10-Q 1 form10q.txt FORM 10-Q 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, 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) 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 13, 2002: 85,486,716. PART I FINANCIAL INFORMATION Item 1. Financial Statements.
24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) CONSOLIDATED BALANCE SHEET March 31, 2002 December 31, 2001 -------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 364,887 $ 1,339,650 Accounts receivable 1,929,315 1,958,937 Inventory 305,103 312,180 Prepaid expenses and other assets 61,264 29,751 ----------- ----------- Total current assets 2,660,569 3,640,518 Loan receivable, related party 13,272 13,519 Property and equipment, net of accumulated depreciation and amortization 1,224,406 1,264,841 Goodwill, net of accumulated amortization 402,344 408,862 ----------- ----------- $4,300,591 $ 5,327,740 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities- Accounts payable and accrued expenses $2,079,248 $ 2,745,435 Credit facility 888,972 1,123,604 Current portion of loan payable, bank 90,632 77,077 ----------- ----------- Total current liabilities 3,058,852 3,946,116 Loan payable, bank, less current portion 237,855 271,196 Note Payable, related party 516,725 509,436 Deferred taxes 91,000 91,600 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 26,081 Additional paid in capital 9,855,851 9,855,851 Other comprehensive loss (355,908) (331,735) Accumulated deficit (9,129,866) (9,040,805) ------------ ------------ Total shareholders' equity 396,158 509,392 ------------ ------------ $4,300,591 $ 5,327,740 ============ ============
24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended Three months ended March 31, 2002 March 31, 2001 ----------------- ------------------ (Unaudited) (Unaudited) Revenue $4,972,664 $7,607,830 Cost of Revenue 4,521,376 6,879,609 ---------- ---------- Gross profit 451,288 728,221 Operating expenses: Distribution costs 85,408 138,174 General and administative 420,669 621,747 Goodwill Amortization - 189,302 Depreciation 17,505 25,999 ---------- ---------- Total operating expenses 523,582 975,221 ---------- ---------- Net loss before interest and other income and interest expense (72,294) (247,000) Interest and other income (1,471) (5,916) Interest expense 18,238 37,725 ----------- ----------- Net loss before provision for income taxes (89,061) (278,809) Provision for income taxes - (1,800) ----------- ----------- Net income (loss) $ (89,061) $ (277,009) =========== =========== Other comprehensive loss: Foreign currency translation (24,172) (142,194) ---------- ----------- Total comprehensive loss (113,233) (419,203) =========== =========== Net loss per share - basic and diluted $(0.00) $(0.00) ========== ========== Weighted average number of shares outstanding - basic and diluted 85,486,717 85,493,352 ========== ==========
24HOLDINGS INC. (FORMERLY KNOWN AS SCOOP, INC.) STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------ ------------------ (Unaudited) (Unaudited) Cash flows provided by (used for) operating activities: Net loss $ (89,061) $(277,009) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation 17,506 25,999 Amortization of goodwill - 129,796 Foreign currency translation (15,532) 81,819 Changes in assets and liabilities: (Increase) decrease in assets: Accounts receivable (13,374) (580,808) Prepaid expenses (25,161) (12,091) Inventory 1,391 (138,505) Increase (decrease) in liabilities: Accounts payable and accrued expenses (624,306) 841,467 Income taxes payable - (10,773) Deferred taxes (600) (1,800) ------------ ----------- Total adjustments (660,077) 335,104 ------------ ----------- Net cash provided by (used for) operating activities (749,138) 58,095 Cash flows provided by (used for) investing activities: Acquisition of property and equipment - (10,411) Due to/from related party 4,038 (9,199) ------------ ----------- Net cash used for investing activities 4,038 (19,610) ------------ ----------- Cash flows provided by (used for) financing activities: Payments on credit facility (216,111) (1,635,784) Payments on long-term debt, related parties - - Payments on long-term debt, bank (13,552) (41,758) ------------ ----------- Net cash provided by financing activities (229,663) (1,677,542) ------------ ----------- Net decrease in cash (974,763) (1,639,057) Cash, beginning of period 1,339,650 2,261,181 ------------ ----------- Cash, end of period $ 364,887 $ 622,124 ============ =========== Supplemental disclosure of cash flow information: Interest paid $ 18,815 $33,129 ============ =========== Income taxes paid $ - $ - ============ ===========
24HOLDINGS INC. (formerly known as Scoop, Inc.) NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2002 (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, 2001. 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. 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. -2- 24HOLDINGS INC. (formerly known as Scoop, Inc.) NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2002 (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) Goodwill: The Company has adopted SFAS No. 142, "Goodwill and Other Intangibles" and accordingly has ceased amortizing Goodwill, the expense for which would have been approximately $48,000, for the three months ended March 31, 2001. Pursuant to the standard, the Company will perform the first tier Goodwill impairment test before June 30, 2002, but does not expect the result to have a material impact on financial position and results of operations. (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 is attempting to restructure its debt and emerge from reconstruction. If the parent company is unable to successfully emerge from reconstruction, it may affect the Company's ability to get additional funding to put management's plans for future expansion into place. If this occurs, one of the resulting scenarios could be the Company's decision not to continue as a public entity in the United States. -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, 2001, filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS For the Three Months ended March 31, 2002: NET SALES. Net sales for the three months ended March 31, 2002 were $4,972,664 compared to $7,607,830 for the three months ended March 31, 2001 representing a decrease of 34%. The sale of the Norwegian operation, which was disposed of on April 1 2001, accounted for 14% of the sales decline. In the UK, net sales for the three months ended March 31, 2002 decreased by 23% compared to the three months ended March 31, 2001. Approximately 14% ($1,000,000) of these sales were to a volume export account. GROSS PROFIT. Gross profit for the three months ended March 31, 2002 were $451,288 compared to $728,221 for the three months ended March 31, 2001 representing a decrease of 38%. Gross profits as a percentage of sales were 9.1% for the three months ended March 31, 2002 compared to 9.6% for the three months ended March 31, 2001. 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 the sale of the Norwegian operation, which accounted for 18% of group gross profit in the first quarter 2001. Also, adding to the decrease, sales to the volume export account referred to above was at below normal margin. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2002 were $523,582 compared to $785,920 for the three months ended March 31, 2001. The decrease is primarily attributable to the sale of the Norwegian operation. In the UK, SG&A expenses in local currencies were 10% down on the first quarter 2001. The main areas of decrease were personnel cost and travel expenses. GOODWILL AMORTIZATION. There was no goodwill amortization for the three months ended March 31, 2002, compared to $189,302 for the three months ended March 31, 2001. The reason for the reduction was the implementation of SFAS 142, "Goodwill and Other Intangibles," at January 1, 2002, which no longer requires goodwill to be amortized, but periodically tested for impairment. The Company will perform the first tier Goodwill impairment test before June 30, 2002, but does not expect the result to have a material impact on financial position and results of operations. INTEREST EXPENSE. Interest expense, net of interest income for the three months ended March 31, 2002, was $16,767 compared to $31,809 for the three months ended March 31, 2001 representing a decrease of 47%. The decrease in interest expenses is primarily attributable to renegotiated interest rates on loan notes payable to related parties. -4- INCOME TAXES. In the three months ended March 31, 2002 there was no tax expense due to the net loss, including at foreign subsidiary level. This is compared to an income tax benefit in the three months ended March 31, 2001 of $1,800, which was a reduction in the deferred tax accrual. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents at March 31, 2002 were $364,887 compared to $1,339,650 as of December 31, 2001. 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, 2002. The net decrease in cash for the three months ended March 31, 2002 was $974,763 compared to a net decrease of $1,639,057 in the three months ended March 31, 2001. The reduced level of cash decrease reflects a reduction of general and administrative expenses and reduced requirements for accounts receivable. As of March 31, 2002 the Company had a working capital deficit of $398,283 compared to a working capital deficit of $305,598 as of December 31, 2001. This was attributable to the loss from operations in the quarter, and the reduction in cash position due to cash used to pay down long-term bank loans payable. No cash was used by investing activities in the three months ended March 31, 2002 compared to $19,610 used in three months ended March 31, 2001. 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%. On April 10, 2002, the Company and InfiniCom AB (its parent company) agreed to convert the Note Payable due to InfiniCom of $516,724 (5,361,735 Swedish Krona) into 10,660,679 shares of the Company's Common Stock. 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. -5- 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. -6- 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, 2002 24HOLDINGS INC. By: /s/ Martin Clarke --------------------------------------- Martin Clarke President and Chief Executive Officer By: /s/ Roger Woodward --------------------------------------- Roger Woodward Chief Financial Officer and Secretary (Principal Accounting Officer)