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 March 31, 2001
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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock outstanding at May 3, 2001:
85,486,716.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED BALANCE SHEET
March 31, 2001
----------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 622,124
Accounts receivable 4,045,219
Inventory 790,867
Prepaid expenses and other assets 55,202
---------------
Total current assets 5,513,412
Property and equipment, net of
accumulated depreciation and amortization 1,334,394
Goodwill, net of accumulated amortization 2,231,202
---------------
$ 9,079,008
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,759,697
Credit facility 68,920
Income taxes payable -
Short term loans, related party 508,008
Current portion of loan payable, bank 90,615
---------------
Total current liabilities 6,427,240
Loan payable, bank, less current portion 303,246
Deferred taxes 336,200
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 85,486,716 shares issued and outstanding 26,081
Additional paid in capital 9,855,851
Other comprehensive loss (374,766)
Accumulated deficit (7,494,844)
---------------
Total shareholders' equity 2,012,322
---------------
$ 9,079,008
===============
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Three months ended
March 31, 2001 March 31, 2000
------------------ ------------------
(Unaudited) (Unaudited)
Revenue $ 7,607,830 $ 7,869,308
Cost of Revenue 6,879,609 7,094,096
--------------- ---------------
Gross profit 728,221 775,212
Operating expenses:
Distribution costs 138,174 150,622
General and administative 621,747 782,693
Goodwill Amortization 189,302 177,048
Depreciation 25,999 29,099
--------------- ---------------
Total operating expenses 975,221 1,139,462
--------------- ---------------
Net loss before interest and other income
and interest expense (247,000) (364,250)
Interest and other income (5,916) (3,115)
Interest expense 37,725 200,329
--------------- ---------------
Net loss before provision for income taxes (278,809) (561,464)
Provision for income taxes (1,800) -
--------------- ---------------
Net income (loss) $ (277,009) $ (561,464)
=============== ===============
Net loss per share -
basic and diluted $ (0.00) $ (0.01)
=============== ===============
Weighted average number of shares outstanding -
basic and diluted 85,493,352 68,217,618
=============== ===============
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three months ended Three months ended
March 31, 2001 March 31, 2000
-------------- --------------
(Unaudited) (Unaudited)
Cash flows provided by (used for) operating activities:
Net loss $ (277,010) $ (561,464)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation 25,999 29,099
Amortization of goodwill 129,796 177,048
Foreign currency translation 81,819 (21,799)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (580,807) 47,931
Prepaid expenses (12,091)
Inventory (138,505) (143,984)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 841,467 (1,191,377)
Income taxes payable (10,773) (20,558)
Deferred taxes (1,800) -
---------------- ----------------
Total adjustments 335,104 (1,123,641)
---------------- ----------------
Net cash provided by (used for) operating activities 58,094 (1,685,105)
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment (10,411) (13,540)
Due to/from related party (9,199) (37,485)
---------------- ----------------
Net cash used for investing activities (19,610) (51,025)
---------------- ----------------
Cash flows provided by (used for) financing activities:
Proceeds from sale of common stock - 1,870,426
Payments on credit facility (1,635,784) -
Payments on long-term debt, related parties - (1,351,255)
Payments on long-term debt, bank (41,758) (19,374)
---------------- ----------------
Net cash provided by financing activities (1,677,541) 499,797
---------------- ----------------
Net decrease in cash (1,639,057) (1,236,334)
Cash, beginning of period 2,261,181 1,860,445
---------------- ----------------
Cash, end of period $ 622,124 $ 624,111
================ ================
Supplemental disclosure of cash flow information:
Interest paid $ 33,129 $ 42,609
================ ================
Income taxes paid $ - $ -
================ ================
Supplemental disclosure of non-cash investing and financing activities:
Shares issued in satisfaction of debt $ - $ 8,008,441
================ ================
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001
(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 (the "Company") on Form 10-K for the year ended December
31, 2000.
General:
24Holdings Inc., formerly known as Scoop, Inc. ("24Holdings" or the
"Company"), was incorporated in 1996 in the state of Delaware as an
online news provider. In July 1998, the Company filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in the United
States Bankruptcy Court for the Central District of California. In
September 1999, the Company filed a Plan of Reorganization ("Plan")
with the Bankruptcy Court. The Plan was confirmed on October 5, 1999.
Pursuant to the Plan, the Company was acquired in a reverse merger with
24STORE (Europe) Limited, formerly known as 24STORE.com Limited
("24STORE"), whose parent company acquired 91% of the outstanding
shares of the Company, or 60,783,219 of newly issued shares, in
exchange for all the outstanding shares of 24STORE.
24STORE was incorporated July 28, 1998 in England and Wales, and was a
wholly owned subsidiary of InfiniCom AB, a publicly listed company on
the SBI market in Sweden, whose principal activity is that of a holding
company. 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. This transaction was treated
as a reorganization. All of the Swedish entities either entered
bankruptcy or ceased operations soon after transfer.
On May 6, 1999, 24STORE acquired three companies registered in the
United Kingdom, related through common ownership.
All the consolidated entities are in the business of selling and
distributing consumer and commercial electronic products in Europe.
(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) Subsequent Event (Unaudited):
Due to the continued losses of the Company's Norwegian subsidiary,
24STORE AS, the Company made a determination during March 2001 to
divest itself of the Norwegian subsidiary. On April 1, 2001, the
Company, disposed of all of the issued shares of 24STORE AS, for 1.00
Pound Sterling, or approximately $1.45. Following this transaction the
Company has no further rights, liabilities or obligations 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 will be 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 will record a gain on disposition in the second
quarter 2001.
24Holdings Inc.
(formerly known as Scoop, Inc.)
Unaudited Pro Forma Condensed Consolidated Balance Sheet
and Statements of Operations
for the Disposal of "Norway Subsidiary"
On April 1, 2000, 24Holdings Inc., formerly known as Scoop, Inc. (the
"Company"), disposed of all of the issued shares of its Norwegian subsidiary,
24STORE AS, for 1.00 Pound Sterling, or approximately $1.45 (the "Disposal").
Following this transaction the Company has no further rights, liabilities or
obligations 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.
The following unaudited pro forma condensed consolidated balance sheet and
statements of operations of the Company at March 31, 2001 and for the year ended
December 31, 2000, have been prepared to illustrate the effect of the Disposal,
as though it had occurred on January 1, 2000, for purposes of the pro forma
statements of operations, and March 31, 2001 for pro forma balance sheet. The
assumptions are described in the accompanying Notes to the Unaudited Pro Forma
Condensed Consolidated Balance Sheet and Statements of Operations.
The pro forma condensed consolidated balance sheet and statements of operations
are presented for illustrative purposes only and are not necessarily indicative
of the results of operations of the Company that would have been reported had
the Disposal occurred on January 1, 2000, nor do they represent a forecast of
the results of operations for any future period. The unaudited pro forma
condensed consolidated statements, include the Notes thereto, should be read in
conjunction with the historical consolidated financial statements of the
Company, which are incorporated herein by reference.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 2000
For Sale of Norway Subsidiary
24Holdings Norway
Consolidated Subsidiary (1) Adjustments Pro forma
------------ -------------- ----------- ---------
ASSETS
Cash and cash equivalents $ 2,261,181 $ 142,052 $ 2,119,129
Accounts receivable 3,464,412 269,572 3,194,840
Inventory 652,362 75,327 577,035
Prepaids and other assets 43,111 43,111
-----------
Total current assets 6,421,066 486,951 5,934,115
----------- ---------- -----------
-
Property and equipment, net of -
accumulated depreciation and amortization 1,414,995 22,885 1,392,110
----------- ---------- -----------
Loan receivable, related party 100,200 - 100,200
----------- ---------- -----------
Goodwill, net of accumulated amortization 2,519,996 - 2,519,996
----------- ---------- -----------
$10,456,258 $ 509,836 $ - $ 9,946,422
=========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 4,929,003 $ 654,899 $ 4,274,104
Due under Credit Facility 1,704,704 - 1,704,704
Short-term notes payable, related parties 617,406 18,943 598,463
Current portion of loan payable, bank 95,021 - 95,021
----------- ---------- -----------
Total current liabilities 7,346,135 673,842 6,672,292
----------- ---------- -----------
-
-----------
Deferred taxes 338,000 - 338,000
----------- ---------- -----------
Loan payable, bank, less current portion 340,598 - 340,598
----------- ---------- -----------
Stockholders' equity 2,431,526 (164,007) 2,595,533
----------- ---------- -----------
$10,456,258 $ 509,836 $ - $ 9,946,422
=========== ========== ========== ===========
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 2001
For Sale of Norway Subsidiary
24Holdings Norway
Consolidated Subsidiary (1) Adjustments Pro forma
------------ -------------- ----------- ---------
ASSETS
Cash and cash equivalents $ 622,124 $ 51,250 $ 570,874
Accounts receivable 4,045,219 154,075 3,891,144
Inventory 790,867 28,808 762,059
Prepaids and other assets 55,202 4,316 50,886
----------- ---------- ----------
Total current assets 5,513,412 238,449 5,274,963
----------- ---------- ----------
Property and equipment, net of
accumulated depreciation and amortization 1,334,394 11,922 1,322,471
----------- ---------- ----------
Goodwill, net of accumulated amortization 9,079,008 - 9,079,008
----------- ---------- ----------
$15,926,814 $ 250,372 $6,597,434
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 5,759,697 $ 354,373 $5,405,323
Due under Credit Facility 68,920 - 68,920
Short-term notes payable, related parties 508,008 56,915 451,093
Current portion of loan payable, bank 90,615 - 90,615
----------- ---------- ----------
Total current liabilities 6,427,240 411,288 6,838,528
----------- ---------- ----------
Deferred taxes 336,200 - 336,200
----------- ---------- ----------
Loan payable, bank, less current portion 303,246 - 303,246
----------- ---------- ----------
Stockholders' equity 2,012,322 (160,917) 2,173,239
----------- ---------- ----------
$ 9,079,008 $ 250,372 $9,011,767
=========== ========== ==========
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
March 31, 2001
For Sale of Norway Subsidiary
24Holdings Norway
Consolidated Subsidiary (1) Adjustments Pro forma
------------ -------------- ----------- ---------
Revenue $ 7,607,830 $ 1,061,818 $ 6,546,012
Cost of Revenue 6,879,609 928,799 5,950,810
----------- ----------- -----------
Gross profit 728,221 133,020 595,202
Operating expenses:
General and administrative expenses 785,919 204,037 581,882
Goodwill amortization 189,302 - 189,302
----------- ----------- -----------
975,221 204,037 771,184
----------- ----------- -----------
Loss from operations (247,000) (71,018) (175,982)
Interest income (5,916) (1,892) (4,024)
Interest expense 37,725 2,783 34,942
----------- ----------- -----------
31,809 891 30,919
----------- ----------- -----------
Net loss before taxes (278,809) (71,908) (206,901)
----------- ----------- -----------
Taxes (1,800) - (1,800)
----------- ----------- -----------
Net loss $ (277,009) $ (71,908) $ (205,101)
Net loss per share -
basic and diluted (0.00) (0.00)
=========== ===========
Weighted average number of shares
outstanding - basic and diluted 85,493,352 85,493,352
=========== ===========
24HOLDINGS, INC.
(FORMERLY KNOWN AS SCOOP, INC.)
Notes to Pro Forma Condensed Consolidated Financial Statements (unaudited)
(1) The financial statements of the Norway subsidiary included in the unaudited
pro forma consolidated financial information were first translated from
Norwegian Kroner to British pounds at the rate of .076 and .119, and then
translated from British pounds to U.S. dollars at the rate of 1.494 and
1.552 for the December 31, 2000 Unaudited Consolidated Balance Sheet and
the December 31, 2000 Unaudited Statement of Operations, respectively. For
the March 31, 2001 Unaudited Consolidated Balance Sheet and Unaudited
Statement of Operations, the rates used were .077 and .076 and 1.425 and
1.458, respectively.
Note A - There are no pro forma adjustments to the condensed consolidated
balance sheets and statements of income, other than the elimination of
the financial position and results of operations. The Company disposed
of the subsidiary for an insignificant dollar amount, and all assets,
liabilities and costs related to the subsidiary were booked directly to
the subsidiary, and after elimination of the subsidiary financial
position and results of operations, no amounts relating to the
subsidiary remain.
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, 2000, filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
For the Three Months ended March 31, 2001:
NET SALES. Net sales for the three months ended March 31, 2001 were $7,607,830
compared to $7,869,308 for the three months ended March 31, 2000 representing a
decrease of 3.3%. In local currency Net sales for the three months ended March
31, 2001 increased by 6% in the United Kingdom, and by 10% in Norway compared to
the three months ended March, 2000 however the strength of the United States
dollar compared to the British pound and the Norwegian kroner have resulted in a
reported decrease in Net sales for the quarter.
GROSS PROFIT. Gross profits for the three months ended March 31, 2001 were
$728,221 compared to $775,212 for the three months ended March 31, 2000
representing a decrease of 6.1%. Gross profits as a percentage of sales were
9.6% for the three months ended March 31, 2001 compared to 9.8% for the three
months ended March 31, 2000. The changes in gross profit between periods are a
result of the decline in gross profits as a percentage of sales due to
competitive market conditions and a further decline due to the strength of the
United States dollar compared to the British pound and Norwegian kroner
resulting in lower reported gross profits for the quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended March 31, 2001 were
$785,920 compared to $962,414 for the three months ended March 31, 2000. The
decrease is primarily attributable to a reduction in exchange losses incurred on
the revaluation of creditors due to related parties denominated in foreign
currencies. In the three months ended March 31, 2001 an exchange gain of $31,873
was incurred, compared to an exchange loss of $110,579 in the three months ended
March 31, 2000.
GOODWILL AMORTIZATION. Goodwill amortization, reflecting the excess of purchase
price of the May 1999 acquisition over fair value of assets acquired, for the
three months ended March 31, 2001 was $189,302 compared to $177,049 for the
three months ended March 31, 2000.
INTEREST EXPENSE. Interest expense, net of interest income for the three months
ended March 31, 2001 was $31,809 compared to $197,214 for the three months ended
March 31, 2000 representing a decrease of 83.9%. The decrease in interest
expenses is primarily attributable to the company now having lower interest
bearing debts to related parties following the restructuring of debt that
occurred on March 24, 2000. See discussion in "Part II - Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
company's annual report on Form 10-K for the fiscal year ended December 31,
2000, filed with the Securities and Exchange Commission.
INCOME TAXES. In the three months ended March 31, 2001 there was an income tax
credit of $1,800 compared to no income tax in the three months ended March 31,
2000. This credit is a reduction in the deferred tax accrual.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 2001 were $622,124 compared to $2,261,181
as of December 31, 2000. This decrease is primarily due to the position of cash
advances on the revolving line of credit at year end and at March 31, 2001, and
the timing of payments to creditors at year end and at March 31, 2001. In
addition the reported cash position was further reduced by weakening foreign
exchange rates in translation into United States dollars.
Cash provided by operating activities for the three months ended March 31, 2001
was $58,094 compared to net cash used by operating activities of $1,685,105 in
the three months ended March 31, 2000. The reduced use of cash reflects the
improvement in operations in the current period, including reduced professional
fees, decrease in interest expense as a result of substantial reduction in debt,
and control of general and administrative expenses. Additionally, March 31, 2000
reflected the increased operations of the acquired entities, including increased
overhead and employee costs as a result of the growth, and additional money used
to fund the Norway entity, which was in financial difficulty.
As of March 31, 2001 the Company had a working capital deficit of $913,828
compared to a working capital deficit of $884,270 as of December 31, 2000.
Cash used by investing activities was $19,610 in the three months ended March
31, 2001 compared to $51,025 in March 31, 2000.
Cash used for financing activities was $1,677,541 in the three months ended
March 31, 2001, representing payments on Credit Facility which was not being
utilized at March 31, 2001 and bank loans. Cash provided by financing activities
in the three months ended March 31, 2000 was $499,797, representing the net
effect of capital raised through the sale of stock, and the retirement of long
term debt to related parties.
In its United Kingdom operating subsidiaries the Company has (1) a revolving
line of credit based on 70% of eligible receivables and (2) a ten year mortgage
expiring in 2008, secured by the underlying property and (3) a $75,000 overdraft
facility. The mortgage, the revolving line of credit and the overdraft facility
bear interest at the prime rate plus 2%.
Item 3. Quantitive 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 either British pounds sterling or Norwegian Kroner,
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, Norway and the United States may give
rise to material variances in reported earnings of the Company.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2001 24HOLDINGS INC.
By: /s/ Martin Clarke
--------------------------------
Martin Clarke
President and Chief Executive
Officer
By: /s/ Michael Neame
--------------------------------
Michael Neame
Chief Financial Officer and
Principal Accounting Officer