SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 2002 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) SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: Common Stock, Par Value $0.001 Per Share (Title of class) 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) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant as of April 11, 2003: $21,042.83. The amount shown is based on the closing price of the registrant's Common Stock on the OTC Bulletin Board on that date. Shares of Common Stock known by the registrant to be beneficially owned by 10% shareholders, officers or directors of the Registrant are not included in the computation. The Registrant, however, has made no determination that such persons are "affiliates" within the meaning of Rule 405 under the Securities Act of 1933. 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 REGISTRANTS Number of shares of Common Stock outstanding at March 31, 2003: 85,486,716 DOCUMENTS INCORPORATED BY REFERENCE None. 24HOLDINGS INC. As used in this report, the terms "24Holdings," "Company" and "Registrant" mean 24Holdings Inc. and its subsidiaries. PART I ITEM 1. BUSINESS. Introduction 24Holdings Inc., a Delaware corporation formerly known as Scoop, Inc. ("24Holdings" or the "Company"), is a holding company owning 100% of the Common Stock of 24STORE (Europe) Limited, a Company incorporated under the laws of England formerly known as 24STORE.com Limited and currently operating in the United Kingdom ("24STORE"). The Company's History The Company commenced business operations in May 1996. The Company's original business operations focused on the sale of media products and business information services. Following an initial public offering, the Common Stock of the Company began trading on the NASDAQ Small Cap Stock Exchange on April 9, 1997 under the symbol "SCPI." During 1997 and 1998 the business failed to be profitable and in the second quarter of 1998, the Company was informed that it no longer met the minimum requirements for listing on the NASDAQ Small Cap Stock Exchange and was subsequently de-listed from the exchange on June 24, 1998. Commencing in July 1998, the Company underwent voluntary reorganization under Chapter 11 of the United States Bankruptcy Code. In accordance with the Plan of Reorganization approved by the Bankruptcy Court, in December 1999, InfiniCom AB, a company registered in Sweden, acquired a total of 60,783,219 shares of Common Stock of the Company (representing approximately 91% of the outstanding shares of Common Stock of the Company) in exchange for 100% of the Common Stock of 24STORE. On April 2, 2001, the Company amended its Certificate of Incorporation to change the Company's name from Scoop, Inc. to 24Holdings Inc. All of the Company's operations prior to its bankruptcy proceedings were discontinued. The Business Today 24STORE's current business operations are held in the following two wholly-owned subsidiaries of 24STORE: o 24STORE Limited, (previously known as Lapland U.K. Limited) a company registered in England in 1991, supplies primarily business customers with computer and electronics products. Operating from the Company's executive offices based approximately forty miles west of London, the company sells a wide range of computing and related products, sourced from major computer manufacturers. The business is generated from an active telesales team, working on inquiries from the existing customer base, regular advertising in national computer magazines, and from the company's web site, www.24Store.com. In October 2002, the company formed a new business unit, 24Solutions, operating from the same executive offices. 24Solutions offers primarily accounting based, business management software. Its services include the provision, customisation, installation and training on software products from leading business software vendors Accpac and Sage. The business is generated from an active sales team, working on enquiries from the existing customer base, and from the company's web site, www.24solutions.com. o Mobile Planet Limited, a company registered in England in 1992, is a wholesaler of mobile computing and related products. The company acts as a distributor in the United Kingdom for major brand name computer manufacturers, and related peripheral products. Based from the same facility as 24STORE, the business generates revenues from an established base of trade accounts. Effective March 1, 2003, the Mobile Planet Limited transferred its existing customers to 24STORE, and when outstanding transactions are completed, it is intended that Mobile Planet Limited will become dormant. In addition to the foregoing two operating companies, 24STORE also holds 100% of the outstanding capital stock of Cyberia (UK) Limited, a company registered in England ("Cyberia"), whose sole purpose is to hold title to the real property on which the Company's headquarters are located. Products and Services The Company's primary products are computer and electronics products, and the provision, customisation, installation and training on software products from leading business software vendors. The products are sourced either directly from the manufacturers or purchased from national distributors. In both value and volume terms, the largest product line today is the supply of mobile computers, although the company also supplies "shrink-wrapped" computer software and other computer hardware including Desktop PCs and File Servers. Sales and Marketing Strategy The Company's traditional sales methods consisted of mail-order catalogues and telephone sales of computer and electronic equipment to business customers. In recent years, these traditional sales methods have been complemented by steadily increasing web-based sales. The Company believes that its future sales of computer and electronic equipment will be based on a combination of these three sales methods. In 2002 the Company formed a new division, 24Solutions, offering business management software. The Company will look to develop this division further and, in particular, sell software and consulting services to it's existing customer base of computer users. In addition to its current operating businesses, 24STORE is the registrant and owner of a unique group of over 200 internet domain names, all commencing with the "24" prefix. The Company intends to develop its business using these domain names to diversify the products and services that the Company offers. The Company believes common usage of the "24" brand will allow synergistic cost savings to be achieved in a wide range of product and service categories. Competition The computer/electronic products markets continue to evolve rapidly and are extremely competitive, and the Company expects competition to intensify in the future. The Company competes with a significant number of other companies in the sale of computer and electronics products. Current and potential competitors of the Company include, but are not limited to: (1) online vendors of computer/electronics products, (2) mail order vendors of computer/electronics products, (3) system integrators and value added resellers, (4) direct sales operations of computer/electronics manufacturers, and (5) retailers. The Company believes that the principal competitive factors affecting its product supply business include its ability to secure merchandise for sale at favorable terms and attract new customers at a favorable customer acquisition cost through its mail order, telephonic, and Internet sales channels. Although the Company believes that it can compete favorably in such a competitive atmosphere, the Company cannot be assured that it will be able to maintain a competitive position against current and future competitors. The business management software markets also continue to evolve rapidly and are extremely competitive, and the Company expects competition to intensify in the future. The Company competes -2- with a significant number of other companies in the sale of business management software. Current and potential competitors of the Company include, but are not limited to: (1) Accounting firms, (2) system integrators and value added resellers, (3) direct sales operations of software vendors, and (4) ASPs (application service providers) offering business software on a subscription basis. The Company believes that the principal competitive factors affecting its business management software business include: (1) its ability to recruit and retain suitably qualified consultants (2) its ability to maintain authorisation, and competitive pricing from software vendors (3) its ability to attract new customers at a favorable customer acquisition cost. Although the Company believes that it can compete favorably in such a competitive atmosphere, the Company cannot be assured that it will be able to maintain a competitive position against current and future competitors. Trademarks and Proprietary Rights The Company has relied, and intends to continue to rely, upon the protection of trademark law. In addition, the Company relies on confidentiality agreements with its employees to protect its proprietary rights. There can be no assurance that the steps taken, and anticipated to be taken, by the Company to protect its intellectual property rights will be adequate or that third parties will not infringe or misappropriate the Company's domain names, copyrights, trademarks, trade names, trade secrets, patents (if any) and similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against the Company. Government Regulation The Company is subject, both directly and indirectly, to various laws and governmental regulations (primarily those imposed by the European Union) relating to its business operations. There are currently few laws or regulations directly applicable to commercial activities over the Internet. However, due to increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect thereto. These laws and regulations may cover issues such as user privacy, liability for information retrieved from or transmitted over the Internet, online content regulation, user privacy, taxation and domain name registration. Moreover, the applicability to the Internet of existing laws governing issues such as intellectual property ownership and infringement, copyright, patent, trademark, trade secret and personal privacy is uncertain and developing. Any new legislation or regulation or the application of existing laws and regulations to the Internet could have a material and adverse effect on the Company's business. Employees As of March 31, 2003 the Company employed a total of 26 persons, including 16 in sales and marketing, three in operations and seven in general and administrative functions. None of the Company's employees is represented by a labor union or is subject to a collective bargaining agreement. The Company has never experienced a work stoppage and believes that its relations with its employees are good. ITEM 2. PROPERTIES. The Company's principal executive offices are located in Basingstoke, United Kingdom, approximately forty miles west of London. The Company, through a wholly owned subsidiary named Cyberia (UK) Limited, owns the freehold of its office and warehouse space in the United Kingdom for use in the ordinary course of its business. The property, which is approximately 7,800 square feet, was constructed in 1959, and substantially refurbished in 1998. -3- ITEM 3. LEGAL PROCEEDINGS. From time to time, the Company is subject to litigation in the ordinary course of its business. In the opinion of management, none of the currently pending litigation is likely to have a material adverse effect on the Company's business, financial condition, or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is currently quoted on the OTC Bulletin Board under the symbol "TFHD." The following table sets forth for the periods indicated the high and low closing sale price for the Common Stock as quoted on the OTC Bulletin Board and the National Quotation Bureau's Pink Sheets, as indicated below: Bid Quarter Ended High Low ------------- ---- --- December 31, 2002 $0.0050 $0.0050 September 30, 2002 $0.0200 $0.0200 June 30, 2002 $0.0210 $0.0210 March 31, 2002 $0.0800 $0.0410 December 31, 2001 $0.1900 $0.0240 September 30, 2001 $0.1900 $0.0800 June 30, 2001 $0.5500 $0.1000 March 31, 2001 $0.8750 $0.0625 On April 11, 2003 the last reported sales price for the Company's Common Stock on the OTC Bulletin Board was $0.0035 per share. As of March 31, 2003, there were 209 shareholders of record. The declaration of cash dividends is at the discretion of the Board of Directors of the Company. No cash dividends on the Common Stock have been declared or paid by the Company to date. The Company does not anticipate paying cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected financial data as of and for each of the five fiscal years ended December 31, 2002 and is derived from the Company's audited financial statements. The data set forth below should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements appearing elsewhere herein and in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." -4- Year Ended December 31, 2002 2001 2000 1999 1998 ---------------------------------------------------------------------------- Revenue $ 18,598,455 $ 22,036,485 $ 28,058,566 $22,070,173 $5,453,410 Operating Income/(Loss) $(768,290) $(1,726,533) $(1,621,200) $(4,921,367) $ 130,993 Net Income/Loss $(827,279) $(1,822,971) $(1,823,162) $(5,626,018) $ 112,774 Loss per share, basic and diluted $ (0.01) $ (0.02) $ (0.02) $ (0.09) $ - Weighted average number of shares 93,255,869 85,486,717 81,241,503 64,703,528 60,783,219 outstanding Working capital (deficit) $ (730,479) $(305,596) $(884,270) $(8,146,694) $ 65,794 Total Assets $ 3,978,041 $5,327,740 $10,456,258 $11,942,175 $ 1,012,940 Long-Term Debt $ 212,414 $ 780,632 $381,396 $2,261,520 $ - Total Shareholders equity (deficit) $ 336,249 $509,392 $2,431,526 $(5,579,076) $ 138,739 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Company Overview 24Holdings Inc. ("24Holdings" or the "Company") was incorporated in 1996 in the state of Delaware under the name Scoop, Inc. and began operations 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"), pursuant to which 24STORE's 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. Since the shareholders of 24STORE became the controlling shareholders of the Company after the exchange, 24STORE is treated as the acquiree for accounting purposes. No value was assigned to the assets and liabilities of the acquired company, as it had emerged from a bankruptcy plan of reorganization. 24STORE was incorporated on 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 consulting 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. All of the Swedish entities either entered bankruptcy or ceased operations soon after the transfer. The Norwegian entity, as the only ongoing concern, was treated as the predecessor company, and accordingly, its financial position and results of operations have been presented for the periods preceding the reverse merger. On May 6, 1999, 24STORE acquired three companies registered in the United Kingdom, which companies were related through common ownership. On April 1, 2001, 24STORE sold all of the outstanding stock of the Norwegian entity (see discussion in "Sale of Norwegian Subsidiary"). -5- Sale of Norwegian Subsidiary In order to dispose of operations that had become unprofitable, 24STORE and Compo Consult AS, a Norwegian company, entered into an Agreement on the Transfer of Shares dated March 29, 2001 pursuant to which 24STORE sold and Compo Consult purchased all of the outstanding stock of 24STORE's Norwegian subsidiary, 24STORE AS, for a total consideration of 1.00 Pound Sterling, or approximately $1.45. The transaction was consummated on April 1, 2001. RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain financial data as a percentage of total net sales for the fiscal years ended December 31, 2002, 2001 and 2000. The operating results in any periods are not necessarily indicative of the results to be expected for any future period. YEAR ENDED DECEMBER 31, 2002 2001 2000 Net sales 100.0% 100.0% 100.0% Cost of sales 89.6% 89.2% 89.4% Gross profit 10.4% 10.8% 10.6% Operating expenses: Selling general and administrative 12.1% 11.5% 13.7% Goodwill amortization % 3.0% 2.7% ---- Impairment loss on investments 2.4% 5.1% % Gain on sales of subsidiary % (1.0)% ---- Total operating expenses 14.5% 18.6% 16.4% ----- ----- ----- Net Income (Loss) from operations (4.1)% (7.8)% (5.8)% Net Interest expense 0.3% 0.4% 1.0% Loss before provision for income taxes (4.4)% (8.2)% (6.7)% Provision for income taxes 0.0% 0.0% (0.2)% Net Income (Loss) 4.4% 8.2% (6.5)% COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 Net Sales--Net sales for the years ended December 31, 2002, 2001 and 2000 were as follows: YEAR ENDED DECEMBER 31, ----------------------- 2002 2001 2000 Net sales $18,598,455 $22,036,487 $28,058,566 % increase (decrease) from (15.6%) (21.5%) 27.1% the previous year Net sales for the years ended December 31, 2002, 2001 and 2000 were all derived from operations in Europe. The decrease in net sales for the year ended December 31, 2002 is primarily attributable to a drop in demand across the market and the disposal of the Norwegian subsidiary (see "Sale of Norwegian Subsidiary" above). For the UK Group, net sales decreased by 18.9% in local currency as compared to 2001 mainly due to weak market conditions. The increase in net sales for the year ended December 31, 2000 is the result of a full year's results from the UK Group acquired in 1999 and organic growth. Gross Profit--Gross profit for the years ended December 31, 2002, 2001 and 2000 were as follows: -6- YEAR ENDED DECEMBER 31, ----------------------- 2002 2001 2000 Gross profit $1,937,009 $2,370,277 $2,981,942 % increase (decrease) from (18.2%) (20.5%) 8.4% the previous year Gross margin 10.4% 10.8% 10.6% Gross profit consists of net sales less the cost of sales, which consists of the cost of merchandise sold to customers. Gross profit for the year ended December 31, 2002 and the year ended December 31, 2001 has decreased due to a lower level of sales against the previous years. Gross profit for the year ended December 31, 2000 has increased over the previous year due to a higher level of sales. Gross margin percent has remained fairly consistent for the years ended December 31, 2002, 2001 and 2000 with small fluctuations due to change of product mix. Selling, General and Administrative Expenses--Selling, general and administrative ("SG&A") expenses for the years ended December 31, 2002, 2001 and 2000 were as follows: YEAR ENDED DECEMBER 31, ----------------------- 2002 2001 2000 Selling, general and administrative $2,254,455 $2,534,957 $3,839,728 % decrease from the previous year (11.1)% (34.0)% (20.5)% % of net sales 12.1% 11.5% 13.7% SG&A expenses for the year ended December 31, 2002 decreased by 11.1% to $2,254,455 from $2,534,957 in the year ended December 31, 2002. The decrease in SG&A for the 2002 fiscal year is the result of a reduction in staff related costs within the operating subsidiaries and a reduction of legal and professional costs in the parent company. SG&A expenses for the year ended December 31, 2001 decreased by 31.0% to $2,534,957 from $3,839,728 in the year ended December 31, 2000. The decrease in SG&A for the 2001 fiscal year is the result of the elimination of some overhead due to the disposal of the Norwegian subsidiary and reduced professional cost associated with the Company's SEC filings in the United States. SG&A expenses for the year ended December 31, 2000 decreased by 20.5% to $3,839,728 from $4,826,875 in the year ended December 31, 1999. The decrease in SG&A for the 2000 fiscal year reflects an increase in general overhead expenditures, offset by a reduction in research and development expenditure. Goodwill Amortization--Following the implementation of SFAS 142, "Goodwill and Other Intangibles", there was no Goodwill amortization for the year ended December 31, 2002. SFAS 142 no longer requires goodwill to be amortized, but periodically tested for impairment. Goodwill amortization for the year ended December 31, 2001 was $666,277. The decrease over the previous year was the result of a write down of the investment in the UK Group. Goodwill amortization for the year ended December 31, 2000 was $763,414, a reduction of 9% from the previous year, in which amortization was $839,087. This reduction in goodwill amortization reflected a full provision made by the Company against the investment in its Norwegian subsidiary in the year ended December 31, 1999 resulting in a lower charge for goodwill amortization in the year ended December 31, 2000. Impairment loss on investment--The impairment charges in the years ended December 31, 2002, and December 31, 2001 of $450,844 and $1,125,846 respectively arose from the write down of the UK Group investment. Gain on disposal of subsidiary--The $230,322 gain in the year ended December 31, 2001 was the result of the sale of the Norwegian subsidiary. Interest Expenses--Interest expenses, net of interest income for the years ended December 31, 2002, 2001 and 2000, were as follows: -7- YEAR ENDED DECEMBER 31, ----------------------- 2002 2001 2000 Interest income $4,945 $24,799 $14,364 % change from the previous year (80.0)% 72.6% (18.6)% Interest expenses $58,201 $123,637 $284,350 % change from the previous year (52.9)% (56.5)% (53.9)% Interest income represents interest received on cash deposits and interest receivable on inter-company loans. Interest expenses include interest payable on bank overdrafts, mortgages, receivables financing arrangements and other loans. The reduction of interest expense in the years ended December 31, 2002 and December 31, 2001 is primarily attributable to the Company now having lower interest bearing debts to related parties following the restructuring of debt that occurred on March 31, 2000, and the conversion of interest bearing debts to related parties into the right to receive shares of common stock on April 10, 2002 (see ITEM 13. Certain Relationships and Related Transactions. The reduction in interest expenses in the year ended December 31, 2000 is also primarily attributable to this restructuring of debt (see "Debt Restructuring" above). Income Taxes--Income taxes, for the years ended December 31, 2002, 2001 and 2000 were as follows: YEAR ENDED DECEMBER 31, ----------------------- 2002 2001 2000 Income taxes $5,734 $(2,400) $(68,024) Income tax for the year ended December 31, 2002 is related to an under accrual from the previous year. Income tax for the year ended December 31, 2001 related to deferred tax accruals. The income tax credit for the year ended December 31, 2000 is an adjustment due to an over-accrual in prior years. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents at December 31, 2002 were $802,091 compared to $1,339,650 as of December 31, 2001. The reduction in cash is the result of timing of payment of accounts payable, which have declined from the December 31, 2001 balance. Net cash used by operating activities was $67,126 in 2002 compared to net cash used by operating activities of $163,843 in 2001. As of December 31, 2002 the Company had a working capital deficit of $730,479 compared to a working capital deficit of $305,596 as of December 31, 2001. As of December 31, 2002 included in current assets were cash and cash equivalents of $802,091 and receivables, net, expected to be collected within one year of $1,424,802. Cash used by investing activities was $35,484 in 2002, compared to cash used in investing activities of $24,906 in 2001. The change in working capital is primarily attributable to the loss for the year, and the reduction in cash due to payments made on long-term notes payable. 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 real 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%. Other than through its subsidiaries, the Company has no direct source -8- of short-term funding. In addition to the items above, certain trade suppliers of 24STORE extend credit to 24STORE. The Company believes its current resources of cash and cash equivalents, accounts receivable and available credit line to be sufficient to meet cash needs for working capital and capital expenditures for at least the next six months. If available cash and cash generated from operations is insufficient to satisfy liquidity requirements, selling additional equity or debt securities may be required. The sale of additional equity or convertible debt securities could result in dilution to the Company's stockholders. There can be no assurance that financing will be available in sufficient amounts or on acceptable terms, if at all. RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the FASB issued SFAS No. 141 "Business Combinations." SFAS No. 141 supersedes Accounting Principles Board ("APB") No. 16 and requires that any business combinations initiated after June 30, 2001 be accounted for as a purchase; therefore, eliminating the pooling-of-interest method defined in APB 16. The statement was effective for any business combination initiated after June 30, 2001 and applies to all business combinations accounted for by the purchase method for which the date of acquisition is July 1, 2001 or later. The adoption did not have a material impact on the Company's financial position or results of operations as the Company has not participated in such activities covered under this pronouncement after the effective date. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangibles." SFAS No. 142 addresses the initial recognition, measurement and amortization of intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) and addresses the amortization provisions for excess cost over fair value of net assets acquired or intangibles acquired in a business combination. The statement is effective for fiscal years beginning after December 15, 2001, and is effective July 1, 2001 for any intangibles acquired in a business combination initiated after June 30, 2001. The Company adopted SFAS 142 on January 1, 2002, the effects of which are disclosed above. In October 2001, the FASB recently issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires companies to record the fair value of a liability for asset retirement obligations in the period in which they are incurred. The statement applies to a company's legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, and development or through the normal operation of a long-lived asset. When a liability is initially recorded, the company would capitalize the cost, thereby increasing the carrying amount of the related asset. The capitalized asset retirement cost is depreciated over the life of the respective asset while the liability is accreted to its present value. Upon settlement of the liability, the obligation is settled at its recorded amount or the company incurs a gain or loss. The statement is effective for fiscal years beginning after June 30, 2002. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". Statement 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets. The statement provides a single accounting model for long-lived assets to be disposed of. New criteria must be met to classify the asset as an asset held-for-sale. This statement also focuses on reporting the effects of a disposal of a segment of a business. This statement is effective for fiscal years beginning after December 15, 2001. The adoption did not have a material impact on the Company's financial position or results of operations. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for Leases", to eliminate an inconsistency -9- between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain Financial Institutions--an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9", which removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The requirements relating to acquisitions of financial institutions is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. The adoption of this Statement did not have a material impact to the Company's financial position or results of operations as the Company has not engaged in either of these activities. In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure", which amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The adoption of this statement did not have a material impact on the Company's financial position or results of operations as the Company has not elected to change to the fair value based method of accounting for stock-based employee compensation. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. -10- CRITICAL ACCOUNTING POLICY AND ESTIMATES Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for bad debt, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, such as allowance for bad debt, goodwill, inventory valuation and the deferred tax asset. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to them consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002. RISK FACTORS Some of the statements in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations," "Item 1 - Business" and elsewhere in this report constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements. The Company is under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results. In addition to the factors discussed elsewhere in this report, the following additional factors may affect the Company's future operations and financial results. Competition From Direct Sales The Company may face increased competition from manufacturers that sell products directly over the Internet or by telephone, such as Dell and Gateway. Many of these companies have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources. There can be no assurance that the Company will be able to compete effectively against such companies and that the purchasing patterns of the Company's customers will not increasingly shift to the direct sales channels of distribution. Such increased competition and changes in purchasing patterns may adversely affect the Company's future operations and financial results. -11- Protection of the Company's Domain Names The Company currently holds various domain names commencing with the "24" prefix. The acquisition and maintenance of domain names generally is regulated by Internet regulatory bodies. The regulation of domain names in the United States, the United Kingdom and in other countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, the Company may be unable to acquire or maintain relevant domain names in all countries in which it conducts business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, the Company may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of the Company's trademarks and other proprietary rights. The Company may not successfully carry out its business strategy of establishing a strong brand for the "24" prefix if the Company cannot prevent others from using similar domain names or trademarks. This could impair the Company's ability to increase market share and revenues. Rapid Technological Change The industry in which the Company competes is characterized by rapid technological change, frequent introductions of new products and services, changes in customer demands and evolving industry standards. The introduction or announcement of new products or services by the Company or one or more of its competitors embodying new technologies or changes in industry standards or customer requirements could render the Company's existing products or services obsolete or unmarketable. Accordingly, the life cycles of the Company's products are difficult to estimate. The Company's future results of operations will depend, in part, upon its ability to enhance its products and services and to introduce new products and services on a timely and cost-effective basis that will keep pace with technological developments and evolving industry standards, as well as address the increasingly sophisticated needs of the Company's customers. Failure of the Company to introduce, for technological or other reasons, new products and services in a timely and cost-effective manner could have a material adverse effect on the Company's business, results of operations and financial condition. Furthermore, the introduction or announcement of new product or service offerings or enhancements by the Company or the Company's competitors may cause customers to defer or forgo purchases of the Company's products or services, which could have a material adverse effect on the Company's business, results of operations and financial condition. System Interruption and Security Risks The Company's operations are dependent, in part, on its ability to protect its systems from interruption by damage from fire, earthquake, power loss, telecommunication failure, unauthorized entry or other events beyond the Company's control. The Company's computer equipment constituting its central computer systems, including its processing operations, are currently located in Basingstoke, United Kingdom. The Company conducts system backups daily, which are taken off site each evening. The Company's computer programs are password protected and firewalls, anti-virus software and uninterruptable power supplies are in place. However, there can be no assurance that damage to or failure of any of the Company's central computer systems will not take place. Any such damage or failure that causes interruptions in the Company's operations could have a material adverse effect on the Company's business, results of operations and financial condition. Persistent problems continue to affect public and private data networks. Computer break-ins and other disruptions may jeopardize the security of information stored in and transmitted through the computer systems of the Company and the parties utilizing the Company's services, which may result in significant liability to the Company and also may deter potential customers from using the Company's services. In addition, while the Company attempts -12- to be careful with respect to the employees it hires and maintain controls through software design and security systems to prevent unauthorized employee access, it is possible that, despite such safeguards, an employee of the Company could obtain access, which would also expose the Company to a risk of loss or litigation and possible liability to customers or other users. There can be no guarantee that the growth of the Company's customer base will not strain or exceed the capacity of its computer and telecommunications systems and lead to degradations in performance or system failure. Any damage, failure or delay that causes interruptions in the Company's operations could have a material adverse effect on the Company's business, results of operations and financial condition. Future Capital Needs; Uncertainty of Additional Financing The Company may need to raise additional funds in order to fund more rapid expansion, to develop new or enhanced products and services, to respond to competitive pressures or to acquire complimentary businesses or technologies. If additional funds are raised through the issuance of equity securities, the percentage ownership of the shareholders of the Company will be reduced, shareholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to those of the holders of the Company's Common Stock. The Company's main sources of funds currently come through its operating subsidiaries (see "Liquidity and Capital Resources" above). A reduction in market demand for the Company's products and services could damage the Company's ability to obtain short term funding from its current lenders and trade suppliers. There can be no assurance that additional financing will be available when needed on terms favorable to the Company or at all. If adequate funds are not available or are not available on acceptable terms, the Company may be unable to develop or enhance its products and services, take advantage of future opportunities or respond to competitive pressures, which would likely have a material adverse effect on the Company's business, results of operations and financial condition. Control By Existing Stockholder InfiniCom AB beneficially owns approximately 90.1% of the outstanding shares of the Company's Common Stock (which includes 10,660,679 shares that it has the right to acquire, as described in ITEM 13). As a result, this stockholder is able to exercise control over matters requiring shareholder approval, including the election of directors, and the approval of mergers, consolidations and sales of all or substantially all of the assets of the Company. This may prevent or discourage tender offers for the Company's Common Stock unless the terms are approved by InfiniCom. Volatility of Stock Price The trading price of the Company's Common Stock has in the past and may in the future be subject to significant fluctuations. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price for many companies in industries similar to or related to that of the Company and which have been unrelated to the operating performance of these companies. These market fluctuations may adversely affect the market price of the Company's Common Stock. Recent Significant Changes to Business The Company has experienced significant changes in its business, including changes resulting from recent acquisitions and other business combinations. Such changes have placed and may continue to place a significant strain upon the Company's management, systems and resources. The Company's ability to compete effectively and to manage future changes will require the Company to continue to improve its -13- financial and management controls, reporting systems and procedures, budgeting and forecasting capabilities on a timely basis and adequately train and manage its employee work force. There can be no assurance that the Company, or the Company's current management, will be able to manage such changes successfully. The Company's failure to do so could have a material adverse effect upon the Company's business, results of operations and financial condition. Reorganization of Parent Company 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 has emerged from reconstruction as of December 20, 2002. However, the parent company's reconstruction may affect the Company's ability to get additional funding to put management's plans for future expansion into place. If this occurred, one of the resulting scenarios could be the Company's decision not to continue as a public entity in the United States. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 subsidiaries, including 24STORE and denominated in British pounds sterling 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 and the United States may give rise to material variances in reported earnings of the Company. -14- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 24HOLDINGS INC. (FORMERLY SCOOP, INC.) CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 CONTENTS Page Independent Auditors' Report 1 Financial Statements: Consolidated Balance Sheets 2 Consolidated Statements of Operations 3 Consolidated Statement of Shareholders' Equity 4 Consolidated Statements of Cash Flows 5-6 Notes to Consolidated Financial Statements 7-17 INDEPENDENT AUDITORS' REPORT Board of Directors 24Holdings Inc. Los Angeles, California We have audited the accompanying consolidated balance sheets of 24Holdings Inc. (formerly Scoop, Inc.) and subsidiary at December 31, 2002 and 2001 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 24Holdings Inc. (formerly Scoop, Inc.) and subsidiary at December 31, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company's net losses of $827,279 and $1,822,971 in the last two years, negative working capital of $730,479 and accumulated deficit of $9,868,084 at December 31, 2002 raise substantial doubt about their ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments to asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. CERTIFIED PUBLIC ACCOUNTANTS Santa Monica, California March 3, 2003 1 24HOLDINGS INC. (FORMERLY SCOOP, INC.) CONSOLIDATED BALANCE SHEETS ASSETS December 31, December 31, 2002 2001 ---- ---- Current assets: Cash and cash equivalents $ 802,091 $ 1,339,650 Accounts receivable, less allowance for doubtful accounts of $65,516 and $16,687 at December 31, 2002 and 2001 1,424,802 1,958,937 Inventories 315,576 312,180 Prepaid and other current assets 67,230 29,752 ---------------- --------------- Total current assets 2,609,699 3,640,520 Loan receivable, related party - 13,519 Property and equipment, net of accumulated depreciation 1,368,342 1,264,840 Goodwill, net of accumulated amortization - 408,862 ---------------- --------------- $ 3,978,041 $ 5,327,740 ================ =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,377,465 $ 2,745,836 Credit facility 874,110 1,123,604 Income taxes payable 134 (401) Current maturities of notes payable, bank 88,469 77,077 ---------------- --------------- Total current liabilities 3,340,178 3,946,116 ---------------- --------------- Note payable, bank, less current maturities 212,414 271,196 ---------------- --------------- Deferred tax liability 89,200 91,600 ---------------- --------------- Long-term note payable, related party - 509,436 ---------------- --------------- Shareholders' equity: Preferred stock $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding. - - Common stock, $.001 par value; 100,000,000 shares authorized; 96,147,396 and 85,486,717, shares issued and outstanding at December 31, 2002 and 2001, respectively 36,742 26,081 Additional paid-in capital 10,362,233 9,855,851 Other comprehensive loss (194,642) (331,735) Accumulated deficit (9,868,084) (9,040,805) ---------------- --------------- Total shareholders' equity 336,249 509,392 ---------------- --------------- $ 3,978,041 $ 5,327,740 ================ =============== The accompanying notes form an integral part of these consolidated financial statements. 2 24HOLDINGS INC. (FORMERLY SCOOP, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS Year ended Year ended Year ended December 31, 2002 December 31, 2001 December 31, 2000 ----------------- ----------------- ----------------- Revenue $ 18,598,455 22,036,485 $ 28,058,566 Cost of Revenue 16,661,446 19,666,260 25,076,624 ------------------ ----------------- ----------------- Gross profit 1,937,009 2,370,225 2,981,942 ------------------ ----------------- ----------------- Operating expenses: Selling, general and administrative expenses 2,254,455 2,534,957 3,839,728 Goodwill amortization - 666,277 763,414 Goodwill impairment 450,844 1,125,846 - Gain on disposal of subsidiary - (230,322) - ------------------ ----------------- ----------------- 2,705,299 4,096,758 4,603,142 ------------------ ----------------- ----------------- Loss from operations (768,290) (1,726,533) (1,621,200) ------------------ ----------------- ----------------- Other: Interest income (4,945) (24,799) (14,364) Interest expense 58,200 123,637 284,350 ------------------ ----------------- ----------------- 53,255 98,838 269,986 ------------------ ----------------- ----------------- Loss before income taxes (821,545) (1,825,371) (1,891,186) Income taxes, principally current 5,734 (2,400) (68,024) ------------------ ----------------- ----------------- Net loss $ (827,279) $ (1,822,971) $ (1,823,162) ================== ================= ================= Net loss per share - basic and diluted $ (0.01) $ (0.02) $ (0.02) ================== ================= ================= Weighted average number of shares outstanding - basic and diluted 93,255,869 85,486,717 81,241,503 ================== ================= ================= The accompanying notes form an integral part of these consolidated financial statements. 3 24HOLDINGS INC. (FORMERLY SCOOP, INC.) CONSOLIDATED STATEMENT OF SHAREHOLDERS ' EQUITY Retained Total Additional Other earnings/ shareholders' Common stock paid-in comprehensive accumulated equity / Shares Amount capital income/(loss) (deficit) (deficit) ------ ------ ---------- ------------ ------------- ------------- Balance at December 31, 1999 66,795,457 $ 7,390 - $ (191,794) $ (5,394,672) $ (5,579,076) Shares issued in satisfaction of debt 17,726,127 17,726 7,986,390 8,004,116 Shares issued in sale to parent company 965,133 965 1,869,461 1,870,426 Foreign currency translation (40,778) (40,778) Net loss for the year ended December 31, 2000 (1,823,162) (1,823,162) ---------- -------- ---------- ------------ ------------ ------------ Balance at December 31, 2000 85,486,717 26,081 9,855,851 (232,572) (7,217,834) 2,431,526 Foreign currency translation (99,163) (99,163) Net loss for the year ended December 31, 2001 (1,822,971) 1,822,971) ---------- -------- ---------- ----------- ------------ ----------- Balance at December 31, 2001 85,486,717 26,081 9,855,851 (331,735) (9,040,804) 509,392 Shares issued upon conversion of debt on April 10, 2002 10,660,679 10,661 506,382 517,043 Foreign currency translation 137,093 137,092 Net loss for the year ended December 31, 2002 (827,279) (827,279) ---------- -------- ----------- ----------- ----------- ------------ Balance at December 31, 2002 96,147,396 $ 36,742 $10,362,233 $ (194,642) (9,868,084) $ 336,249 ========== ======== =========== =========== =========== ============ The accompanying notes form an integral part of these consolidated financial statements. 4 24HOLDINGS INC. (FORMERLY SCOOP, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Year ended Year ended Year ended December 31, 2002 December 31, 2001 December 31, 2000 ----------------- ----------------- ----------------- Cash flows provided by (used for) operating activities: Net loss (827,279) $ (1,822,971) $ (1,823,162) ------------ --------------- ------------- Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation 67,330 93,923 129,091 Amortization of goodwill - 666,277 763,414 Goodwill impairment 450,844 1,125,846 - Gain on sale of subsidiary - (230,322) - Foreign currency translation 121,489 (46,786) 510,025 Changes in assets and liabilities: (Increase) decrease in assets: Accounts receivable 703,409 1,103,316 846,081 Inventories 29,150 266,701 289,736 Prepaid and other current assets (25,694) 9,261 (43,111) Increase (decrease) in liabilities: Accounts payable and accrued expenses (584,524) (1,315,662) (1,299,135) Deferred taxes (2,400) (2,400) - Income taxes payable 549 (11,026) (60,997) ------------ --------------- ------------- Total adjustments 760,153 1,659,128 1,135,104 ------------ --------------- ------------- Net cash used for operating activities (67,126) (163,843) (688,058) ------------ --------------- ------------- (Continued) The accompanying notes form an integral part of these consolidated financial statements. 5 24HOLDINGS INC. (FORMERLY SCOOP, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Year ended Year ended Year ended December 31, 2002 December 31, 2001 December 31, 2000 ----------------- ----------------- ----------------- Cash flows provided by (used for) investing activities: Acquisition of property and equipment (35,484) 15,550 (30,136) Due to/from related parties - (40,456) 36,836 ------------------ ----------------- ----------------- Net cash provided by (used for) investing activities (35,484) (24,906) 6,700 ------------------ ----------------- ----------------- Cash flows provided by (used for) financing activities: Payments on note payable, bank (81,183) (76,043) (1,694) Credit facility (353,766) (550,860) - Sale of subsidiary, net of cash acquired - (105,879) - Payments on notes payable, related parties - - (1,354,044) Proceeds from (payments on) short-term loans, - - 567,406 related parties Proceeds from issuance of common stock - - 1,870,426 ------------------ ----------------- ----------------- Net cash provided by (used for) financing activities (434,949) (732,782) 1,082,094 ------------------ ----------------- ----------------- Net increase (decrease) in cash and cash equivalents (537,559) (921,531) 400,736 Cash and cash equivalents, beginning of year 1,339,650 2,261,181 1,860,445 ------------------ ----------------- ----------------- Cash and cash equivalents, end of year $ 802,091 1,339,650 $ 2,261,181 ================== ================= ================= Supplemental disclosure of cash flow information: Interest paid $ 67,718 $ 91,903 $ 215,019 ================== ================= ================= Income taxes paid $ - $ 6,952 $ 34,368 ================== ================= ================= Supplemental disclosure of non-cash investing and financing activities: Issuance of notes payable in connection with acquisitions $ - $ - $ - ================== ================= ================= Issuance of shares in satisfaction of debt $ - $ - $ 8,008,441 ================== ================= ================= Issuance of shares upon conversion of long-term debt, $ 517,043 $ - $ - related party ================== ================= ================= The accompanying notes form an integral part of these consolidated financial statements. 6 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (1) Description of Business: General: 24Holdings Inc. ("24Holdings" or the "Company") was incorporated in the name Scoop, Inc. 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, Scoop was acquired in a reverse merger with 24STORE.com, Ltd. ("24STORE"), whose parent company acquired 91% of the outstanding shares of Scoop, or 60,783,219 of newly issued shares, in exchange for all the outstanding shares of 24STORE. Since the shareholders of 24STORE became the controlling shareholders of Scoop after the exchange, 24STORE is treated as the acquirer for accounting purposes. No value was assigned to the assets and liabilities of the acquired company, as it was emerging from a formal bankruptcy plan. 24STORE was incorporated July 28, 1998 in England and Wales, and was a wholly owned subsidiary of InfiniCom AB ("InfiniCom"), a publicly listed company on the SBI market in Sweden, whose principal activity is that of a consulting company. On May 6, 1999, 24STORE acquired three companies registered in the United Kingdom, ("UK Group") related through common ownership. Scoop, Inc changed its name to 24Holdings Inc. on April 2, 2001. All of the consolidated entities are in the wholesale and retail business of selling and distributing consumer and commercial electronic products in Europe. (2) Summary of Significant Accounting Policies: Basis of Presentation: The Company's financial statements have been presented on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $827,279 and $1,822,971 during 2002 and 2001, respectively, and has an accumulated deficit of $9,868,084 at December 31, 2002. The Company had negative working capital of $711,164 at December 31, 2002. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management is currently attempting to decrease operating costs and enter into new sources of revenue, including software sales and consulting. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 7 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (2) Summary of Significant Accounting Policies, Continued: Principles of Consolidation: The accompanying consolidated statements include the accounts of 24Holdings Inc. and subsidiary. All significant intercompany transactions and accounts have been eliminated. The financial statements of the entities owned 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). Estimates Used in the Preparation of Consolidated Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Revenue Recognition: The Company recognizes revenue upon the delivery of its product to customers. Shipping and handling charges are included in gross sales, with the related costs included in selling, general and administrative expenses. Cash and Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased, which are not securing any corporate obligations, to be cash equivalents. Property and Equipment: Building, computers, software, furniture and equipment are valued at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows: Description Useful life Building 50 years Furniture and equipment 5 years Computers 3-4 years Software 3-4 years 8 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (2) Summary of Significant Accounting Policies, Continued: Goodwill: In connection with various acquisitions which were accounted for under the purchase method of accounting, the Company recorded goodwill. The remaining goodwill at December 31, 2001 was being amortized using the straight-line method over the estimated useful lives of five years. Accumulated amortization on all goodwill was $2,265,828 at December 31, 2001. In accordance with the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" the Company determined there had been an impairment loss of $1,125,846 for the year ended December 31, 2001. The impairment loss represents the excess of the carrying value over fair value, determined by the present value of estimated expected future cash flows of the UK Group for the remaining useful life of 3 years, discounted at 7%. On January 1, 2003 the Company adopted SFAS No. 142, "Goodwill and Other Intangibles" and accordingly has ceased amortizing Goodwill, the expense for which would have been approximately $210,000, for the year ended December 31, 2002. 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 was no indication of impairment. The Company has determined the date of the annual impairment test will be the Company's fiscal year end of December 31, and therefore performed the test again at December 31, 2002. Due to the decrease in the market value of the Company's publicly traded common stock, the fair value of the reporting unit was below the carrying value of the reporting unit, an indication of impairment to the carrying value of the goodwill. Pursuant to SFAS 142, the second tier impairment test was conducted to measure the amount of impairment loss, whereby the implied fair value of reporting unit goodwill is compared with the carrying amount of that goodwill, determined in the same manner as the amount of goodwill recognized in a business combination is determined. The impairment test resulted in the recognition of an impairment loss of approximately $451,000, the carrying value of the goodwill. Inventory: Inventory is stated at the lower of cost or market using the FIFO (first-in, first-out) cost method. 9 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (2) Summary of Significant Accounting Policies, Continued: Income Taxes: Deferred tax assets and liabilities are recognized with respect to the tax consequences attributable to the differences between the financial statement carrying values and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Financial Instruments: The estimated fair values of all reported assets and liabilities which represent financial instruments, none of which are held for trading purposes, approximate their carrying value because of the short term maturity of these instruments or the stated interest rates are indicative of market interest rates. Advertising Costs: Advertising costs are expensed as incurred. For the years ended December 31, 2002, 2001, and 2000, advertising expenses amounted to approximately $125,000, $136,000 and $262,000, respectively. Concentration: During the year ended December 31, 2002, the Company has one major customer accounting for 13.8% of their sales, or approximately $1,705,000. There were no amounts due from this customer included in accounts receivable at December 31, 2002. During the year ended December 31, 2001, the Company has one major customer accounting for 10.7% of their sales, or approximately $1,580,000. Approximately $195,000 due from this customer is included in accounts receivable at December 31, 2001. Basic and Diluted Earnings (Loss) Per Share: Basic earnings (loss) per share are determined by dividing the net earnings (loss) by the weighted average shares of Common Stock outstanding during the period. Diluted earnings (loss) per share are determined by dividing the net earnings (loss) by the weighted average shares of Common Stock outstanding plus the dilutive effects of stock options, warrants, and other convertible securities. Basic and diluted earnings (loss) per share are the same for the years ended December 31, 2002, 2001 and 2000 because there were no dilutive securities outstanding during those periods. 10 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (2) Summary of Significant Accounting Policies, Continued: Segment: Based on the Company's integration and management strategies, the Company operates in a single business segment. For the years ended December 31, 2002, 2001, and 2000 all revenues have been derived from European operations. Statement of Cash Flows: In accordance with Statement of Financial Accounting Standards ("SFAS") No. 95, "Statement of Cash Flows," cash flows from the Company's operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. Recent Accounting Pronouncements: In July 2001, the FASB issued SFAS No. 141 "Business Combinations." SFAS No. 141 supersedes Accounting Principles Board ("APB") No. 16 and requires that any business combinations initiated after June 30, 2001 be accounted for as a purchase; therefore, eliminating the pooling-of-interest method defined in APB 16. The statement was effective for any business combination initiated after June 30, 2001 and applies to all business combinations accounted for by the purchase method for which the date of acquisition is July 1, 2001 or later. The adoption did not have a material impact on the Company's financial position or results of operations as the Company has not participated in such activities covered under this pronouncement after the effective date. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangibles." SFAS No. 142 addresses the initial recognition, measurement and amortization of intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) and addresses the amortization provisions for excess cost over fair value of net assets acquired or intangibles acquired in a business combination. The statement is effective for fiscal years beginning after December 15, 2001, and is effective July 1, 2001 for any intangibles acquired in a business combination initiated after June 30, 2001. The Company adopted SFAS 142 on January 1, 2002, the effects of which are disclosed above. 11 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (2) Summary of Significant Accounting Policies, Continued: Recent Accounting Pronouncements, Continued: In October 2001, the FASB recently issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires companies to record the fair value of a liability for asset retirement obligations in the period in which they are incurred. The statement applies to a company's legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, and development or through the normal operation of a long-lived asset. When a liability is initially recorded, the company would capitalize the cost, thereby increasing the carrying amount of the related asset. The capitalized asset retirement cost is depreciated over the life of the respective asset while the liability is accreted to its present value. Upon settlement of the liability, the obligation is settled at its recorded amount or the company incurs a gain or loss. The statement is effective for fiscal years beginning after June 30, 2002. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". Statement 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets. The statement provides a single accounting model for long-lived assets to be disposed of. New criteria must be met to classify the asset as an asset held-for-sale. This statement also focuses on reporting the effects of a disposal of a segment of a business. This statement is effective for fiscal years beginning after December 15, 2001. The adoption did not have a material impact on the Company's financial position or results of operations. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. 12 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (2) Summary of Significant Accounting Policies, Continued: Recent Accounting Pronouncements, Continued: In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain Financial Institutions--an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9", which removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The requirements relating to acquisitions of financial institutions is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. The adoption of this Statement did not have a material impact to the Company's financial position or results of operations as the Company has not engaged in either of these activities. In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure", which amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The adoption of this statement did not have a material impact on the Company's financial position or results of operations as the Company has not elected to change to the fair value based method of accounting for stock-based employee compensation. 13 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (2) Summary of Significant Accounting Policies, Continued: Recent Accounting Pronouncements, Continued: In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. (3) Property and Equipment: Property and equipment consist of the following: December 31, December 31, 2002 2001 ---- ---- Land and building $ 1,375,865 $ 1,240,510 Computer equipment 257,586 193,395 Vehicles 27,226 65,343 Office furniture and equipment 162,843 152,059 ---------------- --------------- 1,823,520 1,651,307 Less accumulated depreciation 455,178 386,467 ---------------- --------------- $ 1,368,342 $ 1,264,840 ================ =============== (4) Major Vendor: Included in accounts payable at December 31, 2001 is approximately $1,036,000 owed to five suppliers. Purchases from these suppliers during 2001 totaled approximately $9,347,500. 14 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (5) Credit Facility: Two of the Company's subsidiaries in the United Kingdom use a discount financing company for credit administration and cash flow purposes. The financing company purchases approved receivables, less a commission and discounting charges. The discount rate is 1.75% and 2% above the base rate of National Westminster Bank in the United Kingdom, 5.75% and 5.25% at December 31, 2002 and 2001, respectively. The financing company holds as security interests all receivables as well as the personal guarantees of the officer-stockholders limited to anti-fraud. (6) Note Payable, Bank: One of the Company's subsidiaries in the United Kingdom has a note payable to its bank. The note is due November 14, 2007 and accrues interest at 2% above the bank's current base rate (6% and 5.25% at December 31, 2002 and 2001). The note is secured by the underlying building and the cross guarantee of the two other United Kingdom subsidiaries. A summary of the note payable is as follows: December 31, December 31, 2002 2001 ---- ---- Principal $ 300,883 $ 348,273 Less current maturities 88,469 77,077 ---------------- --------------- $ 212,414 $ 271,196 ================ =============== The following summarizes the aggregate maturities of the note payable as of December 31, 2002: Year ended December 31, 2003 $ 88,469 2004 91,729 2005 61,715 2006 58,970 ------ $ 300,883 ========= 15 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (7) Note Payable, Related Party: On April 10, 2002, the Company and its parent company 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 $ 0.485 per share. (8) Income Taxes: The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", under which the liability method is used to calculate deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and income tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The deferred tax liability at December 31, 2001 and 2000 relates to the step up basis of tangible assets acquired. The Company does not file consolidated tax returns in the United Kingdom. December 31, 2000 reflects refunds and credits received on overpayments in previous years. No tax expense is due in December 31, 2002 or 2001 due to group relief between the related entities under UK taxation rules. The provision for income taxes differs from the amount computed by applying the U.S. statutory income tax rate as follows: December 31, December 31, December 31, 2002 2001 2000 ----------- ----------- ------------ Provision at expected federal statutory rate (35)% (35)% (35)% Loss for which no benefit is available 35 35 35 Overpayment of taxes in prior years - - 5 Foreign federal and local taxes provided on a separate return basis at rates lower than statutory U.S. federal rate - - (8) ---------- -------- -------- -% -% (3)% ========== ======== ======== 16 24HOLDINGS INC. (FORMERLY SCOOP, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (9) Sale of Subsidiary: On April 1, 2001, the Company disposed of all of the issued shares of 24STORE AS, for (pound)1.00, or approximately $1.45. Included in the sales agreement is a guarantee by the Company as to the known losses and liabilities of 24STORE AS. If, within one year, the purchaser discovers the losses or liabilities as of the date of disposal were understated, the Company will make whole the deficiency (unaudited, as of April 10, 2002, no deficiency has been claimed by the purchaser). Following this transaction the Company has no further rights, liabilities or obligations, aside from the guarantee, 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 of $230,322. (10) Contingencies: Parent Company On January 28, 2002, the Company's parent company, InfiniCom, 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 has restructured their debt and emerged from reconstruction during 2002. As a result, the parent company does not currently have the funds to assist in financing the working capital of the Company, nor in financing the reporting requirements of the Company. On July 17, 2002, the Company, by way of redundancy, terminated the employment of the President/Chief Executive Officer, with the Board of Directors ratifying the termination on August 12, 2002. Under the terms of the former President/Chief Executive Officer's employment agreement with the operating companies, the Company paid six months salary to him upon his termination. The former President/Chief Executive Officer has initiated proceedings against the Company, with a court date set for March 27, 2003. The Company is in negotiations on a compromise agreement, with settlement amount of approximately $72,000 included in accrued expenses. 17 (11) Selected Quarterly Financial Data (Unaudited): 2002 -------------------------------------------------------------------- 31-Dec 30-Sep 30-Jun 31-Mar Sales $3,479,421 $4,215,707 $5,930,663 $4,972,664 --------------- ---------------- --------------- ------------ Gross Margin $538,716 $456,403 $490,602 $451,288 --------------- ---------------- --------------- ------------ Net Income (Loss) ($583,490) ($98,219) ($56,509) ($89,061) =============== ================ =============== ============ Net Income (Loss) per share: ($0.01) $0.00 $0.00 $0.00 =============== ================ =============== ============ 2001 -------------------------------------------------------------------- 31-Dec 30-Sep 30-Jun 31-Mar Sales $4,285,975 $4,808,746 $5,333,934 $7,607,830 --------------- ---------------- --------------- ------------ Gross Margin $507,240 $544,096 $590,668 $728,221 --------------- ---------------- --------------- ------------ Net Income (Loss) ($1,311,485) ($278,096) $43,619 ($277,009) =============== ================ =============== ============ Net Income (Loss) per share: ($0.02) $0.00 $0.00 $0.00 =============== ================ =============== ============ 18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The name, position with the Company, age and tenure of each director and executive officer are as follows: Name Age Position Since ---- --- -------- ----- Urban von Euler 47 Director and Chairman of the Board 2002 Larsake Sandin 53 Director 2000 Michael Neame 41 President and 2002 Chief Executive Officer and Director Roger Woodward 57 Chief Financial Officer, 2001 Chief Accounting Officer and Secretary Michael Neame, President and Chief Executive Officer and Director. Mr. Neame came to 24STORE via the acquisition of LapLand (UK) Limited the company for which he had been Managing Director since 1991. Mr. Neame was responsible for the Finance and Logistics operations of the organization from inception to date. Prior to LapLand he was Managing Director of Orchid (Europe) Limited, the European subsidiary of a San Francisco based manufacturer of computer peripherals and motherboards. Mr. Neame joined Orchid in May 1988 as Financial Controller, promotion followed to Financial Director in March 1989 and Managing Director in October 1989, with responsibility for all European subsidiaries. Orchid Technology was quoted on the London stock market. Mr. Neame is a Fellow of the Chartered Institute of Management Accountants, having trained as an accountant with a number of Blue Chip UK & International companies including Sainsbury's, GEC, and ITW Inc. Larsake Sandin, Director. Mr. Sandin has approximately 25 years of experience in the information technology field as founder, director and manager of several companies in Sweden, the United Kingdom and the United States. Mr. Sandin is currently the Founding Director and a Business Consultant of Acom CMC Ltd in London, the Founding Director of The Server Group in Scandinavia Stockholm, also located in London, the CEO and a director of InfiniCom AB, the majority shareholder of 24Holdings Inc. From 1976 until 1989, Mr. Sandin served as Business Manager of AB Programator, a company located in Stockholm. From 1989 until 1991, Mr. Sandin was the Managing Director of Philips Tele & Data Systems, a subsidiary of Philips Norden AB of Stockholm, in which capacity Mr. Sandin accomplished a significant restructuring of the company. From 1992 until 1995, Mr. Sandin was employed by Digital Equipment Corporation, where he was the Director of Retail Banking Worldwide in Boston, the Director of Financial Industry Expertise Center Europe in London, and the Director of Retail Banking Europe in Stockholm. In addition to his employment experience, Mr. Sandin has been and continues to be a director of many publicly and privately held companies in Sweden. In the past, Mr. Sandin was the Chairman of the Board of Philips Radio Communications AS, Digital Equipment BCFI AB, Rostvold AS and Ericsson-Programatic AB. Roger Woodward, Chief Financial Officer, Chief Accounting Officer and Secretary. Mr. Woodward came to 24Holdings Inc. via the acquisition of LapLand (UK) Limited, where he had been Group Financial Controller since joining the company in 1997. Prior to this he held a number of senior financial positions within the manufacturing and service industries. As Financial Controller for the European subsidiary of ITW Inc., a NYSE-listed multi-national firm, Mr. Woodward was responsible for annual and monthly reporting and was a member of the senior management team. Mr. Woodward attended Kingston University gaining a Diploma in Business Studies and he is also a member of the Chartered Institute of Management Accountants. Urban von Euler, Director and Chairman of the Board. Mr. von Euler is the Chief Executive Officer of Infinicom AB, the majority shareholder of the Company. Mr. von Euler joined Infinicom in August 2000 and has been closely involved with the Company since then. Mr. von Euler has long experience as an executive manager of several companies both in Sweden and different countries in Europe as well as in the United States and has extensive marketing and sales experience. Mr. von Euler -16- is presently on the board of directors of several companies and has specialized in working with companies in strong development, change of management and in turn-around situations. Mr. von Euler has a formal education and diploma in business administration and a background in accounting from one of the leading international accounting firms in Sweden, where he worked for 6 years. Prior to joining Infinicom, Mr. von Euler was the president and Chief Executive Officer of a private health care company. Each director of the Company will hold office until such director's successor is elected and qualified or until such director's earlier resignation or removal. Each executive officer of the Company will hold office until such officer's successor is elected and qualified or until such officer's earlier resignation or removal in accordance with the Company's bylaws. There currently exists no arrangement or understanding between any director or executive officer and any other person pursuant to which the director or executive officer was or is to be selected as such. No family relationships exist between any current or prospective executive officer or director. During the last five (5) years, no director or officer of the Company has: (1) had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time; (2) been convicted in a criminal proceeding or is subject to a pending criminal proceeding; (3) been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction permanently or temporarily enjoining such person from participating, or otherwise limiting such person's right to engage, in any type of business, securities or banking activities; (4) been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring or suspending such person from participating, or otherwise limiting for more than 60 days such person's right to engage, in any type of securities or banking activities; or (5) been found by a court of competent jurisdiction in a civil action, by the Commission or by the Commodity Futures Trading Commission to have violated a federal or state securities law or a federal commodities law, and the judgment or finding has not been subsequently reversed, suspended or vacated. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the directors and executive officers of the Company and persons who beneficially own more than ten percent of the Company's Common Stock (collectively, the "Reporting Persons") to report their ownership of and transactions in the Company's Common Stock to the Securities and Exchange Commission (the "Commission"). Copies of these reports are also required to be supplied to the Company. To the Company's knowledge, during the fiscal year ending December 31, 2002 the Reporting Persons complied with all applicable Section 16(a) reporting requirements, except that InfiniCom AB has not yet filed a report on Form 4 to reflect its right to receive 10,660,679 newly issued shares of Common Stock (see ITEM 13 below). -17- ITEM 11. EXECUTIVE COMPENSATION. Summary Compensation Table The following table sets forth compensation earned, whether paid or deferred, during the fiscal years ended December 31, 2002, 2001 and 2000 by the Company's Chief Executive Officer and the Executive Officers of the Company whose compensation was $100,000 or greater during the fiscal year ended December 31, 2002. Annual Compensation Long-Term Compensation Restricted Securities All Other Principal Salary Bonus Stock Underlying Compensation Name Position Year ($) ($) Awards ($) Options (#) ($) - ----------------------------------------------------------------------------------------------------------------- Michael Neame (1) President and 2002 $ 142,500 $ -- $ -- -- $ 18,000 Chief Executive 2001 $ 137,085 $ -- $ -- -- $ 17,316 Officer 2000 $ 147,465 $ -- $ -- -- $ 18,627 Martin Clarke President and 2002 $ 90,324(2) $ -- $ -- -- $ 90,000(3) Chief Executive 2001 $ 137,085 $ -- $ -- -- $ 18,502 Officer 2000 $ 149,465 $ -- $ -- -- $ 18,627 (1) Mr. Neame was appointed as President and Chief Executive Officer of the Company on August 12, 2002. (2) On July 17, 2002, the Company, by way of redundancy, terminated the employment of Mr. Clarke, with the Board of Directors ratifying the termination on August 12, 2002. In addition to Mr. Clarke's salary through July 17, 2002, under the terms of Mr. Clarke's employment agreement with the operating companies, the Company paid six months' salary ($42,825) to him upon his termination. the Company agreed to payments totaling approximately $72,000 to be paid no later than April 20, 2003. (3) Consisting of the following amounts: Pension Benefits of $18,000, Statutory Redundancy Pay of $4,500 and Settlement Payment of $67,500 (see footnote (2) above) Option Grants in Last Fiscal Year The Company did not grant any options during the last fiscal year. ITEM 12. BENEFICIAL OWNERSHIP OF COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information, as of March 31, 2003, concerning the Common Stock of the Company beneficially owned (i) by each director and each Named Executive Officer of the Company, (ii) by all directors and executive officers of the Company as a group and (iii) by each stockholder known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock. Other than the shares which may be acquired by InfiniCom AB (see footnote 1 of the table), the beneficial owners named have, to the knowledge of the Company, sole voting and dispositive power with respect to the shares beneficially owned, subject to community property laws where applicable. -18- Beneficially Owned Name and Address Shares Percent ------ ------- InfiniCom AB (publ) Karlaplan 2 114 60 Stockholm Sweden................................. 86,665,136(1) 90.1 Larsake Sandin Frensham Court, Summerfield Lane Surrey GU10 3AN England................................ 0 0 Martin Clarke Kingston Reading Road North Fleet Hampshire GU13 8RR United Kingdom......................... 0 0 Michael Neame 21 Archery Fields Odiham Hook Hampshire RG29 1AE United Kingdom......................... 1,238,363 1.4 Urban von Euler Valhallavagen 108 Stockholm Sweden................................. 0 0 Roger Woodward Zennor Cherry Tree Walk Rowledge Farnham Surrey GU10 4AD United Kingdom......................... 0 0 All executive officers and directors as a group (5 persons).................... 1,238,363 1.4 (1) Includes the right of InfiniCom AB to acquire 10,660,679 shares of Common Stock under a Capital Contribution Agreement with the Company (see ITEM 13 below). The Company currently maintains no equity compensation plans. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On April 10, 2002, the Company and InfiniCom AB, the Company's parent, entered into a Capital Contribution Agreement pursuant to which the Company and InfiniCom agreed to convert a note payable by the Company to InfiniCom in the amount of $517,043 into Common Stock of the Company. The note payable was converted into InfiniCom's right to receive 10,660,679 newly issued shares of Common Stock, applying a conversion rate calculated as the weighted average stock price over the prior 30 trading days, or $0.0485 per share. As of March 31, 2003, the shares had not yet been issued. -19- ITEM 14. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. Within 90 days prior to the date of this report, the Company's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of these controls and procedures. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements and Financial Statement Schedules (1) Financial Statements The financial statements listed below and included under Item 8, are filed as part of this report. Consolidated Financial Statements of 24Holdings Inc. (i) Independent Auditors' Report (ii) Consolidated Balance Sheet at December 31, 2002 and December 31, 2001 (iii) Consolidated Statement of Income (Operations) for each of the three years ended December 31, 2002 (iv) Consolidated Statement of Shareholders' Equity (Deficit) for each of the three years ended December 31, 2002 (v) Consolidated Statement of Cash Flows for each of the three years ended December 31, 2002 (vi) Notes to the Consolidated Financial Statements (2) Financial Statement Schedules All schedules have been omitted because either they are not applicable, not required or because the information required is included in the consolidated financial statements, including the notes thereto. (b) Exhibits Exhibit Number Description - -------------- ----------- 2.1 Second Amended Plan of Reorganization of Scoop, Inc. (Filed as Exhibit 2.1 to the Company's Current Report on Form 8-K (filed April 5, 2000) and incorporated herein by this reference). 2.2 Stock Purchase Agreement, dated as of April 23, 1999, between InfiniCom AB and Scoop, Inc. (Filed as Exhibit 2.2 to the Company's Current Report on Form 8-K (filed April 5, 2000) and incorporated herein by this reference). 2.3 Agreement, dated as of November 1, 1999, between InfiniCom AB and Scoop, Inc. (Filed as Exhibit 2.3 to the Company's Current Report on Form 8-K (filed April 5, 2000) and incorporated herein by this reference). -20- Exhibit Number Description - -------------- ----------- 2.4 Agreement on the Transfer of Shares dated March 29, 2001 between 24STORE (Europe) Limited and Compo Consult AS (English Translation) (Filed as Exhibit 2.4 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 2001 (filed April 16, 2002) and incorporated herein by this reference). 3.1 Certificate of Incorporation of the Company (Filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 2000 (filed April 13, 2001) and incorporated herein by this reference). 3.2 Certificate of Amendment of the Certificate of Incorporation of the Company dated October 20, 1999 (Filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 2000 (filed April 13, 2001) and incorporated herein by this reference). 3.3 Certificate of Amendment of the Certificate of Incorporation of the Company dated April 1, 2001 (Filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 2000 (filed April 13, 2001) and incorporated herein by this reference). 3.4 Bylaws of the Company (Filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 1999 (filed February 21, 2001) and incorporated herein by this reference). 3.5 Certificate of Amendment of the Bylaws of the Company (Filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 1999 (filed February 21, 2001) and incorporated herein by this reference). 4.1 Form of Common Stock Certificate (Filed as Exhibit 4.1 to the Company's Registration Statement on Form SB-2 (Registration No. 333-15129) and incorporated herein by this reference). 10.1 Service Agreement dated May 6, 1999 between 24STORE Limited and Martin Clarke (Filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 1999 (filed February 21, 2001) and incorporated herein by this reference). 10.2 Service Agreement dated May 6, 1999 between 24STORE Limited and Michael John Neame (Filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 1999 (filed February 21, 2001) and incorporated herein by this reference). 10.3 Invoice Discounting Agreement dated October 10, 1996 between Mobile Planet Limited and Lombard Natwest Discounting Limited (Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 1999 (filed February 21, 2001) and incorporated herein by this reference). 10.4 Invoice Discounting Agreement dated October 10, 1996 between Lapland U.K. Limited and Lombard Natwest Discounting Limited (Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 1999 (filed February 21, 2001) and incorporated herein by this reference). 10.5 Advice of Borrowing Terms dated September 25, 1997 between National Westminster Bank PLC and Cyberia (UK) Limited (Filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 1999 (filed February 21, 2001) and incorporated herein by this reference). 10.6 Deed of Subscription, Amendment and Release dated March 31, 2000 among Michael John Neame, Martin Clarke, 24STORE.com Limited, InfiniCom AB and Scoop, Inc. (Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Period Ended March 31, 2000 (filed March 6, 2001) and incorporated herein by this reference). 10.7 Subscription Agreement dated March 31, 2000 between InfiniCom AB and Scoop, Inc. (Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Period Ended March 31, 2000 (filed March 6, 2001) and incorporated herein by this reference). -21- Exhibit Number Description - -------------- ----------- 10.8 Subscription Agreement dated March 31, 2000 between Michael John Neame and Scoop, Inc. (Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Period Ended March 31, 2000 (filed March 6, 2001) and incorporated herein by this reference). 10.9 Subscription Agreement dated March 31, 2000 between Martin Clarke and Scoop, Inc. (Filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the Period Ended March 31, 2000 (filed March 6, 2001) and incorporated herein by this reference). 10.10 Capital Contribution Agreement dated April 10, 2002 between InfiniCom AB (publ) and 24Holdings Inc. (Filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the Period Ended December 31, 2001 (filed April 16, 2002) and incorporated herein by this reference). 10.11* Agreement dated March 21, 2003 among Lapland UK Ltd., Mobile Planet Ltd., Cyberia (UK) Ltd., 24Holdings Inc., Michael Neame, Larsake Sandin, Lennart Orkan, Roger Woodward, Urban von Ueler, Akbar Seddigh, 24Store (Europe) Ltd. and Martin Clarke. 21* List of Subsidiaries of the Company. 99.1* Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2* Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * filed or furnished with this report (c) Current Reports on Form 8-K None. -22- SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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. 24HOLDINGS INC. By: /s/ Michael Neame ------------------------ Name: Michael Neame Title: President and Chief Executive Officer Date: April 15, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Michael Neame ------------------------ Name: Michael Neame Title: President, Chief Executive Officer and Director By: /s/ Roger Woodward ------------------------ Name: Roger Woodward Title: Chief Financial Officer (Principal Accounting Officer) By: /s/ Larsake Sandin ------------------------ Name: Larsake Sandin Title: Director By: /s/ Urban von Euler ------------------------ Name: Urban von Euler Title: Director CERTIFICATIONS I, Michael Neame, certify that: 1. I have reviewed this annual report on Form 10-K of 24Holdings Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 15, 2003 By: /s/Michael Neame -------------------------- Name: Michael Neame Title: President and Chief Executive Officer -24- CERTIFICATIONS I, Roger Woodward, certify that: 1. I have reviewed this annual report on Form 10-K of 24Holdings Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 15, 2003 By: /s/ Roger Woodward -------------------------------------- Name: Roger Woodward Title: Chief Financial Officer (Principal Accounting Officer) -25-