<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26668
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
10134 6TH Street, Suite J, Rancho Cucamonga, CA 91730
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (909) 481-8821
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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
the 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. [X]Yes [ ] No
Number of shares outstanding of the issuer's Common Stock, par value .001 per
share, as of September 30, 1999 - 49,984,675 shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HITSGALORE.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------- ------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current
assets:
Cash $ 90,771 $ 1,013
Accounts and notes receivable trade, less
allowances for returns and uncollectable
accounts of $76,494 in 1999 4,094,077 --
Accounts receivable from officers and employees 22,500 --
Other current assets 2,355 971
---------- ------
Total current assets 4,209,703 1,984
Property and equipment, net of accumulated
depreciation of $53,794 and $1,883 308,852 29,750
Intangible assets, net of accumulated
amortization of $77,617 in 1999 388,083
---------- ------
Total assets $ 4,906,638 $ 31,734
========== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable $ 13,892 $ --
Borrowings from affiliated company -- 22,699
Accounts payable 103,943 --
Accrued expenses and other current liabilities 167,181 7,776
Income taxes payable 920,647 252
Merger liabilities assumed 1,174,625 --
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Total current liabilities 2,380,288 30,727
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Long-term portion of notes payable 8,648 --
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Total liabilities 2,388,936 30,727
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Commitments and contingencies
Stockholders' equity:
Class A convertible preferred stock, stated
value and liquidation preference - $1.00 per
share; authorized 5,000,000 shares, issued and
outstanding 500,000 shares 55,000 --
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 54,764 --
Common stock, $.001 par value; authorized
50,000,000 shares, issued and outstanding
49,984,675 shares in 1999 and 15,000 shares (no
par value) in 1998 49,985 --
Common stock, $.001 par value, 2,071,429 shares
to be issued in 1999 52,000 --
Additional paid in capital 12,016,574 --
Stock subscription receivable (10,000,000)
Retained earnings 289,379 1,007
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Total stockholders' equity 2,517,702 1,007
---------- ------
Total liabilities and stockholders' equity $ 4,906,638 $ 31,734
========== ======
</TABLE>
See Notes to Financial Statements
<PAGE> 3
HITSGALORE.COM, INC.
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
Nine Months (July 21, 1998) Three Months
Ended to Ended
September 30, September 30, September 30,
1999 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Gross revenues $ 4,894,971 $ 2,719 $ 2,995,687
Allowances for returns
and refunds (261,324) -- (48,509)
--------- --------- ---------
Net revenues 4,633,647 2,719 2,947,178
--------- --------- ---------
Costs and expenses:
Selling, general and
administrative expenses 2,083,258 612 880,783
Depreciation and amortization 129,527 -- 65,928
--------- --------- ---------
Total costs and expenses 2,212,785 612 946,711
--------- --------- ---------
Income from operations 2,420,862 2,107 2,000,467
Interest income 3,070 -- 655
Interest expense (890) -- (510)
--------- --------- ---------
Income before income taxes 2,423,042 2,107 2,000,612
Provision for income taxes 920,396 801 762,896
--------- --------- ---------
Net income $ 1,502,646 $ 1,306 $ 1,237,716
========= ========= =========
Basic earnings per share $ 0.07 $ 0.09 $ 0.02
========= ========= =========
Diluted earnings per share $ 0.07 $ 0.09 $ 0.02
========= ========= =========
</TABLE>
See Notes to Financial Statements
<PAGE> 4
HITSGALORE.COM, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND THE PERIOD FROM INCEPTION TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
1999 1998
--------- ------
<S> <C> <C>
Net cash (used in) provided by
operating activities $ (1,210,466) $ 2,107
--------- ------
Cash flows from investing activities:
Expenditures for furniture and equipment (334,646) (20,972)
Expenditures for intangible assets (98,500) --
--------- ------
Net cash used in investing activities (433,146) (20,972)
--------- ------
Cash flows from financing activities:
Proceeds from issuance of common stock
and from exercise of options and warrants 2,153,326 --
Proceeds from common stock to be issued 49,900 --
Payments on merger liabilities assumed (426,728) --
Payment of borrowings from affiliated company (22,669) 13,769
Borrowings from officers and stockholders, net (20,000) 10,000
Payments on notes payable (459) --
--------- ------
Net cash provided by financing activities 1,733,370 23,769
--------- ------
Net increase in cash 89,758 4,904
Cash at beginning of the period 1,013 --
--------- ------
Cash at end of the period $ 90,771 $ 4,904
========= ======
Supplemental Disclosure of Cash Flow Information and Non-cash Investing and
Financing Activities:
Issuance of common stock upon conversion of
notes payable $ 5,000 $ --
Merger liabilities assumed 2,358,371 --
Non-cash liquidations of merger liabilities
assumed 676,304 --
Stock subscription receivable 10,000,000 --
Issuance of common stock in exchange for
intangible assets 367,200 --
Issuance of note payable in exchange for
equipment 28,000 --
Issuance of common stock for services 40,000 --
Cash paid during the period for:
Interest 890 --
Income taxes -- --
</TABLE>
See Notes to Financial Statements
<PAGE> 5
HITSGALORE.COM, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
THE REORGANIZATION AND MERGER
On March 19, 1999, the Company (formerly Systems Communications, Inc.) and
Hitsgalore.com, a Nevada corporation ("Old Hitsgalore.com"), completed a
reorganization and merger (the "Reorganization and Merger Agreement", sometimes
referred to herein as the "Reorganization" or "Merger"). Pursuant to the
Reorganization and Merger, (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, the historical
financial statements and operations of Old Histgalore.com prior to March 19,
1999 became those of the Company. Old Hitsgalore was incorporated on July 21,
1998 and was in the development stage until the fall of 1998 when it launched
its website, located at www.hitsgalore.com.
As part of the Reorganization, the Company declared a share consolidation (a
reverse split) of its then issued and outstanding 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 on the effective date of the
Merger, assuming exercise of all such options, warrants and other rights.
In connection with the Merger and Reorganization, the stockholders of Old
Hitsgalore.com received 37,650,000 shares of common stock in conversion of all
of the issued and outstanding shares of common stock (15,000 shares) of Old
Hitsgalore.com.
In consideration for the transfer of the Company's previous business, properties
and assets to IHSI, the Company received twenty million shares of IHSI,
constituting all of the outstanding common stock of IHSI. 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. The Company expects IHSI to file a registration
statement promptly but there is no assurance that a registration statement will
be filed or, if filed, when it might become effective.
As a result of IHSI's assumption of the obligations, debts and liabilities of
the Company that existed as of the date of the Merger, 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. The assets transferred to IHSI consisted primarily of
intangibles, the value of which has not been determined.
As of September 30, 1999, the Company has estimated liabilities assumed in
connection with the Merger of approximately $1,174,625 outstanding. These
liabilities principally consist of unsettled contingencies that are currently
<PAGE> 6
being litigated or are in the process of being settled. Liabilities assumed were
increased by approximately $484,649, as a charge to retained earnings in the
third quarter of 1999 to reflect revised estimates of the settlement and loss
amounts upon resolution of liabilities assumed.
SIGNIFICANT ACCOUNTING POLICIES
The unaudited balance sheet as of September 30, 1999, the unaudited statements
of operations for the nine months and three months ended September 30, 1999, the
unaudited statement of operations for the period from inception (July 21, 1998)
to September 30, 1998 and the related unaudited statements of cash flows for the
nine months ended September 30, 1999 and for the period from inception to
September 30, 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal and recurring accruals
considered necessary for a fair presentation, have been included. Results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results for the full fiscal year.
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
Earnings per Share
The weighted average number of common shares outstanding during the nine months
and three months ended September 30, 1999 were approximately 22,455,966 shares
and 49,722,354 shares, respectively. The weighted average number of common
shares outstanding for the period from inception to September 30, 1998 was
15,000 shares. For purposes of computing diluted earnings per share, the Company
has increased shares outstanding to reflect incremental shares issuable upon
exercise of options and warrants outstanding during the respective periods using
the treasury stock method. Incremental shares included in the computation of
diluted earnings per share for the nine months and three months ended September
30, 1999 were approximately 32,708 shares and 70,089 shares, respectively.
UNAUDITED PRO FORMA INFORMATION
The unuadited pro forma results of operations of the Company for the nine months
ended September 30, 1999 are the same as those set forth in the accompanying
statements of operations except for per share data. The Company's pro forma
basic and diluted earnings per share for the nine months ended September 30,
1999 were approximately $0.04 assuming the merger and reorganization occurred on
January 1, 1999.
TRANSACTIONS WITH LIFE FOUNDATION TRUST
On April 15, 1999, the Company agreed to issue, in a private placement,
2,000,000 shares of its common stock to Life Foundation Trust ("LFT") in
exchange for a subscription receivable in the amount of $10.0 million. The
Company also granted LFT the right to reserve Local City Editions ("LCEs") for
up to 200 local city areas and 1000 cities within those local areas. The
agreement also granted the right to LFT to use the Company's proprietary
software, programming, website and content in support of the LCEs for a total
purchase price of $10.0 million. The agreement covering the LCEs is
unconditional and irrevocable and provides for, among other things, that the
Company bring the LCEs reserved by LFT on line over a period of twelve months.
The 2,000,000 shares of common stock were issued to LFT on May 5, 1999.
<PAGE> 7
LFT's $10.0 million subscription receivable and its obligation to pay $10.0
million for LCEs is collateralized by the assignment of a collection of postage
stamps. A third party holds the collection of postage stamps in safekeeping.
Pursuant to the April 15, 1999 agreement between the Company and LFT, LFT has an
unconditional and irrevocable obligation to pay the $10.0 million subscription
receivable and the amount of LCE receivables recognized by the Company on or
before April 15, 2000. As of September 30, 1999, the Company has LCE receivables
from LFT totaling approximately $4,050,000 outstanding. The $10.0 million
subscription receivable from LFT is shown as a reduction in stockholders' equity
in the accompanying September 30, 1999 balance sheet.
During the nine months ended September 30, 1999, LFT accounted for approximately
85% of the Company's gross revenues.
On May 15, 1999, the Company entered into a non-binding letter of intent to
issue LFT an additional five million shares of its common stock for an aggregate
purchase price of $100.0 million. LFT has delivered to the Company a
Subscription Agreement and Investment Representations for the shares that is
contingent only upon an increase in the Company's authorized shares and due
diligence to the Company's satisfaction on a $900.0 million Promissory Oil
Production Note to be delivered as collateral for LFT's obligation to pay the
purchase price. The Company's security interest in the note is to be limited to
$100.0 million and is to be an undivided interest with LFT, who has agreed to
permit the Company to receive the first $100.0 million paid under the note.
The completion of the related subscription agreement and issuance of the shares
to LFT is subject to stockholder approval of an increase in the Company's
authorized shares. Pending such shareholder approval, the Company's Chairman of
the Board, and a principal stockholder, has transferred shares from his own
account to LFT to hold the transaction. The Company's Chairman has retained the
right to vote the shares transferred to LFT on all matters requiring the vote of
stockholders. Upon completion of the transaction, the shares transferred by the
Company's Chairman to LFT will be returned to him.
PURCHASE OF 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 a commitment by
the Company to issue 100,000 shares of its common stock. The commitment to issue
the 100,000 shares of common stock was met during the third quarter of 1999. 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.
Pursuant to the asset purchase agreement, the Company also entered into
agreements with Solvere for the maintenance and future development of the
acquired internet software technology. The Company and Solvere also agreed to
co-license certain of Solvere's proprietary technology in return for the payment
to Solvere of 50% of all marketing costs incurred by Solvere and approved by the
Company. The Company was also granted an unrestricted right to use the
proprietary technology.
<PAGE> 8
STOCKHOLDERS' EQUITY
On the effective date of the Merger, the Company had approximately 7,301,262
shares of its common stock issued and outstanding. In connection with the
Merger, the Company issued a total of approximately 37,650,000 shares of its
common stock to the former stockholders of Old Hitsgalore.com. The Company was
also obligated to issue 2,000,000 shares of its common stock for merger costs
and expenses and up to two million additional shares to consultants and
professionals rendering services to the Company in connection with the Merger.
The 2,000,000 shares of common stock for merger costs and expenses were to be
issued to Mr. Bruce Baker, a nonaffiliated person. Of the 2,000,000 shares
issued for merger costs and expenses, Mr. Baker distributed 1,000,000 shares to
the former Chairman of the Board of Systems Communications, Inc. The Company
believes the shares held by the former Chairman of the Board are covered by an
agreement that prohibits the former Chairman from transferring the shares until
such time as the liabilities assumed in the Merger are liquidated.
None of the two million shares available for other consultants and professionals
rendering services to the Company in connection with the Merger have been, or
will be, issued.
In August 1999, the Company's current Chairman of the Board, and a principal
stockholder, agreed to transfer a sufficient number of shares from his own
account back to the Company for retirement, which enabled the Company to issue
the 2,000,000 shares set aside for merger costs and expenses without exceeding
the authorized number of shares. Upon stockholder approval of an increase in the
Company's authorized shares, the Company is obligated to issue replacement
shares to the Company's Chairman of the Board.
The Company has approximately $1,174,625 of assumed merger liabilities
outstanding as of September 30, 1999. Merger liabilities assumed were reduced by
approximately $1.2 million during the period from the effective date of the
Merger to September 30, 1999.
The components of retained earnings as shown in the accompanying balance sheet
as of September 30, 1999 are summarized as follows:
Accumulated earnings $ 1,503,654
Merger liabilities assumed (1,174,625)
Par value of shares issued in the merger (39,650)
---------
$ 289,379
---------
As of September 30, 1999, the Company has recorded, as a component of
stockholders' equity, an aggregate of 2,071,429 shares of common stock to be
issued. Of the aggregate number of shares of common stock to be issued,
2,000,000 are replacement shares that are to be issued to the Company's Chairman
of the Board, as described above, and 71,429 shares are to be issued to persons
who have tendered their purchase price for shares that are unissued as of
September 30, 1999.
COMMITMENTS AND CONTINGENCIES
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
<PAGE> 9
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 "First Consolidated Amended
Class Action Complaint") was filed by the plaintiffs in the consolidated
putative class action under Case No. 99-5060R.
The First Consolidated Amended Class Action Complaint asserted 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").
On November 10, 1999, a motion to dismiss the First Consolidated Amended Class
Action Complaint was filed on behalf of the Company and Messrs. Bradford and
Reed. On December 20, 1999, the United States District Court, Central District
of California granted the Company's motion to dismiss the First Consolidated
Amended Class Action Complaint.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q and the discussion which follows contain forward looking
statements that should be read in conjunction with the Financial Statements and
notes thereto, appearing elsewhere herein. These statements include, among
others, information regarding future operations and future net cash flows. Such
statements reflect the Company's current views with respect to future events and
financial performance. These forward looking statements involve risks and
uncertainties, including, without limitation, general economic and business
conditions, changes in political, social and economic conditions, regulatory
initiatives and compliance with governmental regulations, many of which are
beyond the Company's control. Since these statements involve risks and
uncertainties and are subject to change at any time, the Company's actual
results could differ materially from expected results.
As a result of the Merger, the historical financial statements and operations of
Old Hitsgalore.com became those of the Company. Old Hitsgalore.com was
incorporated on July 21, 1998, began beta operations in August 1998 and launched
its website in November 1998. Accordingly, a comparison of the results of
operations for the nine months and three months ended September 30, 1999 versus
1998 is not meaningful.
Net revenues-
The Company had gross revenues of approximately $4,894,971 for the nine months
ended September 30, 1999. Third quarter revenues totaled approximately
$2,995,687 compared to approximately $1,436,200 in the second quarter. an
increase of approximately 108 percent from period to period. The increase in
third quarter revenues as compared to the second quarter is the result of
increased revenues from the LCE agreement with LFT. LFT revenues recognized in
the third quarter totaled $2,800,000 as compared to $1,250,000 in the second
quarter. Revenues from quarter to quarter also reflect an increase of
approximately 5.1% in revenues from sponsorship rights and the Company's bid and
rank program.
Returns and allowances-
The Company provides an allowance for returns, refunds and uncollectable
accounts based on estimates. Amounts provided are subject to change. For the
nine months and three months ended September 30, 1999, the Company provided
allowances, as deductions from gross sales, totaling approximately $261,324 and
$48,508, respectively.
<PAGE> 10
Selling, general and administrative expenses-
Selling, general and administrative expenses for the nine months ended September
30, 1999 totaled approximately $2,083,258. For the third quarter of 1999,
selling, general and administrative expenses totaled approximately $880,783
compared to approximately $1,021,797 in the second quarter. In the second
quarter, the Company spent heavily on website and product development
technology; expanded its administrative, technical and sales employee base;
conducted a national radio advertising campaign; and purchased website
advertising banners from other internet companies. In the third quarter of 1999,
the Company continued its website and product development activities but
eliminated substantially all of the advertising costs that were incurred in the
second quarter. Year to date, advertising costs were approximately 9.2% of gross
sales; website and product development costs were approximately 5.8% of gross
sales and personnel costs were approximately 13.8% of gross sales. Offsetting
the effect of reduced advertising costs from quarter to quarter were higher
costs for legal and accounting due to ongoing litigation and the re-examination
of the financial statements of the Company and its predecessor for the three
years ended December 31, 1998.
Depreciation and Amortization-
Depreciation and amortization for the nine months and three months ended
September 30, 1999 totaled approximately $129,527 and $65,928, respectively.
Depreciation and amortization for the three months ended June 30, 1999 was
approximately $59,267. The increase in the 1999 third quarter as compared to the
second quarter is the result of a higher investment in property and equipment.
Income Taxes
For the nine months and three months ended September 30, 1999, the provision for
income taxes was approximately 38% of pre-tax income. The principal reason for
the difference between the Federal income tax rate of 34% and the effective tax
rate is the effect of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, the Company used approximately
$1,210,466 of cash in operations and approximately $433,146 of cash in investing
activities. Net cash provided from financing activities for the nine months
ended September 30, 1999 totaled approximately $1,733,370.
Cash used in operations principally reflects net earnings of approximately
$1,632,173 before depreciation and amortization, offset by changes in operating
assets and liabilities. The most significant changes in operating assets and
liabilities were an increase in receivables of approximately $4,170,571, as a
result of the recognition of LCE revenues under the LFT agreement, and an
increase in income taxes payable, which are currently recorded as deferred tax
liabilities.
Cash used in investing activities for the nine months ended September 30, 1999
consisted of approximately $334,646 for the purchase of property and equipment
and $98,500 for the cash portion of the purchase price of intangible assets
acquired from Solvere.
Cash provided from financing activities principally reflects proceeds from the
issuance of common stock and from the exercise of options and warrants, offset
by cash reductions in merger liabilities assumed. See the accompanying unaudited
statements of cash flows.
<PAGE> 11
As of September 30, 1999, the Company does not have any used or unused lines of
credit or any other committed and unused financing facilities. The Company has
entered into various transactions with LFT for the sale of its common stock and
the purchase by LFT of LCEs. The transactions with LFT call for the payment of
up to $20.0 million to the Company, subject to certain limitations, on or before
April 15, 2000.
Until the Company receives the cash payments from the LFT transactions, the
possibility exists that cash flow difficulties could arise. Therefore, the
Company has re-opened negotiations with LFT to provide part or full payment in
January 2000. The Company plans to make public the results of its negotiations
as soon as an agreement in principle is reached. In the mean time, the Company
anticipates meeting its cash flow short falls from operations by entering into
short-term borrowing or other financing facilities pending receipt of the LFT
monies.
YEAR 2000 ISSUES
As of the date hereof, the Company is not aware of any Year 2000 issues
involving its internal software or computer systems or those of its customers
and suppliers.
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
All material pending legal proceedings to which the Registrant is a party and
proceedings which have been terminated are described in the notes to financial
statements included elsewhere herein and in the Company's Amended Annual Report
on Form 10-K (Amendment No. 2) for the year ended December 31, 1998.
Item 5. Other Items
On December 2, 1999, the Company filed Amendment No. 2 to its Annual Report on
Form 10-K for the year ended December 31, 1998. Amendment No. 2 reflected the
removal of the audit reports of Moore Stephens Lovelace, P.A. and Management's
Statements, in lieu of audit reports, for the years ended December 31, 1998,
1997 and 1996. Amendment No. 2 replaced the reports of Moore Stephens Lovelace,
P.A. and Management's Statements with the audit reports of Pender Newkirk &
Company for the years ended December 31, 1998, 1997 and 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 * Reorganization and Merger Agreement, dated February 11, 1999, between
Systems Communications, Inc. and Hitsgalore.com.
10.44.** Letter of Intent, Subscription for Stock dated April 15, 1999, between
Hitsgalore.com, Inc and The Life Foundation Trust.
10.45.** Subscription Agreement and Investment Representations dated
April 15, 1999 between Hitsgalore.com, Inc. and The Life
Foundation Trust.
10.46.** Purchase Agreement dated March 29, 1999 between Hitsgalore.com,
Inc. and Solvere, Inc.
16.2 *** Letter Re: Change in certifying accountants
27.**** Financial Data Schedule (Nine Months Ended September 30, 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 Annual Report on Form 10-K for
the year ended December 31, 1998.
*** Incorporated by reference to the Company's Current Report on Form 8-K as
filed on September 9, 1999.
**** Filed herewith.
(b) Reports on Form 8-K:
The following reports were filed on Form 8-K for the three months ended
September 30, 1999 and prior to the filing date hereof:
On September 9, 1999, the Company filed a Form 8-K\A, dated as of July 19, 1999
(the "Amended Form 8-K"). The Amended Form 8-K amended a previous filing that
was made on July 27, 1999. The event reported was a Change in the Registrant's
Certifying Accountant.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HITSGALORE.COM, INC. Date: January 12, 2000
By /s/ Robert A. Thompson
----------------------------
Principal Accounting
Officer
<TABLE> <S> <C>
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