SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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 November 13, 2001:
85,486,716.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED BALANCE SHEET
September 30, 2001 December 31, 2000
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,259,944 $ 2,261,181
Accounts receivable 2,538,781 3,464,412
Inventory 230,720 652,362
Prepaids and other current assets 28,919 43,111
---------------- ----------------
Total current assets 4,058,364 6,421,066
Loan receivable, related party 13,702 100,200
Property and equipment, net of
accumulated depreciation and amortization 1,306,509 1,414,994
Goodwill, net of accumulated amortization 1,912,534 2,519,996
------------------ ----------------
$ 7,291,109 $ 10,456,256
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,964,230 $ 4,918,228
Credit facility 851,087 1,704,704
Accrued expenses and other current liabilities 351,792 -
Income taxes payable 10,773
Short term loans, related party 551,491 617,406
Current portion of loan payable 93,534 54,223
----------------- ----------------
Total current liabilities 4,812,134 7,305,334
Loan payable, bank less current portion 282,849 381,396
Deferred taxes 332,600 338,000
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,
85,486,716 shares issued and outstanding 26,081 26,081
Additional paid in capital 9,855,851 9,855,851
Other comprehensive loss (284,761) (232,572)
Accumulated deficit (7,733,645) (7,217,834)
----------------- ---------------
Total shareholders' equity 1,863,526 2,431,526
----------------- ---------------
$ 7,291,109 $ 10,456,256
================= ===============
See accompanying notes to consolidated financial statements
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Three months ended Nine months ended Nine months ended
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue: $ 4,808,746 $ 6,123,828 $ 17,750,510 $ 19,475,909
Cost of Revenue 4,264,650 5,388,810 15,887,525 17,474,995
-------------- --------------- -------------- --------------
Gross profit 544,096 735,018 1,862,985 2,000,914
Operating expenses:
Distribution costs 196,458 111,505 431,578 362,979
General and adminstrative expenses 391,972 683,081 1,459,178 2,230,898
Depreciation 25,898 24,811 74,624 81,500
Amortization 187,041 147,134 560,928 477,394
Gain on sale of subsidiary - - (230,322) -
-------------- --------------- ------------- --------------
Total operating expenses 801,369 966,531 2,295,986 3,152,771
Net income before interest and other
income and interest expense (257,273) (231,513) (433,001) (1,151,857)
Interest and other income (1,988) (3,905) (12,548) (9,154)
Interest expense 24,611 30,673 96,433 235,496
Net loss before provision for income
taxes (279,896) (258,281) (516,886) (1,378,199)
Provision for income taxes (1,800) 701 (5,400) (18,749)
Net income (loss) $ (278,096) $ (258,982) $ (511,486) $ (1,359,450)
============== ============== ============== ==============
Net loss per share -
basic and diluted $ (0.00) $ (0.00) $ (0.01) $ (0.02)
============== ============== ============== ==============
Weighted average number of shares
outstanding - basic and diluted 85,493,352 85,486,716 85,493,352 79,735,559
============== ============== ============== ==============
See accompanying notes to consolidated financial statements
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Nine months ended Nine months ended
September 30, 2001 September 30, 2000
(Unaudited) (Unaudited)
Cash flows provided by (used for) operating activities:
Net income (loss) $ (511,486) $ (1,359,450)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation 74,624 82,936
Amortization 560,928 477,394
Gain on sale of subsidiary (230,322) -
Foreign currency translation 79,257 (98,676)
Other - net - (42,887)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 556,133 (528,364)
Loans receivable, related party 40,592 -
Prepaid expenses 9,021 -
Inventory 355,153 (162,857)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts payable and accrued expenses (906,852) (613,445)
Income taxes payable (10,322) (65,934)
Deferred taxes (5,400) -
--------------- -----------------
Total adjustments 522,812 (951,833)
--------------- -----------------
Net cash used for operating activities 11,326 (2,311,283)
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment 10,507 (6,985)
Due to/from related parties (20,013) 58,173
Group distribution, common ownership - -
--------------- -----------------
Net cash provided by (used for) investing activities (9,506) 51,188
Cash flows provided by (used for) financing activities:
Proceeds from issuance of common stock - 1,860,445
Proceeds from sale of subsidiary, net of cash sold (105,879)
Credit facility (844,277)
Payment on long-term debt, related parties - (1,351,255)
Payment on long-term debt, bank (52,903) (45,077)
--------------- -----------------
Net cash provided by (used for) financing activities (1,003,059) 464,113
--------------- -----------------
Net increase (decrease) in cash (1,001,238) (1,795,981)
Cash, beginning of period 2,261,181 1,860,445
--------------- -----------------
Cash, end of period $ 1,259,943 $ 64,464
=============== =================
Supplemental disclosure of cash flow information:
Interest paid $ 81,505 $ 102,537
--------------- -----------------
Income taxes paid $ - $ 30,015
=============== =================
Supplemental disclosure of non-cash investing and financing
activities:
Shares issued in satisfaction of debt 8,008,441
==================
See accompanying notes to consolidated financial statements
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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.
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 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 in the second quarter of 2001.
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 Nine Months ended September 30, 2001:
NET SALES. Net sales for the nine months ended September 30, 2001 were
$17,750,510 compared to $19,475,909 for the nine months ended September 30,
2000, representing a decrease of 8.9%. The results for 2000 include nine 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 nine months ended September 30, 2001 for the UK
operations decreased by 1.7%.
GROSS PROFIT. Gross profits for the nine months ended September 30, 2001 were
$1,862,985 compared to $2,000,914 for the nine months ended September 30, 2000
representing a decrease of 6.8%. In the UK gross profit was up by 2% in local
currency. The Group decline in gross profit was because the nine months ended
September 2001 only included gross profit from the Norwegian operations through
March 2001, or three months, while the corresponding period of the previous year
included the entire nine months of Norwegian operations. Gross profits as a
percentage of sales were 10.5% for the nine months ended September 30, 2001
compared to 10.3% for the nine months ended September 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the nine months ended September 30, 2001
were $1,735,059 compared to $2,675,377 for the nine months ended September 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 operations on April 1, 2001. In UK local currency the UK costs show a
2% increase. In the Company the reduction is due to reduced professional and
legal costs associated with SEC compliance, as the Company has cured its
reporting delinquency from the previous period.
GOODWILL AMORTIZATION. Goodwill amortization, reflecting the excess of purchase
price of the May 1999 acquisition over fair value of assets acquired, for the
nine months ended September 30, 2001, was $560,928 compared to $477,394 for the
nine months ended September 30, 2000. The increase is the result of a deferred
tax adjustment made at financial year end December 31, 2000.
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 net
negative equity and the original investment by 24Holdings had been fully written
off, the transaction resulted in a profit on disposal in the consolidated
accounts.
INTEREST EXPENSE. Interest expense net of interest income for the nine months
ended September 30, 2001 was $83,885 compared to $226,342 for the nine months
ended September 30, 2000, representing a decrease of 63%. 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 nine months ended September 30, 2001 there was an income
tax credit of $5,400 compared to an income tax credit in the nine months ended
September 30, 2000 of $18,749. The credit at September 30, 2001 is a reduction
in the deferred tax accrual, while the credit at September 30, 2000 is the
result in an over accrual of taxes in the UK operating company from the previous
year.
RESULTS OF OPERATIONS
For the Three Months ended September 30, 2001:
NET SALES. Net sales for the three months ended September 30, 2001 were
$4,808,746 compared to $6,123,828 for the three months ended September 30, 2000,
representing a decrease of 21%. The results for 2000 include 3 months of sales
from the Norwegian operation as the Norwegian operation was sold on April 1,
2001. In local currency net sales for the three months ended September 30, 2001
for the UK operations decreased by 16%.
GROSS PROFIT. Gross profits for the three months ended September 30, 2001 were
$544,096 compared to $735,018 for the three months ended September 30, 2000,
representing a decrease of 26%. The decline in the UK operations gross profit in
local currency was 17% as compared to the third quarter 2000. Gross profit as a
percentage of sales was 11.3% for the three months ended September 30, 2001
compared to 12.0% for the three months ended September 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended September 30, 2001
were $614,329 compared to $819,397 for the three months ended September 30,
2000. The decrease in the operational companies is primarily due to the sale of
the Norwegian operation on April 1, 2001. In UK local currencies the UK costs
show a 5% decrease. In the Company the reduction is due to reduced professional
and legal costs associated with SEC compliance, as the Company has cured its
reporting delinquency from the previous period.
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 September 30, 2001 was $187,041 compared to $147,134 for the
three months ended September 30, 2000. The increase is the result of a deferred
tax adjustment made at financial year end December 31, 2000.
INTEREST EXPENSE. Interest expense net of interest income for the three months
ended September 30, 2001 was $22,623 compared to $26,768 for the three months
ended September 30, 2000.
INCOME TAXES. In the three months ended September 30, 2001 there was an income
tax credit of $1,800 compared to an income tax charge in the three months ended
September 30, 2000 of $701. This credit for the three months ended September 30,
2001 is due to a reduction in the deferred tax accrual.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 2001 were $1,259,944 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
September 30, 2001, also the timing of payments to creditors at year end and at
September 30, 2001.
Cash provided by operating activities for the nine months ended September 30,
2001 was $216,956 compared to net cash used by operating activities of
$2,311,283 in the nine months ended September 30, 2000. The cash used for both
periods, reflects the timing of payments to creditors at the nine months ended
September 30, 2001 and 2000. The improvement on the first nine months of 2001
against the first nine months of 2000 is the result of reduced professional
costs and interest costs of the parent company. In addition, cash was provided
from reduced inventories and accounts receivable in the UK operating companies.
As at September 30, 2001 the Company had a working capital deficit of $753,770
compared to a working capital deficit of $884,268 as of December 31, 2000.
Cash used for investing activities was $9,505 in the nine months ended September
30, 2001 compared to cash provided of $51,188 in September 30, 2000. The change
is due primarily to the change in position of the amounts due to/from related
parties.
Cash used for financing activities was $1,003,059 in the nine months ended
September 30, 2001, compared to cash provided of $464,113 in the nine months
ended September 30. 2000. The change was primarily in the reduction in the use
of the Credit Facility in the current year. In the nine months ended September
30, 2000 the cash provided represented 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. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold any derivative financial instruments. However, the
Company is exposed to interest rate risk. The Company believes that the market
risk arising from holdings of its financial instruments is not material.
However, all of the Company's operations are conducted through its subsidiary
24STORE and denominated in British pounds sterling or, prior
to the sale of its Norwegian subsidiary, Norwegian Kroner, and none of the
Company's revenues are generated in US Dollars. For consolidation purposes, the
assets and liabilities of 24STORE are converted to US Dollars using year-end
exchange rates and results of operations are converted using a monthly average
rate during the year. Fluctuations in the currency rates between the United
Kingdom, Norway and the United States may give rise to material variances in
reported earnings of the Company.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
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: November 14, 2001 24HOLDINGS INC.
By: /s/ Larsake Sandin
----------------------------------------
Larsake Sandin
President and Chief Executive Officer
By: /s/ Roger Woodward
----------------------------------------
Roger Woodward
Chief Financial Officer
(Principal Accounting Officer)