10-Q 1 a10q_10q.txt 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, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------ -------------------- Commission file number 000-22281 24HOLDINGS INC. (Exact name of registrant as specified in its charter) DELAWARE 33-0726608 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Cyberia House Church Street, Basingstoke Hampshire RG21 7QN United Kingdom (Address of Principal Executive Offices) +44 1256 867 800 (Telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) had been subject to such filing requirements for the past 90 days. Yes /X/ No / / APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /X/ No / / APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares of Common Stock outstanding at May 3, 2001: 85,486,716. PART I FINANCIAL INFORMATION Item 1. Financial Statements. 24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) CONSOLIDATED BALANCE SHEET March 31, 2001 ---------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 622,124 Accounts receivable 4,045,219 Inventory 790,867 Prepaid expenses and other assets 55,202 --------------- Total current assets 5,513,412 Property and equipment, net of accumulated depreciation and amortization 1,334,394 Goodwill, net of accumulated amortization 2,231,202 --------------- $ 9,079,008 =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 5,759,697 Credit facility 68,920 Income taxes payable - Short term loans, related party 508,008 Current portion of loan payable, bank 90,615 --------------- Total current liabilities 6,427,240 Loan payable, bank, less current portion 303,246 Deferred taxes 336,200 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 85,486,716 shares issued and outstanding 26,081 Additional paid in capital 9,855,851 Other comprehensive loss (374,766) Accumulated deficit (7,494,844) --------------- Total shareholders' equity 2,012,322 --------------- $ 9,079,008 =============== 24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Three months ended March 31, 2001 March 31, 2000 ------------------ ------------------ (Unaudited) (Unaudited) Revenue $ 7,607,830 $ 7,869,308 Cost of Revenue 6,879,609 7,094,096 --------------- --------------- Gross profit 728,221 775,212 Operating expenses: Distribution costs 138,174 150,622 General and administative 621,747 782,693 Goodwill Amortization 189,302 177,048 Depreciation 25,999 29,099 --------------- --------------- Total operating expenses 975,221 1,139,462 --------------- --------------- Net loss before interest and other income and interest expense (247,000) (364,250) Interest and other income (5,916) (3,115) Interest expense 37,725 200,329 --------------- --------------- Net loss before provision for income taxes (278,809) (561,464) Provision for income taxes (1,800) - --------------- --------------- Net income (loss) $ (277,009) $ (561,464) =============== =============== Net loss per share - basic and diluted $ (0.00) $ (0.01) =============== =============== Weighted average number of shares outstanding - basic and diluted 85,493,352 68,217,618 =============== ===============
24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three months ended Three months ended March 31, 2001 March 31, 2000 -------------- -------------- (Unaudited) (Unaudited) Cash flows provided by (used for) operating activities: Net loss $ (277,010) $ (561,464) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation 25,999 29,099 Amortization of goodwill 129,796 177,048 Foreign currency translation 81,819 (21,799) Changes in assets and liabilities: (Increase) decrease in assets: Accounts receivable (580,807) 47,931 Prepaid expenses (12,091) Inventory (138,505) (143,984) Increase (decrease) in liabilities: Accounts payable and accrued expenses 841,467 (1,191,377) Income taxes payable (10,773) (20,558) Deferred taxes (1,800) - ---------------- ---------------- Total adjustments 335,104 (1,123,641) ---------------- ---------------- Net cash provided by (used for) operating activities 58,094 (1,685,105) Cash flows provided by (used for) investing activities: Acquisition of property and equipment (10,411) (13,540) Due to/from related party (9,199) (37,485) ---------------- ---------------- Net cash used for investing activities (19,610) (51,025) ---------------- ---------------- Cash flows provided by (used for) financing activities: Proceeds from sale of common stock - 1,870,426 Payments on credit facility (1,635,784) - Payments on long-term debt, related parties - (1,351,255) Payments on long-term debt, bank (41,758) (19,374) ---------------- ---------------- Net cash provided by financing activities (1,677,541) 499,797 ---------------- ---------------- Net decrease in cash (1,639,057) (1,236,334) Cash, beginning of period 2,261,181 1,860,445 ---------------- ---------------- Cash, end of period $ 622,124 $ 624,111 ================ ================ Supplemental disclosure of cash flow information: Interest paid $ 33,129 $ 42,609 ================ ================ Income taxes paid $ - $ - ================ ================ Supplemental disclosure of non-cash investing and financing activities: Shares issued in satisfaction of debt $ - $ 8,008,441 ================ ================
24HOLDINGS INC. (formerly known as Scoop, Inc.) NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2001 (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 (the "Company") on Form 10-K for the year ended December 31, 2000. General: 24Holdings Inc., formerly known as Scoop, Inc. ("24Holdings" or the "Company"), was incorporated in 1996 in the state of Delaware as an online news provider. In July 1998, the Company filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Central District of California. In September 1999, the Company filed a Plan of Reorganization ("Plan") with the Bankruptcy Court. The Plan was confirmed on October 5, 1999. Pursuant to the Plan, the Company was acquired in a reverse merger with 24STORE (Europe) Limited, formerly known as 24STORE.com Limited ("24STORE"), whose parent company acquired 91% of the outstanding shares of the Company, or 60,783,219 of newly issued shares, in exchange for all the outstanding shares of 24STORE. 24STORE was incorporated July 28, 1998 in England and Wales, and was a wholly owned subsidiary of InfiniCom AB, a publicly listed company on the SBI market in Sweden, whose principal activity is that of a holding company. On April 9, 1999 24STORE entered into a Share Purchase Agreement, whereby it acquired from its parent company several companies registered in Sweden and Norway. This transaction was treated as a reorganization. All of the Swedish entities either entered bankruptcy or ceased operations soon after transfer. On May 6, 1999, 24STORE acquired three companies registered in the United Kingdom, related through common ownership. All the consolidated entities are in the business of selling and distributing consumer and commercial electronic products in Europe. (2) Principles of Consolidation: The accompanying consolidated statements include the accounts of 24Holdings Inc. and subsidiaries. All significant intercompany transactions and accounts have been eliminated. The financial statements of subsidiaries outside the United States are generally measured using the local currency as the functional currency. Accordingly, assets and liabilities are translated at year-end exchange rates, and operating statement items are translated at average exchange rates prevailing during the year. The resulting translation adjustments are recorded as other comprehensive income. Exchange adjustments resulting from foreign currency transactions are included in the determination of net income (loss). (3) Subsequent Event (Unaudited): Due to the continued losses of the Company's Norwegian subsidiary, 24STORE AS, the Company made a determination during March 2001 to divest itself of the Norwegian subsidiary. On April 1, 2001, the Company, disposed of all of the issued shares of 24STORE AS, for 1.00 Pound Sterling, or approximately $1.45. Following this transaction the Company has no further rights, liabilities or obligations 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 will be 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 will record a gain on disposition in the second quarter 2001. 24Holdings Inc. (formerly known as Scoop, Inc.) Unaudited Pro Forma Condensed Consolidated Balance Sheet and Statements of Operations for the Disposal of "Norway Subsidiary" On April 1, 2000, 24Holdings Inc., formerly known as Scoop, Inc. (the "Company"), disposed of all of the issued shares of its Norwegian subsidiary, 24STORE AS, for 1.00 Pound Sterling, or approximately $1.45 (the "Disposal"). Following this transaction the Company has no further rights, liabilities or obligations 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. The following unaudited pro forma condensed consolidated balance sheet and statements of operations of the Company at March 31, 2001 and for the year ended December 31, 2000, have been prepared to illustrate the effect of the Disposal, as though it had occurred on January 1, 2000, for purposes of the pro forma statements of operations, and March 31, 2001 for pro forma balance sheet. The assumptions are described in the accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet and Statements of Operations. The pro forma condensed consolidated balance sheet and statements of operations are presented for illustrative purposes only and are not necessarily indicative of the results of operations of the Company that would have been reported had the Disposal occurred on January 1, 2000, nor do they represent a forecast of the results of operations for any future period. The unaudited pro forma condensed consolidated statements, include the Notes thereto, should be read in conjunction with the historical consolidated financial statements of the Company, which are incorporated herein by reference. 24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET December 31, 2000 For Sale of Norway Subsidiary
24Holdings Norway Consolidated Subsidiary (1) Adjustments Pro forma ------------ -------------- ----------- --------- ASSETS Cash and cash equivalents $ 2,261,181 $ 142,052 $ 2,119,129 Accounts receivable 3,464,412 269,572 3,194,840 Inventory 652,362 75,327 577,035 Prepaids and other assets 43,111 43,111 ----------- Total current assets 6,421,066 486,951 5,934,115 ----------- ---------- ----------- - Property and equipment, net of - accumulated depreciation and amortization 1,414,995 22,885 1,392,110 ----------- ---------- ----------- Loan receivable, related party 100,200 - 100,200 ----------- ---------- ----------- Goodwill, net of accumulated amortization 2,519,996 - 2,519,996 ----------- ---------- ----------- $10,456,258 $ 509,836 $ - $ 9,946,422 =========== ========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 4,929,003 $ 654,899 $ 4,274,104 Due under Credit Facility 1,704,704 - 1,704,704 Short-term notes payable, related parties 617,406 18,943 598,463 Current portion of loan payable, bank 95,021 - 95,021 ----------- ---------- ----------- Total current liabilities 7,346,135 673,842 6,672,292 ----------- ---------- ----------- - ----------- Deferred taxes 338,000 - 338,000 ----------- ---------- ----------- Loan payable, bank, less current portion 340,598 - 340,598 ----------- ---------- ----------- Stockholders' equity 2,431,526 (164,007) 2,595,533 ----------- ---------- ----------- $10,456,258 $ 509,836 $ - $ 9,946,422 =========== ========== ========== ===========
24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET March 31, 2001 For Sale of Norway Subsidiary
24Holdings Norway Consolidated Subsidiary (1) Adjustments Pro forma ------------ -------------- ----------- --------- ASSETS Cash and cash equivalents $ 622,124 $ 51,250 $ 570,874 Accounts receivable 4,045,219 154,075 3,891,144 Inventory 790,867 28,808 762,059 Prepaids and other assets 55,202 4,316 50,886 ----------- ---------- ---------- Total current assets 5,513,412 238,449 5,274,963 ----------- ---------- ---------- Property and equipment, net of accumulated depreciation and amortization 1,334,394 11,922 1,322,471 ----------- ---------- ---------- Goodwill, net of accumulated amortization 9,079,008 - 9,079,008 ----------- ---------- ---------- $15,926,814 $ 250,372 $6,597,434 =========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 5,759,697 $ 354,373 $5,405,323 Due under Credit Facility 68,920 - 68,920 Short-term notes payable, related parties 508,008 56,915 451,093 Current portion of loan payable, bank 90,615 - 90,615 ----------- ---------- ---------- Total current liabilities 6,427,240 411,288 6,838,528 ----------- ---------- ---------- Deferred taxes 336,200 - 336,200 ----------- ---------- ---------- Loan payable, bank, less current portion 303,246 - 303,246 ----------- ---------- ---------- Stockholders' equity 2,012,322 (160,917) 2,173,239 ----------- ---------- ---------- $ 9,079,008 $ 250,372 $9,011,767 =========== ========== ==========
24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS March 31, 2001 For Sale of Norway Subsidiary
24Holdings Norway Consolidated Subsidiary (1) Adjustments Pro forma ------------ -------------- ----------- --------- Revenue $ 7,607,830 $ 1,061,818 $ 6,546,012 Cost of Revenue 6,879,609 928,799 5,950,810 ----------- ----------- ----------- Gross profit 728,221 133,020 595,202 Operating expenses: General and administrative expenses 785,919 204,037 581,882 Goodwill amortization 189,302 - 189,302 ----------- ----------- ----------- 975,221 204,037 771,184 ----------- ----------- ----------- Loss from operations (247,000) (71,018) (175,982) Interest income (5,916) (1,892) (4,024) Interest expense 37,725 2,783 34,942 ----------- ----------- ----------- 31,809 891 30,919 ----------- ----------- ----------- Net loss before taxes (278,809) (71,908) (206,901) ----------- ----------- ----------- Taxes (1,800) - (1,800) ----------- ----------- ----------- Net loss $ (277,009) $ (71,908) $ (205,101) Net loss per share - basic and diluted (0.00) (0.00) =========== =========== Weighted average number of shares outstanding - basic and diluted 85,493,352 85,493,352 =========== ===========
24HOLDINGS, INC. (FORMERLY KNOWN AS SCOOP, INC.) Notes to Pro Forma Condensed Consolidated Financial Statements (unaudited) (1) The financial statements of the Norway subsidiary included in the unaudited pro forma consolidated financial information were first translated from Norwegian Kroner to British pounds at the rate of .076 and .119, and then translated from British pounds to U.S. dollars at the rate of 1.494 and 1.552 for the December 31, 2000 Unaudited Consolidated Balance Sheet and the December 31, 2000 Unaudited Statement of Operations, respectively. For the March 31, 2001 Unaudited Consolidated Balance Sheet and Unaudited Statement of Operations, the rates used were .077 and .076 and 1.425 and 1.458, respectively. Note A - There are no pro forma adjustments to the condensed consolidated balance sheets and statements of income, other than the elimination of the financial position and results of operations. The Company disposed of the subsidiary for an insignificant dollar amount, and all assets, liabilities and costs related to the subsidiary were booked directly to the subsidiary, and after elimination of the subsidiary financial position and results of operations, no amounts relating to the subsidiary remain. 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, 2000, filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS For the Three Months ended March 31, 2001: NET SALES. Net sales for the three months ended March 31, 2001 were $7,607,830 compared to $7,869,308 for the three months ended March 31, 2000 representing a decrease of 3.3%. In local currency Net sales for the three months ended March 31, 2001 increased by 6% in the United Kingdom, and by 10% in Norway compared to the three months ended March, 2000 however the strength of the United States dollar compared to the British pound and the Norwegian kroner have resulted in a reported decrease in Net sales for the quarter. GROSS PROFIT. Gross profits for the three months ended March 31, 2001 were $728,221 compared to $775,212 for the three months ended March 31, 2000 representing a decrease of 6.1%. Gross profits as a percentage of sales were 9.6% for the three months ended March 31, 2001 compared to 9.8% for the three months ended March 31, 2000. The changes in gross profit between periods are a result of the decline in gross profits as a percentage of sales due to competitive market conditions and a further decline due to the strength of the United States dollar compared to the British pound and Norwegian kroner resulting in lower reported gross profits for the quarter. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2001 were $785,920 compared to $962,414 for the three months ended March 31, 2000. The decrease is primarily attributable to a reduction in exchange losses incurred on the revaluation of creditors due to related parties denominated in foreign currencies. In the three months ended March 31, 2001 an exchange gain of $31,873 was incurred, compared to an exchange loss of $110,579 in the three months ended March 31, 2000. GOODWILL AMORTIZATION. Goodwill amortization, reflecting the excess of purchase price of the May 1999 acquisition over fair value of assets acquired, for the three months ended March 31, 2001 was $189,302 compared to $177,049 for the three months ended March 31, 2000. INTEREST EXPENSE. Interest expense, net of interest income for the three months ended March 31, 2001 was $31,809 compared to $197,214 for the three months ended March 31, 2000 representing a decrease of 83.9%. The decrease in interest expenses is primarily attributable to the company now having lower interest bearing debts to related parties following the restructuring of debt that occurred on March 24, 2000. See discussion in "Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of the company's annual report on Form 10-K for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission. INCOME TAXES. In the three months ended March 31, 2001 there was an income tax credit of $1,800 compared to no income tax in the three months ended March 31, 2000. This credit is a reduction in the deferred tax accrual. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents at March 31, 2001 were $622,124 compared to $2,261,181 as of December 31, 2000. This decrease is primarily due to the position of cash advances on the revolving line of credit at year end and at March 31, 2001, and the timing of payments to creditors at year end and at March 31, 2001. In addition the reported cash position was further reduced by weakening foreign exchange rates in translation into United States dollars. Cash provided by operating activities for the three months ended March 31, 2001 was $58,094 compared to net cash used by operating activities of $1,685,105 in the three months ended March 31, 2000. The reduced use of cash reflects the improvement in operations in the current period, including reduced professional fees, decrease in interest expense as a result of substantial reduction in debt, and control of general and administrative expenses. Additionally, March 31, 2000 reflected the increased operations of the acquired entities, including increased overhead and employee costs as a result of the growth, and additional money used to fund the Norway entity, which was in financial difficulty. As of March 31, 2001 the Company had a working capital deficit of $913,828 compared to a working capital deficit of $884,270 as of December 31, 2000. Cash used by investing activities was $19,610 in the three months ended March 31, 2001 compared to $51,025 in March 31, 2000. Cash used for financing activities was $1,677,541 in the three months ended March 31, 2001, representing payments on Credit Facility which was not being utilized at March 31, 2001 and bank loans. Cash provided by financing activities in the three months ended March 31, 2000 was $499,797, representing the net effect of capital raised through the sale of stock, and the retirement of long term debt to related parties. 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%. Item 3. Quantitive 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 either British pounds sterling or Norwegian Kroner, 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, Norway and the United States may give rise to material variances in reported earnings of the Company. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report is filed. 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, 2001 24HOLDINGS INC. By: /s/ Martin Clarke -------------------------------- Martin Clarke President and Chief Executive Officer By: /s/ Michael Neame -------------------------------- Michael Neame Chief Financial Officer and Principal Accounting Officer