SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-22281
24HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0726608
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Cyberia House
Church Street, Basingstoke
Hampshire RG21 7QN
United Kingdom
(Address of Principal Executive Offices)
+44 1256 867 800
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock outstanding at August 16, 2004: 96,147,395.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED BALANCE SHEET
June 30, 2004 December 31, 2003
------------------- -------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 943 $ 147,841
Accounts receivable - 2,158,883
Inventory - 161,697
Prepaid expenses and other assets - 34,710
Current assets of subsidiary held for sale 1,280,022 -
--------------------- ------------------
Total current assets 1,280,965 2,503,131
Property and equipment - held for sale, net of
accumulated depreciation and amortization 55,126 70,625
Long term assets held for sale - 1,405,720
-------------------- ------------------
$ 1,336,091 $ 3,979,476
==================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities-
Accounts payable and accrued expenses 56,568 $ 2,178,856
Credit facility - 1,044,285
Current portion of loan payable, bank - 113,523
Current liabilities of subsidiary held for sale 1,025,190 -
-------------------- ------------------
Total current liabilities 1,081,758 3,336,664
Loan payable, bank, less current portion - 121,214
Long term note payable, related party 149,976 89,976
Deferred taxes - 86,800
Shareholders' equity:
Preferred stock; $0.001 par value, 5,000,000 authorized,
no shares issued and outstanding - -
Common stock; $.001 par value, 100,000,000 shares
authorized 96,147,396 shares 36,742 36,742
issued and outstanding
Additional paid in capital 10,362,233 10,362,233
Other comprehensive loss (187,404) (110,733)
Accumulated deficit (10,107,214) (9,943,420)
--------------------- --------------------
Total shareholders' equity 104,357 344,822
$ 1,336,091 $ 3,979,476
==================== ====================
(0) $ -
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS)
Three months Three months
ended ended Six months ended Six months ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue: $ - $ - $ - $ -
Cost of Revenue
- - - -
----------- ---------- ----------- ----------
Gross profit - - - -
Operating expenses:
General and administrative expenses 26,446 19,468 53,410 47,471
----------- ---------- ----------- ----------
Total operating expenses 26,446 19,468 53,410 47,471
Loss from continuing operations before
interest expense and provision for taxes (26,446) (19,468) (53,410) (47,471)
Interest expense - - - -
----------- ---------- ----------- ----------
Loss from continuing operations
before provision for income taxes (26,446) (19,468) (53,410) (47,471)
Provision for income taxes - - - -
----------- ---------- ----------- ----------
Loss from continuing operations (26,446) (19,468) (53,410) (47,471)
Loss from discontinued operations, net of taxes (30,347) (130,583) (110,385) (120,104)
Net income (loss) $ (56,793) $ (150,051) $ (163,795) $(167,575)
====================================================================
Net loss per share - continuing operations
basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
====================================================================
Net loss per share - discontinued operations
basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
====================================================================
Weighted average number of shares outstanding -
basic and diluted 96,147,396 85,493,352 96,147,396 85,493,352
====================================================================
See accompanying notes to consolidated financial statements
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Six months ended Six months ended
June 30, 2004 June 30, 2003
---------------- -----------------
(Unaudited) (Unaudited)
Cash flows provided by (used for) operating
activities:
Net loss $ (163,795) $ (167,575)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation 37,072 36,913
Foreign currency translation (15,569) 20,903
Gain on sale of building (180,247) -
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 1,256,695 (68,333)
Loans receivable, related party - -
Prepaid expenses (21,396) 24,708
Inventory 60,683 (173,935)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (1,310,521) (767,843)
Income taxes payable 95,925 (1,049)
Deferred taxes (86,800) (1,200)
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Total adjustments (164,158) (929,837)
--------- ---------
Net cash used for operating activities (327,953) (1,097,412)
Cash flows provided by (used for) investing
activities:
Proceeds from sale of property and equipment,
net of fees 1,510,037 (53,974)
Due to/from related parties 60,000 -
------------- -------------
Net cash provided by (used for) investing
activities 1,570,037 (53,974)
------------- -------------
Cash flows provided by (used for) financing
activities:
Credit facility (1,052,472) 396,218
Payment on long-term debt, bank (236,578) (44,620)
------------- -------------
Net cash provided by (used for) financing
activities (1,289,050) 351,598
------------- -------------
Net increase (decrease) in cash (46,966) (799,788)
Cash, beginning of period 147,841 802,091
------------- -------------
Cash, end of period $ 194,807 2,305
==============================
Supplemental disclosure of cash flow information:
Interest paid $ 17,573 29,142
==============================
Income taxes paid $ - $ -
==============================
See accompanying notes to consolidated financial statements
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2004
(1) Description of Business:
Interim Financial Statements:
The accompanying financial statements include all adjustments (consisting
of only normal recurring accruals), which are, in the opinion of
management, necessary for a fair presentation of the results of operations
for the periods presented. Interim results are not necessarily indicative
of the results to be expected for a full year. The financial statements
should be read in conjunction with the financial statements included in the
annual report of 24Holdings Inc. and subsidiary on Form 10-K for the year
ended December 31, 2003.
General:
24Holdings Inc., formerly known as Scoop, Inc. ("24Holdings" or the
"Company"), is a majority owned subsidiary of InfiniCom AB, a publicly
listed company on the SBI market in Sweden. 24Holdings has a wholly owned
subsidiary, 24Store Europe LTD, located in the United Kingdom. All the
consolidated entities are in the business of selling and distributing
consumer and commercial electronic products in Europe.
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 $163,795 and
$107,001 during the six months ended June 30, 2004 and the year ended
December 31, 2003, respectively, and has an accumulated deficit of
$10,107,214 at June 30, 2004. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The Company recently
sold the building in which they operate, which raised net proceeds of
approximately $1,500,000. This money has been used to pay down certain
liabilities and for working capital. Management is also considering the
sale of the Company's UK operating subsidiary (see Note 3). The financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
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24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2004
(2) Principles of Consolidation:
The accompanying consolidated statements include the accounts of 24holdings
Inc. and subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated at year-end exchange
rates, and operating statement items are translated at average exchange
rates prevailing during the year. The resulting translation adjustments are
recorded as other comprehensive income. Exchange adjustments resulting from
foreign currency transactions are included in the determination of net
income (loss).
(3) Discontinued Operations:
The Company's management intends to dispose of the Company's UK subsidiary,
24Europe, which presently is anticipated to occur within the next six
months. The Company is currently in discussions with its Parent company,
Infinicom, concerning Infinicom's possible acquisition of 24Europe in
exchange for a note payable. As the intended sale would meet all the
requirements of paragraph 30 of Statements of Financial Accounting
Standards ("SFAS") 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", the assets and liabilities of the subsidiary have been
classified as Held for sale on the accompanying balance sheet, while the
results of operations have been presented as discontinued operations for
all periods presented. As the Company would anticipate selling the
subsidiary for an amount in excess of the carrying value, no loss on
disposal has been recognized and included as a component of discontinued
operations.
The carrying amounts of the major classes of assets and liabilities
included as part of the assets and liabilities held for sale at June 30,
2004, are as follows:
Cash and cash equivalents $ 193,864
Accounts receivable 926,264
Inventory 56,818
Prepaid expenses and other assets 103,077
------------
Current assets held for sale 1,280,023
Property and equipment - held for sale 55,125
Accounts payable and accrued expenses 928,519
Income taxes payable 96,671
-------------
Current liabilities held for sale $1,025,190
(4) Sale of Building:
During the first quarter of 2004, the Company completed its negotiations on
the sale of the freehold property in which their operations are conducted,
for approximately $1,523,000. On March 25th 2004 contracts for the sale of
the building were exchanged with the completion of the sales was made on
April 14th 2004. The sale resulted in a gain on sale recognized in the
accompanying
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financial statements of approximately $180,000, which includes the write
off of the deferred tax liability which arose in relation to the step up in
basis upon acquisition of the UK subsidiary. As the building was an asset
of the UK subsidiary which the Company contemplates disposing of (see Note
3) this gain on sale is included in discontinued operations in the
accompanying Statement of Operations.
24Store Ltd, a wholly owned subsidiary of 24 Holdings Inc., entered into a
lease with the purchaser of the building on completion of the sale to
remain in the building for the next 18 months.
-4-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's interim
results of operations and financial condition. This discussion should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2003, filed with the Securities and Exchange
Commission.
PLAN OF OPERATIONS
The Company's management intends to dispose of its UK subsidiary, 24Europe,
which presently is anticipated to occur within the next six months. The Company
is currently in discussions with its parent company, Infinicom, concerning
Infinicom's possible acquisition of 24Europe in exchange for a note payable. As
the intended sale meets all the requirements of paragraph 30 of Statements of
Financial Accounting Standards ("SFAS") 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets", the assets and liabilities of the subsidiary
have been classified as Held for sale on the accompanying balance sheet, while
the results of operations have been presented as discontinued operations for all
periods presented.
The following discussions of results of operations have been separated into
continuing and discontinued operations to be more meaningful.
RESULTS OF OPERATIONS
For the Three Months ended June 30, 2004: Continuing Operations
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended June 30, 2004 were
$26,466 compared to $19,468 for the three months ended June 30, 2003. The main
reason for the increases were accrual adjustments made to June 2003 for
Directors fees and Legal fees.
For the Three Months ended June 30, 2004: Discontinued Operations
NET SALES. Net sales for the three months ended June 30, 2003 were $2,198,610
compared to $2,991,615 for the three months ended June 30, 2003 representing a
decrease of 26%. The failure of 24Store Ltd to make significant investment in a
website and internet sales due to lack of funds had an adverse effect on sales
in a market that continues to move to this channel. With the cash raised from
the sale of the building the Company is developing their new website to improve
internet marketing.
GROSS PROFIT. Gross profit for the three months ended June 30, 2004 was $256,214
compared to $368,086 for the three months ended June 30, 2003 representing a
decrease of 30%. Gross profits as a percentage of sales were 11.7% for the three
months ended June 30, 2004 compared to 12.3% for the three months ended June 30,
2003. The changes in gross profit between periods are a result of a reduction in
marketing support from major suppliers.
-5-
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended June 30, 2004 were
$351,875 compared to $482,949 for the three months ended June 30, 2003. $115,193
of the decrease was the result in reductions in salaries and marketing cost.
SALE OF BUILDING
During the first quarter of 2004, the Company completed its negotiations on the
sale of the freehold property in which their operations are conducted, for
approximately $1,523,000, with the completion of the sales made on April 14th
2004. The sale resulted in a gain on sale recognized in the accompanying
financial statements of approximately $180,000, which includes the write off of
the deferred tax liability of approximately $86,000, which arose in relation to
the step up in basis upon acquisition of the UK subsidiary.
A provision for UK tax on the profit on the building sale was made of $97,520,
which is included in the loss on discontinued operations.
INTEREST EXPENSE. Interest expense, net of interest income for the three months
ended June 30, 2004 was $4,600 compared to $15,721 for the three months ended
June 31, 2003, this reduction is the result of paying off the mortgage on the
building, with the respective reduction in mortgage interest.
INCOME TAXES.
An income tax provision has been made for the profit on sale of building of
$97,520.
LIQUIDITY AND CAPITAL RESOURCES: Continuing Operations
Cash and cash equivalents at June 30, 2004 were $943 compared to $13,283 as of
December 31, 2003. This reduction in cash was from payments on accounts payable.
LIQUIDITY AND CAPITAL RESOURCES: Discontinued Operations
Cash and cash equivalents at June 30, 2004 were $193,863 compared to $134,558 as
of December 31, 2003. This increase is the result of the cash proceeds received
from the sale of the building. The cash generated from the sale has been used to
pay off the long-term debt on the building and to reduce the borrowing on our
credit facility with Lombard.
In its United Kingdom operating subsidiaries the Company has a revolving line of
credit based on 70% of eligible receivables. The revolving line of credit bears
interest at the prime rate plus 2%.
For the Six Months ended June 30, 2004: Continuing Operations
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the six months ended June 30, 2004 were
$53,410 compared to $47,471 for the six months ended June 30, 2003.
-6-
For the Six Months ended June 30, 2004: Discontinued Operations
NET SALES. Net sales for the six months ended June 30, 2004 were $5,233,606
compared to $7,182,227 for the six months ended June 30, 2003 representing a
decrease of 27%. The reduction in sales was primarily attributable to a drop in
demand across the market and a loss in our market position because of the
failure to invest in improved website and internet sales. With the cash raised
from the sale of the building the Company is developing their new website to
improve internet marketing.
GROSS PROFIT. Gross profit for the six months ended June 30, 2004 was $634,324
compared to $935,014 for the six months ended June 30, 2003 representing a
decrease of 32%. Gross profit as a percentage of sales was 12.1% for the six
months ended June 30, 2004 compared to 13.0% for the six months ended June 30,
2003. The main reason for the margin on sales decline was a reduction in
marketing funding from suppliers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the six months ended June 30, 2004 were
$772,808 compared to $1,026,200 for the six months ended June 30, 2003. The
reduction was primarily the result of savings in salaries and advertising cost.
SALE ON BUILDING. On April 14, 2004 the Company completed its sale of the
freehold property in which their operations are conducted, for approximately
$1,523,000. The sale resulted in a gain on sale recognized in the accompanying
financial statements of approximately $180,000, which includes the write off of
the deferred tax liability of approximately $86,000, which arose in relation to
the step up in basis upon acquisition of the UK subsidiary.
INTEREST EXPENSE. Interest expense, net of interest income for the six months
ended June 30, 2004 was $17,558 compared to $28,917 for the six months ended
June 30, 2003.The reduction is the result of paying off the mortgage on the
property at the start of the second quarter.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold any derivative financial instruments. However, the
Company is exposed to interest rate risk. The Company believes that the market
risk arising from holdings of its financial instruments is not material.
However, all of the Company's operations are conducted through its subsidiary
24STORE and denominated in British pounds sterling or, prior to the sale of its
Norwegian subsidiary, Norwegian Kroner, and none of the Company's revenues are
generated in US Dollars. For consolidation purposes, the assets and liabilities
of 24STORE are converted to US Dollars using year-end exchange rates and results
of operations are converted using a monthly average rate during the year.
Fluctuations in the currency rates between the United Kingdom, Norway and the
United States may give rise to material variances in reported earnings of the
Company.
Item 4. Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and
procedures, as defined in Rule 13a-15(e)
-7-
of the Securities Exchange Act of 1934, as amended, have concluded that, as of
the end of the fiscal quarter covered by this report on Form 10-Q, the Company's
disclosure controls and procedures were effective to provide reasonable
assurances that information required to be disclosed in the reports filed or
submitted under such Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
There was no change in the Company's internal control over financial reporting
during the quarter ended March 31, 2004 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
-8-
PART II
OTHER INFORMATION
Item 5. Other Information.
On April 14, 2004, the Company completed its sale of the building currently
occupied by the Company for a total cash purchase price of $1,523,220. The
purchase price was determined by appraisal and negotiation among the parties to
the sale. The purchasers were third parties with no prior relationship with the
Company or any of its officers and directors. As part of the sale transaction,
24Store Ltd, a wholly owned subsidiary of 24Holdings Inc., entered into a lease
with the purchaser of the building to remain in the building for an 18-month
transitional period.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
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
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this report
is filed.
-9-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 18, 2004 24HOLDINGS INC.
By: /s/ Urban von Euler
----------------------------------------
Urban von Euler
President and Chief Executive Officer
By: /s/ Roger Woodward
----------------------------------------
Roger Woodward
Chief Financial Officer and Secretary
(Principal Accounting Officer)