumulated
AMOUNT Capital Deficit) Total
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at Inception, July 21,
1998 -- -- -- --
Issuance of stock -- -- -- --
--------- ------------ ------------ ------------

Balance at December 31, 1998 $ -- $ -- $ 1,007 $ 1,007
Merger and reorganization 45,770 4,995 (2,632,593) (2,472,064)
Liquidation of merger
liabilities assumed 37 676,266 -- 676,303
Issuance of stock for cash
and upon exercise of warrants 2,362 1,871,248 -- 1,873,610
Purchase of assets 100 367,100 -- 367,200
Issuance of stock in settlement
of debt -- -- -- (55,000)
Issuance of stock as
compensation 20 39,980 -- 40,000
Merger shares retired (2,000) 2,000 -- --
Shares issued to LFT, net of
subscription receivable 2,000 (2,000) -- --
Stock issue costs -- (150,000) -- (150,000)
Net loss -- -- (2,624,461) (2,624,461)
--------- ------------ ------------ ------------
$ 48,289 $ 2,809,589 $(5,256,047) $(2,343,405)
========= ============ ============ ============
</TABLE>

17
<PAGE>

HITSGALORE.COM, INC.
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE PERIOD FROM INCEPTION (JULY 21, 1998) TO DECEMBER 31, 1998

Year Ended Inception to
December 31, December 31,
1999 1998
------------- -------------
Cash flows from operating activities:
Net income (loss) $ (2,624,461) $ 1,007
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operations:
Depreciation and amortization 195,775 1,883
Allowance for cancellations and returns 184,664 --
Other non-cash charges 100,000
Increase (decrease) in cash from
change in operating assets and
liabilities-
Other current assets (3,884) (971)
Other current liabilities 289,196 778
Accrued compensation and employee
benefits 174,471 --
------------- -------------
Net cash (used in) provided by operating
activities (1,684,239) 2,697
------------- -------------
Cash flows from investing activities:
Capital expenditures (279,237) (31,633)
Purchase of intangible assets (125,000) --
------------- -------------
Net cash used in investing activities (404,237) (31,633)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of stock and
exercise of options and warrants 1,873,610
Proceeds from short-term borrowings 524,000
Proceeds from notes payable (8,838) 5,000
Due to officers and employees, net 62,750 2,250
Borrowings from affiliated company,
net (22,699) 22,699
Payment of stock issue costs (150,000) --
Payments on merger liabilities
assumed (191,557) --
------------- -------------
Net cash provided by financing
activities 2,087,266 29,949
------------- -------------
Net increase in cash 1,210 1,013
Cash at beginning of period 1,013 --
------------- -------------
Cash at end of period 2,223 $ 1,013
============= =============

See Notes to Financial Statements.

18
<PAGE>

HITSGALORE.COM, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 1 THE COMPANY AND BUSINESS

Hitsgalore.com, Inc. (the "Company") formerly known as Systems Communications
Inc. ("SCI"), a Florida corporation, is engaged in the business of an internet,
business-to-business search engine and provider of services which the Company
describes as Portal Services, and operates a business-to-business e-commerce
exchange matching buyers and sellers of products and services. Old
Hitsgalore.com was organized on July 21, 1998 in the State of Nevada ("Old
Hitsgalore.com"), began beta operations of its search engine in August 1998 and
launched the website in November 1998. As an internet search engine for
business-to business commerce, the Company provides a searchable database to
businesses bringing people ("hits") to their websites. The Company's revenues
are principally derived from the sale of portal service sponsorships, membership
keyword bid and rank rights and fees related to its business-to-business
exchange. The Company's websites are located on the world wide web at
http://www.hitsgalore.com and at http://www.HBX2000.com.

On March 19, 1999, the Company and Old Hitsgalore.com, completed a
reorganization and merger (the "Reorganization and Merger Agreement"). Pursuant
to the Reorganization and Merger Agreement, (a) the Company transferred its then
existing business, properties and assets to its wholly-owned subsidiary,
International Healthcare Solutions, Inc. ("IHSI"), (b) caused IHSI to assume
substantially all of the obligations, debts and liabilities of the Company and,
then, (c) Old Hitsgalore.com was merged into the Company and the Company changed
its name to Hitsgalore.com, Inc. For accounting purposes, the merger of Old
Hitsgalore.com into the Company was treated as a recapitalization, with Old
Hitsgalore.com as the acquirer. As a result of the Reorganization and Merger
Agreement, the historical financial statements and operations of Old
Histgalore.com prior to March 19, 1999 became those of the Company.

In connection with the Merger and Reorganization Agreement, the stockholders of
Old Hitsgalore.com received 37,675,000 shares of common stock issued in
connection with the merger in conversion of all of the issued and outstanding
common stock of Old Hitsgalore.com. Up to an additional 4,000,000 shares of the
Company's common stock were set aside for issuance as compensation to
consultants and professionals and for merger costs and expenses. Of the number
of shares set side for issuance as compensation to consultants and professionals
and for merger costs and expenses, 2,000,000 shares were issued.

Immediately prior to the merger, the Company declared a reverse split of its
then issued and outstanding common stock, options, warrants and other rights to
purchase its common stock, in the ratio of one share for each seven shares, so
that immediately preceding the merger the Company would have approximately
8,000,000 shares of common stock issued and outstanding, assuming exercise of
all such options, warrants and other rights. The Company also transferred its
then existing business, properties and assets, excluding cash and the business
and assets of Old Hitsgalore.com, to IHSI in exchange for 100% of the
outstanding common stock of IHSI. The shares of outstanding common stock of IHSI
were then transferred into a constructive trust for the benefit of the Company's
stockholders. The outstanding shares of common stock of IHSI are to be
distributed as a dividend in kind. Distribution of the dividend in kind to
stockholders is subject to the effectiveness of a registration statement under
the Securities Act of 1933, which is to be filed by IHSI.

19
<PAGE>

In connection with the transfer of the Company's business, properties and assets
to IHSI, IHSI assumed all of the Company's obligations, debts and liabilities
that existed as of the March 19, 1999 and unconditionally and irrevocably
indemnified the Company against all of such obligations, debts and liabilities,
with the result that both the Company and IHSI are jointly and severally
obligated for such debts and liabilities.

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

ACCOUNTS RECEIVABLE

The Company extends credit to its various customers based on the customer's
ability to pay. Based on management's review of accounts receivable, an
allowance for doubtful accounts of $6,900,000 at December 31, 1999 is considered
adequate.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over periods that approximate the useful lives of the
related assets. The cost of leasehold improvements is amortized over the lesser
of the length of the related lease or the estimated useful lives of the assets.

REVENUE RECOGNITION

The Company recognizes revenue when an agreement exists to sell a product or
service, the product or service has been delivered, the sales price is fixed and
determinable and collectibility of the sales price is reasonably assured. As of
December 31, 1999, the Company provided an allowance for cancellations and
returns of $184,664. The allowance for cancellations and returns is for the
return of monies derived from the sale of LCEs that the Company has offered to
refund to the purchasers of the LCEs.

Revenue from fixed price contracts for LCEs is reported under the
percentage-of-completion method for financial statement purposes. The estimated
revenue for each contract reflected in the accompanying financial statements
represents that percentage of estimated total revenue that LCEs delivered to
date bear to total units to be delivered per the contract. With respect to
contracts that extend over one or more accounting periods, revisions in costs
and revenue estimates during the course of the work are reflected in the period
the revisions become known. When current estimates of total contract costs
indicate a loss, provision is made for the entire estimated loss.

IN-KIND SERVICES

In 1998, the principal stockholders of Old Hitsgalore.com provided services to
the Company without any remuneration. No value was assigned to such services due
to the Company having been in the development stage and the inability of the
Company to estimate the fair value of the services provided.

INCOME TAXES

The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements and tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

EARNINGS PER SHARE

The Company has applied the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS No. 128"), which requires the
presentation of both basic and diluted earning per share. Basic earnings per
share is computed based on the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed based on
the sum of the weighted average number of common shares outstanding plus the
additional number of shares that would have been outstanding if all potentially
dilutive common shares had been issued. For the year ended December 31, 1999,
the inclusion of potentially dilutive securities in the calculation of earnings
per share would have been anti-dilutive, thus both basic and diluted earning per
share for the year are the same.

20
<PAGE>

The weighted average number of common shares outstanding for the period from
inception to December 31, 1998 was 15,000 shares. The weighted average number of
common shares outstanding during the period was increased by 1,800 shares for
purposes of the computation of diluted earnings per share to include incremental
shares from the exercise of outstanding options using the treasury stock method.
The incremental shares issuable upon conversion of convertible notes were not
included in the computation of diluted earnings per share because inclusion of
these shares would have had been anti-dilutive. Subsequent to December 31, 1998,
the Company entered into a Reorganization and Merger Agreement that had the
effect of increasing shares outstanding by approximately 48,000,000 shares (see
Notes 1).

LONG-LIVED ASSETS

The Company has applied the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed Of". This statement requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement No. 121
also addresses the accounting for long-lived assets that are expected to be
disposed of.

ADVERTISING COSTS

Advertising costs, except for costs associated with direct response advertising,
are charged to operations when incurred. The costs of direct response
advertising are capitalized and amortized over the periods during which future
benefits are expected to be received. Advertising expense amounted to
approximately $453,000 and $0 for the periods ended December 31, 1999 and 1998,
respectively. The Company has had no direct response advertising for 1999 or
1998.

USE OF ESTIMATES

The process of preparing financial statements requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.

NOTE 3 GOING CONCERN

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. The Company incurred an
operating loss of $2,624,461 in 1999 and had a working capital deficiency of
approximately $2,962,444 at December 31, 1999. Additionally, as discussed in
Note 15, the Company is subject to various legal and administrative proceedings.
An unfavorable outcome in one or more of these actions or proceedings could have
an adverse effect on the Company's liquidity and ability to maintain current
business operations. In the absence of a sufficient amount of cash flows from
operations or from financing transactions, the Company would be required to seek
other alternatives, including sale, merger or discontinuance of operations. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.

21
<PAGE>

NOTE 4 PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following:

December 31, December 31,
1999 1998
------------- -------------

Furniture and equipment $ 314,071 $ 1,300
Computer software 46,686 25,806
Leasehold improvements 4,627 4,527
------------- -------------
365,384 31,633
Less: accumulated depreciation
and amortization (81,233) (1,883)
------------- -------------
$ 284,151 $ 29,750
============= =============

NOTE 5 INTANGIBLE ASSETS

On April 20, 1999, the Company completed the purchase of all rights, title and
interest in the internet-related development assets, equipment and software,
owned or under development, by Solvere, Inc. ("Solvere"), a closely held
Delaware corporation. The assets acquired included all computer equipment,
software and internet technology, including, but not limited to all of Solvere's
e-commerce, web-based e-mail, multimedia distribution system and shopping cart
technology. The purchase price consisted of $125,000 in cash and 100,000 shares
of the Company's common stock. The common stock issued to Solvere was assigned a
value of $367,200. Of the total purchase price, $26,500 was allocated to
property and equipment and $465,700 was allocated to intangible assets. The
intangible assets acquired are being amortized over three years.

As of December 31,1999, intangible assets totaled $349,275, which is net of
accumulated amortization of $116,425.

NOTE 6 SHORT-TERM BORROWINGS

Short-term borrowings at December 31, 1999 consist of $424,000 payable under a
series of borrowings and agreements and $100,000 payable under a convertible
promissory note dated September 23, 1999. In 2000, the series of borrowings and
amounts due under agreements in the amount of $424,000 were converted into a
convertible promissory note, bearing interest at the rate of 8% per annum. The
conversion features of the convertible promissory note call for a conversion
price equal to one-half (1/2) of the bid price of the Company's common stock at
the close of business on the due date of each respective borrowing event. The
due dates of the series of notes in the amount of $424,000 range from May 2000
to December 2000. The $100,000 convertible promissory note dated September 23,
1999 bears interest at 6% per annum and is due on September 23, 2000. The
$100,000 convertible promissory note dated September 23, 1999 is convertible at
the election of the holder into shares of the Company's common stock at a
conversion rate of $2.00 per share.

NOTE 7 RELATED PARTY TRANSACTIONS

Amounts due to officers and stockholders as of December 31, 1999 and 1998 are
due on demand and are non-interest bearing.

During 1999 the Company's Chairman of the Board of Directors returned 2,000,000
shares of the Company's common stock for no consideration.

During 1999, the Company paid a related party $150,000 for assistance with the
sale of its common stock and the exercise of its warrants.

The above transactions are not necessarily indicative of what these transactions
would have been between unrelated parties.

22
<PAGE>

NOTE 8 NOTE PAYABLE

Note payable as of December 31, 1999 consists of a bank loan with principal
outstanding of $19,175 and interest at 8%. The note is secured by a vehicle. The
current portion of the bank loan as of December 31, 1999 is $4,788 and the
long-term portion is $14,387.

NOTE 9 BORROWINGS FROM AFFILIATED COMPANY

Borrowings from affiliated company consist of amounts loaned to the Company by a
corporation owned by the Company's principal stockholders. These borrowings were
due on demand and were paid in 1999.

The above related party transactions may not be indicative of the amounts that
would have resulted had comparable transactions been entered into with
independent parties.

NOTE 10 MERGER LIABILITIES ASSUMED

Liabilities assumed in connection with the reverse acquisition of SCI consisted
of the following at 12/31/99:

Alleged employment agreement
with Mr. Jeff Good (Note 15) $ 450,000

Alleged consulting agreement
with Mr. Ken Lane (Note 15) 450,000

CCI - summary judgement (Note 15) 550,000

Michigan Recission consent
order (Note 15) 188,000

Other 88,625
-----------
$ 1,726,625
===========

NOTE 11 INCOME TAXES

In 1999, the Company had an operating loss and did not record a provision
(credit) for income taxes. As of December 31, 1999, the Company had a net
operating loss carry-forward of approximately $2.6 million. The loss
carryforward expires in 2019.

The tax benefit of the loss carry-forward is fully reserved as of December 31,
1999. There are no other significant differences between the financial statement
and tax bases of assets and liabilities.

NOTE 12 LEASES

As of December 31, 1999, the Company leases office space under operating lease
agreements expiring on various dates through December 31, 2002. Minimum future
rental payments under these lease agreements total $79,994 as of December 31,
1999. The annual rentals under these lease agreements are $33,578, $23,208, and
$23,208 in 2000, 2001 and 2002, respectively.

Rental expense under all operating leases was $51,476 in 1999.

NOTE 13 STOCKHOLDERS' EQUITY

The Company has 5,000,000 shares of Class A preferred stock authorized. The
Class A preferred stock is non-voting, has a stated value and liquidation
preference of $1.00 per share and is convertible into one-half share of the
Company's common stock at the election of the holder. As of December 31, 1998,
the Company had 500,000 share of Class A preferred stock outstanding. These
shares were issued to the former stockholders of Coastal Communications Inc.
("CCI") CCI as a result of an arbitration proceeding brought against the Company
(see Note 14). In 1999, the former stockholders of CCI elected to seek a summary
judgement in lieu of shares of Class A preferred stock and the Company cancelled
issuance of the shares.

The Company has 10,000,000 shares of Class B preferred stock authorized. The
Class B preferred stock is non-voting, has a stated value and liquidation
preference of $1.00 per share and is convertible into shares of the Company's
common stock based on the stated value divided by the 10-day average closing bid
price of the Company's common stock on the date of issuance. As of December 31,
1999, the Company had 100,000 shares of Class B preferred stock outstanding.

23
<PAGE>

NOTE 14 OPTIONS AND WARRANTS

Prior to the Reorganization and Merger, the Company reinstated all previously
expired options and warrants and gave the holders thereof the right to exercise
their options and warrants at 50% of the asked price of the Company's common
stock at the close of business on the date of exercise. The number of options
and warrants outstanding on the date of the merger, after the reinstatement of
previously expired options and warrants, totaled approximately 1,870,011. Of the
number of options and warrants outstanding, approximately 1,247,994 were
exercised at prices ranging from $0.56 to $2.45 per share and approximately
43,088 expired unexercised. In addition, the Company issued warrants in
connection with the issuance of common stock of notes payable. The total number
of warrants issued in connection with the issuance of common stock totaled
approximately 1.3 million All of these were exercised at a price equal to
approximately $0.70 per share.

As of December 31, 1999, the Company had options and warrants outstanding
totaling 574,326. The options and warrants outstanding as of December 31, 1999
are exercisable at prices ranging from $0.70 to $10.50 per share and expire in
the years 2000 through 2003.

NOTE 15 COMMITMENTS AND CONTINGENCIES

The Amended Complaint attempted to assert claims for violations of the federal
securities laws against the Company and Messrs. Bradford and Reed based on
alleged misrepresentations and omissions of fact purportedly made in the
Company's press releases and certain SEC filings during the period from February
17, 1999 through August 24, 1999 (the "Class Period"). The Defendants believe
the claims to be without merit and have vigorously contested the lawsuit, and
successfully moved to dismiss the Amended Complaint, which Complaint was
dismissed by the Court on December 20, 1999.

On January 11, 2000, Plaintiffs filed their second consolidated amended class
action complaint (the "2nd Amended Complaint"), to which the Defendants again
responded with a motion to dismiss. On February 23, 2000, the Court entered its
Order Granting Defendant's Motion to Dismiss with Prejudice, effectively
terminating the action before the District Court. The Plaintiff's filed a Notice
of Appeal, appealing the Order dismissing the case to the U.S. Court of Appeals
for the Ninth Circuit. The appeal is at the early stage, and a decision is not
expected until the end of this year or in 2001. It is not possible to predict
the likely outcome of the appeal, the outcome of the case if the appeal is
granted, or the likelihood or amount of any losses, if any, in the event of an
adverse outcome. No provision has been made in the accompanying financial
statements related to these matters.

On April 27, 2000 the Company filed a Complaint for Libel in the Superior Court
of the State of California for the County of Los Angeles, Case No. BC 228991
against Bloomberg, L.P. ("Bloomberg") a Delaware limited partnership, and David
Evans ("Evans"'), a reporter with Bloomberg's news service, Bloomberg News. The
lawsuit alleges that Bloomberg and Evans, through Bloomberg News, published a
series of "Defamatory Articles" on May 11 and May 12, 1999, which contained
certain false and defamatory statements regarding the Company. As a result of
the publication of the articles, the Complaint alleges, the price of the
Company's stock dropped about 53% in one day. The Complaint seeks damages
against Bloomberg and Evans in excess of five hundred million dollars
($500,000,000). The ultimate outcome of the matter cannot be predicted at this
time.

24
<PAGE>

In June 1999, following the Defamatory Articles, the Company became aware that
the Securities and Exchange Commission was investigating whether possible
violations of the federal securities laws may have occurred. Due to the
non-public nature of the investigation, it is unknown whether it will result in
any form of action against the Company. The Company fully cooperated with the
Commission and has not been advised of any adverse outcome.

On May 21, 1997, Mr. Jeff Good, as Plaintiff, filed an action in the United
States District Court, Southern District of Iowa, Davenport Division (Case No.
3-97-CV-80085) against Systems Communications, Inc., as Defendant, for amounts
Mr. Good alleges are due under an alleged employment agreement between Mr. Good
and one of the Company's subsidiaries (which subsidiary is no longer conducting
business). This matter is scheduled for trial beginning on August 7, 2000. The
accompanying financial statements include a loss accrual of $450,000 related
to this action in the event of an unfavorable outcome.

On April 15, 1997, Mr. Ken Lame, as Plaintiff, filed an action in the United
States District Court, District Court of Utah, Central Division (Case No.
2:97CV0292W) against Systems Communications, Inc. and a subsidiary company that
is now a subsidiary of IHSI (see the "Reorganization"), as Defendants. This
action arises from a consulting agreement between Mr. Lame and the subsidiary
company, and seeks approximately $250,000, plus interest and attorney's fees.
The accompanying financial statements include a loss reserve for the amounts
sought by Plaintiff.

The Company is subject to a consent order, executed in December 1996, between
Systems Communications, Inc. and the State of Michigan. As of December 31, 1999,
the Company has an allowance of approximately $188,000 set aside to cover
estimated liabilities to Michigan purchasers of the Company's common stock. It
is uncertain whether or not the Company will be obligated to repurchase or
otherwise compensate Michigan purchasers for shares sold.

In 1996, Systems Communications, Inc. informed the principals of CCI that it was
canceling the acquisition of CCI, terminating all of the related acquisition
documents and abandoning CCI's business. In connection with the abandonment of
CCI's business, the Company wrote off its remaining investment in CCI and
recognized a loss of approximately $300,000. The principals of CCI filed suit
against the Company, and on October 15, 1999 the Circuit Court of Pinellas
County, Florida, Case Number 99-003990-CI-20, entered a judgment against Systems
Communications, Inc. of $510,599. On January 4, 2000 the Plaintiffs filed a
Amended Notice of Entry of Judgment on Sister-State Judgment in the Superior
Court of California, San Bernardino County, Case Number RCV 044865. The Company
is contesting the matter. The accompanying consolidated financial statements
include a loss reserve of approximately $550,000 related to this action.

The Company has been advised by counsel that it may have violated Section 5 of
the Securities Act of 1933. Counsel has further advised the Company that initial
public purchasers of any shares sold in such violation may have rescission
rights to the extent they still own such stock, or have a claim for damages to
the extent they resold the stock at a loss. The Company is unable to determine
the number of shares that may be subject to a violation, and is uncertain as to
whether the Company has any liabilities arising from these transactions. The
Company has made no provision in the accompanying financial statements for
possible losses, penalties and/or fines related to these transactions.

The Company has been advised by the former Chairman of Systems Communications,
Inc., Edwin B. Salmon, Jr., that he is filing suit to require the Company lift
restrictive legends from certificates held by him. The Company has refused his
request to lift the restrictions on the basis of a lock-up agreement and other
agreements between the Company and Mr. Salmon pursuant to the Merger regarding
the debt and other obligations of IHSI and Systems Communications, Inc. The
outcome of any such lawsuit is unknown at this time and no provision has been
made for it in the accompanying financial statements.

The Company is also involved in certain other legal and administrative actions
incurred in the ordinary course of business, none of which are expected to have
a material impact on the Company's future results of operations.

25
<PAGE>

NOTE 16 SUBSEQUENT EVENTS

Under the Agreement, LFT was to pay $10,000,000 for the purchase of 2,000,000
shares of the Company's common stock and $10,000,000 for the development of
Local City Editions of the Company's web site. As of March 31, 2000, the Company
had fulfilled its obligations under the Agreement. The Agreement provided for
payment in full on April 15, 2000. The payment obligation is secured by a
security interest and lien on an undivided interest in a collection of Aden
stamps (the "Collectibles"). The Collectibles are held in safekeeping by an
independent trust company located in New York, NY.

As a result of the default by LFT, the Company has retained counsel to explore
its options with respect to liquidating the Collectibles in payment of monies
due under the Agreement. Because we believe that persons may attempt to defeat
the Company's claims to the collateral and may claim interests in the collateral
adverse to those of the Company, the liquidation process may be protracted and
it is too early to estimate with any degree of certainty the Company's
likelihood of recovery. Because of the uncertainty of collection on the LFT
obligation, the Company wrote off its receivables due from LFT and recorded a
charge to income of $6.9 million in 1999. The Company is not expecting to report
any additional revenues from the LFT transaction in 2000.

The Company has instructed its stock transfer agent to cancel 1,750,000 shares
of the Company's common stock issued to LFT under the transaction, and has
retained counsel to determine what action can be taken to recover 250,000 shares
of the Company's common stock previously issued to LFT. As a result of the
default, all other pending transactions with LFT have been cancelled.

NOTE 17 STATEMENTS OF CASH FLOWS SUPPLEMENTAL INFORMATION

Non-cash investing and financing activities:

Issuance of stock for:
Purchase of assets $ 367,200
Settlement of accounts payable 203,654
Settlement of merger liabilities assumed 676,303
Issuance of note payable for stock issue
Costs and fees 210,000
Merger Liabilities assumed 2,742,534

Cash paid during the period for:
Interest 443
Income taxes --

26
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Effective March 4, 1998, the Company engaged Moore Stephens Lovelace, P.A. to
audit its consolidated financial statements. On July 26, 1999, the Company
received written notice from Moore Stephens Lovelace, P.A. that it was
withdrawing as auditor of record for Hitsgalore.com, Inc. The reports of Moore
Stephens Lovelace, P.A. on the financial statements of Hitsgalore.com, Inc. for
the period from its inception (July 21, 1998) to December 31, 1998 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to audit scope or accounting principles. The reports of Moore
Stephens Lovelace, P.A. included an explanatory paragraph expressing substantial
doubt about the Company's ability to continue as a going concern.

In connection with the audits of the financial statements of the Company
referred to above, and in subsequent interim periods, there were no
disagreements with Moore Stephens Lovelace, P.A. on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Moore Stephens
Lovelace, P.A. would have caused Moore Stephens Lovelace, P.A. to make reference
to the matter in their report.

Moore Stephens Lovelace, P.A. stated that its withdrawal as auditor of record
for Hitsgalore.com, Inc. was due to information which arose regarding new
management which led Moore Stephens Lovelace, P.A. to be unwilling to be
associated with the financial statements of the Company.

Moore Stephens Lovelace, P.A. has furnished a letter addressed to the Commission
stating that it agrees with the statements contained herein. A copy of that
letter, dated September 7, 1999 has been filed with the Securities and Exchange
Commission.

The withdrawal of Moore Stephens Lovelace, P.A. as the Company's auditor of
record was not recommended or approved by the Company's Board of Directors.

The Company authorized Moore Stephens Lovelace, P.A. to respond fully to the
inquiries of a successor accountant concerning its withdrawal as the Company's
auditor of record.

On September 2, 1999, the Company engaged Pender Newkirk & Company, Certified
Public Accountants, to audit and report on the financial statements of
Hitsgalore.com, Inc. The Company has not consulted with Pender Newkirk & Company
regarding the application of accounting principals and has not received any
advice from Pender Newkirk & Company regarding any accounting, auditing or
financial reporting issue or any other matter that was the subject of a
disagreement or reportable event.

27
<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The names and ages of directors (including the year in which each became a
director) and executive officers of the Company as of the date hereof are set
forth in the following table:

Name Age Positions Since
---------------------- --- -------------------------------- ---------
Dorian Reed 46 Chairman of the Board March 1999

Steve Bradford 43 President, Principal Executive March 1999
Officer, Secretary and Director

Robert A. Thompson 47 Vice President, Treasurer, Sept. 1999
Chief Financial Officer and
Director

Melvyn L. Price, Jr. 44 Director April 1999

Phillip Lloyd Kaich 47 Director April 1999

Daniel Melvin Grant 46 Director April 1999

Each director is elected by holders of a majority of the Common Stock to serve
for a term of one year ending on the next following annual meeting of
stockholders and until his successor is elected and qualified. Officers serve at
the will of the board. None of the incumbent directors have been elected by a
majority of the Company's stockholders. They have been appointed by the Board to
fill vacancies created by the resignations of their predecessors. Directors are
not compensated for their services apart from their executive officer salaries,
if the Director is also an executive officer. In the event the Company has
directors who are not also officers, the Company may reimburse such directors
for travel expenses related to Company business. The directors and officers of
the Company are indemnified against liabilities that they incur by virtue of
being directors and officers under the corporate laws of the State of Florida.
The articles of incorporation and bylaws of the Company do not contain any
provisions with respect to indemnification of directors and officers. The
Company has been advised that in the opinion of the Securities and Exchange
Commission, indemnification for liabilities arising under the federal securities
laws is against public policy and may be unenforceable. The Company would seek
approval of any such indemnification by a court of competent jurisdiction.

Mr. Dorian Reed is a principal stockholder, Chairman of the Board of Directors
and the Company's Director of Technology. In 1994 Mr. Reed was engaged in
internet consulting and research, primarily studying internet market trends for
not-for-profit entities. The business Mr. Reed was involved in was incorporated
in January 1995 as Angel Industries, Inc. Mr. Reed became an employee of Angel
Industries until a new business, incorporated in 1995 by the President of Angel
Industries, Inc., called Internet Business Broadcasting ("IBB") became his
employer. In early 1998, the Federal Trade Commission ("FTC") filed a lawsuit
against Mr. Reed for failure to refund money to customers and allegedly
misleading investors about the potential return on their investment related to
IBB. On May 11, 1999 judgement served on Mr. Reed informed him that a federal
judge in Baltimore issued an order in April, 1999 for he and his co-defendants
to pay $613,110 to 100 customers of IBB. After being served on May 11, 1999, Mr.
Reed immediately and pro-actively contacted the FTC through counsel regarding
the matter. Mr. Reed advises the Company that he is actively negotiating with
the FTC to reach an amicable settlement of this matter.

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<PAGE>

Prior to Hitsgalore.com, Mr. Reed and Steve Bradford together owned I Wonder
Technologies, a now-dormant business that focused on satellite applications for
long distance learning and the transmission of voice, data, video and the
internet.

Steve Bradford is the Company's Chief Executive Officer and a Director. For the
past 5 years Mr. Bradford was primarily self-employed in the telecommunications
and internet areas. Prior to being a founding stockholder and sole officer and
director of Old Hitsgalore.com, Mr. Bradford and Mr. Reed, a principal
stockholder of Old Hitsgalore.com and the Company, together owned I Wonder
Technologies, a now-dormant business that focused on satellite applications for
long distance learning and the transmission of voice, data, video and the
internet. Beginning July 1996, Mr. Bradford served for one year as Chief
Operations Officer of OUP, Inc., a closely held direct mail company in Kansas
City with annual sales in excess of $10 million. Mr. Bradford was also a
director and President of Wamego Real Estate Development, Co., Inc., a Missouri
corporation, then owned by Mr. Bradford's wife. After sale of that company to a
third party and Mr. Bradford's resignation as President, the company filed for
protection under the Bankruptcy Code on September 28, 1995, case number
95-42574, in the Western District of Missouri. The case was converted to a
liquidation on October 8, 1996 and is closed. Mr. Bradford holds degrees from
the University of Kansas.

Robert A. Thompson was named Vice President, Treasurer, Chief Financial Officer
and a Director in September 1999. From February 1996 until June 1998, Mr.
Thompson served as the Chief Financial Officer of Systems Communications, Inc.
Since June 1998, Mr. Thompson served as an accounting and financial reporting
consultant to Systems Communications, Inc. and, since March 1999 to
Hitsgalore.com. From February 1991 to February 1996, Mr. Thompson was Vice
President and Treasurer of Anchor Glass Container Corporation, a Fortune 500
manufacturer of glass containers. Mr. Thompson has 12 years of accounting and
audit experience with two of the "Big 5" international public accounting firms
and since 1986 has held senior financial positions with companies engaged in the
banking, retail, printing and publishing industries.

Melvyn L. Price, Jr. was elected to serve on the Board of Directors by the
standing directors to fill vacancies on April 28, 1999. Since June 1998, Mr.
Price has been Manager of Workstation Services for PCS Health Systems in
Phoenix, AZ, and prior thereto, since August 1985, was Systems Administrator of
Desktop Support for Electronic Data Systems.

Phillip Lloyd Kaich was elected to serve on the Board of Directors by the
standing directors to fill vacancies on April 28, 1999. Mr. Kaich has previously
been an employee benefits insurance broker for certain major insurance companies
and operated a company in the business of purchasing, installing and operating
public payphones throughout southern California. For the past five years, Mr.
Kaich has also been engaged in real estate sales and service. Since 1998, Mr.
Kaich has been a franchisee and owner, operator of Red Carpet Inland Empire
Realty, in Rancho Cucamonga, CA.

Daniel Melvin Grant was elected to serve on the Board of Directors by the
standing directors to fill vacancies on April 28, 1999. Since 1991, Mr. Grant
has been the proprietor of D. Grant Glass, Crestline, CA., involved in the
national sales and installation of glass and other products. Mr. Grant has been
involved in numerous prominent construction projects, including the Getty
Museum, the LA Coliseum and for Marriott Hotels, Sheraton Hotels and Macys, with
as many as 54 skilled craftsman employees under his supervision.

29
<PAGE>

The members of the Company's audit committee include Messrs. Grant, Kaich, Price
and a stockholder.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth the compensation paid or accrued to the chief
executive officer of the Registrant or person discharging comparable duties and
to the executive officers of the registrant whose compensation exceeded $100,000
since Inception of the Company.

Annual Compensation
---------------------------------------------------
Long-Term
Name & Principal Positions Year Salary Bonus Other Compensation
-------------------------- ---- ------ ----- ----- ------------
Dorian Reed 1998 $ -- $ -- $ -- $ --
Chairman of the Board and 1999 $262,588 $ -- $ -- $ --
Director of Technology (1)

Steve Bradford 1998 $ -- $ -- $ -- $ --
Chief Executive Officer (2) 1999 $119,500 $ -- $ -- $ --

(1) Mr. Dorian Reed became Chairman of the Board and Director of Technology
following the Merger between the Company and Old Hitsgalore.com, which was
effective as of March 19, 1999. He briefly resigned his positions from late May
1999 to early July 1999 when he was reinstated. During the intervening period he
received compensation as a consultant, which is included in the compensation
listed. Amount listed includes accrued but unpaid compensation of $103,486.

(2) Mr. Steve Bradford became the Chief Executive Officer of the Company as a
result of the Merger between the Company and Old Hitsgalore.com, which was
effective as of March 19, 1999. As sole officer and director of Old
Hitsgalore.com, Mr. Bradford was not compensated. Amount includes accrued but
unpaid compensation of $24,000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of March 31, 2000 by each shareholder
known by the Company to be a beneficial owner of more than five percent of the
Company's common stock, by each of the Company's named directors and executive
officers, and by all directors and executive officers of the registrant as a
group. Except as indicated in the footnotes to this table, the Company believes
that the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.

Name of Amount and Nature Percent
Beneficial Owner of Beneficial Interest(1) of Class(1)
---------------------- ------------------------- ---------
Dorian Reed 27,993,408 (2) 53.6%
Steve Bradford 6,100,000 (3) 11.7%

All Directors and Executive Officers
as a Group( 5 persons) 34,123,408 (3)(4) 65.3%

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<PAGE>

(1) Based on information available to the Company, unless otherwise indicated,
such shares are owned of record by the named beneficial owner or the named
beneficial owner and spouse and represent sole voting and investment power.

(2) Includes 2,000,000 shares owned by Audrey M. Reed, spouse of Mr. Reed, to
which Mr. Reed disclaims beneficial ownership; 8,000,000 shares to which Mr.
Reed holds the voting rights, that Mr. Reed allowed the Life Foundation Trust to
hold pursuant to transactions that were pending as of March 31, 2000 but have
subsequently been cancelled; and 2,000,000 shares that Mr. Reed returned to the
Company to allow shares to be issued to others. The Company is obligated to
issue Mr. Reed 2,000,000 shares upon an increase in its authorized capital.

(3) Includes 2,250,000, owned by Rose Grace Faith Holdings, LLC, which is owned
primarily by Mr. Bradford and his minor children; and 1,850,000 shares owned by
Diana R. Bradford, spouse of Mr. Bradford, to which Mr. Bradford disclaims
beneficial ownership.

(4) Includes the shares referred to in (2) and (3) and 10,000 shares awarded to
each of Messrs. Price, Kaich and Grant for serving on the Company's Board of
Directors (see "Item 10. - Directors and Executive Officers of the Registrant").

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During 1999, Mr. Reed, Chairman of the Board and significant shareholder,
advanced the Company, without interest, $65,000.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1. Financial Statements
PAGE
----
HITSGALORE.COM, INC.

Independent Auditors' Report 14

Balance Sheets as of December 31, 1999 and 1998 15

Statements of Operations for the year ended December 31, 1999
and for the period from inception (July 21, 1998)
to December 31, 1998 16

Statements of Changes in Stockholders' Deficit for
the year ended December 31, 1999 and for the period from
inception (July 21, 1998) to December 31, 1998 17

Statements of Cash Flows the year ended December 31, 1999
and for the period from inception (July 21, 1998)
to December 31, 1998 19

Notes to Financial Statements 20

<PAGE>

(a) 2. Financial Statement Schedules

No financial statement schedules are being filed as a part of this report as
such schedules are not applicable, are not required or the related information
is included in the consolidated financial statements or notes thereto.

(a) . Exhibits

2. + Reorganization and Merger Agreement, dated February 11, 1999,
between Systems Communications, Inc. and Hitsgalore.com
3.i. * Articles of Incorporation, as amended
3.ii * By-laws, as amended
10.44 x Letter of Intent, Subscription for Stock dated April 15, 1999,
between Hitsgalore.com, Inc and The Life Foundation Trust.
10.45 x Subscription Agreement and Investment Representations dated
April 15, 1999 between Hitsgalore.com, Inc. and The Life
Foundation Trust.
10.46 x Purchase Agreement dated March 29, 1999 between Hitsgalore.com,
Inc. and Solvere, Inc.
16. @ Letter re change in certifying accountants
27. # Financial Data Schedule (Year ended December 31, 1999)

+ Incorporated by reference to the Company's Current Report on Form 8-K as
filed on February 16, 1999.

* Incorporated by reference to the Company's Registration Statement on Form
10 as filed on July 23, 1996

x Incorporated by reference to the Company's Annual Report for the year ended
December 31, 1998 on Form 10-K/A Amendment No. 2 filed on December 2, 1999

# Filed herewith

@ Incorporated by reference to the Company's Current Report on Form 8-K/A as
filed on September 9, 1999.

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the 4th quarter of 1999.

32
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized. The undersigned persons were not officers or directors of the
Registrant for the period covered by this report and became the officers and
directors of the Registrant upon consummation of the Reorganization and Merger
Agreement.

HITSGALORE.COM, INC. Date May 30, 2000

/s/ Dorian Reed
---------------------------------
Chairman of the Board

/s/ Steve Bradford
---------------------------------
Steve Bradford
Principal Executive Officer,
Secretary and Director

/s/ Robert A. Thompson
---------------------------------
Vice President, Principal Accounting
Officer and Director
/s/ Melvyn L. Price
---------------------------------
Melvin L. Price
Director

/s/ Phillip Lloyd Kaich
---------------------------------
Phillip Lloyd Kaich
Director

/s/ Daniel Melvin Grant
---------------------------------
Daniel Melvin Grant
Director