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, 2004 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 ----------- PRIME HOLDINGS AND INVESTMENTS, INC. ------------------------------------- (Exact name of registrant as specified in its charter) Nevada 88-0421215 -------- ------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 521 Fifth Avenue, Suite 1700, New York, NY ------------------------------------------- (Address, including zip code, of principal executive offices) (212)292-4258 ------------------ (Registrant's telephone number, including area code) --------------------------- (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 November 22, 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, 2004 and December 31, 2003. Unaudited Consolidated Statement of Stockholders' Equity - September 30, 2004. Unaudited Consolidated Statements of Earnings - Three Months Ended September 30, 2004 and 2003 and Nine Months Ended September 30, 2004 and 2003. Unaudited Consolidated Statements of Cash Flow - nine Months Ended September 30, 2004 and 2003. 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 ITEM 1. FINANCIAL INFORMATION 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, 2004 2003 --------------------------- Assets Current: Cash and Cash Equivalents $ 18 $ 8 Accounts Receivable, net of Allowance for Doubtful Accounts 88 73 Inventory 1,257 1,265 Prepaid Expenses 342 290 ------ ------ 1,705 1,636 Property, Plant and Equipment 311 355 Investments 361 361 Goodwill 106 106 Other intangible Assets 32 31 ------ ------ 810 853 ------ ------ $2,515 2,489 ====== ====== Liabilities and Stockholders' Equity Current: Due to affiliated party $1,350 $ 816 Accounts Payable and Accruals 848 783 Corporate Taxes Payable 3 12 Customer deposits 124 125 ------ ------ 2,325 1,736 Reserve for Employee Termination Indemnities 1 2 Minority Interest 164 166 ------ ------ 2,490 1,904 Contingent Liabilities/Commitments Stockholders' Equity Capital Stock and Additional Paid-In Capital 5,839 5,837 Other Comprehensive Income 681 685 Deficit (6,495) (5,937) ------ ------ 25 585 ------ ------ $2,515 $2,489 ====== ====== 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) Consolidated Statements of Stockholders' Equity (U.S. Dollars in Thousands) Common Stock and Common Additional Other Stock Paid-In Accumulated Comprehensive Shares Capital Deficit Income Total ------------------------------------------------------------ Balance, December 31, 2001 53,527 $5,584 $(1,338) $ 9 $4,255 Issuance of Common Shares for Services Rendered @$0.125 per share 755 95 95 Increase in Paid-In Capital 143 143 Net Loss for the Period (2,273) 531 (1,742) Reverse Stock Split, 1 for every 6.5 Shares on March 28, 2003 (45,931) ------- ------ ------- ---- ------ Balance December 31, 2002 8,351 5,822 (3,611) 540 2,751 Issuance of Common Shares for Services Rendered @ $0.03 462 15 15 Net Loss for the Year (2,326) 145 (2,181) ------- ------ ------- ---- ------ Balance, December 31,2003 8,813 5,837 (5,937) 685 585 Adjustment of Common Shares Issued for Services Rendered @ $0.03 74 2 2 Net Loss for the Nine Months Ended September 30, 2004 (558) 4 (562) ------- ------ ------ ---- ------ Balance, September 30, 2004 (Unaudited) 8,887 $5,839 $(6,495) $681 $ 25 ======= ====== ======= ==== ====== 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, -------------------------------- ------------------------------- 2004 2003 2004 2003 ------ ------ ------ ------ Revenue $ 229 Operating expenses: Administrative Expenses $ 207 $ 648 $ 499 1,085 Depreciation and Amortization 33 4 57 33 Stock Based Compensation 2 ------ ------ ------ ------- Total Operating Expenses 240 652 558 1,118 ------ ------ ------ ------- Operating Loss (240) (652) (558) (889) Other Income (Expense): Interest Income (1) Miscellaneous (19) (116) ------ ------ ------ ------- Total Other Income (Expense) (20) (116) Loss Before Minority Interest and Income Taxes (240) (672) (558) (1,005) Income Taxes (1) ------ ------ ------ ------- Loss Before Minority Interest (240) (672) (558) (1,006) Minority Interest ------ ------ ------ ------- Net Loss for the Period $ (240) $ (672) $ (558) $(1,006) ------ ------ ------ ------- Weighted Average Common Shares Outstanding 8,887 8,351 8,887 8,351 ------ ------ ------ ------- Loss Per Share $(0.03) $(0.08) $(0.06) $ (0.12) ====== ====== ====== ======= 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 --------------------------- (U.S. Dollars in thousand) September 30, September 30, 2004 2003 --------------------------- Cash Flows From Operating Activities: Loss From Operating Activities $(558) $(1,006) Items Not Requiring an Outlay of Funds: Amortization 43 33 Stock based compensation 2 Minority Interest (2) 5 ----- ------- (515) (968) Changes in Non-Cash Working Capital: Accounts Receivable (15) 214 Inventory 8 (86) Net construction work in progress 4 Prepaid Expenses (52) Accounts Payable and Accrued Liabilities 65 369 Customer Deposits (1) Corporate Taxes Payable (9) 10 Reserve for Employee Termination Indemnities (1) ----- ------- (520) (457) ----- ------- Cash Flows From Financing Activities: Proceeds (Repayment) of Long-Term Debt (98) Proceeds of Demand Loans 534 602 Decrease in Due to Minority Interest Shareholders (22) ----- ------- 534 482 ----- ------- Cash Flows From Investing Activities: Purchase Marketable Securities 22 Purchases of Capital Assets (8) (26) Sale(Purchase)of Long-Term Investments (45) Sale of Other Investments 12 ----- ------- (8) (37) Effect of Exchange Rate Changes on Cash 4 11 ----- ------- Increase in Cash 10 (1) Cash, Beginning of Period 8 108 ----- ------- Cash, End of Period $ 18 $ 107 ===== ======= 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 September 30, 2004 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, 2004 are not indicative of the results of operations for the year ended December 31, 2004. 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, 2003. Related Party Transactions During the nine months ended September 30, 2004, the principal stockholder advanced the Company $534,000 for operating expenditures. The total amount due to the principal stockholder at September 30, 2004 is $1,350,000. Stockholders' Equity During the first quarter ending March 31, 2004, an adjustment was recorded for the issuance in 2003 of 74,000 shares to the Officer and Directors to compensate for their services. The issuance was valued at $0.03 per share. COMPANY IN GOOD STANDING The Company has been notified by the State of Nevada that the Company is no longer in good standing in said state. 7 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 quarterly 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, 2004 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2003. Revenues. There were no revenues for the three months ended September 30, 2004, as was for the three months ended September 30, 2003. Operating Expenses. For the three months ended September 30, 2004 operating expenses were approximately $240,000, a decrease of $412,000, as compared to operating expenses of $652,000 for the same period in 2003. Other Income (Expenses). For the three months ended September 30, 2004, Prime did not recognize any net miscellaneous other expenses, as compared to net miscellaneous other expense of 19,000 for the three months ended September 30, 2003. Net Income {Loss). As a consequence of the foregoing, Prime has a net loss for the three months ended September 30, 2004 of approximately $240,000 compared with approximately $672,000 net loss for the three months ended September 30, 2003. For the three months ended September 30, 2004 earnings per share was approximately (0.03) compared with an earnings of approximately $(0.08)for the three months ended September 30, 2003. 10 RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AS COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2003. Revenues. There were no revenues for the nine months ended September 30, 2004, a decrease of $229,000 as compared to revenues of approximately $229,000 for the nine months ended September 30, 2003. 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, 2004 operating expenses were approximately $558,000, a decrease of $560,000 or 50%, from approximately $1118,000 for the same period in 2003. This decrease in operating expenses was primarily due to a reduction adminstrative expenses. Other Income (Expenses). For the nine months ended September 30, 2004, interest expenses were 1,000 and miscellaneous expenses were 19,000 as compared to net 116,000 miscellaneous expenses for the nine months ended September 30, 2003. Income Taxes. For the nine months ended September 30, 2004, Prime did not recognize any income taxes, as compared to a approximately $1,000 income taxes for the nine months ended September 30, 2003. 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. Net Income {Loss). As a consequence of the foregoing, Prime has a net loss for the nine months ended September 30, 2004 of approximately $558,000 compared with approximately $31,006,000 net loss for the nine months ended September 30, 2003. For the nine months ended September 30, 2004 earnings per share was approximately (0.06) compared with ($0.12) for the nine months ended September 30, 2003. 11 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. 12 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, 2004, the Company did not file any reports on Form 8-K: SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PRIME HOLDINGS AND iNVESTMENTS INC. ---------------------------------- (Registrant) Date: November 22, 2004 By: /s/ JOHN VISENDI ---------------------------------- John Visendi President, Chief Executive Officer and Chief Financial Officer 13