SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-22281
24HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0726608
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Cyberia House
Church Street, Basingstoke
Hampshire RG21 7QN
United Kingdom
(Address of Principal Executive Offices)
+44 1256 867 800
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock outstanding at May 14, 2003: 85,486,716.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED BALANCE SHEETS
March 31, 2003 December 31, 2002
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,301 $ 802,091
Accounts receivable 1,948,085 1,424,802
Inventory 532,979 315,576
Prepaid expenses and other assets 72,356 67,230
----------- ------------
Total current assets 2,555,721 2,609,699
Property and equipment , net of
accumulated depreciation and amortization 1,346,602 1,368,342
----------- ------------
$ 3,902,323 $ 3,978,041
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities-
Accounts payable and accrued expenses $ 2,211,802 $ 2,377,599
Credit facility 1,025,802 874,110
Current portion of loan payable, bank 100,431 88,469
----------- ------------
Total current liabilities 3,338,035 3,340,178
Loan payable, bank, less current portion 173,225 212,414
Deferred taxes 88,600 89,200
Shareholders' equity:
Preferred stock; $0.001 par value, 5,000,000 authorized, no shares
issued and outstanding - -
Common stock; $.001 par value, 100,000,000 shares authorized
96,147,396 shares issued and outstanding 36,742 36,742
Additional paid in capital 10,362,233 10,362,233
Other comprehensive loss (210,907) (194,643)
Accumulated deficit (9,885,605) (9,868,083)
----------- ------------
Total shareholders' equity 302,463 336,249
----------- ------------
$ 3,902,323 $ 3,978,041
=========== ============
-1-
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<
Three months ended Three months ended
March 31, 2003 March 31, 2002
-------------- --------------
(Unaudited) (Unaudited)
Revenue $ 4,190,612 $ 4,972,664
Cost of Revenue 3,623,684 4,521,376
---------------- -----------------
Gross profit 566,928 451,288
Operating expenses:
Distribution costs 98,683 85,408
General and administative 455,051 420,669
Depreciation 17,519 17,505
---------------- -----------------
Total operating expenses 571,253 523,582
---------------- -----------------
Net loss before interest and other income
and interest expense (4,325) (72,294)
Interest and other income (799) (1,471)
Interest expense 13,995 18,238
---------------- -----------------
Net loss before provision for income taxes (17,521) (89,061)
Provision for income taxes - -
---------------- -----------------
Net loss $ (17,521) $ (89,061)
================= ==================
Other comprehensive loss:
Foreign currency translation (16,525) (24,172)
----------------- ------------------
Total comprehensive loss $ (34,046) $ (113,233)
================= ==================
Net loss per share -
basic and diluted $ (0.00) $ (0.00)
================= ==================
Weighted average number of shares outstanding -
basic and diluted 96,147,396 85,486,717
================ ==================
-2-
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three months ended Three months ended
March 31, 2003 March 31, 2002
-------------- --------------
(Unaudited) (Unaudited)
Cash flows provided by (used for) operating activities:
Net loss $ (17,521) $ (89,061)
------------- -------------
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation 17,519 17,505
Foreign currency translation (14,806) (15,532)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (555,877) (13,374)
Inventory (225,612) 1,391
Prepaid expenses and other current assets (6,180) (25,161)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (122,624) (624,306)
Income taxes payable (470) -
Deferred taxes (600) (600)
------------- -------------
Total adjustments (908,650) (660,077)
------------- -------------
Net cash used for operating activities (926,171) (749,138)
------------- -------------
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment (21,976) -
Due to/from related party - 4,038
------------- -------------
Net cash provided by (used for) investing activities (21,976) 4,038
------------- -------------
Cash flows provided by (used for) financing activities:
Payments on credit facility 170,041 (216,111)
Payments on long-term debt, bank (21,684) (13,552)
------------- -------------
Net cash provided by (used for) financing activities 148,357 (229,663)
------------- -------------
Net decrease in cash and cash equivalents (799,790) (974,763)
Cash and cash equivalents, beginning of period 802,091 1,339,650
------------- -------------
Cash and cash equivalents, end of period $ 2,301 $ 364,887
============= =============
Supplemental disclosure of cash flow information:
Interest paid $ 11,017 $ 18,815
============= =============
Income taxes paid $ - $ -
============= =============
-3-
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003
(1) Description of Business:
Interim Financial Statements:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals), which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the periods presented. Interim results are not
necessarily indicative of the results to be expected for a full year.
The financial statements should be read in conjunction with the
financial statements included in the annual report of 24Holdings Inc.
and subsidiaries on Form 10-K for the year ended December 31, 2002.
General:
24Holdings Inc., formerly known as Scoop, Inc. ("24Holdings" or the
"Company"), was incorporated in 1996 in the state of Delaware as an
online news provider. In July 1998, the Company filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in the United
States Bankruptcy Court for the Central District of California. On
October 5, 1999 pursuant to a Plan of Reorganization approved by the
Bankruptcy Court, the Company was acquired in a reverse merger with
24STORE (Europe) Limited, formerly known as 24STORE.com Limited
("24STORE"), whose parent company acquired 91% of the outstanding
shares of the Company, or 60,783,219 of newly issued shares, in
exchange for all the outstanding shares of 24STORE.
24STORE was incorporated July 28, 1998 in England and Wales, and was a
wholly owned subsidiary of InfiniCom AB, a publicly listed company on
the SBI market in Sweden, whose principal activity is that of a
consulting company.
On May 6, 1999, 24STORE acquired three companies registered in the
United Kingdom, related through common ownership.
Scoop, Inc. changed its name to 24Holdings Inc. on April 2, 2001.
All the consolidated entities are in the business of selling and
distributing consumer and commercial electronic products in Europe.
-4-
24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003
(2) Principles of Consolidation:
The accompanying consolidated statements include the accounts of
24Holdings Inc. and subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated at year-end exchange
rates, and operating statement items are translated at average exchange
rates prevailing during the year. The resulting translation adjustments
are recorded as other comprehensive income. Exchange adjustments
resulting from foreign currency transactions are included in the
determination of net income (loss).
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 $17,521 during the year ended December 31, 2002 and the three
months ended March 31, 2003, respectively, and has an accumulated
deficit of $9,885,605 at March 31, 2003. The Company had negative
working capital of $782,314 at March 31, 2003. 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, and selling some assets to raise funds. The financial
statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
(3) Contingencies:
On January 28, 2002, the Company's parent company, InfiniCom AB,
applied to the Stockholm District Council for reconstruction in
accordance with Swedish law, similar to a Chapter 11 filing in the
United States bankruptcy system. The parent company restructured its
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 its President/Chief Executive Officer, with the Company's
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 to him an
amount equal to six months' salary upon his termination. The former
President/Chief Executive Officer pursued a claim against the Company
in the United Kingdom for unfair dismissal; however, during March 2003
the Company reached a settlement agreement with the former
President/Chief Executive Officer for approximately $72,000, which
amount is included in accrued expenses.
-5-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's interim
results of operations and financial condition. This discussion should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002, filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2003 and 2002:
NET SALES. Net sales for the three months ended March 31, 2003 were $4,190,612
compared to $4,972,664 for the three months ended March 31, 2002, representing a
decrease of 16%. The main reason for the reduction in the three months ended
March 31, 2003 was a reduction in sales to a volume export account.
GROSS PROFIT. Gross profit for the three months ended March 31, 2003 was
$566,928 compared to $451,288 for the three months ended March 31, 2002
representing an increase of 26%. Gross profit as a percentage of sales were
13.5% for the three months ended March 31, 2003 compared to 9.1% for the three
months ended March 31, 2002. The changes in gross profit between periods are a
result of the reduction in sales to a low margin high volume export account and
high margins on software solutions sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended March 31, 2003 were
$571,253 compared to $523,582 for the three months ended March 31, 2002. The
increase is attributable to the cost associated with the software solutions
business, started up during the fourth quarter 2002.
INTEREST EXPENSE. Interest expense, net of interest income for the three months
ended March 31, 2003 was $13,196 compared to $16,767 for the three months ended
March 31, 2002.
INCOME TAXES
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 2003 were $2,301 compared to $802,091 as
of December 31, 2002. This decrease is primarily due to the position of cash
advances on the revolving line of credit at year end and the timing of payments
to creditors at year end and at March 31, 2003.
The net decrease in cash for the three months ended March 31, 2003 was $799,790
compared to a net decrease of $974,763 in the three months ended March 31, 2002.
-6-
Cash used for acquisition of equipment in the three months ended March 31, 2003
was $21,976, mainly used for the upgrading of computer equipment.
In its United Kingdom operating subsidiaries, the Company has (1) a revolving
line of credit based on 70% of eligible receivables, (2) a ten year mortgage
expiring in 2008, secured by the underlying property and (3) a $75,000 overdraft
facility. The mortgage, the revolving line of credit and the overdraft facility
bear interest at the prime rate plus 2%.
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 consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
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 consolidated 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 the consolidated financial statements included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2002.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold any derivative financial instruments. However, the
Company is exposed to interest rate risk. The Company believes that the market
risk arising from holdings of its financial instruments is not material.
However, all of the Company's operations are conducted through its subsidiary
24STORE and denominated in British pounds sterling or, prior to the sale of its
Norwegian subsidiary, Norwegian Kroner, and none of the Company's revenues are
generated in US Dollars. For consolidation purposes, the assets and liabilities
of 24STORE are converted to US Dollars using year-end exchange rates and results
of operations are converted using a monthly average rate during the year.
Fluctuations in the currency rates between the United Kingdom, Norway and the
United States may give rise to material variances in reported earnings of the
Company.
Item 4. 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.
-7-
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this report
is filed.
-8-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2003 24HOLDINGS INC.
By: /s/ Michael Neame
-------------------------------------
Michael Neame
President and Chief Executive Officer
By: /s/ Roger Woodward
-------------------------------------
Roger Woodward
Chief Financial Officer and Secretary
(Principal Accounting Officer)
-9-
CERTIFICATIONS
I, Michael Neame, certify that:
1. I have reviewed this quarterly report on Form 10-Q of 24Holdings Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 15, 2003
By: /s/Michael Neame
---------------------------------
Name: Michael Neame
Title: President and
Chief Executive Officer
CERTIFICATIONS
I, Roger Woodward, certify that:
1. I have reviewed this quarterly report on Form 10-Q of 24Holdings Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 15, 2003
By: /s/ Roger Woodward
---------------------------------
Name: Roger Woodward
Title: Chief Financial Officer
(Principal Accounting Officer)