(Mark One)

[X]    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

        for the period ended June 30, 2002

[  ]    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

        for the transition period from _____ to _____

Commission File NO:    000-30477

(Exact name of small business issuer as specified in its charter)

8275 South Eastern Avenue

Las Vegas, Nevada 89123

(Address of principal executive offices)

(702) 990-8800

(Issuer's telephone number)

Check whether the issuer:

(1)    filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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:

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:    53,527,000 shares common stock issued and outstanding as of June 30, 2002.

Transitional Small Business Disclosure Format (check one)    Yes _____    No   X  

PRIME HOLDINGS AND INVESTMENTS INC.

 

Consolidated Interim Financial Statements

(Unaudited)

June 30, 2002

(U.S. Dollars in thousand)

We have reviewed the accompanying consolidated balance sheet of Prime Holdings and Investments Inc. as at June 30, 2002 and the consolidated statements of earnings, stockholders' equity and cash flows for the six months ended June 30, 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.

North Vancouver, B.C.

August 14, 2002

PRIME HOLDINGS AND INVESTMENTS INC. STATEMENT 1

On behalf of the Board

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

PRIME HOLDINGS AND INVESTMENTS INC. STATEMENT 3

The accompanying notes are an integral part of these financial statements.

PRIME HOLDINGS AND INVESTMENTS INC. STATEMENT 4

For the six months ended June 30, 2002

(U.S. Dollars in thousand)

The accompanying notes are an integral part of these financial statements.

PRIME HOLDINGS AND INVESTMENTS INC.

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.

 

 

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..

 

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 from 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 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

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.

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.

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.