PRIME HOLDINGS AND INVESTMENTS INC.

(SUCCESSOR TO S.I.T.I. S.P.A. SOCIETA ITALIANA

TELECOMMUNICAZIONI INTEGRATE)

Consolidated Financial Statements

(Unaudited)

March 31, 2002

(U.S. Dollars in thousand)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRIME HOLDINGS AND INVESTMENTS INC. CONTENTS

(SUCCESSOR TO S.I.T.I. S.P.A. SOCIETA ITALIANA TELECOMMUNICAZIONI INTEGRATE)

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002

(U.S. Dollars in thousand)

 

 

 

 

 

 

 

 

 

 

INDEPENDENT ACCOUNTANTS' REPORT

 

 

CONSOLIDATED BALANCE SHEET STATEMENT 1

 

CONSOLIDATED STATEMENT OF EARNINGS  STATEMENT 2

 

 

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY      STATEMENT 3

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS                              STATEMENT 4

 

 

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

EVANCIC PERRAULT ROBERTSON

CERTIFIED GENERAL ACCOUNTANTS

 

                                                                            

 

INDEPENDENT ACCOUNTANTS' REPORT

 

 

 

 

To the Shareholders

To the Board of Directors and Stockholders

Prime Holdings and Investments Inc.

(Successor to S.I.T.I. S.p.A. Societa Italiana Telecommunicazioni Integrate)

 

We have reviewed the accompanying consolidated balance sheet of Prime Holdings and Investments Inc. (Successor to S.I.T.I. S.p.A. Societa Italiana Telecommunicazioni Integrate) as at March 31, 2002 and the consolidated statements of earnings, stockholders' equity and cash flows for the three months ended March 31, 2002. These consolidated financial statements are the responsibility of Prime Holdings and Investments, Inc.'s management.

 

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of consolidated financial statements consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, no such opinion is expressed.

 

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles established by the American Institute of Certified Public Accountants.

 

 

 

 

 

 

CERTIFIED GENERAL ACCOUNTANTS

 

 

North Vancouver, B.C.

May 17, 2002                           

 

 

 

#102 - 1975 Lonsdale Avenue, North Vancouver,  BC  V7M 2K3

Telephone (604) 987‑8101 Fax (604) 987‑7194

Website: http//epr.ca  Email: eprnv@istar.ca

Office Across Canada

Affiliates Around the World

 

 

 

 

PRIME HOLDINGS AND INVESTMENTS INC.  STATEMENT

(SUCCESSOR TO S.I.T.I. S.P.A. SOCIETA ITALIANA TELECOMMUNICAZIONI INTEGRATE)

CONSOLIDATED BALANCE SHEET

March 31, 2002

(U.S. Dollars in thousand)

		March 31, 2002		March 31, 2001
ASSETS
Current:
	Cash and cash equivalents	$	435	$	216
	Accounts receivable, net of allowance for doubtful accounts
	(2002 - $108) (2001 - $96)		5,535		2,112
	Inventory - note 3		2,077		1,195
	Prepaid expenses		633		17
			8,680		3,540
Long-term accounts receivable			-		1
Property, plant and equipment - note 4			789		572
Investments - note 5			714		608
Other investments   - note 5			31		140
Goodwill - note 6			1,854		1,656
Other intangible assets - note 7			105		45
		$	12,173	$	6,562
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
	Demand loan - note 8	$	2,427	$	1,286
	Accounts payable and accruals		4,184		1,215
	Customer deposits		288		13
	Taxes payable		337		33
	Current portion of long term debt - note 10		122		16
			7,358		2,563
Due to affiliated parties -  note 9			101		-
Long-term debt - note 10			58		71
Due to minority interest shareholders			105		;72
Reserve for employee termination indemnities			199		64
Minority interest			522		462
			8,343		3,232
Contingent liabilities / commitments - note 14
Stockholders' equity
	Capital Stock - note 11		3,590		3,556
	Additional paid-in capital		2,004		1,067
	Other comprehensive income		(112)		(107)
	Deficit		(1,652)		(1,186)
			3,830		3,330
		$	12,173	$	6,562

On behalf of the Board 

________________________________Director  ___________________________ Director

 

 

PRIME HOLDINGS AND INVESTMENTS INC. STATEMENT 2

(SUCCESSOR TO S.I.T.I. S.P.A. SOCIETA ITALIANA TELECOMMUNICAZIONI INTEGRATE)

CONSOLIDATED STATEMENT OF EARNINGS

For the three months ended March 31, 2002

(U.S. Dollars in thousand)

		Three Months Ended		Three Months Ended
		March 31, 2002		March 31, 2001
Revenue		$	418	$	430
Operating expenses
	Amortization		29		126
	Bank charges and interest		16		7
	Other operating expenses		112		56
	Other provisions		60		19
	Outside services		484		99
	Purchases		41		237
	Rent		98		96
			840		640
			(422)		(210)
Other income (expense)
	Miscellaneous		112		7
Loss before minority interest and income taxes			(310)		(203)
Income taxes			2		5
Loss before minority interest			(312)		(208)
Minority Interest			2		6
Net loss for the period		$	(314)	$	(214)
Weighted average common shares outstanding			53,527		53,527
Earnings (loss) per share		$	(0.006)	$	(0.004)

 

 

 

 

 

 

 

 

PRIME HOLDINGS AND INVESTMENTS INC. STATEMENT 3

(SUCCESSOR TO S.I.T.I. S.P.A. SOCIETA ITALIANA TELECOMMUNICAZIONI INTEGRATE)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                          

For the three months ended March 31, 2002

(U.S. Dollars in thousand)

					Additional
		Common Shares			Paid-in		Accumulated
		Number	Amount		Capital		Deficit		Total
		(000)
Balance, December 31, 2000		740		3,556		1,067		(972)		3,651
Net loss for the period		-		-		-		(214)		(214)
Balance, March 31, 2001		740		3,556		1,067		(1,186)		3,437
Increase in paid-in capital in SITI
	S.p.A. before reverse
	acquisition	-		-		937		-		937
Reverse Acquisition
	Pre-acquisition shares of Prime
	Holdings and Investment Inc.,
	(Note 2)	3,527		34		-		-		34
	Issuance of common shares for
	reverse acquisition of SITI on
	September 13, 2001	50,000		-		-		-		-
	Less exchange of SITI S.p.A.
	shares	(740)		-		-		-		-
Balance after reverse acquisition		53,527		3,590		2,004		(1,186)		4,408
Net loss for the period		-		-		-		(152)		(152)
Balance, December 31, 2001		53,527		3,590		2,004		(1,338)		4,256
Net loss for the period		-		-		-		(314)		(314)
Balance, March 31, 2002		53,527	$	3,590	$	2,004	$	(1,652)	$	3,942

 

 

PRIME HOLDINGS AND INVESTMENTS INC. STATEMENT 4

(SUCCESSOR TO S.I.T.I. S.P.A. SOCIETA ITALIANA TELECOMMUNICAZIONI INTEGRATE)

CONSOLIDATED STATEMENT OF CASH FLOWS

For the three months ended March 31, 2002

(U.S. Dollars in thousand)

			Three Months Ended		Three Months Ended
			March 31, 2002		March 31, 2001
Cash flows from operating activities:
	Loss from operating activities		$	(314)	$	(214)
	Items not requiring an outlay of funds
		Amortization		29		126
		Minority interest		(2)		(6)
				(287)		(94)
	Changes in non-cash working capital
		Accounts receivable		131		167
		Inventory		(1)		37
		Prepaid expenses		237		1
		Accounts payable and accrued liabilities		121		(254)
		Customer deposits		(154)		-
		Taxes payable		(59)		(48)
		Reserve for employee termination indemnities		(60)		(15)
				(72)		(206)
Cash flows from financing activities:
	Repayment of long-term debt			-		(14)
	Increase in minority interest			120		29
	Repayment of demand loans			(77)		(89)
	Decrease in due to minority interest shareholders			(1)		(23)
	Advances from affiliated parties			101		-
				143		(97)
Cash flows from investing activities:
	Disposals of tangible assets			7		-
	Sale (purchase) of long-term investments			7		(102)
	Sale of other investments			-		1
	Purchase of tangible assets			(2)		-
	Purchase of intangible assets			(2)		-
				10		(101)
Effect of exchange rate changes on cash				(44)		66
Increase (decrease) in cash				37		(338)
Cash, beginning of period				398		554
Cash, end of period			$	435	$	216
Supplemental Disclosures
		Interest paid	$	16	$	6
		Income taxes paid		-		-

PRIME HOLDINGS AND INVESTMENTS INC.                                                                       

(SUCCESSOR TO S.I.T.I. S.P.A. SOCIETA ITALIANA TELECOMMUNICAZIONI INTEGRATE)

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2002

(U.S. Dollars in thousand)

 

The Company was incorporated on December 3, 1998, under the laws of the State of Nevada.   

 

On August 8, 2001, the Company changed its name to Prime Holdings and Investments, Inc. (Prime) and acquired 100% of the shares of SITI S.p.A. Societa Italiana Telecommunicazioni Integrate (SITI), an Italian corporation.  The Company's principal activities are telecommunications and construction contracting.

 

1.     Nature of Business

 

S.I.T.I. S.p.A. owns majority interest in a group of companies specializing in the engineering and construction of transportation infrastructure and fiber optics networks; resort construction; manufacture and sale of telecommunications hardware and related network systems; and asset management and brokerage services for works of art.  

 

Datico S.p.A. is established in 1981.  It is an information technology services company that specializes in the design, building and maintenance of advanced network systems. It manufactures and markets network components such as modems, converters, adapters, statistical multiplexers, ethernet hubs and media converters under the Datico trade name.  In addition,  Datico is a certified distributor for network component supply companies which includes Nokia, Cisco and Newbridge. 

 

Datico Services S.p.A. is a switchless long distance reseller and prepaid phone cards supplier to ethnic group and call shop centers, focused in southern Italy.  Over the next 3 years, Datico Services S.p.A. will expand operations and continue its move into international telecommunications transmissions. 

 

Kelti S.r.L. is a long distance reseller that aims at providing telephone systems to the banking sector in the eastern part of Italy, including the region of Abruzzo.

 

Impresa Mondelli S.r.L. is an engineering and general contracting company, specializing in the construction of cable and fiber optic networks, bridges, highways and commercial buildings.  Mondelli has a notable 120‑year history of partnering with major Italian construction companies and related consortia to from Temporary Associations of Enterprises, having completed major works throughout Italy. 

 

Artel S.r.L. is a company that specialize in the purchase, sale and brokerage of works of art, painting, furniture, watches, rugs, prints, antique drawings, antiques and contemporary works of art. 

 

Sardegna 97 S.p.A. is developing an 80-Villa resort project in Sardinia. The project is in Phase I and is  approximately 20% completed. 

 

 

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of consolidation

 

The financial statements of entities, which are controlled by the Company, referred to as subsidiaries, are consolidated. Entities which are not controlled but over which the Company has the ability to exercise significant influence, referred to as associated companies, are accounted for using the equity method. Investments in entities that the Company does not control or over which it does not exercise significant influence are accounted for using the cost method.

 

The acquisition by the Company of the shares of SITI S.p.A. on September 13, 2001 was accounted for as a reverse acquisition whereby SITI S.p.A. is considered the acquiring company.  The comparative figures presented are those of SITI S.p.A..

 

       Reverse acquisition

 

On September 13, 2001, the Company completed an agreement with the shareholders of SITI S.p.A., an Italian company, whereby the Company issued 50,000,000 common shares to acquire all of the issued and outstanding shares of SITI S.p.A.  No cash was transacted.

 

The acquisition has been accounted for as a reverse takeover using the purchase method, and accordingly, for financial statement reporting purposes, the net assets of SITI have been included in the consolidated balance at book values, and the net assets of Prime have been recorded at fair market value at the date of acquisition.  The consolidated operations of the Company for the period from January 1, 2001 to the date of acquisition, September 13, 2001, are those of SITI and exclude the results of operations of Prime.  The results of Prime are included in the consolidated statements of operations after the date of acquisition.

 

The cost of the acquisition is the assumption of the liability position of Prime Holdings and Investments Inc as at September 13, 2001 and consists of:

 

Accounts payable	(34)
Total liabilities assumed on acquisition	(34)

This amount has been reflected as increase in capital stock on the statement of stockholders' equity.

 

Cash and cash equivalents

 

Cash and cash equivalents includes cash and those short‑term market instruments which, on acquisition, have a term to maturity of three months or less.

 

Marketable securities

 

Publicly traded securities deemed available-for-sale by the Company are measured at fair value.  Gains and losses on available-for-sale securities are presented separately in the stockholders' equity section.

 

Use of 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 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.

 

Property, plant and equipment

 

Property, plant and equipment are recorded at cost.  Amortization is provided annually on a straight-line basis at rates calculated to write‑off the assets over their estimated useful lives as follows except in the year of acquisition when one half of the rate is used.

 

Buildings                                                          3%    

 Plant and machinery                                  15.50%    

 Other equipment                                             25%    

 Other plant and equipment                     12% - 25%    

  

Intangible Assets

 

Intangible assets are stated at cost, reduced on a straight‑line basis to their net book value through provision for amortization provided at the following annual rates:

 

 Licenses, trade-marks and similar rights          20%    

Patents and intellectual property rights             33%    

 Purchased goodwill                                        10%    

 Other intangible assets                                   20%    

Additions during the year are amortized at the above rates.

 

Goodwill

 

Prior to July 2001, goodwill arising on consolidation was not amortized, whereas the goodwill arising on the acquisition of a business by S.I.T.I. S.p.A. is amortized over 10 years.

 

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").  SFAS 141 requires all business combinations to be accounted for using the purchase method of accounting and that certain intangible assets acquired in a business combination shall be recognized as assets apart from goodwill.  SFAS 142 recognizes that goodwill has an indefinite useful life and will no longer be subject to periodic amortization.  Goodwill will be tested at least annually for impairment in lieu of amortization.   The SFAS 142 requires that goodwill arising from acquisitions subsequent to June 30, 2001 should not be amortized. 

 

The Company evaluates the carrying value of goodwill and long-lived assets to be held and used.  The carrying value of an asset is considered impaired when the anticipated undiscounted cash flow form such assets is less than its carrying value.  In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value.  Fair market value is determined using the anticipated cash flows discounted at a rate commensurate with the risk involved.  Losses on long‑lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced by the cost of disposition of such assets.

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.

 

Income taxes

       

National corporate taxes (IRPEG) in Italy are levied on book income adjusted for disallowable  expenses at the rate of 36% (36% in 2001).

 

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 labour regulations, for termination indemnities to employees upon termination of employment.

 

Earnings (Loss) per share

 

Basic EPS is determined using net income divided by the weighted average shares outstanding during the period.  Diluted EPS is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued.  Since the Company has no common shares that are potentially issuable, such as stock options, convertible securities or warrants, basic and diluted EPS are the same.

 

As the acquisition has been recorded as a reverse acquisition, the shares outstanding after the acquisition was used in the EPS calculations for the 2000 year.

 

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.

Financial instruments

 

The estimated fair value of cash and equivalents, short‑term investments, accounts receivable, loans receivables, and accounts payable and accrued liabilities approximate their carrying amounts in the financial statements.  Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency, or credit risks arising from these financial statements.

 

3.     INVENTORY

		March 31		March 31
		2002		2001
Raw materials	$	206	$	-
Finished goods		1,871		1,195
	$	2,077	$	1,195

 

4.     PROPERTY, PLANT AND EQUIPMENT

					March 31		March 31
					2002		2001
			Accumulated		Net Book		Net Book
	Cost		Amortization		Value		Value
Fixed assets construction in progress	$	220	$	-	$	220	$	206
Land and buildings		254		136		118		126
Other equipment		44		42		2		1
Other plant and equipment		281		149		132		60
Plant and machinery		1,382		1,065		317		179
	$	2,181	$	1,392	$	789	$	572

 

 

5.     INVESTMENTS AND OTHER INVESTMENTS

 

	March 31		March 31
	2002		2001
Investments in enterprises
Advances to sub-contractors of Impresa Mondelli Srl	$	204	$	-
Consortium Tecnos		510		511
Advances to Sardegna 97 S.p.A.		-		97
Total	$	714	$	608

   

Other investments

 

Other investments are represented by fixed interest securities.

 

6.     GOODWILL

                                               

	March 31		March 31
	2002		2001
Goodwill	$	1,866	$	1,664
Accumulated amortization		12		8
Total	$	1,854	$	1,656

            

7.     OTHER INTANGIBLE ASSETS      

 

					March 31		March 31
					2002		2001
			Accumulated		Net Book		Net Book
	Cost		Amortization		Value		Value
Intangibles in progress and advances	$	-	$	-	$	-	$	11
Licenses, trade-marks and similar rights		75		41		34		24
Others intangible assets		106		41		65		1
Patents and intellectual property rights		14		10		4		8
Research and development expenditures		7		5		2		1
	$	202	$	97	$	105	$	45

      

8.    DEMAND LOAN

 

Group companies have credit lines available to the extent of US $2.5 million at the interest rate of 7.25% - 9.75% on March 31, 2002.

 

9.     DUE TO AFFILIATED PARTIES

 

       The Company has advances payable to its majority shareholders which are non-interest bearing and no specific repayment terms.

      

10.   LONG-TERM DEBT

		March 31		March 31
		2002		2001
Mortgage payable to Credito Fondiario S.p.A., secured by building,
no payment terms and non-interest bearing.
	Balance	$	107	$	-
Mortgage payable to Comit (Banca Commerciale Italiana),
secured by building, requiring semi-annually payments of $4,
including interest at 5.198%.
	Balance		22		25
Mortgage payable to Ambrosiano Veneto, secured by building,
requiring semi-annually payments of $4, including interest at 4.675%.
	Balance		51		62
		$	180	$	87
	Less current portion		122		16
		$	58	$	71

   

 

10.   LONG-TERM DEBT (continue)

 

 Principal amounts due within the next three years on mortgages payable are as follows:

2003                                                                                    $            122

2004                                                                                                   53

2005                                                                                                     5

11.   CAPITAL STOCK

 

Authorized:  500,000,000 common shares with par value of $0.0001

                   100,000,000 preferred shares with par value of $0.001

 

 

12.  ACQUISITIONS

 

On June 4, 2001, Datico S.p.A. acquired 93% of the share capital of Impresa Mondelli S.r.l. which is an engineering and general contracting company specializing in the construction of cable and fiber optic networks, bridges, highways and commercial buildings.  The purchase price was $127.  The purchase included goodwill of $5.

 

On September 25, 2001, the Company acquired 51% of the share capital of Artel S.r.l.  The Company  purchases, sells and brokers of works of art, paintings, furniture, watches, rugs, prints and antique drawings.  The purchase price was $7. 

 

On October 7, 2001, the Company acquired 100% of the share capital of Sardegna 97 SpA.  The Company is developing on an 80‑Villa resort project in Sardinia.  The project is in Phase I with approximately 20% completed.  The purchase price was $112.  The purchase included goodwill with the amount of $101.

 

All of these acquisitions are accounted for under the purchase method. The consolidated financial statements include the operating results of each of these businesses from the beginning of the financial year in which the acquisition took place.

 

Goodwill has been determined on the basis of the difference between the purchase price paid and the fair market value of the underlying assets and liabilities acquired.

 

13.  SEGMENTED INFORMATION

 

       Telecommunications

 

       The telecommunication segment supplies and installs telecommunication equipment in Italy under contractual agreements with major telecommunication equipment suppliers.

 

       Construction

 

       The construction segment contracts to build major highway projects in Italy under long-term contracts ranging up to 8 years in length.

 

       Below are the sales and operating profit by segment for the three month period ended March 31, 2002 and a reconciliation of segment operating profit to earnings before income taxes.