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, 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 August 13, 2001:
85,486,716.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.
CONSOLIDATED BALANCE SHEET)
June 30, 2001 December 31, 2000
------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 511,194 $ 2,261,181
Accounts receivable 3,466,558 3,464,412
Inventory 465,658 652,362
Prepaids and other current assets 30,583 43,111
--------------- --------------
Total current assets 4,473,993 6,421,066
Loan receivable, related party - 100,200
Property and equipment, net of accumulated
depreciation and amortization 1,274,907 1,414,994
Goodwill, net of accumulated amortization 2,029,667 2,519,996
--------------- --------------
$ 7,778,567 $ 10,456,256
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,764,093 $ 4,918,228
Credit facility 1,292,981 1,704,704
Accrued expenses and other current liabilities 432,370 -
Income taxes payable 10,773
Short term loans, related party 546,390 617,406
Current portion of loan payable 89,767 54,223
--------------- --------------
Total current liabilities 5,125,601 7,305,334
Loan payable, bank less current portion 288,687 381,396
Deferred taxes 334,400 338,000
Shareholders' equity:
Preferred stock; $0.001 par value, 5,000,000
authorized, no shares issued and outstanding - -
Common stock; $0.001 par value, 100,000,000
authorized, 85,493,352 shares issued and
outstanding 26,081 26,081
Additional paid in capital 9,855,851 9,855,851
Other comprehensive loss (340,367) (232,572)
Accumulated deficit (7,511,686) (7,217,834)
--------------- --------------
Total shareholders' equity 2,029,879 2,431,526
--------------- --------------
$ 7,778,567 $ 10,456,256
=============== ==============
See accompanying notes to consolidated financial statements
1
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS)
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ----------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue: $5,333,934 $5,482,773 $12,941,764 $13,352,081
Cost of Revenue 4,743,266 4,992,089 11,622,875 12,086,185
---------- ---------- ----------- -----------
Gross profit 590,668 490,684 1,318,889 1,265,896
Operating expenses:
Distribution costs 96,945 100,851 235,120 251,474
General and
administrative expenses 445,460 765,124 1,067,206 1,547,817
Depreciation 22,727 27,590 48,726 56,689
Amortization 184,585 153,212 373,887 330,260
Gain on sale of
subsidiary (230,322) - (230,322) -
Total operating expenses 519,395 1,046,777 1,494,618 2,186,240
---------- ---------- ----------- -----------
Net income before
interest and other income
and interest expense 71,273 (556,093) (175,729) (920,344)
Interest and other income (4,643) (2,134) (10,560) (5,249)
Interest expense 34,097 4,494 71,822 204,823
---------- ---------- ----------- -----------
Net income before provision
for income taxes 41,819 (558,453) (236,991) (1,119,918)
Provision for income taxes (1,800) (19,450) (3,600) (19,450)
---------- ---------- ----------- -----------
Net income (loss) $ 43,619 $ (539,003) $ (233,391) $(1,100,468)
========== ========== =========== ===========
Net loss per share -
basic and diluted $ 0.00 $ (0.01) $ (0.00) $ (0.01)
========== ========== =========== ===========
Weighted average number
of shares outstanding -
basic and diluted 85,493,352 85,486,716 85,493,352 76,859,981
========== ========== =========== ============
See accompanying notes to consolidated financial statements
2
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Six months Six months
ended ended
June 30, 2001 June 30, 2000
------------- -------------
(Unaudited) (Unaudited)
Cash flows provided by (used for)
operating activities:
Net income (loss) $(233,391) $(1,100,468)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation 48,662 56,689
Amortization 373,364 330,260
Gain on sale of subsidiary (230,322) -
Foreign currency translation (74,580) 45,304
Other - net - (33,699)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (528,228) 37,998
Loans receivable, related party 35,922 -
Prepaid expenses 95,513 -
Inventory 14,584 (724,199)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts payable and accrued expenses (753,544) (677,277)
Income taxes payable (11,788) (41,911)
Deferred taxes (3,600) -
---------- ----------
Total adjustments (1,034,017) (1,006,836)
---------- ----------
Net cash used for operating activities (1,267,408) (2,107,304)
Cash flows provided by (used for) investing
activities:
Acquisition of property and equipment 14,780 (29,981)
Due to/from related parties (20,013) 60,120
Group distribution, common ownership - -
Net cash provided by (used for) investing ---------- -----------
activities (5,232) 30,140
---------- -----------
Cash flows provided by (used for) financing activities:
Proceeds from issuance of common stock - 1,870,426
Proceeds from sale of subsidiary, net of cash sold (105,879)
Credit facility (337,351)
Payment on long-term debt, related parties - (1,351,255)
Payment on long-term debt, bank (34,116) (33,883)
---------- -----------
Net cash provided by (used for) financing
activities (477,346) 485,288
---------- -----------
Net increase (decrease) in cash (1,749,987) (1,591,876)
Cash, beginning of period 2,261,181 1,860,445
---------- ----------
Cash, end of period $ 511,194 $ 268,569
========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 53,965 $ 73,687
========= =========
Income taxes paid $ - $ 1,149
========= =========
Supplemental disclosure of non-cash investing and
financing activities:
Shares issued in satisfaction of debt 8,008,441
=========
See accompanying notes to consolidated financial
statements
3
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 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 subsidiaries 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.
4
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001
(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) Sale of Subsidiary:
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 recorded a gain on
disposition in the second quarter of 2001.
5
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 Six Months ended June 30, 2001:
NET SALES. Net sales for the six months ended June 30, 2001 were $12,941,764
compared to $13,352,081 for the six months ended June 30, 2000 representing a
decrease of 3.1%. The results for 2000 include 6 months of sales from the
Norwegian operation; the results for 2001 only include three months of sales in
Norway as the operation was sold on April 1, 2001. In local currency net sales
for the six months ended June 30, 2001 for the UK operations increased by 6%.
GROSS PROFIT. Gross profits for the six months ended June 30, 2001 were
$1,318,889 compared to $1,265,896 for the six months ended June 30, 2000
representing an increase of 4.0%. Gross profits as a percentage of sales were
10.2% for the six months ended June 30, 2001 compared to 9.5% for the six months
ended June 30, 2000. The improvement in gross profit between periods is the
result of a change in sales mix in the UK from distribution customers to end
user customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the six months ended June 30, 2001 were
$1,302,326 compared to $1,799,291 for the six months ended June 30, 2000. The
decrease in the operational companies is primarily attributable to the weakness
of local currencies against the US Dollar and the sale of the Norwegian
operations on April 1, 2001. In local currencies the SG&A expenses showed a 3%
increase. In the parent company the reduction in SG&A expenses is due to reduced
professional and legal costs compared with the costs incurred during the
previous period in order to bring the Company into compliance with SEC reporting
requirements.
GOODWILL AMORTIZATION. Goodwill amortization, reflecting the excess of purchase
price of the May 1999 acquisition over the fair value of the assets acquired,
for the six months ended June 30, 2001 was $373,887 compared to $330,260 for the
six months ended June 30, 2000. The difference is due to foreign currency
exchange rate fluctuations between periods.
PROFIT ON SALE OF THE NORWEGIAN COMPANY. The Norwegian company was sold on April
1, 2001 for a nominal amount. However because the Norwegian company had negative
net assets and the original investment by the Company had been fully written
off, the sale resulted in a profit on disposal in the consolidated accounts of
the Company.
INTEREST EXPENSE. Interest expense, net of interest income for the six months
ended June 30, 2001 was $61,262 compared to $199,574 for the six months ended
June 30, 2000 representing a decrease of 69.3%. 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 six months ended June 30, 2001 there was an income tax
credit of $3,600 compared to an income tax credit in the six months ended June
30, 2000 of $19,450. This credit in June 2001 is a reduction in the deferred tax
accrual, the credit in June 2000 is the result in an over accrual of taxes in
the UK operating company from the previous year.
6
RESULTS OF OPERATIONS
For the Three Months ended June 30, 2001:
NET SALES. Net sales for the three months ended June 30, 2001 were $5,333,934
compared to $5,482,773 for the three months ended June 30, 2000, representing a
decrease of 3.0%. The results for 2000 include 3 months of sales from the
Norwegian operation, which was sold April 1, 2001. In local currency, Net sales
for the three months ended June 30, 2001 for the UK operations increased by
5.2%.
GROSS PROFIT. Gross profits for the three months ended June 30, 2001 were
$590,668 compared to $490,684 for the three months ended June 31, 2000,
representing an increase of 16.6%. Gross profits as a percentage of sales were
11.1% for the three months ended June 30, 2001 compared to 8.9% for the three
months ended June 30, 2000. The improvement in gross profit between periods is
the result of a change in sales mix in the UK from distribution customers to end
user customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses for the three months
ended June 30, 2001 were $542,405 compared to $865,975 for the three months
ended June 30, 2000. The decrease in the operational companies is primarily
attributable to a reduction of local currencies against the US Dollar and the
sale of the Norwegian operation. In local currencies SG&A expenses show a 9%
increase, mainly the result of an increase in the sales force. In the parent
company the reduction in SG&A expenses is due to reduced professional and legal
costs compared with the costs incurred during the previous period in order to
bring the Company into compliance with SEC reporting requirements.
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 June 30, 2001 was $184,585 compared to $153,212 for the three
months ended June 30, 2000. The difference is due to foreign currency exchange
rate fluctuations between periods.
PROFIT ON SALE OF THE NORWEGIAN COMPANY. The Norwegian company was sold on April
1, 2001 for a nominal amount. However because the Norwegian company had negative
net assets and the original investment by the Company had been fully written
off, the sale resulted in a profit on disposal in the consolidated accounts of
the Company.
INTEREST EXPENSE. Interest expense, net of interest income for the three months
ended June 30, 2001 was $29,454 compared to $2,360 for the three months ended
June 30, 2000. The increase in interest expenses is the result of accrued
interest on loans from related companies agreed to in December 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 June 30, 2001 there was an income tax
credit of $1,800 compared to an income tax in the three months ended June 30,
2000 of $19,450. This credit in June 2001 is a reduction in the deferred tax
accrual, the credit in June 2000 is the result in an over accrual in the UK
operating company from the previous year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 2001 were $511,194 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 June 30, 2001, also
the timing of payments to creditors at year end and at June 30, 2001. In
addition the reported cash position was further reduced by weakening foreign
exchange rates in translation into US Dollars.
7
Cash used by operating activities for the six months ended June 30, 2001 was
$1,267,408 compared to net cash used by operating activities of $2,107,304 in
the six months ended June 30, 2000. The cash used for both years, reflects the
timing of payments to creditors at period end 2001 and year-end 2000. The
improvement on the first six months of 2001 against the first six months of 2000
is a result of the improvement in profitability in the UK operating company and
reduced professional costs of the parent company. These improvements were offset
by changes in current assets.
At June 30, 2001 the Company had a working capital deficit of $651,607 compared
to a working capital deficit of $884,270 as of December 31, 2000.
Cash used by investing activities was $5,232 in the six months ended June 30,
2001 compared to cash provided of $30,140 in June 30, 2000.
Cash used for financing activities was $477,346 in the six months ended June 30,
2001, representing payments on bank loans and on the Company's credit facility
which was not being utilized at June 30, 2000. Cash provided by financing
activities in the six months ended June 30, 2000 was $485,288, representing the
net effect of capital raised through the sale of stock and the retirement of
long term debt to related parties.
In its UK 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 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. 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.
8
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.
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 14, 2001 24HOLDINGS INC.
By: /s/ Martin Clarke
----------------------------------------
Martin Clarke
President and Chief Executive Officer
By: /s/ Roger Woodward
----------------------------------------
Roger Woodward
Chief Financial Officer and
Principal Accounting Officer
10