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, 2002
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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
--- ---
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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock outstanding at May 13, 2002: 85,486,716.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED BALANCE SHEET
March 31, 2002 December 31, 2001
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 364,887 $ 1,339,650
Accounts receivable 1,929,315 1,958,937
Inventory 305,103 312,180
Prepaid expenses and other assets 61,264 29,751
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Total current assets 2,660,569 3,640,518
Loan receivable, related party 13,272 13,519
Property and equipment, net of
accumulated depreciation and amortization 1,224,406 1,264,841
Goodwill, net of accumulated amortization 402,344 408,862
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$4,300,591 $ 5,327,740
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities-
Accounts payable and accrued expenses $2,079,248 $ 2,745,435
Credit facility 888,972 1,123,604
Current portion of loan payable, bank 90,632 77,077
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Total current liabilities 3,058,852 3,946,116
Loan payable, bank, less current portion 237,855 271,196
Note Payable, related party 516,725 509,436
Deferred taxes 91,000 91,600
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 26,081
Additional paid in capital 9,855,851 9,855,851
Other comprehensive loss (355,908) (331,735)
Accumulated deficit (9,129,866) (9,040,805)
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Total shareholders' equity 396,158 509,392
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$4,300,591 $ 5,327,740
============ ============
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Three months ended
March 31, 2002 March 31, 2001
----------------- ------------------
(Unaudited) (Unaudited)
Revenue $4,972,664 $7,607,830
Cost of Revenue 4,521,376 6,879,609
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Gross profit 451,288 728,221
Operating expenses:
Distribution costs 85,408 138,174
General and administative 420,669 621,747
Goodwill Amortization - 189,302
Depreciation 17,505 25,999
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Total operating expenses 523,582 975,221
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Net loss before interest and other income
and interest expense (72,294) (247,000)
Interest and other income (1,471) (5,916)
Interest expense 18,238 37,725
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Net loss before provision for income taxes (89,061) (278,809)
Provision for income taxes - (1,800)
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Net income (loss) $ (89,061) $ (277,009)
=========== ===========
Other comprehensive loss:
Foreign currency translation (24,172) (142,194)
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Total comprehensive loss (113,233) (419,203)
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Net loss per share -
basic and diluted $(0.00) $(0.00)
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Weighted average number of shares outstanding -
basic and diluted 85,486,717 85,493,352
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24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three months ended Three months ended
March 31, 2002 March 31, 2001
------------------ ------------------
(Unaudited) (Unaudited)
Cash flows provided by (used for) operating activities:
Net loss $ (89,061) $(277,009)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:
Depreciation 17,506 25,999
Amortization of goodwill - 129,796
Foreign currency translation (15,532) 81,819
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (13,374) (580,808)
Prepaid expenses (25,161) (12,091)
Inventory 1,391 (138,505)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (624,306) 841,467
Income taxes payable - (10,773)
Deferred taxes (600) (1,800)
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Total adjustments (660,077) 335,104
------------ -----------
Net cash provided by (used for) operating activities (749,138) 58,095
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment - (10,411)
Due to/from related party 4,038 (9,199)
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Net cash used for investing activities 4,038 (19,610)
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Cash flows provided by (used for) financing activities:
Payments on credit facility (216,111) (1,635,784)
Payments on long-term debt, related parties - -
Payments on long-term debt, bank (13,552) (41,758)
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Net cash provided by financing activities (229,663) (1,677,542)
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Net decrease in cash (974,763) (1,639,057)
Cash, beginning of period 1,339,650 2,261,181
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Cash, end of period $ 364,887 $ 622,124
============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 18,815 $33,129
============ ===========
Income taxes paid $ - $ -
============ ===========
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002
(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, 2001.
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.
Scoop, Inc. changed its name to 24Holdings Inc. on April 2, 2001.
All the consolidated entities are in the business of selling and
distributing consumer and commercial electronic products in Europe.
-2-
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002
(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) Goodwill:
The Company has adopted SFAS No. 142, "Goodwill and Other Intangibles" and
accordingly has ceased amortizing Goodwill, the expense for which would
have been approximately $48,000, for the three months ended March 31, 2001.
Pursuant to the standard, the Company will perform the first tier Goodwill
impairment test before June 30, 2002, but does not expect the result to
have a material impact on financial position and results of operations.
(4) Contingencies:
On January 28, 2002, the Company's parent company, InfiniCom AB, applied to
the Stockholm District Council for reconstruction in accordance with
Swedish law, similar to a Chapter 11 filing in the United States bankruptcy
system. The parent company is attempting to restructure its debt and emerge
from reconstruction. If the parent company is unable to successfully emerge
from reconstruction, it may affect the Company's ability to get additional
funding to put management's plans for future expansion into place. If this
occurs, one of the resulting scenarios could be the Company's decision not
to continue as a public entity in the United States.
-3-
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, 2001, filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
For the Three Months ended March 31, 2002:
NET SALES. Net sales for the three months ended March 31, 2002 were $4,972,664
compared to $7,607,830 for the three months ended March 31, 2001 representing a
decrease of 34%. The sale of the Norwegian operation, which was disposed of on
April 1 2001, accounted for 14% of the sales decline. In the UK, net sales for
the three months ended March 31, 2002 decreased by 23% compared to the three
months ended March 31, 2001. Approximately 14% ($1,000,000) of these sales were
to a volume export account.
GROSS PROFIT. Gross profit for the three months ended March 31, 2002 were
$451,288 compared to $728,221 for the three months ended March 31, 2001
representing a decrease of 38%. Gross profits as a percentage of sales were 9.1%
for the three months ended March 31, 2002 compared to 9.6% for the three months
ended March 31, 2001. 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 the sale of the Norwegian operation, which accounted for
18% of group gross profit in the first quarter 2001. Also, adding to the
decrease, sales to the volume export account referred to above was at below
normal margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended March 31, 2002 were
$523,582 compared to $785,920 for the three months ended March 31, 2001. The
decrease is primarily attributable to the sale of the Norwegian operation. In
the UK, SG&A expenses in local currencies were 10% down on the first quarter
2001. The main areas of decrease were personnel cost and travel expenses.
GOODWILL AMORTIZATION. There was no goodwill amortization for the three months
ended March 31, 2002, compared to $189,302 for the three months ended March 31,
2001. The reason for the reduction was the implementation of SFAS 142, "Goodwill
and Other Intangibles," at January 1, 2002, which no longer requires goodwill to
be amortized, but periodically tested for impairment. The Company will perform
the first tier Goodwill impairment test before June 30, 2002, but does not
expect the result to have a material impact on financial position and results of
operations.
INTEREST EXPENSE. Interest expense, net of interest income for the three months
ended March 31, 2002, was $16,767 compared to $31,809 for the three months ended
March 31, 2001 representing a decrease of 47%. The decrease in interest expenses
is primarily attributable to renegotiated interest rates on loan notes payable
to related parties.
-4-
INCOME TAXES. In the three months ended March 31, 2002 there was no tax expense
due to the net loss, including at foreign subsidiary level. This is compared to
an income tax benefit in the three months ended March 31, 2001 of $1,800, which
was a reduction in the deferred tax accrual.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 2002 were $364,887 compared to $1,339,650
as of December 31, 2001. This decrease is primarily due to the position of cash
advances on the revolving line of credit at year end and the timing of payments
to creditors at year end and at March 31, 2002.
The net decrease in cash for the three months ended March 31, 2002 was $974,763
compared to a net decrease of $1,639,057 in the three months ended March 31,
2001. The reduced level of cash decrease reflects a reduction of general and
administrative expenses and reduced requirements for accounts receivable.
As of March 31, 2002 the Company had a working capital deficit of $398,283
compared to a working capital deficit of $305,598 as of December 31, 2001. This
was attributable to the loss from operations in the quarter, and the reduction
in cash position due to cash used to pay down long-term bank loans payable.
No cash was used by investing activities in the three months ended March 31,
2002 compared to $19,610 used in three months ended March 31, 2001.
In its United Kingdom operating subsidiaries the Company has (1) a revolving
line of credit based on 70% of eligible receivables, (2) a ten year mortgage
expiring in 2008, secured by 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%.
On April 10, 2002, the Company and InfiniCom AB (its parent company) agreed to
convert the Note Payable due to InfiniCom of $516,724 (5,361,735 Swedish Krona)
into 10,660,679 shares of the Company's Common Stock.
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.
-5-
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.
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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, 2002 24HOLDINGS INC.
By: /s/ Martin Clarke
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Martin Clarke
President and Chief Executive Officer
By: /s/ Roger Woodward
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Roger Woodward
Chief Financial Officer and Secretary
(Principal Accounting Officer)