UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES ACT OF
1934 For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES ACT OF
1934 For the transition period from ___________to
Commission File Number: 000-30477
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PRIME HOLDINGS AND INVESTMENTS, INC.
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(Exact name of registrant as specified in its charter)
Nevada 88-0421215
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
521 Fifth Avenue, Suite 1700, New York, NY
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(Address, including zip code, of principal executive offices)
(212)292-4258
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(Registrant's telephone number, including area code)
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(Former name of Registrant)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ] __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common stock, par value $0.0001: 8,351,300 shares outstanding as of January 15,
2004.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
PRIME HOLDINGS AND INVESTMENTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets - September 30, 2003 and
December 31, 2002.
Unaudited Consolidated Statement of Stockholders' Equity - September
30, 2003
Unaudited Consolidated Statements of Earnings - Three Months Ended
September 30, 2003 and 2002 and nine Months Ended September 30, 2003
and 2002.
Unaudited Consolidated Statements of Cash Flow - nine Months Ended
September 30, 2003 and 2002.
Notes to Unaudited Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
PRIME HOLDINGS AND INVESTMENTS, INC.
FORM 10-QSB
September 30, 2003
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Prime Holdings and Investments, Inc.
(Successor to S.I.T.I., S.P.A. Societa Italiana Telecommunicazioni Integrate)
Unaudited Consolidated Balance Sheets
(U.S. Dollars in thousands) September 30, December 31,
2003 2002
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Assets
Current:
Cash and Cash Equivalents $ 107 $ 108
Marketable Securities 22
Accounts Receivable, net of Allowance for Doubtful Accounts
(2003-$18)(2002-$18) 769 983
Inventory 1,228 1,142
Prepaid Expenses 2 6
2,128 2,239
Property, Plant and Equipment 588 600
Investments 653 608
Other Investments 88 100
Goodwill 49 100
Other intangible Assets 71 75
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1,449 1,483
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$3,577 $3,722
======================
Liabilities and Stockholders' Equity
Current:
Demand Loan $ 602
Accounts Payable and Accrued Expenses 1,110 $ 741
Corporate Taxes Payable 28 18
Current Portion of Long Term Debt 98
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1,740 857
Due to Directors 22
Reserve for Employee Termination Indemnities 2 2
Minority Interest 85 80
Preferred Stock 10 10
----------------------
1,837 971
Contingent Liabilities/Commitments
Stockholders' Equity
Capital Stock and Additional Paid-In Capital 5,822 5,822
Other Comprehensive Income 535 540
Deficit (4,617) (3,611)
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1,740 2,751
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$3,577 $3,722
======================
The accompanying notes are an integral part of these financial statements.
3
Prime Holdings and Investments, Inc.
(Successor to S.I.T.I., S.P.A. Societa Italiana Telecommunicazioni Integrate)
Unaudited Consolidated Statement of Stockholders' Equity
(U.S. Dollars in thousands) Common Stock
and
Common Additional
Stock Paid-In Accumulated Comprehensive
Shares Capital Deficit Income Total
-----------------------------------------------------------------
Balance, December 31, 2000 740 $4,623 $ (972) $ (1) $3,650
Net Loss for the Period 937 (266) (243) 428
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Balance, September 30,2001 740 5,560 (1,238) (244) 4,078
Increase in Paid-In Capital in
S.I.T.I., S.P.A. Before Reverse
Acquisition:
Reverse Acquisition Pre-Acquisition
Shares of Prime Holdings and
Investment, Inc. 3,527 34 34
Issuance of Common Shares for
Reverse Acquisition of S.I.T.I.,
S.P.A. on September 13, 2001 50,000
Allocation to Issuance of Preferred
Shares (10) (10)
Less Exchange of S.I.T.I., S.P.A
Shares (740)
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Balance After Reverse Acquisition 53,527 5,584 (1,238) (244) 4,102
Net Loss for the Period (100) 253 153
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Balance, December 31, 2001 53,527 5,584 (1,338) 9 4,255
Issuance of Common Shares for
Services Rendered 755 95 95
Increase in Paid-In Capital 143 143
Net Loss for the Period (2,273) 531 (1,742)
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Balance December 31, 2002 54,282 5,822 (3,611) 540 2,751
Net Loss for the period (1,006) (5) (1,011)
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Balance, September 30,2003 54,282 $5,822 $(4,617) $535 $1,740
=================================================================
The accompanying notes are an integral part of these financial statements.
4
Prime Holdings and Investments, Inc.
(Successor to S.I.T.I., S.P.A. Societa Italiana Telecommunicazioni Integrate)
Unaudited Consolidated Statements of Earnings
(U.S. Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenue $ 246 $ 229 $ 1,922
Operating expenses:
Amortization $ 4 36 33 143
Bank Charges and Interest 55 8 160 154
Other Operating Expenses 240 2 481 81
Outside Services 710 2,023
Purchases 36 6 337
Rent 27 46 90 115
Salaries and Benefits 326 62 348 240
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Other Income (Expense):
Interest Income (1) 2 6
Miscellaneous (19) (19) (116) 474
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Loss Before Minority Interest and
Income Taxes (672) (671) (1,005) (691)
Income Taxes 3 1 11
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Loss Before Minority Interest (672) (674) (1,006) (702)
Minority Interest 5 23
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Net Earnings(Loss) for the Period $ (672) $ (679) $ 1,006) $ (725)
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Weighted Average Common Shares
Outstanding 54,282 53,527 54,282 53,527
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Earnings (Loss) Per Share $(0.012) $(0.013) $(0.019) $(0.014)
===========================================================
The accompanying notes are an integral part of these financial statements.
5
Prime Holdings and Investments, Inc.
(Successor to S.I.T.I., S.P.A. Societa Italiana Telecommunicazioni Integrate)
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended
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(U.S. Dollars in thousand) September 30, June 30,
2003 2002
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Cash Flows From Operating Activities:
Loss From Operating Activities $(1,006) $ (725)
Items Not Requiring an Outlay of Funds:
Amortization 33 143
Minority Interest 5 23
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Changes in Non-Cash Working Capital:
Accounts Receivable 214 (246)
Inventory (86) (110)
Net Construction Work in Progress 4
Prepaid Expenses 600
Accounts Payable and Accrued Liabilities 369 1,272
Customer Deposits (467)
Corporate Taxes Payable 10 60
Reserve for Employee Termination Indemnities 74
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(457) (445)
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Cash Flows From Financing Activities:
Proceeds (Repayment) of Long-Term Debt (98) (23)
Increase in Minority Interest 95
Proceeds of Demand Loans 602 300
Decrease in Due to Minority Interest Shareholders 22 (112)
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482 260
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Cash Flows From Investing Activities:
Purchase Marketable Securities 22
Purchases of Capital Assets (26) (16)
Sale(Purchase)of Long-Term Investments (45) 41
Sale of Other Investments 12 164
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37 189
Effect of Exchange Rate Changes on Cash 11 48
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(Decrease)Increase in Cash (1) 52
Cash, Beginning of Period 108 398
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Cash, End of Period $ 107 $ 450
======================
Supplemental Disclosures:
Interest Paid $ 160 $ 154
The accompanying notes are an integral part of these financial statements.
6
Prime Holdings and Investments, Inc.
(Successor to S.I.T.I., S.P.A. Societa Italiana Telecommunicazioni Integrate)
Notes to Unaudited Consolidated Financial Statements
Condensed Financial Statements
In the opinion of the Company, the accompanying unaudited condensed financial
statements include all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of the results for the
periods presented. Certain information and footnote disclosure, normally
included in the financial statements prepared in accordance with generally
accepted accounting principles, have been condensed and omitted. The results of
operations for the nine months ended September 30, 2003 are not indicative of
the results of operations for the year ended December 31, 2003. The condensed
financial statements should be read in conjunction with the Company's financial
statements included in its annual Form 10 KSB for the year ended December 31,
2002.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements. Such statements
consist of any statement other than a recitation of historical facts and can be
identified by words such as may, expect, anticipate, estimate, hopes, believes,
continue, intends, seeks, contemplates, suggests, envisions or comparable
language. These forward-looking statements are based largely on our expectations
and are subject to a number of risks and uncertainties, including but not
limited to: those risks associated with our ability to identify and raise
additional capital to complete our acquisition of one or more other companies;
our ability to raise, and our allocation of, resources as necessary to continue
operations; our ability to generate cash flow from revenue or other sources; our
ability to use our capital stock for acquisitions, paying expenses or other
disbursements, attracting personnel or contractors and other business uses. Many
of these factors are beyond our management's control. These uncertainties could
cause our actual results to differ materially from the expectations reflected in
these forward-looking statements. In light of these risks and uncertainties, we
cannot be certain that the forward-looking information contained in this annual
report on Form 10-QSB will, in fact, occur. Potential investors should consider
carefully the previously stated factors, as well as the more detailed
information contained elsewhere in this Form 10-QSB, before making a decision to
invest in our common stock.
The following is a discussion of our financial condition and results of
operations as of the date of this Form 10-QSB. This discussion and analysis
should be read in conjunction with the accompanying audited Financial Statements
of Prime and subsidiaries, including the Notes thereto, which are included
elsewhere herein.
OVERVIEW
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REGARDING ESTIMATES, RELATED PARTY
TRANSACTIONS AND CONTINGENCIES:
Significant accounting estimates:
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
8
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventory:
Inventory is recorded at the lower of cost and net realizable value. Cost
is established on a LIFO basis. No reserve for obsolete and slow-moving
inventories is deemed necessary.
Investments:
Investments are shown at the lower of cost or fair market value.
Revenue recognition:
TELECOMMUNICATION PRODUCTS AND SERVICES:
Revenue is recorded net of trade discounts and allowances upon shipment of
products or rendering of services and when all significant contractual
obligations have been satisfied and collection is reasonably assured.
CONSTRUCTION ACTIVITIES:
Construction contracts range up to 8 years in length and revenues are
recognized using the percentage-of-completion method. Percentage of completion
is calculated using the cost-to-cost method. Under the cost-to-cost method, the
percentage of completion is estimated by comparing total costs incurred to date
to total costs expected for the entire contract, thus recognizing a percentage
of the contract revenue each year.
Income taxes:
National corporate taxes (IRPEG) in Italy are levied on book income
adjusted for disallowable expenses at the rate of 35% in 2003 and 36% in 2002.
In addition, a regional tax on value produced (IRAP) is levied at the rate
of 4.25%. In accordance with the principles established by the Italian
accounting profession, this tax is classified with income taxes, even though
certain significant costs and expenses (e.g. personnel costs and interest
expense) are not deductible in the determination of the related IRAP tax
liability.
Reserve for employee termination indemnities:
Provision has been made, under Italian law and labor regulations, for
termination indemnities to employees upon termination of employment.
9
Translation of foreign currencies:
The functional currency of the Company is the United States dollar. The
financial statements of the Company's operations whose functional currency is
other than the United States dollar are translated from such functional currency
to United States dollars using the current rate method. Under the current rate
method, assets and liabilities are translated at the exchange rates in effect at
the balance sheet date. Revenues and expenses, including gains and losses on
foreign exchange transactions, are translated at average rates for the period.
Where the current rate method is used, the unrealized translation gains will be
accumulated in other comprehensive income under the shareholders' equity
section.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002.
Revenues. There were no revenues for the three months ended September 30,
2003, a decrease of $229,000 as compared to revenues of approximately $229,000
for the three months ended September 30, 2002.
Operating Expenses. For the three months ended September 30, 2003 operating
expenses were approximately $652,000, a decrease of $248,000 or 27.6%, from
approximately $900,000 for the same period in 2002. This decrease in operating
expenses was primarily due to a reduction in fees for outside services and a
reduction in purchases.
Other Income (Expenses). For the three months ended September 30, 2003,
Prime reported net miscellaneous other expenses and interest of approximately
$20,000, as compared to net miscellaneous other expense of 19,000 and 2,000
interest income for the three months ended September 30, 2002.
Income Taxes. For the three months ended September 30, 2003, Prime did not
recognize any income taxes as it incurred a net loss for the period, as compared
to a approximately $3,000 income taxes for the three months ended September 30,
2002. Prime is subject to income taxes on an entity basis on income arising in
or derived from the tax jurisdiction in which each entity is domiciled.
Minority Interest. For the three months ended September 30, 2003, Prime did
not recognize any minority interest as compared to a approximately $5,000 gain
for the three months ended September 30, 2002.
Net Income {Loss). As a consequence of the foregoing, Prime has a net loss
for the three months ended September 30, 2003 of approximately $672,000 compared
with approximately $679,000 net loss for the three months ended September 30,
2002. For the three months ended September 30, 2003 earnings per share was
approximately (0.012) compared with an earnings of approximately $(0.013)for the
three months ended September 30, 2002.
10
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002.
Revenues. For the nine months ended September 30, 2003 total revenues were
approximately $229,000, a decrease of $1,693,000 as compared to revenues of
approximately $1,922,000 for the nine months ended September 30, 2002. All of
these revenues were generated by subsidiary companies operating in Italy. During
the nine months ended September 30, 2003, revenues were primarily generated by
Kelti SpA for telecommunications services and by consulting fees generated
directly by S.I.T.I.
Operating Expenses. For the nine months ended September 30, 2003 operating
expenses were approximately $1,347,000, a decrease of $1,355,000 or 43.8%, from
approximately $3,093,000 for the same period in 2002. This decrease in operating
expenses was primarily due to a reduction in fees for outside services,
Amortization and a reduction in purchases.
Other Income (Expenses). For the nine months ended September 30, 2003,
Prime reported net miscellaneous other expenses of approximately $116,000 and no
interest income, as compared to net 474,000 miscellaneous income and 6,000
interest income for the nine months ended September 30, 2002.
Income Taxes. For the nine months ended September 30, 2003, Prime
recognized approximately $1,000 for income taxes, as compared to a approximately
$11,000 income taxes for the nine months ended September 30, 2002. Prime is
subject to income taxes on an entity basis on income arising in or derived from
the tax jurisdiction in which each entity is domiciled.
Minority Interest. For the nine months ended September 30, 2003, Prime did
not recognize any gains or losses from a minority interest as compared to a
approximately $23,000 gain for the nine months ended September 30, 2002.
Net Income {Loss). As a consequence of the foregoing, Prime has a net loss
for the nine months ended September 30, 2003 of approximately $1,006,000
compared with approximately $725,000 net loss for the nine months ended
September 30, 2002. For the nine months ended September 30, 2003 earnings per
share was approximately (0.019) compared with ($0.014) for the nine months ended
September 30, 2002.
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ITEM 3. CONTROLS AND PROCEDURES
(A) DISCLOSURE CONTROLS AND PROCEDURES. Within 90 days before filing this
report, the Company evaluated the effectiveness of the design and operation of
its disclosure controls and procedures. The Company's disclosure controls and
procedures are the controls and other procedures that it designed to ensure that
it records, processes, summarizes and reports in a timely manner the information
it must disclose in reports that it files with or submits to the Securities and
Exchange Commission. John Visendi, our Chief Executive Officer and Treasurer
(Principal Accounting Officer) supervised and participated in this evaluation.
Based on this evaluation, Mr. Visendi concluded that, as of the date of his
evaluation, the Company's disclosure controls and procedures were effective.
(B) INTERNAL CONTROLS. Since the date of the evaluation described above,
there have not been any significant changes in the Company's internal accounting
controls or in other factors that could significantly affect those controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Prime is not a party to any material legal proceedings.
S.I.T.I, our wholly-owned subsidiary, is involved in an arbitration
proceeding against the minority shareholder of Kelti Srl. The dispute involves
the allocation and distribution of Kelti's profits, losses, assets and
liabilities. A trustee has been appointed to ensure that no action is taken to
prejudice either of the parties during the pendency of the arbitration.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
31 Certification of Chief Executive Officer and Treasurer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
32 Certification of Chief Executive Officer and Treasurer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
b) Reports on Form 8-K
During and subsequent to the three months ended September 30, 2003, the
Company filed the following reports on Form 8-K:
Form Filing Date Event Reported
---- ---------------- ------------------
8-K September 25, 2003 A report on Form 8-K (item 4) change of
auditors.
13