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
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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.
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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."
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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").
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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:
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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:
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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
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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-