SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-22281
24HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0726608
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Cyberia House
Church Street, Basingstoke
Hampshire RG21 7QN
United Kingdom
(Address of Principal Executive Offices)
+44 1256 867 800
(Telephone number)
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) had been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock outstanding at November 13, 2002: 85,486,716.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED BALANCE SHEET
September 30, 2002 December 31, 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 55,913 $ 1,339,650
Accounts receivable 1,656,986 1,958,937
Inventory 345,523 312,180
Prepaid expenses and other assets 54,820 29,751
------------- -------------
Total current assets 2,113,243 3,640,518
Loan receivable, related party 14,591 13,519
Property and equipment, net of
accumulated depreciation and amortization 1,329,531 1,264,841
Goodwill, net of accumulated amortization 439,505 408,862
------------- -------------
$ 3,896,869 $ 5,327,740
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities-
Accounts payable and accrued expenses $ 1,934,527 $ 2,745,435
Credit facility 668,048 1,123,604
Current portion of loan payable, bank 99,640 77,077
------------- -------------
Total current liabilities 2,702,215 3,946,116
Loan payable, bank, less current portion 219,899 271,196
Note Payable, related party - 509,436
Deferred taxes 89,800 91,600
Shareholders' equity:
Preferred stock; $0.001 par value,
5,000,000 authorized, no shares
issued and outstanding - -
Common stock; $.001 par value, 100,000,000
shares authorized 10,660,679 and
85,486,716 shares issued and outstanding,
respectively 36,742 26,081
Additional paid in capital 10,362,233 9,855,851
Other comprehensive loss (230,029) (331,735)
Accumulated deficit (9,283,991) (9,040,805)
------------- -------------
Total shareholders' equity 884,955 509,392
------------- -------------
$ 3,896,869 $ 5,327,740
============= =============
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Three months ended Nine months ended Nine months ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue: $ 4,215,707 $ 4,808,746 $ 15,119,034 $ 17,750,510
Cost of Revenue 3,759,304 4,264,650 13,720,741 15,887,525
------------------ ------------------ ------------------ ------------------
Gross profit 456,403 544,096 1,398,293 1,862,985
Operating expenses:
Distribution costs 75,056 196,458 246,253 431,578
General and adminstrative
expenses 451,294 391,972 1,304,788 1,459,178
Depreciation 16,614 25,898 50,244 74,624
Amortization - 187,041 - 560,928
Gain on sale of subsidiary - - - (230,322)
------------------ ------------------ ------------------ ------------------
Total operating expenses 542,964 801,369 1,601,285 2,295,986
Net loss before interest and
other income and interest
expense (86,561) (257,273) (202,992) (433,001)
Interest and other income (1,031) (1,988) (3,945) (12,548)
Interest expense 12,689 24,611 44,139 96,433
Net income before provision
for income taxes (98,219) (279,896) (243,186) (516,886)
------------------ ------------------ ------------------ ------------------
Provision for income taxes - (1,800) - (5,400)
Net loss $ (98,219) $ (278,096) $ (243,186) $ (511,486)
================== ================== ================== ==================
Net loss per share -
basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.01)
================== ================== ================== ==================
Weighted average number of
shares outstanding -
basic and diluted 96,147,396 85,493,352 92,281,435 85,493,352
================== ================== ================== ==================
See accompanying notes to consolidated financial statements
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Nine months ended Nine months ended
September 30, 2002 September 30, 2001
(Unaudited) (Unaudited)
Cash flows provided by (used for) operating activities:
Net income (loss) $ (244,387) $ (511,486)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation 50,244 74,624
Amortization - 560,928
Gain on sale of subsidiary - (230,322)
Foreign currency translation 62,426 79,257
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 432,986 556,133
Loans receivable, related party (11,564) 40,592
Inventory (8,270) 355,153
Prepaid expenses (14,328) 9,021
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts payable and accrued expenses (954,146) (906,852)
Income taxes payable 795 (10,322)
Deferred taxes (1,800) (5,400)
------------------ ------------------
Total adjustments (443,657) 522,812
------------------ ------------------
Net cash used for operating activities (688,044) 11,326
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment (16,748) 10,507
Due to/from related parties - (20,012)
------------------ ------------------
Net cash provided by (used for) investing activities (16,748) (9,505)
------------------ ------------------
Cash flows provided by (used for) financing activities:
Proceeds from issuance of common stock - -
Proceeds from sale of subsidiary, net of cash sold - (105,879)
Credit facility (524,660) (844,277)
Payment on long-term debt, bank (54,286) (52,903)
------------------ ------------------
Net cash provided by (used for) financing activities (578,946) (1,003,059)
------------------ ------------------
Net increase (decrease) in cash (1,283,738) (1,001,238)
Cash, beginning of period 1,339,650 2,261,181
------------------ ------------------
Cash, end of period $ 55,913 $ 1,259,943
================== ==================
Supplemental disclosure of cash flow information:
Interest paid $ 102,537 $ 81,505
==================
Income taxes paid $ 30,015 $ -
================== ==================
Supplemental disclosure of non-cash investing and financing activities:
Shares issued in satisfaction of debt 8,008,441
==================
See accompanying notes to consolidated financial statements
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(1) Description of Business:
Interim Financial Statements:
The accompanying financial statements include all adjustments (consisting
of only normal recurring accruals), which are, in the opinion of
management, necessary for a fair presentation of the results of operations
for the periods presented. Interim results are not necessarily indicative
of the results to be expected for a full year. The financial statements
should be read in conjunction with the financial statements included in the
annual report of 24Holdings Inc. and subsidiaries on Form 10-K for the year
ended December 31, 2001.
General:
24Holdings Inc., formerly known as Scoop, Inc. ("24Holdings" or the
"Company"), was incorporated in 1996 in the state of Delaware as an online
news provider. In July 1998, the Company filed a petition for relief under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy
Court for the Central District of California. In September 1999, the
Company filed a Plan of Reorganization ("Plan") with the Bankruptcy Court.
The Plan was confirmed on October 5, 1999. Pursuant to the Plan, the
Company was acquired in a reverse merger with 24STORE (Europe) Limited,
formerly known as 24STORE.com Limited ("24STORE"), whose parent company
acquired 91% of the outstanding shares of the Company, or 60,783,219 of
newly issued shares, in exchange for all the outstanding shares of 24STORE.
24STORE was incorporated July 28, 1998 in England and Wales, and was a
wholly owned subsidiary of InfiniCom AB, a publicly listed company on the
SBI market in Sweden, whose principal activity is that of a holding
company.
Scoop, Inc. changed its name to 24Holdings Inc. on April 2, 2001.
On May 6, 1999, 24STORE acquired three companies registered in the United
Kingdom, related through common ownership.
All the consolidated entities are in the business of selling and
distributing consumer and commercial electronic products in Europe.
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(2) Principles of Consolidation:
The accompanying consolidated statements include the accounts of 24Holdings
Inc. and subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated at year-end exchange
rates, and operating statement items are translated at average exchange
rates prevailing during the year. The resulting translation adjustments are
recorded as other comprehensive income. Exchange adjustments resulting from
foreign currency transactions are included in the determination of net
income (loss).
(3) Goodwill:
The Company has adopted SFAS No. 142, "Goodwill and Other Intangibles" and
accordingly has ceased amortizing Goodwill, the expense for which would
have been approximately $96,000 for the nine months ended September 30,
2001. Pursuant to the standard, the Company performed the first tier
Goodwill impairment test based on criteria in effect at date of adoption,
January 1, 2002, and determined that there is no indication of impairment.
The Company has not yet determined the date of the annual impairment test,
and therefore may perform the test again before the year end December 31,
2002, but does not expect the result to have a material impact on financial
position and results of operations.
(4) Long-term note payable, related party:
On April 10, 2002, the Company and its parent company, InfiniCom AB, agreed
to convert the long-term note payable, related party, into shares of the
Company's common stock. The note payable was converted into 10,660,679
shares applying a conversion rate calculated as the weighted average stock
price over the last 30 trading days, or $0.0485 per share.
(5) Contingencies:
On January 28, 2002, the Company's parent company, InfiniCom AB, applied to
the Stockholm District Council for reconstruction in accordance with
Swedish law, similar to a Chapter 11 filing in the United States bankruptcy
system. The parent company is attempting to restructure its debt and emerge
from reconstruction. If the parent company is unable to successfully emerge
from reconstruction, it may affect the Company's ability to get additional
funding to put management's plans for future expansion into place. If this
occurs, one of the resulting scenarios could be the Company's decision not
to continue as a public entity in the United States.
On July 17, 2002, the Company, by way of redundancy, terminated the
employment of Martin Clarke as President and Chief Executive Officer of the
Company. Under the terms of Mr. Clarke's employment agreement with the
operating companies, upon Mr. Clarke's termination the Company paid to Mr.
Clarke an amount equal to six months' salary. However Mr. Clarke is
pursuing a claim against the Company in the United Kingdom for unfair
dismissal. The Company and its counsel cannot at this time estimate the
possible outcome nor the extent of any possible claim.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's interim
results of operations and financial condition. This discussion should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001, filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
For the Nine Months ended September 30, 2002:
NET SALES. Net sales for the nine months ended September 30, 2002 were
$15,119,034 compared to $17,750,510 for the nine months ended September 30,
2001, representing a decrease of 15%. The results for 2001 include three months
of sales from the Norwegian operation, which was sold on March 31, 2001. In
local currency, net sales for the nine months ended September 30, 2002 for the
UK operations decreased by 12% compared to nine months ended September 30, 2001.
The reduction in sales was primarily attributable to a drop in demand across the
market, although this was partially offset by lower margin volume export sales
to one specific account. This volume export customer accounted for approximately
5% of net sales in the nine months ended September 30, 2002.
GROSS PROFIT. Gross profit for the nine months ended September 30, 2002 was
$1,398,293 compared to $1,862,985 for the nine months ended September 30, 2001,
representing a decrease of 25%. Gross profit as a percentage of sales was 9.2%
for the nine months ended September 30, 2002 compared to 10.5% for the nine
months ended September 30, 2001. $127,000 of the September 2001 Gross profit was
from the Norwegian operation. The reduction in gross profit in the UK operation
is the result of reduced sales and margins in a highly competitive market, and
the impact of the lower margin volume export account.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the nine months ended September 30, 2002
were $1,602,486 compared to $1,965,380 for the nine months ended September 30,
2001. $363,000 of the decrease in SG&A is attributable to the closure of the
Norwegian operation. In the UK, the main area of cost reduction was in staffing
levels. At the parent company level, the professional and legal costs associated
with SEC filing requirements have been reduced compared to the nine months ended
September 30, 2001. This is a result of the sale of the Norwegian subsidiary,
which necessitated additional legal services and regulatory filings in the prior
period.
GOODWILL AMORTIZATION. There was no goodwill amortization for the nine months
ended September 30, 2002, compared to $560,928 for the nine months ended
September 30, 2001. The reason for the reduction was the implementation of SFAS
142, "Goodwill and Other Intangibles", at January 1, 2002, which no longer
requires goodwill to be amortized, but periodically tested for impairment.
INTEREST EXPENSE. Interest expense, net of interest income for the nine months
ended September 30, 2002 was $40,194 compared to $83,885 for the nine months
ended September 30, 2001, representing a decrease of 52%. The decrease in
interest expense is the result of the conversion of interest bearing debts to
related parties into shares of common stock and lower debtor financing costs in
the UK operations.
INCOME TAXES. There is a $1,800 income benefit arising from the amortization of
deferred taxes during the nine months ended September 30, 2002, compared to a
benefit of $5,400 during the nine months ended September 30, 2001. The decrease
in benefit is due to an adjustment to deferred taxes at December 31, 2001,
affecting the monthly amortization rate.
RESULTS OF OPERATIONS
For the Three Months ended September 30, 2002:
NET SALES. Net sales for the three months ended September 30, 2002 were
$4,215,707 compared to $4,808,746 for the three months ended September 30, 2001,
representing a decrease of 12%. In local currency for the three months ended
September 30, 2002 net sales for the UK operations decreased by 18% over last
year.
GROSS PROFIT. Gross profits for the three months ended September 30, 2002 were
$456,403 compared to $544,096 for the three months ended September 30, 2001,
representing a decrease of 16%. Gross profits as a percentage of sales were
10.8% for the three months ended September 30, 2002 compared to 11.3% for the
three months ended September 30, 2001. The reduction in gross profit in the UK
operation is the result of reduced sales and margins in a highly competitive
market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended September 30, 2002
were $542,964 compared to $614,328 for the three months ended September 30,
2001. In the operating companies, SG&A costs, in local currency, were down 28%,
mainly as a result of reduced costs due to lower staffing levels. At the parent
company level, professional and legal costs associated with SEC filing
requirements have decreased compared to the three months ended September 30,
2001. This is a result of the sale of the Norwegian subsidiary, which
necessitated additional legal services and regulatory filings in the prior
period.
GOODWILL AMORTIZATION. There was no goodwill amortization for the three months
ended September 30, 2002, compared to $187,041 for the three months ended
September 30, 2001. The reason for the reduction was the implementation of SFAS
142, "Goodwill and Other Intangibles", at January 1, 2002, which no longer
requires goodwill to be amortized, but periodically tested for impairment.
INTEREST EXPENSE. Interest expense, net of interest income for the three months
ended September 30, 2002 was $11,658 compared to $22,623 for the three months
ended September 30, 2001. The decrease in interest expenses is the result of the
conversion of interest bearing debts to related parties into shares of common
stock and lower debtor financing costs in the UK operations.
INCOME TAXES. There is a $600 income benefit arising from the amortization of
Deferred taxes during the three months ended September 30, 2002, compared to a
benefit of $1,800 during the three months ended September 30, 2001. The decrease
in benefit is due to an adjustment to Deferred taxes at December 31, 2001,
affecting the monthly amortization rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 2002 were $55,913 compared to
$1,339,650 as of December 31, 2001. This decrease is primarily due to the
position of cash advances on the revolving line of credit at year-end and at
September 30, 2002, and the timing of payments to creditors at year-end and at
September 30, 2002.
As of September 30, 2002 the Company had a working capital deficit of $588,972
compared to a working capital deficit of $305,598 as of December 31, 2001. This
was attributable to the loss from operations in the quarter, and the reduction
in cash due to payments made on long-term bank loans payable.
$16,748 in cash was used by investing activities in the nine months ended
September 30, 2002 compared to $9,505 used in nine months ended September 30,
2001.
In its United Kingdom operating subsidiaries the Company has (1) a revolving
line of credit based on 70% of eligible receivables and (2) a ten year mortgage
expiring in 2008, secured by the underlying property and (3) a $75,000 overdraft
facility. The mortgage, the revolving line of credit and the overdraft facility
bear interest at the prime rate plus 2%.
On April 10, 2002, the Company and InfiniCom AB (its parent company) agreed to
convert the Note Payable due to InfiniCom of $516,724 (5,361,735 Swedish Krona)
into 10,660,679 shares of the Company's common stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold any derivative financial instruments. However, the
Company is exposed to interest rate risk. The Company believes that the market
risk arising from holdings of its financial instruments is not material.
However, all of the Company's operations are conducted through its subsidiary
24STORE and denominated in British pounds sterling or, prior to the sale of its
Norwegian subsidiary, Norwegian Kroner, and none of the Company's revenues are
generated in US Dollars. For consolidation purposes, the assets and liabilities
of 24STORE are converted to US Dollars using year-end exchange rates and results
of operations are converted using a monthly average rate during the year.
Fluctuations in the currency rates between the United Kingdom, Norway and the
United States may give rise to material variances in reported earnings of the
Company.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this report
is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2002 24HOLDINGS INC.
By: /s/ Michael Neame
-------------------------------------
Michael Neame
President and Chief Executive Officer
By: /s/ Roger Woodward
-------------------------------------
Roger Woodward
Chief Financial Officer and Secretary
(Principal Accounting Officer)