SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended DECEMBER 31, 2003
or
[ ] 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 000-22281
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, Par Value $0.001 Per Share
(Title of class)
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.
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 registrant's 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.
[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [ ] No [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 6, 2004: $1,056,032. The amount shown is based on the
closing price of the registrant's Common Stock on the OTC Bulletin Board on that
date. Shares of Common Stock known by the registrant to be beneficially owned by
10% shareholders, officers or directors of the Registrant are not included in
the computation. The Registrant, however, has made no determination that such
persons are "affiliates" within the meaning of Rule 405 under the Securities Act
of 1933.
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 REGISTRANTS
Number of shares of Common Stock outstanding at April 6, 2004: 85,486,716
DOCUMENTS INCORPORATED BY REFERENCE
None.
24HOLDINGS INC.
As used in this report, the terms "24Holdings," "Company" and "Registrant"
mean 24Holdings Inc. and its subsidiaries.
PART I
ITEM 1. BUSINESS.
Introduction
24Holdings Inc., a Delaware corporation formerly known as Scoop, Inc.
("24Holdings" or the "Company"), is a holding company owning 100% of the Common
Stock of 24STORE (Europe) Limited, a Company incorporated under the laws of
England formerly known as 24STORE.com Limited and currently operating in the
United Kingdom ("24STORE").
The Company's History
The Company commenced business operations in May 1996. The Company's original
business operations focused on the sale of media products and business
information services. Following an initial public offering, the Common Stock of
the Company began trading on the NASDAQ Small Cap Stock Exchange on April 9,
1997 under the symbol "SCPI." During 1997 and 1998 the business failed to be
profitable and in the second quarter of 1998, the Company was informed that it
no longer met the minimum requirements for listing on the NASDAQ Small Cap Stock
Exchange and was subsequently de-listed from the exchange on June 24, 1998.
Commencing in July 1998, the Company underwent voluntary reorganization under
Chapter 11 of the United States Bankruptcy Code. In accordance with the Plan of
Reorganization approved by the Bankruptcy Court, in December 1999, InfiniCom AB,
a company registered in Sweden, acquired a total of 60,783,219 shares of Common
Stock of the Company (representing approximately 91% of the outstanding shares
of Common Stock of the Company) in exchange for 100% of the Common Stock of
24STORE. On April 2, 2001, the Company amended its Certificate of Incorporation
to change the Company's name from Scoop, Inc. to 24Holdings Inc. All of the
Company's operations prior to its bankruptcy proceedings were discontinued.
The Business Today
24STORE's current business operations are held in the following two wholly-owned
subsidiaries of 24STORE:
o 24STORE Limited, (previously known as Lapland U.K. Limited) a company
registered in England in 1991, supplies primarily business customers with
computer and electronics products. Operating from the Company's executive
offices based approximately forty miles west of London, the company sells a
wide range of computing and related products, sourced from major computer
manufacturers. The business is generated from an active telesales team,
working on inquiries from the existing customer base, regular advertising
in national computer magazines, and from the company's web site,
www.24Store.com. In October 2002, the company formed a new business unit,
24Solutions, operating from the same executive offices. 24Solutions offers
primarily accounting based, business management software. Its services
include the provision, customisation, installation and training on software
products from leading business software vendor Sage. The business is
generated from an active sales team, working on enquiries from the existing
customer base, and from the company's web site, www.24solutions.com.
o Mobile Planet Limited, a subsidiary of the Company, previously operated as
a wholesaler of mobile computing and related products. During 2003, the
Company caused Mobile Planet to discontinue operations.
In addition to the foregoing two operating companies, 24STORE also holds 100% of
the outstanding capital stock of Cyberia (UK) Limited, a company registered in
England ("Cyberia"), whose sole purpose is to hold title to the real property on
which the Company's headquarters are located (see ITEM 2. Properties).
Products and Services
The Company's primary products are computer and electronics products, and the
provision, customisation, installation and training on software products from
leading business software vendors. The products are sourced either directly from
the manufacturers or purchased from national distributors. In both value and
volume terms, the largest product line today is the supply of mobile computers,
although the company also supplies "shrink-wrapped" computer software and other
computer hardware including Desktop PCs and File Servers.
Sales and Marketing Strategy
The Company's traditional sales methods consisted of mail-order catalogues and
telephone sales of computer and electronic equipment to business customers. In
recent years, these traditional sales methods have been complemented by steadily
increasing web-based sales. The Company believes that its future sales of
computer and electronic equipment will be based on a combination of these three
sales methods. In 2002 the Company formed a new division, 24Solutions, offering
business management software. The Company will look to develop this division
further and, in particular, sell software and consulting services to its
existing customer base of computer users.
Competition
The computer/electronic products markets continue to evolve rapidly and are
extremely competitive, and the Company expects competition to intensify in the
future. The Company competes with a significant number of other companies in the
sale of computer and electronics products. Current and potential competitors of
the Company include, but are not limited to: (1) online vendors of
computer/electronics products, (2) mail order vendors of computer/electronics
products, (3) system integrators and value added resellers, (4) direct sales
operations of computer/electronics manufacturers, and (5) retailers.
The Company believes that the principal competitive factors affecting its
product supply business include its ability to secure merchandise for sale at
favorable terms and attract new customers at a favorable customer acquisition
cost through its mail order, telephonic, and Internet sales channels. Although
the Company believes that it can compete favorably in such a competitive
atmosphere, the Company cannot be assured that it will be able to maintain a
competitive position against current and future competitors.
The business management software markets also continue to evolve rapidly and are
extremely competitive, and the Company expects competition to intensify in the
future. The Company competes with a significant number of other companies in the
sale of business management software. Current and potential competitors of the
Company include, but are not limited to: (1) Accounting firms, (2) system
integrators and value added resellers, (3) direct sales operations of software
vendors, and (4) ASPs (application service providers) offering business software
on a subscription basis.
The Company believes that the principal competitive factors affecting its
business management software business include: (1) its ability to recruit and
retain suitably qualified consultants (2) its ability to maintain authorisation,
and competitive pricing from software vendors (3) its ability to attract new
customers at a favorable customer acquisition cost. Although the Company
believes that it can compete
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favorably in such a competitive atmosphere, the Company cannot be assured that
it will be able to maintain a competitive position against current and future
competitors.
Trademarks and Proprietary Rights
The Company has relied, and intends to continue to rely, upon the protection of
trademark law. In addition, the Company relies on confidentiality agreements
with its employees to protect its proprietary rights. There can be no assurance
that the steps taken, and anticipated to be taken, by the Company to protect its
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate the Company's domain names, copyrights, trademarks,
trade names, trade secrets, patents (if any) and similar proprietary rights. In
addition, there can be no assurance that other parties will not assert
infringement claims against the Company.
Government Regulation
The Company is subject, both directly and indirectly, to various laws and
governmental regulations (primarily those imposed by the European Union)
relating to its business operations. There are currently few laws or regulations
directly applicable to commercial activities over the Internet. However, due to
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect thereto. These laws and
regulations may cover issues such as user privacy, liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and domain name registration. Moreover, the applicability to
the Internet of existing laws governing issues such as intellectual property
ownership and infringement, copyright, patent, trademark, trade secret and
personal privacy is uncertain and developing. Any new legislation or regulation
or the application of existing laws and regulations to the Internet could have a
material and adverse effect on the Company's business.
Employees
As of March 31, 2004 the Company employed a total of 19 persons, including 11 in
sales and marketing, two in operations and six in general and administrative
functions. None of the Company's employees is represented by a labor union or is
subject to a collective bargaining agreement. The Company has never experienced
a work stoppage and believes that its relations with its employees are good.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in Basingstoke,
United Kingdom, approximately forty miles west of London. The Company, through a
wholly owned subsidiary named Cyberia (UK) Limited, owns the freehold of its
office and warehouse space in the United Kingdom for use in the ordinary course
of its business. The property, which is approximately 7,800 square feet, was
constructed in 1959, and substantially refurbished in 1998. The Company has
entered into agreements to sell its freehold interest in this real property and
temporarily lease back its present office space to allow a transitional period
for the Company to vacate the premises. The term of the temporary lease will be
a period not to exceed 18 months.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is subject to litigation in the ordinary
course of its business. In the opinion of management, none of the currently
pending litigation is likely to have a material adverse effect on the Company's
business, financial condition, or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is currently quoted on the OTC Bulletin Board
under the symbol "TFHD." The following table sets forth for the periods
indicated the high and low closing sale price for the Common Stock as quoted on
the OTC Bulletin Board, as indicated below:
Bid
Quarter Ended High Low
------------- ---- ---
December 31, 2003 $0.0400 $0.0055
September 30, 2003 $0.0500 $0.0050
June 30, 2003 $0.0060 $0.0035
March 31, 2003 $0.0200 $0.0035
December 31, 2002 $0.0050 $0.0050
September 30, 2002 $0.0200 $0.0200
June 30, 2002 $0.0210 $0.0210
March 31, 2002 $0.0800 $0.0410
On April 6, 2004 the last reported sales price for the Company's Common
Stock on the OTC Bulletin Board was $0.04 per share.
As of April 6, 2004, there were 233 shareholders of record.
The declaration of cash dividends is at the discretion of the Board of
Directors of the Company. No cash dividends on the Common Stock have been
declared or paid by the Company to date. The Company does not anticipate paying
cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data as of and for each
of the five fiscal years ended December 31, 2003 and is derived from the
Company's audited financial statements. The data set forth below should be read
in conjunction with the Consolidated Financial Statements and related Notes to
Consolidated Financial Statements appearing elsewhere herein and in "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Year Ended December 31,
2003 2002 2001 2000 1999
----------------------------------------------------------------------------
Revenue $14,562,402 $18,598,455 $ 22,036,485 $28,058,566 $22,070,173
Operating Income/(Loss) $(13,181) $(768,290) $(1,726,533) $(1,621,200) $(4,921,367)
Net Income/Loss $(75,336) $(827,279) $(1,822,971) $(1,823,162) $ (5,626,018)
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Loss per share, basic and diluted $ (0.00) $ (0.01) $ (0.02) $ (0.02) $ (0.09)
Weighted average number of shares 96,147,533 93,255,869 85,486,717 81,241,503 66,703,528
outstanding
Working capital (deficit) $(833,533) $(730,479) $(305,596) $(884,270) $(8,146,694)
Total Assets $3,979,476 $ 3,978,041 $5,327,740 $10,456,258 $11,942,175
Long-Term Debt $121,214 $212,414 $780,632 $381,396 $2,261,520
Total Shareholders equity (deficit) $344,822 $336,249 $509,392 $2,431,526 $(5,579,076)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Company Overview
24Holdings Inc. ("24Holdings" or the "Company") was incorporated in 1996 in the
state of Delaware under the name Scoop, Inc. and began operations 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"), pursuant to which 24STORE's 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. Since the shareholders of
24STORE became the controlling shareholders of the Company after the exchange,
24STORE is treated as the acquiree for accounting purposes. No value was
assigned to the assets and liabilities of the acquired company, as it had
emerged from a bankruptcy plan of reorganization.
24STORE was incorporated on 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 consulting company. On April 9,
1999, 24STORE entered into a Share Purchase Agreement, whereby it acquired from
its parent company several companies registered in Sweden and Norway. All of the
Swedish entities either entered bankruptcy or ceased operations soon after the
transfer. The Norwegian entity, as the only ongoing concern, was treated as the
predecessor company, and accordingly, its financial position and results of
operations have been presented for the periods preceding the reverse merger. On
May 6, 1999, 24STORE acquired three companies registered in the United Kingdom,
which companies were related through common ownership. On April 1, 2001, 24STORE
sold all of the outstanding stock of the Norwegian entity (see discussion in
"Sale of Norwegian Subsidiary").
Sale of Norwegian Subsidiary
In order to dispose of operations that had become unprofitable, 24STORE and
Compo Consult AS, a Norwegian company, entered into an Agreement on the Transfer
of Shares dated March 29, 2001 pursuant to which 24STORE sold and Compo Consult
purchased all of the outstanding stock of 24STORE's Norwegian subsidiary,
24STORE AS, for a total consideration of 1.00 Pound Sterling, or approximately
$1.45. The transaction was consummated on April 1, 2001.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial data
as a percentage of total net sales for the fiscal years ended December 31, 2003,
2002 and 2001. The operating results in any periods are not necessarily
indicative of the results to be expected for any future period.
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002 2001
Net sales 100.0% 100.0% 100.0%
Cost of sales 86.3% 89.2% 89.2%
Gross profit 13.6% 10.8% 10.8%
Operating expenses:
Selling general and administrative 13.8% 12.1% 11.5%
Goodwill amortization 0.0% 0.0% 3.0%
Impairment loss on investments 0.0% 2.4% 5.1%
Gain on sales of subsidiary 0.0% 0.0% (1.0)%
Total operating expenses 13.8% 14.5% 18.6%
----- ----- -----
Net Income (Loss) from operations (0.1)% (3.7)% (7.8)%
Net Interest expense 0.4% 0.2% 0.4%
Loss before provision for income taxes (0.5)% (3.9)% (8.2)%
Provision for income taxes 0.0% 0.0% 0.0%
Net Income (Loss) (0.5)% (8.2)% (8.2)%
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2003, 2001 AND 2001
Net Sales--Net sales for the years ended December 31, 2003, 2002 and 2001 were
as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002 2001
Net sales $14,562,402 $18,598,455 $22,036,485
% increase (decrease) from (21.7)% (15.6)% (21.5%)%
the previous year
Net sales for the years ended December 31, 2003, 2002 and 2001 were all derived
from operations in Europe. The decrease in net sales for the year ended December
31, 2003 is primarily attributable to a reduction in sales in the high volume
low margin distribution market and a reduction in the unit cost of a laptop
computer. For the UK Group, net sales decreased by 28.7% in local currency as
compared to 2002 The net sales reduction for the year ended December 31,2002 is
primarily attributable to a drop in demand across the market and the disposal of
the Norwegian subsidiary..
Gross Profit--Gross profit for the years ended December 31, 2003, 2002 and 2001
were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002 2001
Gross profit $1,988,199 $1,937,009 $2,370,225
% increase (decrease) from 2.6% (18.2%) (20.5)%
the previous year
Gross margin 13.7% 10.4% 10.8%
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Gross profit consists of net sales less the cost of sales, which consists of the
cost of merchandise sold to customers. The increase in Gross profit for the year
ended December 31, 2003 is the result of sales at a higher margin than the
previous year. Gross profit for the year ended December 31, 2002 and the year
ended December 31, 2001 has decreased due to a lower level of sales against the
previous years. Gross margin percent increased over the consistency on 2002 and
2001, this was because of a move away from high volume low margin sales.
Selling, General and Administrative Expenses--Selling, general and
administrative ("SG&A") expenses for the years ended December 31, 2003, 2002 and
2001 were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002 2001
Selling, general and administrative $2,001,380 $2,254,455 $2,535,957
% decrease from the previous year (11.1)% (11.1)% (34.0)%
% of net sales 13.8% 12.1% 11.5%
SG&A expenses for the year ended December 31,2003 decreased by 11.1% from
$2,254,455 to $2,003,380. SG&A expenses for the year ended December 31, 2002
decreased by 11.1% from $2,535,457 to $2,254,455 .The decrease in SG&A for the
2003 fiscal year came from reductions in staff costs at the subsidiary level and
advertising and professional costs in the parent company. The decrease in SG&A
for the 2002 fiscal year is the result of a reduction in staff related costs
within the operating subsidiaries and a reduction of legal and professional
costs in the parent company.
Goodwill Amortization--Following the implementation of SFAS 142, "Goodwill and
Other Intangibles" on January 1, 2001, there was no Goodwill amortization for
the year ended December 31, 2003 or 2002. SFAS 142 no longer requires goodwill
to be amortized, but periodically tested for impairment.
Impairment loss on investment--The impairment charges in the years ended
December 31, 2002, and December 31, 2001 of $450,844 and $1,125,846,
respectively, arose from the recognition of an impairment to Goodwill upon
implementation of SFAS 142 in 2002, and as determined per the annual impairment
test in 2003, in accordance with the guidelines of SFAS 142.
Gain on disposal of subsidiary--The $230,322 gain in the year ended December 31,
2001 was the result of the sale of the Norwegian subsidiary.
Interest Expenses--Interest expenses, net of interest income for the years ended
December 31, 2003, 2002 and 2001, were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002 2001
Interest income $3,147 $4,945 $24,799
% change from the previous year (36.4)% (80.0)% 42.1%
Interest expenses $65,302 $58,201 $123,637
% change from the previous year 12.2% (52.9)% (130.0)%
Interest income represents interest received on cash deposits and interest
receivable on inter-company loans. Interest expenses include interest payable on
bank overdrafts, mortgages, receivables financing arrangements and other loans.
The increase in interest expenses in the year ended December 31,2003 is the
result of changes in the exchange rate in local currency the interest expense
has remained unchanged. The reduction of interest expense in the years ended
December 31, 2002 is primarily attributable to the Company now having lower
interest bearing debts to related parties following the restructuring of debt
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that occurred on March 31, 2000, and the conversion of interest bearing debts to
related parties into the right to receive shares of common stock on April 10,
2002 (see ITEM 13. Certain Relationships and Related Transactions; see "Debt
Restructuring" above).
Income Taxes--Income taxes, for the years ended December 31, 2003, 2002 and 2001
were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002 2001
Income taxes $ - $5,734 $(2,400)
Income tax for the year ended December 31, 2002 is related to an under accrual
from the previous year. Income tax for the year ended December 31, 2001 related
to deferred tax accruals.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 2003 were $147,841 compared to
$802,091 as of December 31, 2002. The reduction in cash is the result of timing
of payment of accounts payable, which have declined from the December 31, 2002
balance.
Net cash used by operating activities was $677,297 in 2003 compared to net cash
used by operating activities of $67,126 in 2002. The main reason of the increase
was accounts receivable reflecting the higher level of sales in Q4/03 compared
to Q4/02.
As of December 31, 2003 the Company had a working capital deficit of $833,533
compared to a working capital deficit of $730,479 as of December 31, 2002.
As of December 31, 2003 included in current assets were cash and cash
equivalents of $147,841 and receivables, net, expected to be collected within
one year of $2,158,883.
Cash used by investing activities was $44,347 in 2003, compared to cash used in
investing activities of $35,484 in 2002.
The change in working capital is primarily attributable to the loss for the
year, and the reduction in cash due to payments made on long-term notes payable.
In its United Kingdom operating subsidiaries the Company has (1) a revolving
line of credit based on 70% of eligible receivables, (2) a ten year mortgage
expiring in 2008, secured by real 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%. Other than through its subsidiaries, the
Company has no direct source of short-term funding. In addition to the items
above, certain trade suppliers of 24STORE extend credit to 24STORE.
The Company is in the process of selling its freehold interest in its real
property and entering into a temporary lease to allow a transitional period for
the Company to vacate the premises. The Company believes this transaction will
have the effect of improving net current assets by approximately $1,355,000
during the second quarter of 2004.
The Company believes its current resources of cash and cash equivalents,
accounts receivable and available credit line to be sufficient to meet cash
needs for working capital and capital expenditures for at least the next six
months. If available cash and cash generated from operations is insufficient to
satisfy liquidity requirements, the Company may need to raise additional
capital. The sale of additional equity or
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convertible debt securities to raise capital could result in dilution to the
Company's stockholders. There can be no assurance that financing will be
available in sufficient amounts or on acceptable terms, if at all.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The adoption of this statement did not have a material impact on
the Company's financial position or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
adoption of this statement did not have a material impact on the Company's
financial position or results of operations.
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions--an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer-relationship
intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions is effective
for acquisitions for which the date of acquisition is on or after October 1,
2002. The provisions related to accounting for the impairment or disposal of
certain long-term customer-relationship intangible assets are effective on
October 1, 2002. The adoption of this Statement did not have a material impact
to the Company's financial position or results of operations as the Company has
not engaged in either of these activities.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure", which amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of Statement
148 are effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The adoption of this
statement did not have a material impact on the Company's financial position or
results of operations as the Company has not elected to change to the fair value
based method of accounting for stock-based employee compensation.
During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after September 30, 2003, except as stated below and for
hedging relationships designated after September 30, 2003. In
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addition, except as stated below, all provisions of this Statement should be
applied prospectively. The provisions of this Statement that relate to Statement
133 Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003, should continue to be applied in accordance with
their respective effective dates. In addition, paragraphs 7(a) and 23(a), which
relate to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing contracts
and new contracts entered into after September 30, 2003. The adoption of this
statement did not have a material impact on the Company's financial position or
results of operations as the Company does not participate in such transactions.
During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective for public entities at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a freestanding financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were
previously classified as equity. Some of the provisions of this Statement are
consistent with the current definition of liabilities in FASB Concepts Statement
No. 6, Elements of Financial Statements. The adoption of this statement did not
have a material impact on the Company's financial position or results of
operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (an interpretation of Accounting Research Bulletin
(ARB) No. 51, Consolidated Financial Statements). Interpretation 46 addresses
consolidation by business enterprises of entities to which the usual condition
of consolidation described in ARB-51 does not apply. The Interpretation changes
the criteria by which one company includes another entity in its consolidated
financial statements. The general requirement to consolidate under ARB-51 is
based on the presumption that an enterprise's financial statements should
include all of the entities in which it has a controlling financial interest
(i.e., majority voting interest). Interpretation 46 requires a variable interest
entity to be consolidated by a company that does not have a majority voting
interest, but nevertheless, is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to receive a majority of
the entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity.
In December 2003 the FASB concluded to revise certain elements of FIN 46,
primarily to clarify the required accounting for interests in variable interest
entities. FIN-46R replaces FIN-46,that was issued in January 2003. FIN-46R
exempts certain entities from its requirements and provides for special
effective dates for entities that have fully or partially applied FIN-46 as of
December 24, 2003. In certain situations, entities have the option of applying
or continuing to apply FIN-46 for a short period of time before applying
FIN-46R. In general, for all entities that were previously considered special
purpose entities, FIN 46 should be applied in periods ending after December 15,
2003. Otherwise, FIN 46 is to be applied for registrants who file under
Regulation SX in periods ending after March 15, 2004, and for registrants who
file under Regulation SB, in periods ending after December 15, 2004. The Company
does not expect the adoption to have a material impact on the Company's
financial position or results of operations.
In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which replaces the
previously issued Statement. The revised Statement increases the existing
disclosures for defined benefit pension plans and other defined benefit
postretirement plans. However, it does not change the measurement or recognition
of those plans as required under SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
Specifically, the revised Statement requires companies to provide additional
disclosures about pension plan assets, benefit obligations, cash flows, and
benefit costs of defined benefit pension plans and other defined benefit
postretirement plans. Also, companies are required to provide a breakdown of
plan assets by category, such as debt, equity and real estate, and to provide
certain expected rates of return and target
-10-
allocation percentages for these asset categories. The Company has implemented
this pronouncement and has concluded that the adoption has no material impact to
the financial statements.
CRITICAL ACCOUNTING POLICY AND ESTIMATES
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, allowance for bad debt, accrued expenses, financing
operations, and contingencies and litigation. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of our financial statements
include estimates as to the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources, such as allowance
for bad debt, goodwill, inventory valuation and the deferred tax asset. These
accounting policies are described at relevant sections in this discussion and
analysis and in the notes to the consolidated financial statements included in
this Annual Report.
RISK FACTORS
Some of the statements in "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Item 1 - Business" and
elsewhere in this report constitute forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may cause
the Company's actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements. In some
cases, forward-looking statements can be identified by terminology such as
"may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. Although the Company believes that the
expectations reflected in the forward-looking statements are reasonable, the
Company cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither the Company nor any other person assumes
responsibility for the accuracy and completeness of such statements. The Company
is under no duty to update any of the forward-looking statements after the date
of this report to conform such statements to actual results.
In addition to the factors discussed elsewhere in this report, the following
additional factors may affect the Company's future operations and financial
results.
Competition From Direct Sales
The Company may face increased competition from manufacturers that sell products
directly over the Internet or by telephone, such as Dell and Gateway. Many of
these companies have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other
resources. There can be no assurance that the Company will be able to compete
effectively against such companies and that the purchasing patterns of the
Company's customers will not increasingly shift to the direct sales channels of
distribution. Such increased competition and changes in purchasing patterns may
adversely affect the Company's future operations and financial results.
-11-
Protection of the Company's Domain Names
The Company currently holds various domain names commencing with the "24"
prefix. The acquisition and maintenance of domain names generally is regulated
by Internet regulatory bodies. The regulation of domain names in the United
States, the United Kingdom and in other countries is subject to change.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, the Company may be unable to acquire or maintain relevant domain names
in all countries in which it conducts business. Furthermore, the relationship
between regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. Therefore, the Company may be unable to
prevent third parties from acquiring domain names that are similar to, infringe
upon or otherwise decrease the value of the Company's trademarks and other
proprietary rights. The Company may not successfully carry out its business
strategy of establishing a strong brand for the "24" prefix if the Company
cannot prevent others from using similar domain names or trademarks. This could
impair the Company's ability to increase market share and revenues.
Rapid Technological Change
The industry in which the Company competes is characterized by rapid
technological change, frequent introductions of new products and services,
changes in customer demands and evolving industry standards. The introduction or
announcement of new products or services by the Company or one or more of its
competitors embodying new technologies or changes in industry standards or
customer requirements could render the Company's existing products or services
obsolete or unmarketable. Accordingly, the life cycles of the Company's products
are difficult to estimate. The Company's future results of operations will
depend, in part, upon its ability to enhance its products and services and to
introduce new products and services on a timely and cost-effective basis that
will keep pace with technological developments and evolving industry standards,
as well as address the increasingly sophisticated needs of the Company's
customers. Failure of the Company to introduce, for technological or other
reasons, new products and services in a timely and cost-effective manner could
have a material adverse effect on the Company's business, results of operations
and financial condition. Furthermore, the introduction or announcement of new
product or service offerings or enhancements by the Company or the Company's
competitors may cause customers to defer or forgo purchases of the Company's
products or services, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
System Interruption and Security Risks
The Company's operations are dependent, in part, on its ability to protect its
systems from interruption by damage from fire, earthquake, power loss,
telecommunication failure, unauthorized entry or other events beyond the
Company's control. The Company's computer equipment constituting its central
computer systems, including its processing operations, are currently located in
Basingstoke, United Kingdom. The Company conducts system backups daily, which
are taken off site each evening. The Company's computer programs are password
protected and firewalls, anti-virus software and uninterruptable power supplies
are in place. However, there can be no assurance that damage to or failure of
any of the Company's central computer systems will not take place. Any such
damage or failure that causes interruptions in the Company's operations could
have a material adverse effect on the Company's business, results of operations
and financial condition. Persistent problems continue to affect public and
private data networks. Computer break-ins and other disruptions may jeopardize
the security of information stored in and transmitted through the computer
systems of the Company and the parties utilizing the Company's services, which
may result in significant liability to the Company and also may deter potential
customers from using the Company's services. In addition, while the Company
attempts
-12-
to be careful with respect to the employees it hires and maintain controls
through software design and security systems to prevent unauthorized employee
access, it is possible that, despite such safeguards, an employee of the Company
could obtain access, which would also expose the Company to a risk of loss or
litigation and possible liability to customers or other users. There can be no
guarantee that the growth of the Company's customer base will not strain or
exceed the capacity of its computer and telecommunications systems and lead to
degradations in performance or system failure. Any damage, failure or delay that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's business, results of operations and financial condition.
Future Capital Needs; Uncertainty of Additional Financing
The Company's main sources of funds currently come through its operating
subsidiaries (see "Liquidity and Capital Resources" above). A reduction in
market demand for the Company's products and services could damage the Company's
ability to obtain short term funding from its current lenders and trade
suppliers. There can be no assurance that additional financing will be available
when needed on terms favorable to the Company or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may be
unable to develop or enhance its products and services, take advantage of future
opportunities or respond to competitive pressures, which would likely have a
material adverse effect on the Company's business, results of operations and
financial condition. If additional funds are raised through the issuance of
equity securities, the percentage ownership of the shareholders of the Company
will be reduced, shareholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to those of the
holders of the Company's Common Stock.
See also the discussion in "Reorganization" below.
Control By Existing Stockholder
InfiniCom AB beneficially owns approximately 90.1% of the outstanding shares of
the Company's Common Stock (which includes 10,660,679 shares that it has the
right to acquire, as described in ITEM 13). As a result, this stockholder is
able to exercise control over matters requiring shareholder approval, including
the election of directors, and the approval of mergers, consolidations and sales
of all or substantially all of the assets of the Company. This may prevent or
discourage tender offers for the Company's Common Stock unless the terms are
approved by InfiniCom.
Volatility of Stock Price
The trading price of the Company's Common Stock has in the past and may in the
future be subject to significant fluctuations. In addition, the stock market in
general has experienced extreme price and volume fluctuations that have affected
the market price for many companies in industries similar to or related to that
of the Company and which have been unrelated to the operating performance of
these companies. These market fluctuations may adversely affect the market price
of the Company's Common Stock.
Recent Significant Changes to Business
The Company has experienced significant changes in its business, including
changes resulting from recent acquisitions and other business combinations. Such
changes have placed and may continue to place a significant strain upon the
Company's management, systems and resources. The Company's ability to compete
effectively and to manage future changes will require the Company to continue to
improve its financial and management controls, reporting systems and procedures,
budgeting and forecasting capabilities on a timely basis and adequately train
and manage its employee work force. There can be no
-13-
assurance that the Company, or the Company's current management, will be able to
manage such changes successfully. The Company's failure to do so could have a
material adverse effect upon the Company's business, results of operations and
financial condition.
Reorganization
On December 20, 2002, the Company's parent company, InfiniCom AB, emerged from
bankruptcy reorganization in accordance with Swedish law in a process similar to
a Chapter 11 filing in the United States bankruptcy system. InfiniCom's recent
reorganization may adversely affect a significant source of funding for the
Company's operations and regulatory compliance costs. The Company may explore
various options to address this contingency, including the possibility of
ceasing to be a public company in the United States or a transaction or series
of transactions involving the sale of the Company or the Company's operating
subsidiaries.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 subsidiaries,
including 24STORE and denominated in British pounds sterling and none of the
Company's revenues are generated in U.S. Dollars. For consolidation purposes,
the assets and liabilities of 24STORE are converted to U.S. 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 and the United States may give rise to material variances in
reported earnings of the Company.
-14-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
24Holdings Inc.
(Formerly Scoop, Inc.)
Consolidated Financial Statements
Years Ended December 31, 2003, 2002, and 2001
Contents
Page
Independent Auditors' Report 1
Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-19
INDEPENDENT AUDITORS' REPORT
Board of Directors
24Holdings Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of 24Holdings Inc.
(formerly Scoop, Inc.) and subsidiary at December 31, 2003 and 2002 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of 24Holdings Inc.
(formerly Scoop, Inc.) and subsidiary at December 31, 2003 and 2002 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's net losses of $75,336 and
$827,279 in the last two years, negative working capital of $923,509 and
accumulated deficit of $9,943,420 at December 31, 2003 raise substantial doubt
about their ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments to asset carrying amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
March 1, 2003
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
CONSOLIDATED BALANCE SHEETS
ASSETS December 31, December 31,
2003 2002
---- ----
Current assets:
Cash and cash equivalents $ 147,841 $ 802,091
Accounts receivable, less allowance of $18,592 2,158,883 1,424,802
Inventories 161,697 315,576
Prepaid and other current assets 34,710 67,230
---------------- ---------------
Total current assets 2,503,131 2,609,699
Property and equipment, net of accumulated depreciation 70,625 1,368,342
Long-term assets held for sale 1,405,720 -
---------------- ---------------
$ 3,979,476 $ 3,978,041
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,178,856 $ 2,377,465
Credit facility 1,044,285 874,110
Income taxes payable - 134
Current maturities of notes payable, bank 113,523 88,469
---------------- ---------------
Total current liabilities 3,336,664 3,340,178
---------------- ---------------
Note payable, bank, less current maturities 121,214 212,414
---------------- ---------------
Deferred tax liability 86,800 89,200
---------------- ---------------
Long-term loan payable, related party 89,976 -
---------------- ---------------
Shareholders' equity:
Preferred stock $.001 par value; 5,000,000 shares
authorized; no shares issued or outstanding. - -
Common stock, $.001 par value; 100,000,000 shares
authorized; 96,147,396 shares issued and outstanding at
December 31, 2003 and 2002 36,742 36,742
Additional paid-in capital 10,362,233 10,362,233
Other comprehensive loss (110,733) (194,642)
Accumulated deficit (9,943,420) (9,868,084)
---------------- ---------------
Total shareholders' equity 344,822 336,249
---------------- ---------------
$ 3,979,476 $ 3,978,041
================ ===============
The accompanying notes form an integral part of these consolidated financial
statements.
2
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended Year ended
December 31, 2003 December 31, 2002 December 31, 2001
----------------- ----------------- -----------------
Revenue $ 14,562,402 $ 18,598,455 $ 22,036,485
Cost of Revenue 12,574,203 16,661,446 19,666,260
------------------ ----------------- -----------------
Gross profit 1,988,199 1,937,009 2,370,225
------------------ ----------------- -----------------
Operating expenses:
Selling, general and administrative expenses 2,001,380 2,254,455 2,534,957
Goodwill amortization - - 666,277
Impairment loss on investments - 450,844 1,125,846
Gain on disposal of subsidiary - - (230,322)
------------------ ----------------- -----------------
2,001,380 2,705,299 4,096,758
------------------ ----------------- -----------------
Loss from operations (13,181) (768,290) (1,726,533)
------------------ ----------------- -----------------
Other:
Interest income (3,147) (4,945) (24,799)
Interest expense 65,302 58,200 123,637
------------------ ----------------- -----------------
62,155 53,255 98,838
------------------ ----------------- -----------------
Loss before income taxes (75,336) (821,545) (1,825,371)
Income taxes, principally current - 5,734 (2,400)
------------------ ----------------- -----------------
Net loss $ (75,336) $ (827,279) $ (1,822,971)
================== ================= =================
Net loss per share - basic and diluted $ - $ (0.01) $ (0.02)
================== ================= =================
Weighted average number of shares outstanding -
basic and diluted 96,147,396 93,255,869 85,486,717
================== ================= =================
The accompanying notes form an integral part of these consolidated financial
statements.
3
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
CONSOLIDATED STATEMENT OF SHAREHOLDERS ' EQUITY
Retained
Common stock Additional Other earnings/ Total
------------ paid-in Comprehensive accumulated shareholders'
Shares Amount capital income/(loss) (deficit) equity/(deficit)
------ ------ ------- ------------ -------- ----------------
Balance at January 1, 2001 85,486,717 $ 26,081 $ 9,855,851 $ (232,572) $ (7,217,834) $ 2,431,526
Foreign currency translation (99,163) (99,163)
Net loss for the year ended
December 31, 2001 (1,822,971) (1,822,971)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 85,486,717 26,081 9,855,851 (331,735) (9,040,805) 509,392
Shares issued upon conversion of
debt on April 10, 2002 10,660,679 10,661 506,382 517,043
Foreign currency translation 137,093 137,093
Net loss for the year ended
December 31, 2002 (827,279) (827,279)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 96,147,396 36,742 10,362,233 (194,642) (9,868,084) 336,249
Foreign currency translation 83,909 83,909
Net loss for the year ended
December 31, 2003 (75,336) (75,336)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 96,147,396 $ 36,742 $10,362,233 $ (110,733) (9,943,420) $ 344,822
========== =========== =========== =========== ========== ===========
The accompanying notes form an integral part of these consolidated financial
statements.
4
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Year ended Year ended Year ended
December 31, 2003 December 31, 2002 December 31, 2001
----------------- ----------------- -----------------
Cash flows provided by (used for) operating activities:
Net loss $ (75,336) $ (827,279) $ (1,822,971)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation 80,837 67,330 93,923
Amortization of goodwill - - 666,277
Loss on impairment of investments - 450,844 1,125,846
Gain on sale of subsidiary - - (230,322)
Foreign currency translation 86,052 121,489 (46,786)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (550,734) 703,409 1,103,316
Inventories 178,969 29,150 266,701
Prepaid and other current assets 36,994 (25,694) 9,261
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts payable and accrued expenses (431,540) (584,524) (1,315,662)
Deferred taxes (2,400) (2,400) (2,400)
Income taxes payable (137) 549 (11,026)
-------------- ------------- --------------
Total adjustments (601,961) 760,153 1,659,128
-------------- ------------- --------------
Net cash used for operating activities (677,297) (67,126) (163,843)
-------------- ------------- --------------
(Continued)
The accompanying notes form an integral part of these consolidated financial
statements.
5
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Year ended Year ended Year ended
December 31, 2003 December 31, 2002 December 31, 2001
----------------- ----------------- -----------------
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment (44,347) (35,484) 15,550
Due to/from related parties -- -- (40,456)
----------- ----------- -----------
Net cash used for investing activities (44,347) (35,484) (24,906)
----------- ----------- -----------
Cash flows provided by (used for) financing activities:
Payments on note payable, bank (94,017) (81,183) (76,043)
Credit facility 71,435 (353,766) (550,860)
Sale of subsidiary, net of cash acquired -- -- (105,879)
Proceeds from long-term loans, related parties 89,976 -- --
----------- ----------- -----------
Net cash provided by (used for) financing activities 67,394 (434,949) (732,782)
----------- ----------- -----------
Net decrease in cash and cash equivalents (654,250) (537,559) (921,531)
Cash and cash equivalents, beginning of year 802,091 1,339,650 2,261,181
----------- ----------- -----------
Cash and cash equivalents, end of year $ 147,841 $ 802,091 $ 1,339,650
=========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 67,290 $ 67,718 $ 91,903
=========== =========== ===========
Income taxes paid $ -- $ -- $ 6,952
=========== =========== ===========
Supplemental disclosure of non-cash investing and
financing activities -
issuance of shares upon conversion of long-term debt, related party $ $ 517,043 $ --
=========== =========== ===========
The accompanying notes form an integral part of these consolidated financial
statements.
6
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(1) Description of Business:
General:
24Holdings Inc. ("24Holdings" or the "Company") was incorporated in
the name Scoop, Inc. in 1996, in the state of Delaware, and changed
its name to 24Holdings Inc. on April 2, 2001. The Company has a wholly
owned subsidiary, 24Store, LTD, located in the UK. The Company is a
wholly owned subsidiary of InfiniCom AB ("InfiniCom"), a publicly
listed company on the SBI market in Sweden.
24Store, LTD is in the wholesale and retail business of selling and
distributing consumer and commercial electronic products in Europe.
(2) Summary of Significant Accounting Policies:
Basis of Presentation:
The Company's financial statements have been presented on the basis
that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company incurred net losses of $75,336
and $827,279 during 2003 and 2002, respectively, and has an
accumulated deficit of $9,943,421 at December 31, 2003. The Company
had negative working capital of $833,533 at December 31, 2003. These
factors raise substantial doubt about the Company's ability to
continue as a going concern. Management is currently attempting to
decrease operating costs and enter into new sources of revenue,
including software sales and consulting. The financial statements do
not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
8
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(2) Summary of Significant Accounting Policies, Continued:
Principles of Consolidation:
The accompanying consolidated statements include the accounts of
24Holdings Inc. and subsidiary. All significant intercompany
transactions and accounts have been eliminated.
The financial statements of the entities owned 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).
Estimates Used in the Preparation of Consolidated Financial Statements:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition:
The Company recognizes revenue upon the delivery of its product to
customers. Shipping and handling charges are included in gross sales,
with the related costs included in selling, general and administrative
expenses.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased, which are not securing any
corporate obligations, to be cash equivalents.
Property and Equipment:
Building, computers, software, furniture and equipment are valued at
cost and depreciated using the straight-line method over the estimated
useful lives of the assets as follows:
Description Useful life
----------- -----------
Building 50 years
Furniture and equipment 5 years
Computers 3-4 years
Software 3-4 years
8
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(2) Summary of Significant Accounting Policies, Continued:
Goodwill:
In connection with various acquisitions which were accounted for under
the purchase method of accounting, the Company recorded goodwill. The
remaining goodwill at December 31, 2001 was being amortized using the
straight-line method over the estimated useful lives of five years.
Accumulated amortization on all goodwill was $2,265,828 at December
31, 2001.
In accordance with the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of" the Company determined there had been an impairment loss of
$1,125,846 for the year ended December 31, 2001. The impairment loss
represents the excess of the carrying value over fair value,
determined by the present value of estimated expected future cash
flows of the UK Group for the remaining useful life of 3 years,
discounted at 7%.
On January 1, 2002 the Company adopted SFAS No. 142, "Goodwill and
Other Intangibles" and accordingly has ceased amortizing Goodwill, the
expense for which would have been approximately $210,000, for the year
ended December 31, 2002. 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
was no indication of impairment. The Company has determined the date
of the annual impairment test will be the Company's fiscal year end of
December 31, and therefore performed the test again at December 31,
2002. Due to the decrease in the market value of the Company's
publicly traded common stock, the fair value of the reporting unit was
below the carrying value of the reporting unit, an indication of
impairment to the carrying value of the goodwill. Pursuant to SFAS
142, the second tier impairment test was conducted to measure the
amount of impairment loss, whereby the implied fair value of reporting
unit goodwill is compared with the carrying amount of that goodwill,
determined in the same manner as the amount of goodwill recognized in
a business combination is determined. The impairment test resulted in
the recognition of an impairment loss of approximately $451,000, the
carrying value of the goodwill, in the year ended December 31, 2002.
Inventory:
Inventory is stated at the lower of cost or market using the FIFO
(first-in, first-out) cost method.
9
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(2) Summary of Significant Accounting Policies, Continued:
Income Taxes:
Deferred tax assets and liabilities are recognized with respect to the
tax consequences attributable to the differences between the financial
statement carrying values and tax basis of assets and liabilities.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which these
temporary differences are expected to be recovered or settled.
Further, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Financial Instruments:
The estimated fair values of all reported assets and liabilities which
represent financial instruments, none of which are held for trading
purposes, approximate their carrying value because of the short term
maturity of these instruments or the stated interest rates are
indicative of market interest rates.
Advertising Costs:
Advertising costs are expensed as incurred. For the years ended
December 31, 2003, 2002, and 2001, advertising expenses amounted to
approximately $26,000, $125,000, and $136,000, respectively.
Concentration:
During the year ended December 31, 2003, the Company had three major
customers accounting for 23.1% of their sales, or approximately
$3,330,000. Approximately $472,000 due from these customers is
included in accounts receivable at December 31, 2003.
During the year ended December 31, 2003, the Company has one major
customer accounting for 13.8% of their sales, or approximately
$1,705,000. There were no amounts due from this customer included in
accounts receivable at December 31, 2002.
Basic and Diluted Earnings (Loss) Per Share:
Basic earnings (loss) per share are determined by dividing the net
earnings (loss) by the weighted average shares of Common Stock
outstanding during the period. Diluted earnings (loss) per share are
determined by dividing the net earnings (loss) by the weighted average
shares of Common Stock outstanding plus the dilutive effects of stock
options, warrants, and other convertible securities. Basic and diluted
earnings (loss) per share are the same for the years ended December
31, 2003, 2002 and 2001 because there were no dilutive securities
outstanding during those periods.
10
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(2) Summary of Significant Accounting Policies, Continued:
Segment:
During the year ended December 31, 2003 the Company started up a new
division, 24Solutions, which sells and supports business management
software. Based on Company's integration and management strategies the
Company has determined 24Solutions qualifies as a separate segment as
defined by SFAS 131. However, 24Solutions is not a reportable segment
as the segment does not yet meet the quantitative thresholds set in
SFAS 131 for financial disclosure, as neither it's revenues, profits
nor assets account for ten percent of the combined revenues, profits
nor assets of the Company. For the years ended December 31, 2003,
2002, and 2001 all revenues have been derived from European
operations.
Statement of Cash Flows:
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 95, "Statement of Cash Flows," cash flows from the
Company's operations are calculated based upon the local currencies.
As a result, amounts related to assets and liabilities reported on the
statement of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheet.
Recent Accounting Pronouncements:
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." This Statement rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an
amendment of that Statement, FASB Statement No. 64, "Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements" and FASB Statement
No. 44, "Accounting for Intangible Assets of Motor Carriers". This
Statement amends FASB Statement No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. The adoption of this statement did not
have a material impact on the Company's financial position or results
of operations.
11
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(2) Summary of Significant Accounting Policies, Continued:
Recent Accounting Pronouncements, Continued:
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." The provisions of this
Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged.
The adoption of this statement did not have a material impact on the
Company's financial position or results of operations.
In October 2002, the FASB issued Statement No. 147, "Acquisitions of
Certain Financial Institutions--an amendment of FASB Statements No. 72
and 144 and FASB Interpretation No. 9", which removes acquisitions of
financial institutions from the scope of both Statement 72 and
Interpretation 9 and requires that those transactions be accounted for
in accordance with Statements No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets. In addition, this Statement
amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions such
as depositor- and borrower-relationship intangible assets and credit
cardholder intangible assets. The requirements relating to
acquisitions of financial institutions is effective for acquisitions
for which the date of acquisition is on or after October 1, 2002. The
provisions related to accounting for the impairment or disposal of
certain long-term customer-relationship intangible assets are
effective on October 1, 2002. The adoption of this Statement did not
have a material impact to the Company's financial position or results
of operations as the Company has not engaged in either of these
activities.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure", which amends
FASB Statement No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual
disclosure provisions of Statement 148 are effective for fiscal years
ending after December 15, 2002, with earlier application permitted in
certain circumstances. The interim disclosure provisions are effective
for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The adoption of this
statement did not have a material impact on the Company's financial
position or results of operations as the Company has not elected to
change to the fair value based method of accounting for stock-based
employee compensation.
12
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(2) Summary of Significant Accounting Policies, Continued:
Recent Accounting Pronouncements, Continued:
During April 2003, the FASB issued SFAS 149 - "Amendment of Statement
133 on Derivative Instruments and Hedging Activities", effective for
contracts entered into or modified after September 30, 2003, except as
stated below and for hedging relationships designated after September
30, 2003. In addition, except as stated below, all provisions of this
Statement should be applied prospectively. The provisions of this
Statement that relate to Statement 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective
effective dates. In addition, paragraphs 7(a) and 23(a), which relate
to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing
contracts and new contracts entered into after September 30, 2003. The
adoption of this statement did not have a material impact on the
Company's financial position or results of operations as the Company
does not participate in such transactions.
During May 2003, the FASB issued SFAS 150 - "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity", effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for public entities at
the beginning of the first interim period beginning after June 15,
2003. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a freestanding financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Some of the
provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, Elements
of Financial Statements. The adoption of this statement did not have a
material impact on the Company's financial position or results of
operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" (an interpretation of Accounting
Research Bulletin (ARB) No. 51, Consolidated Financial Statements).
Interpretation 46 addresses consolidation by business enterprises of
entities to which the usual condition of consolidation described in
ARB-51 does not apply. The Interpretation changes the criteria by
which one company includes another entity in its consolidated
financial statements. The general requirement to consolidate under
ARB-51 is based on the presumption that an enterprise's financial
statements should include all of the entities in which it has a
controlling financial interest (i.e., majority voting interest).
Interpretation 46 requires a variable interest entity to be
consolidated by a company that does not have a majority voting
interest, but nevertheless, is subject to a majority of the risk of
loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. A company
that consolidates a variable interest entity is called the primary
beneficiary of that entity.
13
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(2) Summary of Significant Accounting Policies, Continued:
Recent Accounting Pronouncements, Continued:
In December 2003 the FASB concluded to revise certain elements of FIN
46, primarily to clarify the required accounting for interests in
variable interest entities. FIN-46R replaces FIN-46,that was issued in
January 2003. FIN-46R exempts certain entities from its requirements
and provides for special effective dates for entities that have fully
or partially applied FIN-46 as of December 24, 2003. In certain
situations, entities have the option of applying or continuing to
apply FIN-46 for a short period of time before applying FIN-46R. In
general, for all entities that were previously considered special
purpose entities, FIN 46 should be applied in periods ending after
December 15, 2003. Otherwise, FIN 46 is to be applied for registrants
who file under Regulation SX in periods ending after March 15, 2004,
and for registrants who file under Regulation SB, in periods ending
after December 15, 2004. The Company does not expect the adoption to
have a material impact on the Company's financial position or results
of operations.
In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which
replaces the previously issued Statement. The revised Statement
increases the existing disclosures for defined benefit pension plans
and other defined benefit postretirement plans. However, it does not
change the measurement or recognition of those plans as required under
SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." Specifically, the revised Statement requires companies to
provide additional disclosures about pension plan assets, benefit
obligations, cash flows, and benefit costs of defined benefit pension
plans and other defined benefit postretirement plans. Also, companies
are required to provide a breakdown of plan assets by category, such
as debt, equity and real estate, and to provide certain expected rates
of return and target allocation percentages for these asset
categories. The Company has implemented this pronouncement and has
concluded that the adoption has no material impact to the financial
statements.
14
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(3) Property and Equipment:
Property and equipment consist of the following:
December 31, December 31,
2003 2002
---- ----
Land and building $ - $ 1,375,865
Computer equipment 329,163 257,586
Vehicles - 27,226
Office furniture and equipment 251,083 162,843
---------------- ---------------
580,246 1,823,520
Less accumulated depreciation 509,621 455,178
---------------- ---------------
$ 70,625 $ 1,368,342
================ ===============
(4) Long Lived Assets held for sale:
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". Statement 144 addresses the
accounting and reporting for the impairment or disposal of long-lived
assets. The statement provides a single accounting model for long-lived
assets to be disposed of. New criteria must be met to classify the asset as
an asset held-for-sale. This statement also focuses on reporting the
effects of a disposal of a segment of a business.
The Company is in negotiations to sell the freehold property in which their
operations are conducted. As all the conditions of SFAS 145 "Long-Lived
Assets to Be Disposed Of by Sale", paragraph 30, have been meet, the
property has been classified in the accompanying financial statements as a
separate line item.
(5) Major Vendor:
Included in accounts payable at December 31, 2003 is approximately $987,000
owed to three suppliers. Purchases from these suppliers during 2003 totaled
approximately $5,323,000.
15
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(6) Credit Facility:
One of the Company's subsidiaries in the United Kingdom uses a discount
financing company for credit administration and cash flow purposes. The
financing company purchases approved receivables, less a commission and
discounting charges. The discount rate is 2% above the base rate of
National Westminster Bank in the United Kingdom, 5.5% and 5.75% at December
31, 2003 and 2002, respectively.
The financing company holds as security interests all receivables as well
as the personal guarantees of the officer-stockholders limited to
anti-fraud.
(7) Note Payable, Bank:
One of the Company's subsidiaries in the United Kingdom has a note payable
to its bank. The note is due March 2006 and accrues interest at 2% above
the bank's current base rate (5.75% and 6% at December 31, 2003 and 2002).
The note is secured by the underlying building and the cross guarantee of
the two other United Kingdom subsidiaries. When the sale of the building is
final, a portion of the proceeds will be used to pay off the remaining
outstanding principle owned on the note.
A summary of the note payable is as follows:
December 31, December 31,
2003 2002
---- ----
Principal $ 234,737 $ 300,883
Less current maturities 113,523 88,469
---------------- ---------------
$ 121,214 $ 212,414
================ ===============
The following summarizes the aggregate maturities of the note payable
as of December 31, 2003:
Year ended December 31,
2004 $ 113,523
2005 113,523
2006 7,691
----------------
$ 234,737
================
16
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(8) Note Payable, Related Party:
On April 10, 2002, the Company and its parent company 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 $ 0.485 per share.
(9) Loan from Parent Company:
As of December 31, 2003 the Company's ultimate Parent company has advanced
them a total of approximately $90,000 for expenses associated with the
Company's public registrant filing requirements. The note is non-interest
bearing and due January 31, 2005.
(10) Income Taxes:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes",
under which the liability method is used to calculate deferred income
taxes. Under this method, deferred tax assets and liabilities are
determined based on the differences between financial reporting and income
tax basis of assets and liabilities and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. The deferred tax liability at December 31, 2003 and 2002 relates
to the step up basis of tangible assets acquired.
The Company does not file consolidated tax returns in the United Kingdom,
however, no tax expense is due in December 31, 2003 or 2002 due to group
relief between the related entities under UK taxation rules.
The provision for income taxes differs from the amount computed by applying
the U.S. statutory income tax rate as follows:
December 31, December 31, December 31,
2003 2002 2001
---- ---- ----
Provision at expected federal
statutory rate (35)% (35)% (35)%
Loss for which no benefit is available 35 35 35
---------- -------- --------
-% -% -%
========== ======== ========
17
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(11) Sale of Subsidiary:
On April 1, 2001, the Company disposed of all of the issued shares of
24STORE AS, for (pound)1.00, or approximately $1.45. Included in the sales
agreement is a guarantee by the Company as to the known losses and
liabilities of 24STORE AS. If, within one year, the purchaser had
discovered the losses or liabilities as of the date of disposal were
understated, the Company would have had to make whole the deficiency, which
did not occur.
Following this transaction the Company has no further rights, liabilities
or obligations, aside from the guarantee, with regard to 24STORE AS. The
transaction does not qualify for accounting treatment as a discontinued
operation as the subsidiary is in the same line of business as the Company.
No loss was recognized on this disposition; all goodwill associated with
the subsidiary's acquisition was previously written off in recognition of
an impairment loss on the investment. Furthermore, as a result of the
subsidiary having negative net assets, the Company has recorded a gain on
disposition of $230,322.
(12) Contingencies:
Parent Company
On January 28, 2002, the Company's parent company, InfiniCom, 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 has restructured their debt and emerged from
reconstruction during 2002. As a result, the parent company is experiencing
difficulties in providing funds to assist in financing the working capital
of the Company, including the reporting requirements of the Company. The
parent company had a change of control during the second quarter of 2003
and as of December 31, 2003 has advanced approximately $90,000 to the
Company. However, it cannot be guaranteed that the parent company will
continue to advance funds to the Company, either for operations or
reporting requirements.
On July 17, 2002, the Company, by way of redundancy, terminated the
employment of the President/Chief Executive Officer, with the Board of
Directors ratifying the termination on August 12, 2002. Under the terms of
the former President/Chief Executive Officer's employment agreement with
the operating companies, the Company paid six months salary to him upon his
termination. The former President/Chief Executive Officer initiated
proceedings against the Company and during March 2003 the Company reached a
settlement agreement for approximately $72,000, which has been paid as of
December 31, 2003.
18
24HOLDINGS INC.
(FORMERLY SCOOP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(13) Subsequent Event:
Subsequent to year end, the Company completed it's negotiations on the sale of
the freehold property in which their operations are conducted (Note 4), for
approximately $1,547,000. On March 25th 2004 contracts for the sale of the
building were exchanged with the completion of the sales expected to be made on
April 15th 2004.
24Store Ltd, a wholly owned subsidiary of 24 Holdings Inc., will be entering
into a lease with the purchaser of the building on completion of the sale to
remain in the building for the next 15 to 18 months.
(14) Selected Quarterly Financial Data (unaudited):
2003
Dec 31 Sep 30 Jun 30 Mar 31
--------------------------------------------------------------------
Net Revenue 4,209,566 3,170,609 2,991,615 4,190,612
--------------------------------------------------------------------
Gross profit 615,516 437,669 368,086 566,928
--------------------------------------------------------------------
Net income/loss 171,706 (62,945) (150,051) (34,046)
====================================================================
Basic and diluted net loss per common share 0.00 0.00 0.00 0.00
====================================================================
Number of shares 96,147,396 96,147,396 96,147,396 96,147,396
2002
Dec 31 Sep 30 Jun 30 Mar 31
--------------------------------------------------------------------
Net Revenue 3,479,638 4,215,707 5,930,446 4,972,664
--------------------------------------------------------------------
Gross profit 538,716 456,403 490,602 451,288
--------------------------------------------------------------------
Net income/loss (583,490) (98,219) (56,509) (89,061)
====================================================================
Basic and diluted net loss per common share
(0.01) 0.00 0.00 0.00
====================================================================
Number of shares 93,255,869 96,147,396 95,199,780 85,486,717
19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures designed to ensure
that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. As of December 31, 2003, the
Company's Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of these controls and procedures. Based on the evaluation, which
disclosed no significant deficiencies or material weaknesses, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the evaluation.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The name, position with the Company, age and tenure of each director and
executive officer are as follows:
Name Age Position Since
---- --- -------- -----
Urban von Euler 48 Director, Chairman of the Board and 2002
Chief Executive Officer
Larsake Sandin 54 Director 2000
Roger Woodward 58 Chief Financial Officer, 2001
Chief Accounting Officer
and Secretary
Urban von Euler, Director, Chairman of the Board and Chief Executive
Officer. Mr. von Euler is the Chief Executive Officer of Infinicom AB, the
majority shareholder of the Company. Mr. von Euler joined Infinicom in August
2000 and has been closely involved with the Company since then. Mr. von Euler
has long experience as an executive manager of several companies both in Sweden
and different countries in Europe as well as in the United States and has
extensive marketing and sales experience. Mr. von Euler is presently on the
board of directors of several companies and has specialized in working with
companies in strong development, change of management and in turn-around
situations. Mr. von Euler has a formal education and diploma in business
administration and a background in accounting from one of the leading
international accounting firms in Sweden, where he worked for 6 years. Prior to
joining Infinicom, Mr. von Euler was the president and Chief Executive Officer
of a private health care company.
Larsake Sandin, Director. Mr. Sandin has approximately 25 years of
experience in the information technology field as founder, director and manager
of several companies in Sweden, the United Kingdom and the United States. Mr.
Sandin is currently the Founding Director and a Business Consultant of Acom CMC
Ltd in London, the Founding Director of The Server Group in Scandinavia
Stockholm, also located in London, the CEO and a director of InfiniCom AB, the
majority shareholder of 24Holdings Inc. From 1976 until 1989, Mr. Sandin served
as Business Manager of AB Programator, a company located in Stockholm. From 1989
until 1991, Mr. Sandin was the Managing Director of Philips Tele & Data Systems,
a subsidiary of Philips Norden AB of Stockholm, in which capacity Mr. Sandin
accomplished a significant restructuring of the company. From 1992 until 1995,
Mr. Sandin was employed by Digital Equipment Corporation, where he was the
Director of Retail Banking Worldwide in Boston, the Director of Financial
Industry Expertise Center Europe in London, and the Director of Retail Banking
Europe in Stockholm. In addition to his employment experience, Mr. Sandin has
been and continues to be a director of many publicly and privately held
companies in Sweden. In the past, Mr. Sandin was the Chairman of the Board of
Philips Radio Communications AS, Digital Equipment BCFI AB, Rostvold AS and
Ericsson-Programatic AB.
Roger Woodward, Chief Financial Officer, Chief Accounting Officer and
Secretary. Mr. Woodward came to 24Holdings Inc. via the acquisition of LapLand
(UK) Limited, where he had been Group Financial Controller since joining
-16-
the company in 1997. Prior to this he held a number of senior financial
positions within the manufacturing and service industries. As Financial
Controller for the European subsidiary of ITW Inc., a NYSE-listed multi-national
firm, Mr. Woodward was responsible for annual and monthly reporting and was a
member of the senior management team. Mr. Woodward attended Kingston University
gaining a Diploma in Business Studies and he is also a member of the Chartered
Institute of Management Accountants.
Each director of the Company will hold office until such director's
successor is elected and qualified or until such director's earlier resignation
or removal. Each executive officer of the Company will hold office until such
officer's successor is elected and qualified or until such officer's earlier
resignation or removal in accordance with the Company's bylaws.
There currently exists no arrangement or understanding between any director
or executive officer and any other person pursuant to which the director or
executive officer was or is to be selected as such. No family relationships
exist between any current or prospective executive officer or director.
During the last five (5) years, no director or officer of the Company has:
(1) had any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the
time of the bankruptcy or within two (2) years prior to that time;
(2) been convicted in a criminal proceeding or is subject to a pending
criminal proceeding;
(3) been subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction
permanently or temporarily enjoining such person from participating,
or otherwise limiting such person's right to engage, in any type of
business, securities or banking activities;
(4) been subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any federal or state authority
barring or suspending such person from participating, or otherwise
limiting for more than 60 days such person's right to engage, in any
type of securities or banking activities; or
(5) been found by a court of competent jurisdiction in a civil action, by
the Commission or by the Commodity Futures Trading Commission to have
violated a federal or state securities law or a federal commodities
law, and the judgment or finding has not been subsequently reversed,
suspended or vacated.
Audit Committee Financial Expert
The Company's Board of Directors has determined that the Audit Committee of
the Board does not have an "audit committee financial expert," as that term is
defined in Item 401(h) of Regulation S-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the directors and executive officers of the Company and persons who beneficially
own more than ten percent of the Company's Common Stock (collectively, the
"Reporting Persons") to report their ownership of and transactions in the
Company's Common Stock to the Securities and Exchange Commission (the
"Commission"). Copies of these reports are also required to be supplied to the
Company. To the Company's knowledge, during the fiscal year ending December 31,
2003 the Reporting Persons complied with all applicable Section 16(a) reporting
requirements.
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Code of Ethics
The Company has adopted a "code of ethics," as that term is defined in Item
406 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth compensation earned, whether paid or
deferred, during the fiscal years ended December 31, 2003, 2002 and 2001 by the
Company's Chief Executive Officer and the Executive Officers of the Company
whose compensation was $100,000 or greater during the fiscal year ended December
31, 2003.
Annual
Compensation Long-Term Compensation
------------ --------------------------
Restricted Securities All Other
Principal Salary Bonus Stock Underlying Compensation
Name Position Year ($) ($) Awards ($) Options (#) ($)
- ----------------------------------------------------------------------------------------------------------------
Michael Neame (1) President and 2003 $ 156,333 $ -- $ -- -- $ 19,773
Chief Executive 2002 $ 142,500 $ -- $ -- -- $ 18,000
Officer 2001 $ 137,085 $ -- $ -- -- $ 17,316
(1) Mr. Neame resigned as Director, President and Chief Executive Officer of
the Company on February 10, 2004, and Urban von Euler was subsequently
appointed as President and Chief Executive Officer of the Company.
Option Grants in Last Fiscal Year
The Company did not grant any options during the last fiscal year.
ITEM 12. BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information, as of April 6, 2004, concerning
the Common Stock of the Company beneficially owned (i) by each director and each
Named Executive Officer of the Company, (ii) by all directors and executive
officers of the Company as a group and (iii) by each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock. Other than the shares which may be acquired by InfiniCom AB (see footnote
1 of the table), the beneficial owners named have, to the knowledge of the
Company, sole voting and dispositive power with respect to the shares
beneficially owned, subject to community property laws where applicable.
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Beneficially Owned
Name and Address Shares Percent
---------------- ------ --------
InfiniCom AB (publ)
Karlaplan 2
114 60 Stockholm
Sweden........................................................ 86,665,136(1) 90.1
Larsake Sandin
Frensham Court, Summerfield Lane
Surrey GU10 3AN
England....................................................... 0 0
Urban von Euler
Valhallavagen 108
Stockholm
Sweden........................................................ 0 0
Roger Woodward
Zennor
Cherry Tree Walk
Rowledge
Farnham
Surrey
GU10 4AD
United Kingdom................................................ 0 0
All executive officers and directors as a group (3 persons)... 0 0
(1) Includes the right of InfiniCom AB to acquire 10,660,679 shares of
Common Stock under a Capital Contribution Agreement with the Company (see ITEM
13 below).
The Company currently maintains no equity compensation plans.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On April 10, 2002, the Company and InfiniCom AB, the Company's parent, entered
into a Capital Contribution Agreement pursuant to which the Company and
InfiniCom agreed to convert a note payable by the Company to InfiniCom in the
amount of $517,043 into Common Stock of the Company. The note payable was
converted into InfiniCom's right to receive 10,660,679 newly issued shares of
Common Stock, applying a conversion rate calculated as the weighted average
stock price over the prior 30 trading days, or $0.0485 per share. As of March
31, 2004, the shares had not yet been issued.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following is a summary of the fees billed to the Company by Stonefield
Josephson, Inc., the Company's independent auditors, for professional services
rendered for the years ended December 31, 2003 and 2002:
2002 2003
--------------- ----------------
Fee Category:
Audit fees (1) $65,172 $34,686
Audit-related fees -- --
Tax fees -- --
All other fees -- --
--------------------------------
Total Fees $65,172 $34,686
================================
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(1) Audit fees consist of aggregate fees billed for professional services
rendered for the audit of the Company's annual financial statements and review
of the interim financial statements included in quarterly reports or services
that are normally provided by the independent auditors in connection with
statutory and regulatory filings or engagements for the years ended December 31,
2003 and 2002.
All fees were pre-approved.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules
(1) Financial Statements
The financial statements listed below and included under Item 8, are
filed as part of this report.
Consolidated Financial Statements of 24Holdings Inc.
(i) Independent Auditors' Report
(ii) Consolidated Balance Sheet at December 31, 2003 and December
31, 2002
(iii) Consolidated Statement of Income (Operations) for each of
the three years ended December 31, 2003
(iv) Consolidated Statement of Shareholders' Equity (Deficit) for
each of the three years ended December 31, 2003
(v) Consolidated Statement of Cash Flows for each of the three
years ended December 31, 2003
(vi) Notes to the Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because either they are not
applicable, not required or because the information required is
included in the consolidated financial statements, including the notes
thereto.
(b) Exhibits
Exhibit Number Description
-------------- ------------
2.1 Second Amended Plan of Reorganization of Scoop, Inc.
(Filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K (filed April 5, 2000) and incorporated
herein by this reference).
2.2 Stock Purchase Agreement, dated as of April 23, 1999,
between InfiniCom AB and Scoop, Inc. (Filed as Exhibit
2.2 to the Company's Current Report on Form 8-K (filed
April 5, 2000) and incorporated herein by this
reference).
2.3 Agreement, dated as of November 1, 1999, between
InfiniCom AB and Scoop, Inc. (Filed as Exhibit 2.3 to
the Company's Current Report on Form 8-K (filed April
5, 2000) and incorporated herein by this reference).
2.4 Agreement on the Transfer of Shares dated March 29,
2001 between 24STORE (Europe) Limited and Compo Consult
AS (English Translation) (Filed as Exhibit 2.4 to the
Company's Annual Report on Form 10-K for the Period
Ended December 31, 2001 (filed April 16, 2002) and
incorporated herein by this reference).
3.1 Certificate of Incorporation of the Company (Filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the Period Ended December 31, 2000 (filed April 13,
2001) and incorporated herein by this reference).
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Exhibit Number Description
-------------- ------------
3.2 Certificate of Amendment of the Certificate of
Incorporation of the Company dated October 20, 1999
(Filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the Period Ended December 31, 2000 (filed
April 13, 2001) and incorporated herein by this
reference).
3.3 Certificate of Amendment of the Certificate of
Incorporation of the Company dated April 1, 2001 (Filed
as Exhibit 3.3 to the Company's Annual Report on Form
10-K for the Period Ended December 31, 2000 (filed
April 13, 2001) and incorporated herein by this
reference).
3.4 Bylaws of the Company (Filed as Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the Period
Ended December 31, 1999 (filed February 21, 2001) and
incorporated herein by this reference).
3.5 Certificate of Amendment of the Bylaws of the Company
(Filed as Exhibit 3.4 to the Company's Annual Report on
Form 10-K for the Period Ended December 31, 1999 (filed
February 21, 2001) and incorporated herein by this
reference).
4.1 Form of Common Stock Certificate (Filed as Exhibit 4.1
to the Company's Registration Statement on Form SB-2
(Registration No. 333-15129) and incorporated herein by
this reference).
10.1 Service Agreement dated May 6, 1999 between 24STORE
Limited and Martin Clarke (Filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the Period
Ended December 31, 1999 (filed February 21, 2001) and
incorporated herein by this reference).
10.2 Service Agreement dated May 6, 1999 between 24STORE
Limited and Michael John Neame (Filed as Exhibit 10.2
to the Company's Annual Report on Form 10-K for the
Period Ended December 31, 1999 (filed February 21,
2001) and incorporated herein by this reference).
10.3 Invoice Discounting Agreement dated October 10, 1996
between Mobile Planet Limited and Lombard Natwest
Discounting Limited (Filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the Period
Ended December 31, 1999 (filed February 21, 2001) and
incorporated herein by this reference).
10.4 Invoice Discounting Agreement dated October 10, 1996
between Lapland U.K. Limited and Lombard Natwest
Discounting Limited (Filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the Period
Ended December 31, 1999 (filed February 21, 2001) and
incorporated herein by this reference).
10.5 Advice of Borrowing Terms dated September 25, 1997
between National Westminster Bank PLC and Cyberia (UK)
Limited (Filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the Period Ended December 31,
1999 (filed February 21, 2001) and incorporated herein
by this reference).
10.6 Deed of Subscription, Amendment and Release dated March
31, 2000 among Michael John Neame, Martin Clarke,
24STORE.com Limited, InfiniCom AB and Scoop, Inc.
(Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the Period Ended March 31, 2000
(filed March 6, 2001) and incorporated herein by this
reference).
10.7 Subscription Agreement dated March 31, 2000 between
InfiniCom AB and Scoop, Inc. (Filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
Period Ended March 31, 2000 (filed March 6, 2001) and
incorporated herein by this reference).
10.8 Subscription Agreement dated March 31, 2000 between
Michael John Neame and Scoop, Inc. (Filed as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for
the Period Ended March 31, 2000 (filed March 6, 2001)
and incorporated herein by this reference).
10.9 Subscription Agreement dated March 31, 2000 between
Martin Clarke and Scoop, Inc. (Filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the
Period Ended March 31, 2000 (filed March 6, 2001) and
incorporated herein by this reference).
10.10 Capital Contribution Agreement dated April 10, 2002
between InfiniCom AB (publ) and 24Holdings Inc. (Filed
as Exhibit 10.10 to the Company's Annual Report on Form
10-K for the Period Ended December 31, 2001 (filed
April 16, 2002) and incorporated herein by this
reference).
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Exhibit Number Description
-------------- ------------
10.11 Agreement dated March 21, 2003 among Lapland UK Ltd.,
Mobile Planet Ltd., Cyberia (UK) Ltd., 24Holdings Inc.,
Michael Neame, Larsake Sandin, Lennart Orkan, Roger
Woodward, Urban von Ueler, Akbar Seddigh, 24Store
(Europe) Ltd. and Martin Clarke (Filed as Exhibit 10.11
to the Company's Annual Report on Form 10-K for the
Period Ended December 31, 2002 (filed April 15, 2003)
and incorporated herein by this reference).
10.12* Agreement dated March 24, 2004 between Cyberia (UK)
Limited, as seller, and Stephen George Cranstone,
Anthony Robert Norris, Hugo James Bibby and Tenon
Pensioneer Trustee Limited, as trustees of the Link
Microtek Limited Executive Retirement Plan.
14.1* Code of Ethics.
21* List of Subsidiaries of the Company.
31.1* Chief Executive Officer Certification pursuant to Rule
13a-14(a) under the Securities Act of 1934.
31.2* Chief Financial Officer Certification pursuant to Rule
13a-14(a) under the Securities Act of 1934.
32.1* Chief Executive Officer Certification pursuant to 18
U.S.C. Section 1350.
32.2* Chief Financial Officer Certification pursuant to 18
U.S.C. Section 1350.
* filed or furnished with this report
(c) Current Reports on Form 8-K
None.
-22-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
24HOLDINGS INC.
By: /s/ Urban von Euler
-----------------------------------
Name: Urban von Euler
Title: President and
Chief Executive Officer
Date: April 14, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Urban von Euler
-----------------------------------
Name: Urban von Euler
Title: President, Chief Executive
Officer and Director
By: /s/ Roger Woodward
-----------------------------------
Name: Roger Woodward
Title: Chief Financial Officer
(Principal Accounting Officer)
By: /s/ Larsake Sandin
-----------------------------------
Name: Larsake Sandin
Title: Director