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, 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
---------------------- ----------------------
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 14, 2002:
85,486,716.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED BALANCE SHEET
June 30, 2002 December 31, 2001
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 189,355 $ 1,339,650
Accounts receivable 1,946,947 1,958,937
Inventory 159,230 312,180
Prepaid expenses and other assets 53,485 29,751
------- -------
Total current assets 2,349,017 3,640,518
Loan receivable, related party 14,218 13,519
Property and equipment, net of
accumulated depreciation and amortization 1,299,054 1,264,841
Goodwill, net of accumulated amortization 428,991 408,862
-------- --------
$ 4,091,279 $ 5,327,740
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities-
Accounts payable and accrued expenses $ 1,858,957 $ 2,745,435
Credit facility 862,386 1,123,604
Current portion of loan payable, bank 97,091 77,077
------- -------
Total current liabilities 2,818,434 3,946,116
Loan payable, bank, less current portion 234,590 271,196
Note Payable, related party - 509,436
Deferred taxes 90,400 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 10,660,679 and 85,486,716 shares
issued and outstanding, respectively 36,742 26,081
Additional paid in capital 10,362,233 9,855,851
Other comprehensive loss (264,745) (331,735)
Accumulated deficit (9,186,375) (9,040,805)
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Total shareholders' equity 947,855 509,392
-------- --------
$ 4,091,279 $ 5,327,740
============ ============
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24HOLDINGS INC.
( FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS)
Three months ended Three months ended Six months ended Six months ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue: $ 5,930,663 $ 5,333,934 $ 10,903,327 $ 12,941,764
Cost of Revenue 5,440,061 4,743,266 9,961,437 11,622,875
---------- ---------- ---------- -----------
Gross profit 490,602 590,668 941,890 1,318,889
Operating expenses:
Distribution costs 85,789 96,945 171,197 235,120
General and adminstrative expenses 433,427 445,460 854,096 1,067,206
Depreciation 16,125 22,727 33,630 48,726
Amortization - 184,585 - 373,887
Gain on sale of subsidiary - (230,322) - (230,322)
---------- ---------- ---------- -----------
Total operating expenses 535,341 519,395 1,058,923 1,494,618
---------- ---------- ---------- -----------
Net income before interest and other
income and interest expense (44,740) 71,273 (117,034) (175,729)
Interest and other income (1,443) (4,643) (2,914) (10,560)
Interest expense 13,212 34,097 31,450 71,822
---------- ---------- ---------- -----------
Net income (loss) before provision for income taxes (56,509) 41,819 (145,570) (236,991)
Provision for income taxes - (1,800) - (3,600)
---------- ---------- ---------- -----------
Net income (loss) $ (56,509) $ 43,619 $ (145,570) $ (233,391)
============== ============= ============= ==============
Net loss per share -
basic and diluted $ (0.00) $ 0.00 $ (0.00) $ (0.00)
============== ============= ============= =============
Weighted average number of shares outstanding -
basic and diluted 95,199,780 85,493,352 90,316,417 85,493,352
============== ============= ============= =============
See accompanying notes to consolidated financial statements
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24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Six months ended Six months ended
June 30, 2002 June 30, 2001
(Unaudited) (Unaudited)
Cash flows provided by (used for) operating activities:
Net income (loss) $ (145,570) $ (233,391)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation 33,630 48,662
Amortization - 373,364
Gain on sale of subsidiary - (230,322)
Foreign currency translation 45,589 (74,580)
Other - net - -
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 103,069 (528,228)
Loans receivable, related party (10,607) 35,922
Prepaid expenses (14,203) 95,513
Inventory 164,935 14,584
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts payable and accrued expenses (977,535) (753,544)
Income taxes payable 785 (11,788)
Deferred taxes (1,200) (3,600)
------------- -------------
Total adjustments (655,538) (1,034,017)
------------- -------------
Net cash used for operating activities (801,108) (1,267,408)
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment (3,969) 14,780
Due to/from related parties - (20,013)
------------- -------------
Net cash provided by (used for) investing activities (3,969) (5,232)
------------- -------------
Cash flows provided by (used for) financing activities:
Proceeds from sale of subsidiary, net of cash sold - (105,879)
Credit facility (311,469) (337,351)
Payment on long-term debt, related parties - -
Payment on long-term debt, bank (33,749) (34,116)
------------- -------------
Net cash provided by (used for) financing activities (345,218) (477,346)
------------- -------------
Net increase (decrease) in cash (1,150,295) (1,749,987)
Cash, beginning of period 1,339,650 2,261,181
------------- -------------
Cash, end of period $ 189,355 $ 511,194
============= =============
Supplemental disclosure of cash flow information:
Interest paid $ 73,687 $ 53,965
============= =============
Income taxes paid $ - $ -
============= =============
Supplemental disclosure of non-cash investing and
financing activities:
Shares issued upon conversion of long term debt, related party $ 517,043
=============
See accompanying notes to consolidated financial statements
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24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 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 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.
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24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 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 $96,000 for the six months ended June 30,
2001. Pursuant to the standard, the Company performed the first tier
Goodwill impairment test based on criteria in effect at date of adoption,
January 1, 2002, and determined that there is no indication of
impairment. The Company has not yet determined the date of the annual
impairment test, and therefore may perform the test again before the year
end December 31, 2002, but does not expect the result to have a material
impact on financial position and results of operations.
(4) Long-term note payable, related party:
On April 10, 2002, the Company and its parent company, InfiniCom AB,
agreed to convert the long-term note payable, related party, into shares
of the Company's common stock. The note payable was converted into
10,660,679 shares applying a conversion rate calculated as the weighted
average stock price over the last 30 trading days, or $0.0485 per share.
(5) 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.
(6) Subsequent event:
On July 17, 2002, the Company, by way of redundancy, terminated the
employment of Martin Clarke as President and Chief Executive Officer of
the Company. Under the terms of Mr. Clarke's employment agreement with
the operating companies, the Company must pay six months' salary to him
upon his termination. The Company is in negotiations on a compromise
agreement for a settlement payment, with settlement amount of
approximately nine months' salary, or $115,000.
-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, 2001, filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
For the Six Months ended June 30, 2002:
NET SALES. Net sales for the six months ended June 30, 2002 were $10,903,327
compared to $12,941,764 for the six months ended June 30, 2001, representing a
decrease of 15.8%. The results for 2001 include three months of sales from the
Norwegian operation; the Norwegian operation was sold on March 31, 2001. In
local currency, net sales for the six months ended June 30, 2002 for the UK
operations decreased by 9% compared to six months ended June 30, 2001. The
reduction in sales was primarily attributable to a drop in demand across the
market, although this was partially offset by lower margin volume export sales
to one specific account. This volume export customer accounted for approximately
5% of net sales in the six months ended June 30, 2002.
GROSS PROFIT. Gross profit for the six months ended June 30, 2002 was $941,890
compared to $1,318,889 for the six months ended June 30, 2001, representing a
decrease of 29%. Gross profit as a percentage of sales was 8.6% for the six
months ended June 30, 2002 compared to 10.2% for the six months ended June 30,
2001. $127,000 of the June 2001 Gross profit was from the Norwegian operation.
The reduction in gross profit in the UK operation is the result of reduced sales
and margins in an increasingly competitive market, and the impact of the lower
margin volume export account.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the six months ended June 30, 2002 were
$1,025,891 compared to $1,302,326 for the six months ended June 30, 2001.
$195,000 of the decrease in SG&A is attributable to the closure of the Norwegian
operation. In the UK, the main area of cost reduction was in staffing levels. At
the parent company level, the professional and legal costs associated with SEC
filing requirements have been reduced compared to the six months ended June 30,
2001. This is a result of the Company's accounting being simplified following
the sale of the Norwegian subsidiary.
GOODWILL AMORTIZATION. There was no goodwill amortization for the six months
ended June 30, 2002, compared to $373,887 for the six months ended June 30,
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.
-6-
INTEREST EXPENSE. Interest expense, net of interest income for the six months
ended June 30, 2002 was $28,536 compared to $61,262 for the six months ended
June 30, 2001, representing a decrease of 54%. The decrease in interest expense
is the result of the conversion of interest bearing debts to related parties
into shares of common stock and lower debtor financing costs in the UK
operations.
INCOME TAXES. There is a $1,200 income benefit arising from the amortization of
deferred taxes during the six months ended June 30, 2002, compared to a benefit
of $3,600 during the six months ended June 30, 2001. The decrease in benefit is
due to an adjustment to deferred taxes at December 31, 2001, affecting the
monthly amortization rate.
RESULTS OF OPERATIONS
For the Three Months ended June 30, 2002:
NET SALES. Net sales for the three months ended June 30, 2002 were $5,930,663
compared to $5,333,934 for the three months ended June 30, 2001, representing an
increase of 11%. In local currency for the three months ended June 30, 2002 net
sales for the UK operations increased by 7% over last year. Approximately 25% of
these sales were to the volume export account.
GROSS PROFIT. Gross profits for the three months ended June 30, 2002 were
$490,602 compared to $590,668 for the three months ended June 30, 2001,
representing a decrease of 17%. Gross profits as a percentage of sales were 8.3%
for the three months ended June 30, 2002 compared to 11.1% for the three months
ended June 30, 2001. The main reason for the decrease was the low margin on the
high volume export account.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended June 30, 2002 were
$519,814 compared to $542,405 for the three months ended June 30, 2001. In the
operating companies, SG&A costs, in local currency, were down 13%, mainly as a
result of reduced costs in staff levels. At the parent company level,
professional and legal costs associated with SEC filing requirements have
decreased compared to the six months ended June 30, 2001. This is a result of
the Company's accounting being simplified following the sale of the Norwegian
subsidiary.
GOODWILL AMORTIZATION. There was no goodwill amortization for the three months
ended June 30, 2002, compared to $184,585 for the three months ended June 30,
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.
INTEREST EXPENSE. Interest expense, net of interest income for the three months
ended June 30, 2002 was $11,769 compared to $29,395 for the three months ended
June 30, 2001. The decrease in interest expenses is the result of the conversion
of interest bearing debts to related parties into shares of common stock and
lower debtor financing costs in the UK operations.
INCOME TAXES. There is a $600 income benefit arising from the amortization of
Deferred taxes during the three months ended June 30, 2002, compared to a
benefit of $1,800 during the
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three months ended June 30, 2001. The decrease in benefit is due to an
adjustment to Deferred taxes at December 31, 2001, affecting the monthly
amortization rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 2002 were $189,355 compared to $1,399,650
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 at June 30, 2002, and
the timing of payments to creditors at year end and at June 30, 2002.
As of June 30, 2002 the Company had a working capital deficit of $468,419
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 the long-term bank loans payable.
$3,968 in cash was used by investing activities in the six months ended June 30,
2002 compared to $5,233 used in six months ended June 30, 2001.
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%.
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.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(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 15, 2002 24HOLDINGS INC.
By: /s/ Michael Neame
-------------------------------------
Michael Neame
President and Chief Executive Officer
By: /s/ Roger Woodward
-------------------------------------
Roger Woodward
Chief Financial Officer and Secretary
(Principal Accounting Officer)
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