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 September 30, 2003
------------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -----------------------
Commission file number 000-22281
24HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0726608
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Cyberia House
Church Street, Basingstoke
Hampshire RG21 7QN
United Kingdom
(Address of Principal Executive Offices)
+44 1256 867 800
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934
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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 November 13, 2003:
85,486,716.
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED BALANCE SHEETS
September 30, 2003 December 31, 2002
------------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 143 $ 802,091
Accounts receivable 1,589,179 1,424,802
Inventory 252,162 315,576
Prepaid expenses and other assets 22,843 67,230
---------- ----------
Total current assets 1,864,327 2,609,699
Property and equipment, net of
accumulated depreciation and amortization 110,571 1,368,342
Long-term assets held for sale 1,287,794 -
---------- ----------
$3,262,692 $3,978,041
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,577,397 $2,377,599
Credit facility 1,149,440 874,110
Income taxes payable
Short term loans, related party 69,988 -
Current portion of loan payable, bank 112,148 88,469
---------- ----------
Total current liabilities 2,908,973 3,340,178
Loan payable, bank, less current portion 136,339 212,414
Deferred taxes 87,400 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 (170,385) (194,643)
Accumulated deficit (10,098,610) (9,868,083)
------------ -----------
Total shareholders' equity 129,980 336,249
------------ -----------
$3,262,692 $3,978,041
============ ===========
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF (OPERATIONS)
Three months ended Three months ended Nine months ended Nine months ended
September 30, 2003 September 30, 2002 September 30, 2003 September 30, 2002
------------------ ------------------ ------------------ -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue: $ 3,170,609 $ 4,215,707 $ 10,352,836 $ 15,119,034
Cost of Revenue 2,732,939 3,759,304 8,980,153 13,720,741
----------- ----------- ------------ ------------
Gross profit 437,670 456,403 1,372,683 1,398,293
Operating expenses:
Distribution costs 39,982 75,056 206,997 246,253
General and administrative expenses 424,891 451,294 1,294,634 1,304,788
Depreciation 22,286 16,614 59,200 50,244
Amortization - - - -
Gain on sale of subsidiary - - - -
-----------------------------------------------------------------------------
Total operating expenses 487,159 542,964 1,560,831 1,601,285
Net loss before interest and other
income and interest expense (49,489) (86,561) (188,148) (202,992)
Interest and other income (233) (1,031) (1,926) (3,945)
Interest expense 13,689 12,689 44,296 44,139
Net loss before provision for income taxes (62,945) (98,219) (230,518) (243,186)
Provision for income taxes - - - -
Net loss $(62,945) $(98,219) $(230,518) $(243,186)
----------- ----------- ------------ ------------
Net loss per share -
basic and diluted $(0.00) $(0.00) $(0.00) $(0.00)
----------- ----------- ------------ ------------
Weighted average number of shares outstanding -
basic and diluted 96,147,396 96,147,396 96,147,396 96,147,396
=========== =========== ============ ============
See accompanying notes to consolidated financial statements
24HOLDINGS INC.
(FORMERLY KNOWN AS SCOOP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOW
Nine months ended Nine months ended
September 30, 2003 September 30, 2002
------------------ ------------------
(Unaudited) (Unaudited)
Cash flows provided by (used for) operating activities:
Net income (loss) $ (230,518) $ (243,186)
Adjustments to reconcile net income (loss) to net cash
provided by (used for)
operating activities:
Depreciation 59,200 50,244
Amortization - -
Gain on sale of subsidiary - -
Foreign currency translation 24,979 61,225
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (116,018) 432,986
Loans receivable, related party - (11,564)
Inventory 72,548 (8,270)
Prepaid expenses 45,582 (14,328)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts payable and accrued expenses (862,711) (954,146)
Income taxes payable 234 795
Deferred taxes (1,800) (1,800)
------------ -----------
Total adjustments (777,986) (444,858)
------------ -----------
Net cash used for operating activities (1,008,504) (688,044)
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment (45,210) (16,747)
Proceeds from short-term loans, related party 69,988 -
------------ -----------
Net cash provided by (used for) investing activities 24,778 (16,747)
Cash flows provided by (used for) financing activities:
Proceeds from issuance of common stock - -
Proceeds from sale of subsidiary, net of cash sold - -
Credit facility 242,907 (524,660)
Payment on long-term debt, bank (61,129) (54,286)
------------ -----------
Net cash provided by (used for) financing activities 181,778 (578,946)
------------ -----------
Net increase (decrease) in cash (801,948) (1,283,737)
Cash, beginning of period 802,091 1,339,650
------------ -----------
Cash, end of period $ 143 $ 55,913
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 81,505 $ 102,537
============ ============
Income taxes paid $ - $ 30,015
============ ============
Supplemental disclosure of non-cash investing and financing activities:
Shares issued in satisfaction of debt 8,008,441
===========
See accompanying notes to consolidated financial statements
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24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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 subsidiary 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.
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 $230,518 during the year ended December 31, 2002 and the nine
months ended September 30, 2003, respectively, and has an accumulated
deficit of $10,098,610 at September 30, 2003. The Company had negative
working capital of $1,044,646 at September 30, 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.
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24HOLDINGS INC.
(formerly known as Scoop, Inc.)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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 loss.
(3) Long-term asset held for sale:
The Company is in negotiations to sell the freehold property in which
its operations are conducted. As all the conditions of SFAS 145
"Long-Lived Assets to Be Disposed Of by Sale", paragraph 30, have been
met, the property has been classified in the accompanying financial
statements as a separate line item.
(4) Contingencies:
On January 28, 2002, the Company's parent company, InfiniCom AB,
applied to the Stockholm District Council for reconstruction in
accordance with Swedish law, similar to a Chapter 11 filing in the
United States bankruptcy system. The parent company restructured its
debt and emerged from reconstruction during 2002. As a result, the
parent company is experiencing difficulties in providing funds to
assist in financing the working capital of the Company, including the
reporting requirements of the Company. The parent company experienced
a change of control during the second quarter of 2003 and during the
third quarter of 2003 advanced approximately $70,000 to the Company.
However, it cannot be guaranteed that the parent company will continue
to advance funds to the Company, either for operations or reporting
requirements.
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 six months' salary to him 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 has been paid as of September 30, 2003.
-3-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's interim
results of operations and financial condition. This discussion should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002, filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
For the Three Months ended September 30, 2003:
NET SALES. Net sales for the three months ended September 30, 2003 were
$3,170,609 compared to $4,215,707 for the three months ended September 30, 2002
representing a decrease of 25%. The main reason for the reduction in the three
months ended September 30, 2003 was a reduction in sales to a volume export
account and a low level of demand in the computer hardware market.
GROSS PROFIT. Gross profit for the three months ended September 30, 2003 was
$437,669 compared to $456,403 for the three months ended September 30, 2002
representing a decrease of 4%. Gross profits as a percentage of sales were 13.8%
for the three months ended September 30, 2003 compared to 10.8% for the three
months ended September 30, 2002. The changes in gross profit between periods are
a result of the reduction in sales to the low margin high volume export account,
improved computer hardware margins due to product mix, and higher margins on
software solutions sales which the Company began to sell during 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended September 30, 2003
were $487,159 compared to $542,964 for the three months ended September 30,
2002. The decrease is primarily attributable to a reduction in advertising
expenditure and reduction in professional cost accruals.
INTEREST EXPENSE. Interest expense, net of interest income for the three months
ended September 30, 2003 was $13,456 compared to $11,658 for the three months
ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 2003 were $143 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 September 30, 2003.
The cash balance has remained almost unchanged for the three months ended
September 30, 2003 compared to a net decrease of $133,442 in the three months
ended September 30, 2002.
-4-
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In its United Kingdom operating subsidiaries the Company has (1) a revolving
line of credit based on 70% of eligible receivables and (2) a ten year mortgage
expiring in 2008, secured by the underlying property and (3) a $75,000 overdraft
facility. The mortgage, the revolving line of credit and the overdraft facility
bear interest at the prime rate plus 2%.
For the Nine Months ended September 30, 2003:
NET SALES. Net sales for the nine months ended September 30, 2003 were
$10,352,836 compared to $15,119,034 for the nine months ended September 30, 2002
representing a decrease of 32%. The reduction in sales was primarily
attributable to a drop in demand across the market and reduced sales to a lower
margin volume export account that had accounted for approximately 6% of net
sales in the nine months ended September 30, 2002.
GROSS PROFIT. Gross profit for the nine months ended September 30, 2003 was
$1,372,683 compared to $1,398,293 for the nine months ended September 30, 2002
representing a decrease of 1%. Gross profit as a percentage of sales was 13.3%
for the nine months ended September 30, 2003 compared to 9.2% for the nine
months ended September 30, 2002. For the first nine months of 2003 higher
margins were the result of improved product mix in computer hardware, higher
margins on software solutions sales, and the impact of the first nine months of
2002 having included low margin sales to the volume export account.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the nine months ended September 30, 2003
were $1,560,831 compared to $1,601,285 for the nine months ended September 30,
2002.
In the UK, costs in local currency were reduced from 908,594 Pounds Sterling for
the nine months ended September 30, 2003 compared to 1,007,399 Pounds Sterling
for the nine months ended September 30, 2002. The main area of cost reduction
was in staffing levels and audit/accountancy cost. Due to changes in the
exchange rate, costs in US dollars increased by 7%. At the Parent company costs
were reduced by 15% for the nine months ended September 30, 2003 compared to
September 30, 2002. The cost reductions were primarily in professional and legal
costs associated with SEC filing requirements.
INTEREST EXPENSE. Interest expense, net of interest income for the nine months
ended September 30, 2003 was $42,370 compared to $40,194 for the nine months
ended September 30, 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
-5-
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between the United Kingdom, Norway and the United States may give rise to
material variances in reported earnings of the Company.
-6-
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.
-7-
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: November 14, 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)
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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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in this report;
4. The issuer's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuer's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer's internal
control over financial reporting that occurred during the period covered by the
Annual Report that has materially affected, or is reasonably likely to
materially affect, the issuer's internal control over financial reporting; and
5. The issuer's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
issuer's auditors and the audit committee of the issuer's board of directors (or
persons performing the equivalent functions):
<page>
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the issuer's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's internal control
over financial reporting.
Date: November 14, 2003
By:/s/ Michael Neame
-----------------------------------------
Name: Michael Neame
Title: President and Chief Executive Officer
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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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in this report;
4. The issuer's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuer's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer's internal
control over financial reporting that occurred during the period covered by the
Annual Report that has materially affected, or is reasonably likely to
materially affect, the issuer's internal control over financial reporting; and
5. The issuer's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
issuer's auditors and the audit committee of the issuer's board of directors (or
persons performing the equivalent functions):
-1-
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(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the issuer's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's internal control
over financial reporting.
Date: November 14, 2003
By:/s/ Roger Woodward
-------------------------------------------
Name: Roger Woodward
Title: Chief Financial Officer
(Principal Accounting Officer)
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