SECURIITES ANDEXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Amended Form 10-KSB

 

Annual Report Pursuantto Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report: December31, 2002

 

PRIME EQUIPMENT, INC.

(Exact name ofregistrant as specified in its charter)

 

Nevada
000-29937
88-0412653
(State of other      jurisdiction of incorporation or organization)
(Commission File      Number)
(IRS Employer      Identification No.)
 

4287B Dawson Street,Burnaby BC, Canada V5B 4C3

(Address of principalexecutive offices)

 

Registrant's telephonenumber: (604) 298-9989

 

(Mark One)

[X] Annual reportpursuant to Section 13 or 15(d) of the securities exchange act of 1934 for thefiscal year ended December 31, 2002.

 

[ ] Transition reportunder Section 13 or 15(d) of the securities exchange act of 1934

 

Securities registeredunder Section 12(b) of the Exchange Act:

 

 

Securities registeredunder Section 12(g) of the Exchange Act:

 

Common stock

 

Check whether the issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. [X] Yes [ ] No

 

Check if there is nodisclosure of delinquent filers in response to Item 405 or Regulation S-B is notcontained in this form, and no disclosure will be contained, to the best ofregistrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB [X]

 

State issuer'srevenues for its most recent fiscal year: $976,406

 

State the aggregatemarket value of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was sold, or theaverage bid and asked price of such common equity, as of a specified date withinthe past 60 days. NA

 

State the number ofshares outstanding of each of the issuer's classes of common equity, as of thelatest practicable date. 9,046,000 common, 500,000 preferred

 
** 

PART I**
 
**Item 1. Description ofBusiness**
 
**General**
Prime Equipment, Inc.(the "Company") is a Nevada company formed under the laws of the Stateof Nevada on December 18, 1998, originally to engage in the constructionequipment and telecommunication equipment rental & sales business. Since itsinception, the company has been establishing itself in the industry. The Companyhas sold equity shares to raise capital, planned and arranged for management,and has commenced corporate strategic planning regarding potential viableoperations. The Company currently operates out of 4287B Dawson St, Burnaby BC.Canada V5B-4C3. The Company is currently generating revenues and expects thatits revenues will continue and, possibly increase.

 

On July 10, 2002, PrimeEquipment merged with IP Teleservices, Inc., a British Columbia Canadiancorporation ("IPT") with Prime Equipment the surviving entity. IPTeleservices Inc. (IPT) has subsequently changed its name to Prime TeleservicesInc. ("PTSI")

 

Business of Issuer
** **
The Company is engagedin the import and distribution of telecommunications services. It worked withDATICO S.P.A. (www.datico.it) of Italy for the exclusive right to import anddistribute their manufactured telecommunications equipment to Internet ServiceProviders and end users in the North America. Unfortunately, the inability ofDATICO to provide support and testing has required the Company to terminate itsrelationship, as of November 19th, 2002.

 

Prime TeleservicesInc., (PTSI) a newly incorporated telecom company in Canada, has developed anapplication platform that is software based and is capable to reach a globalpresence at low cost and short timeframe, enabling Voice 0ver Internet Protocol(VoIP) over the public internet for Long Distance telephone service and callingcard businesses for the retail; wholesale and other business models applicableto anywhere in the world.

 

The objective of PTSIis to develop a global voice services backbone network on IPT where VoIPGateways and Call Management Data centers (CMDCs) will be installed at strategiclocations around the world. With the platform in place, PTSI will be in aposition to focus at a "two prong" marketing approach to develop thebusiness. One area of the marketing activity will be on retail business wheretarget customer groups/ethnic base will be offered prepaid calling cards orprepaid residential services at preferential rate to a particular destinationdirectly through agents or PTSI outlets. Concurrently, PTSI will also wholesaleits products by offering OEM telephone cards for phone-centers; conveniencestores and travel agencies/tour operators to maximize its network resources atthe initial stage of the business operation. The idea of offering businessopportunities to interested partners will be the main driving force in enablingan expanded IP network reach, in the shortest possible timeframe. Thisinitiative is the first in turning basic telecom services into commodityretailing through a business opportunity network on a global scale.

 

The Company expectsthe PTSI Global VoIP platform to be established in stages. Currently, theCompany's CMDCs are operating in Vancouver and Toronto, Canada, Hong Kong, andChina. There will be an additional four (4) CMDCs equipped with software basedIP switch and application servers for PTSI's global VoIP platform. The plannedexpansion will bring Milan, Italy, Los Angeles and San Francisco, California,and New York, New York online. These three regional and one European CMDCs willbe co-located and connected to the Internet upstream carrier/ Internet gatewayoperators for reliability and security purposes. The Company is focused onbecoming a provider of complete telecom services.

 

Each regional CMDCwill be managing remote point of presents (POPs) in cities within the regionwhere business is to be conducted or partner operation maintains a presence. ThePOPs will provide the basic connectivity to the local Public Switched TelephoneNetwork (PSTN) for customer access as well as traffic termination. Theterminating POPs are essential for controlling costs, where majority of theCompany's traffic is terminated. All terminating POPs will be connected tocarriers providing the least cost, or the respective local PSTN, depending oncosts and regulatory issues.

 

All elements on thePTSI's platform are connected through the Internet domain, and Internetprotocol software switching controls traffic. The corresponding routing will beaccomplished through software controlled LCR and gateway-to-gateway VoIPlogical connections.

 

With the securing of aleased premises by PTSI for the next three years, the Company has a suitableoffice space in Burnaby B.C. to operate and administrate its business.

 

Other than developmentof its website, and the Software based Application Platform, theCompany has no intellectual property rights.** 

Item 2. Description ofProperty.**
 

The Company's principalexecutive and administrative offices are located in Burnaby BC, in which itshares leased premises. The Company intends to stay at this premise until itout-grows the current office space. The Company shares office space under alease agreement. A copy of the lease is attached as an Exhibit. The Companyconsiders its executive and administrative offices to be adequate and suitablefor its current needs. The Company does not own or lease any other real estate

 
**Item 3. LegalProceedings**
 

The Company is not aparty to any material pending legal proceedings and, to the best of itsknowledge, no such action by or against the Company has been threatened. TheCompany's sole officer and director is not an adverse party to the Company nordoes he have a material interest adverse to the Company.

 
**Item 4. Submission ofMatters to a Vote of Security Holders.**
 

No matter was submittedduring the fourth quarter of the fiscal year ended December 31, 2002, to a voteof security holders, through the solicitation of proxies or otherwise.

 

PART II

 
**Item 5. Market forCommon Equity and Related Stockholder Matters.**
 
**Market Information**
The Company isvoluntarily filing a Registration Statement on Form 10-SB to obtain listing onthe OTC Bulletin Board, which requires all listed companies to be registeredwith the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934and to be current in its required filings once so registered. That registrationstatement is pending approval from the SEC.

 

The Company has nopublic trading market for its common stock. Although the Company intends to seeka quotation for its common shares on the Over-the-Counter Bulletin Board in thefuture, there is no assurance the Company will do so, nor is there any assurancethat should the Company succeed in obtaining a listing for its securities on theOTC Bulletin Board or on some other exchange that a trading market for theCompany's stock will develop. There are no outstanding options, warrants topurchase, or securities convertible into common equity of the Companyoutstanding. The Company has not agreed to register any shares of its commonstock for any shareholder. There are presently 9,046,000 shares of common stockthat were issued as follows: 100,000 shares of common stock for cash subject toRule 144 in December 1998; 100,000 issued pursuant to Regulation D, Rule 504 onMarch 1999. On October 22, 1999, all of the existing shareholders surrenderedtheir stock and the Company issued 4,000,000 shares of common stock to thoseshareholders, pursuant to a 20 for 1 forward split. No additional stock was soldat that time. On November 14, 1999 1,000 shares of restricted common stock wasissued, and in December 17, 1999 20,000 shares on restricted common stock wasissued, both pursuant to Regulation D, Rule 504. The Company issued 25,000shares of restricted common stock to Giovanni Iachelli on November 1, 2000, forservices rendered**.**On July 10, 2002, the Company authorized the issuanceof 5,000,000 shares of common stock and 500,000 shares of preferred stock to theshareholders of Net Magic, Ltd, in exchange for all outstanding shares, softwareand equipment of IP Teleservices Inc.

 
**Stockholders**
There are 63shareholders of record for the Company's common stock.

 

Recent Sales ofUnregistered Securities

 

On July 10, 2002, theCompany authorized the issuance of 5,000,000 shares of common stock and 500,000shares of preferred stock to the shareholders of Net Magic, Ltd, in exchange forall outstanding shares, software and equipment of PrimeTeleservices Inc.,formerly IP Teleservices Inc.

 
**Item 6. Management'sDiscussion and Analysis or Plan of Operation.**
 

The Company plans toengage in the sale of telecommunications services and licensing of itstelecommunication platform services. Additional funding through privateplacement will be necessary to enable the Company to expand its currentbusiness.

 

On July 10, 2002, theCompany acquired one hundred percent (100%) of the stock of Prime TeleservicesInc. (PTSI). PTSI is a telecom company in Canada poised to be the leader in"softswitch" VoIP implementation on a global scale. PTSI hopes togenerate significant traffic volume from the retail, wholesale and licensingopportunities around the world. At the same time, PTSI hopes to improve itsoverall margin as its network grows with its latest integrated softwaretechnology.

 

A team of experiencedtelecom marketers and software developers started PTSI. Their objective is tobuild and develop a Global Voice Services Backbone Network that connects to VoIPGateways and Call Management Data Centers spanning the globe. It has alreadysuccessfully built a software based VoIP application platform that enables VoIPover the Internet and/or Intranet for Long Distance Telephone service andCalling Card businesses. This platform can be deployed inexpensively, quicklyand most importantly, globally.
** **
PTSI has beenestablishing relationships with strategic local telecom companies. Through theserelationships, PTSI has placed itself in a position to provide a global VoIPNetwork that will link its presence in North America to Asia as well as Europe.This in turn opens many doors for the company to develop more lucrative businessopportunities in the retail, wholesale and licensing sectors.

 

The Company intends toraise adequate funds of up to $1,500,000 from accredited investors to provideadequate working capital for the next 12 months. The proceeds will be used toexpand the software network platform, pay professionals and consultants, andmarket the business opportunity model. The Company expects to add employees overthe next 12 months as additional business is added. The Company expects to beginthe process of raising adequate funding in the near future.

 
**Revenue**
TheCompany did not receive revenues from operations during the two-year periodpreceding the merger with IP Teleservices. The Company has achieved revenue fromoperations after the date of the merger. The total amount of receivablescollected in cash from October 1, 2002 to December 31, 2002 is $65,552.02

 

Liquidity

TheCompany has been generating revenues from sales of its products. Although itoperated at a loss for the third quarter of 2002, the Company produced netincome for the nine months ending September 30, 2002. Losses were recordedduring the third quarter of 2002 for a number of reasons. Those include thefollowing:

 
-  During    the first nine months of 2002, there was a delay in receipts of customer    payments. This caused the Company to record bad debt realization for the    first time in September, 2002.There    was an increase during the third quarter in the use of consultants and    professions, and their associated fees.The    Company leased an office space, adequate in size to operate its business.
 

Losses in the fourthquarter of 2002 were mainly due to the write-off of amounts owed from twocustomers, one of whom has become insolvent, and another who is currentlydisputing the total amount owed. Those bad receivables were recorded in theCompany's financial statement as $135,177. However, the total of the lossesdue to insolvency and dispute amounts to $139,598.62. The difference is due toexchange rate conversions. The two customers with disputed amounts are San YuTrading, which owed $64,597.36 (insolvent) and OMC, which owed $75,001.26(disputing 50% of the total owed of $150,002.53). The Company continues toattempt to collect the receivables owed, but is not confident that itwill be able recover any of those amounts.

 

The Company will have toraise additional capital in the next twelve months in order to continue itsbusiness plan.

 

The current market forraising capital through one or more private placements is difficult. The numberof public and private companies seeking such financing means the competition tosecure investors is great. It may be that the Company will not be able to secureany equity financing through a private placement, and may have to seek financingfrom other, less traditional, more costly venues. In any such event, the Companywould have to alter and revise its business plan to provide for significantlyless expansion and growth.

 

Assuming that theCompany is successful in raising its equity financing, the projected investmentneeds for the Company and categories of expenditures for the next twelve monthsare as follows:

 

Network Expansion***USD
Set-up and      acquisition costs of Network Equipment and VoIP Gateways for 8 China      cities and 2 Italian cities
600,000
Business Expansion
Complete New      Corporate Office in Burnaby
100,000
Establish Regional      Offices in Hong Kong and Italy
150,000
Additional      consulting services from Software and Networks consultants/ professionals
280,000
Marketing costs      for Business Opportunity Model/ Road shows
120,000
Administrative      expenses
250,000**Total**1,500,000
 

The Company has issuedshares of its common stock from time to time in the past to satisfy certainobligations, and expects in the future to acquire certain services and satisfyindebtedness utilizing authorized shares of the capital stock of the Company. Ifoperations and cash flow can be improved through these efforts, managementbelieves that the Company's liquidity problems will be resolved, and that theCompany can continue to operate. However, no assurance can be given thatmanagement's actions will result in profitable operations.

 

The plan of the Companyis to raise more financing through loans and the sale of the Company's commonand preferred stock to enable the Company to expand its current business. Anoverall budget of $1,500,000 for acquisitions, employment, marketing andprocurement of equipment for the upcoming year should achieve the Company'sgoals. The intent is to acquire strategically located IPS companies, hireemployees for expansion of the software network, execute additional contractswith telecom service providers, as well as aggressively market and promotebusiness opportunities.

 

If the Company is unableto secure financing through the sale of common stock, it may have to adjust itsbusiness plan and reduce its future goals.

 

The Company previouslyentered into lines of credit with its former President and a former consultant.The lines of credit are unsecured, payable on demand, with interest at the rateof 8% per annum, compounded annually.  In the event of default by theCompany the interest rate increases to 10%. Total credit extended under the two$100,000 lines of credit as of September 30, 2002, was $46,505. Both lines ofcredit have been cancelled, and the amounts owed were reflected by PromissoryNotes.

 
**Potential Uncertainties**
As the Company expectseventually to obtain sales from overseas businesses and such expenditures aregenerated in foreign currencies, fluctuations in the value of currenciesrelative to the United States dollar could adversely affect the Company'sprofitability. Royalty payments, if any, paid by the Company relating to foreignlicensing arrangements would be converted to U.S. dollars based on the exchangerate at the time of payment. In addition, if the Company is unable to raise cashthrough the sale of stock, it may not have sufficient resources to continue, andmay fail.
** 

Item 7. FinancialStatements**
 

 

 
** **
 

 

 

   

PRIME EQUIPMENT INC.  

(Successor to Prime Teleservices Inc., which was formerly IP Teleservices  Inc.)  

   

 Consolidated  Financial Statements  

   

December  31, 2002 and 2001  

(U.S.  Dollars)  

** **

**PRIME EQUIPMENT INC.                                                                                        CONTENTS**

**(Successorto Prime Teleservices Inc., which was formerly IP Teleservices Inc.)**

**December31, 2002 and 2001**

**(U.S.Dollars)**

****

 

 

 

 

 

 

 

 

 

 

 

                INDEPENDENT AUDITORS' REPORT

 

 

                CONSOLIDATED BALANCE SHEETS                                               STATEMENT 1

 

           

                CONSOLIDATED STATEMENTS OF EARNINGS                                STATEMENT 2

 

 

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT        STATEMENT 3

 

 

                CONSOLIDATED STATEMENTS OF CASH FLOWS                           STATEMENT 4

 

 

                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

** **

 

** **

**

EVANCICPERRAULT ROBERTSON

CERTIFIEDGENERAL ACCOUNTANTS

* *

                                                                                               

* *

**INDEPENDENTAUDITORS' REPORT**

 

 

 

 

 

Tothe Board of Directors and Stockholders

PrimeEquipment Inc.

 

 

Wehave audited the consolidated balance sheet of Prime Equipment Inc.  as of December 31, 2002 and 2001 and the  consolidated statements of earnings, stockholders' deficitand cash flows  for the year thenended.  These financial statementsare the responsibility of the Company's management.  Our responsibility is to express an opinion on thesefinancial statements based on our audits.  Thefinancial statements of Prime Equipment Inc. as of December 31, 2001, wereaudited by other auditors whose report dated February 4, 2002, expressed anunqualified opinion on those statements.

 

Weconducted our audit in accordance with auditing standards generally accepted inthe United States of America.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An auditalso includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the 2002 financial statements referred to above present fairly, inall material respects, the financial position of Prime Equipment Inc. as ofDecember 31, 2002 and 2001 and the results of its operations and its cash flowsfor the year then ended in conformity with accounting principles generallyaccepted in the United States of America.

 

 

**CERTIFIEDGENERAL ACCOUNTANTS**

 

 

Coquitlam,B.C.

March19, 2003                         

 

2ndFloor, 566  Lougheed Highway,Coquitlam,  BC V3S 3S3

Telephone(604) 936‐4377  Fax (604)936‐8376

Website:http//epr.ca  Email: epr@eprcoq.ca

OfficeAcross Canada

AffiliatesAround the World

 

**PRIME  EQUIPMENT INC.**                                                                                        **STATEMENT**

**(Successor  to Prime Teleservices Inc., which was formerly IP Teleservices Inc.)**

**CONSOLIDATED  BALANCE SHEETS**

December  31, 2002 and 2001

(U.S.  Dollars)  

                                                                                                                    2002                                 2001

** **

**ASSETS**

Current:  

      Cash                                                                                          $      211,249                  $       54,100

      Accounts receivable, net of allowance for doubtful accounts   

       (2002 - $75,000) (2001 - $-)

       (Billed: 2002 - $144,942, 2001 - $10,328)

       (Unbilled: 2002 - $5,231, 2001 - $131,328)                                           150,173                          141,656

      Current portion of lease receivable - note 3                                                 -                                 16,265

      Government agencies receivable                                                               -                                   4,345

      Inventory                                                                                             88,602                               -     

      Prepaid expenses                                                                                  1,319                          119,999

                                                                                                             451,343                          336,365

   

Lease  receivable                                                                                          -                                 13,450

Property,  plant and equipment - note 4                                                       93,133                          102,891

Deferred  tax assets                                                                                    8,684                               -     

                                                                                                      **$      553,160**                  **$      452,706**

**LIABILITIES  AND STOCKHOLDERS' DEFICIT**

Liabilities  

Current:  

      Note payable - note 5                                                                  $       25,000                  $            -     

      Note payable to stockholders - note 6                                                    77,143                               -     

      Accrued interest                                                                                  13,569                               -     

      Accounts payable and accruals                                                           413,931                          237,795

      Customer deposits                                                                               57,000                           44,148

      Government agencies payable                                                               10,194                               -     

                                                                                                             596,837                          281,943

   

Due  to director                                                                                             -                                   3,792

Loans  payable - note 7                                                                              31,176                           30,879

Due  to stockholders  - note 8                                                                     81,436                          136,022

Preferred  stock - note 9                                                                                 500                               -     

                                                                                                             709,949                          452,636

Stockholders'  deficit

      Common stock  - note 9                                                                               2                                   1

      Other comprehensive income                                                       (123)                              (2)              

      Retained earnings (deficit)                                                                 (156,668)                                  71

      **                                               **                                                      (156,789)                                  70

**                                               **                                                      **$      553,160**                  **$      452,706**

On  behalf of the Board:  __________________________Director  ________________________ Director  

 
 

Theaccompanying notes are an integral part of these financial statements.

**EVANCIC PERRAULT ROBERTSON**
 

**PRIME EQUIPMENT INC.                                                                                      STATEMENT**

**(Successorto Prime Teleservices Inc., which was formerly IP Teleservices Inc.)**

**CONSOLIDATEDSTATEMENTS OF EARNINGS**

Yearended December 31, 2002 and 2001

(U.S.Dollars)

                                                                                                                 2002                           2001

 

Revenue                                                                                     $      976,406               $  186,975      

 

Costsof goods sold                                                                            714,967                   128,492

Grossprofit                                                                                         261,439                     58,483       

**Operating expenses                                                                  **

    Depreciation                                                                                      48,854                     11,331       

    Bank charges                                                                                         470                           88       

    Bad debts                                                                                        135,177                        -            

    Commissions                                                                                      3,406                        -            

    Consulting                                                                                         50,628                     28,213       

    Promotions and entertainment                                                                 378                         585       

    Office                                                                                                  4,359                          309       

    Professional fees                                                                               28,799                      9,602       

    Rent                                                                                                   2,343                        -            

    Travel                                                                                                  1,856                     12,617       

                                                                                                           276,270                     62,745       

                                                                                                         (14,831)                    (4,262)       

**Other income and (expenses) **

    Interest expense                                                                                (6,381)                        -            

    Gain on foreign exchange                                                                        190                      4,333       

    Gain on sale of property, plant and equipment                                         516                         -                   

                                                                                                           (5,675)                      4,333       

**Earning(loss) before**

    provision for income taxes                                                                (20,506)                           71

 

**Deferredtax benefits         **                                                                (8,724)                        -            

Netearnings (loss) for the year                                                  $       (11,782)            $            71       

Weightedaverage

 commonshares outstanding                                                       6,319,973                 5,000,000

Earnings(loss) per share                                                            $   (0.001864)            $   0.000014

**                                                                                                                                                                       **

 

Theaccompanying notes are an integral part of these financial statements.

**EVANCIC PERRAULT ROBERTSON**
 

 

**PRIMEEQUIPMENT INC.**                                                                                      **STATEMENT**

**(Successorto Prime Teleservices Inc., which was formerly IP Teleservices Inc.)**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS' DEFICIT                       **

Yearended December 31, 2002 and 2001

(U.S.Dollars)

                                                  **Number**     **Common Stock**

      **                                                of                   and            Retained             Other**

**                                                  Common        Additional         Earnings    Comprehensive**

**                                                    Stock        Paid‐inCapital      (Deficit)          Income        Total**

                                                                                                                                                                         

Issuanceof stock for cash              5,000,000                    1              -                    -                              1

 March 16, 2001 (Note 10)

 

Netincome for the year                          -                     -                       71                     -                     71

Effectof foreign exchange                      -                     -                    -                      (2)                       (2)

Balance,December  31, 2001         5,000,000                    1                 71                 (2)                      70

ReverseAcquisition

      Pre‐acquisitionshares of

      Prime Equipment Inc.

      (Note 2)                                 4,046,000               -                    -                    -                     -     

      Issuance of common shares for

      reverseacquisition of Prime

      Teleservices,Inc.

      on July 18, 2002                     5,000,000                    1              -                    -                          1

      Net deficit acquired from

      subsidiary                                     -                     -             (144,957)                     -          (144,957)

      Less exchange of Prime

       Teleservices Inc.'s shares     (5,000,000)               -                    -                    -                     -     

Balanceafter reverse acquisition     9,046,000                 2           (144,886)                (2)            (144,886)

Netloss for the year                              -                     -              (11,782)                -                 (11,782)

Effectof foreign exchange                      -                     -                    -                   (121)                 (121)

**Balance,December 31, 2002      9,046,000   $             2     $   (156,668)           $ (123)            (156,789)**

** **

Theaccompanying notes are an integral part of these financial statements.

**EVANCIC PERRAULT ROBERTSON**
 

 

**PRIMEEQUIPMENT INC.**                                                                                      **STATEMENT**

**(Successorto Prime Teleservices Inc., which was formerly IP Teleservices Inc.)**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

Yearended December 31, 2002 and 2001

(U.S.Dollars)

                                                                                                                 2002                            2001

                                                                                                

**Cashflows from (for) operating activities:**

     NetEarnings (loss)                                                                   $      (11,782)                $             71

    

     Adjustmentsto reconcile net earnings (loss) to net cash provided by

        operating activities:

 

         Depreciation                                                                                 48,854                         11,331

         Issuance of stock for services rendered                                                500                            -     

         Gain on sale of property, plant and equipment                                    (516)                            -     

         Deferred income tax                                                                      (8,724)                            -     

         Increase in accounts receivable                                                      (8,714)                      (144,168)

         Increase in inventory                                                                    (89,009)                             -     

         Decrease (increase) in prepaid expenses                                      120,769                        (120,000)    

         Increase in accrued interest                                                             3,126                             -     

         Increase in accounts payable and accrued liabilities                       120,494                        244,616

         Increase in customer deposits                                                        12,000                         45,000

         Increase (decrease) in government agencies payable                        14,648                         (4,379)

                                                                                                           201,646                         32,471

****

** **

**Cashflows from (for) investing activities:**

    Purchases of property, plant and equipment                                       (21,526)                      (114,942)

    Decrease (increase) in lease receivable                                                30,138                       (30,024)

                                                                                                               8,612                      (144,966)

**Cashflows from (for) financing activities:**

    Advances from (repayment to) stockholders                                       (33,868)                        169,961

    Advances from (repayment to) director                                                 (3,897)                           3,897

    Issuance of common shares                                                                       1                                 1

                                                                                                           (37,764)                        173,859

**Effectof exchange rate changes on cash**                                          (15,345)                         (7,264)

**Increasein cash                                                                                 157,149**                **        54,100**

 

**Cash,beginning of year                                                                       54,100                             -     **

**Cash,end of year                                                                        $      211,249**                **$       54,100**

SupplementalDisclosures

Interestpaid                                                                                  $          -                      $          -     

Incometaxes paid                                                                         $          -                      $          -     

** **

**Noncashactivities:**

 

500,000 preferred shares were issued for servicesrendered in connection with the reverse acquisition.
 

 

Theaccompanying notes are an integral part of these financial statements.

**EVANCIC PERRAULT ROBERTSON**
 

 

 

 

**PRIME  EQUIPMENT INC.**                                                                                                              

**(Successor  to Prime Teleservices Inc., which was formerly IP Teleservices Inc.)**

**NOTES  TO THE CONSOLIDATED FINANCIAL STATEMENTS**

December  31, 2002 and 2001

(U.S.  Dollars)  

**1.      NATURE OF BUSINESS**

** **

The  Company was incorporated on December 18, 1998, under the laws of the State of  Nevada.     

On  July 18, 2002, the Company acquired 100% of the shares of Prime Teleservices  Inc., a Canadian corporation which had changed its name from IP Teleservices  Inc. on June 3, 2002.  

   

The  Company's subsidiary, Prime Teleservices Inc., is a telecommunication company  in "softswitch" Voice over Internet Protocol (VoIP) implementation  on a global scale.  It will  generate significant traffic volume from retail, wholesale and franchising  opportunities world wide.  

   

Prime  Teleservices Inc. was started by a team of experienced telecom marketers and  software developers.  Its  objective is to build and develop a Global Voice Services Backbone Network  that connects to VoIP Gateways and Call Management Data Centres spanning the  globe.  It has successfully built  a software based VoIP application platform that enables VoIP Network that will  link its presence in North America to Asia and Europe.   This in turn provides many opportunities for the Company to develop  business opportunities in the retail, wholesale and franchising sectors.  

   

   

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 Prime Teleservices Inc. on July  18, 2002 was accounted for as a reverse acquisition whereby Prime Teleservices  Inc. is considered the acquiring company.   The comparative figures presented are those of Prime Teleservices Inc.  

        

**        Reverse acquisition**

** **

On  July 18, 2002, the Company completed an agreement with the shareholders of  Prime Teleservices Inc. whereby the Company issued 5,000,000 common shares in  exchange for all  the issued and  outstanding shares of Prime Teleservices Inc. as well as the rights to the  software platform, which was owned by the parent company of Prime Teleservices,  Inc. The software platform has been recorded at a cost of $1.   The Company also issued 500,000 preferred shares for services rendered  in connection with this acquisition.  No  cash was transacted.  

** **

The  acquisition has been accounted for as a reverse acquisition using the purchase  method, and accordingly, for financial statement reporting purposes, the net  assets of Prime Teleservices Inc. have been included in the consolidated  balance at book values, and the net assets of Prime Equipment Inc. have been  recorded at fair market value at the date of acquisition.   The consolidated operations of the Company for the period from January  1, 2002 to the date of acquisition, July 18, 2002, are those of Prime  Teleservices, Inc. and exclude the results of operations of Prime Equipment,  Inc.  The results of Prime Equipment, Inc. are included in the  consolidated statements of operations from the date of acquisition.  

   

**        Reverse acquisition (continued)**

   

The  cost of the acquisition is the assumption of the net liability position of  Prime Equipment, Inc. as at July 18, 2002 and consists of:  

   

Accounts  payable                                                                                                 53,841  

Note  payable                                                                                                        71,505  

Interest  payable                                                                                                    10,443  

Loan  from stockholders                                                                                           9,168  

Total  liabilities assumed on acquisition                                                                 144,957  

**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.

   

Property,  plant and equipment

   

Property,  plant and equipment are recorded at cost.   Depreciation is provided annually on a straight‐line basis over a  period of three years to write‐off assets over their estimated useful  lives. 

   

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.    No reserve for obsolete and slow‐moving inventories is deemed  necessary.

   

Deferred  income taxes

   

Prime  Equipment Inc. accounts for income taxes in accordance with Statement of  Financial Accounting Standards No. 109 ("SFAS 109"),  "Accounting for Income Taxes".    Under the asset and liability method of SFAS 109, deferred tax assets  and liabilities are recognized for the estimated future tax consequences  attributable to differences between the financial statement carrying amounts  of existing assets and liabilities and their respective tax bases and  operating loss and tax credit carryforwards.   Deferred tax assets and liabilities are measured using enacted tax  rates expected to apply to taxable income in the year in which those temporary  differences are expected to be recovered or settled.   Under SFAS 109, the effect on deferred tax assets and liabilities of a  change in tax rates is recognized in income in the period that includes the  enactment date.

   

Deferred  income taxes have resulted from reporting certain items for income tax  purposes on a basis  which differs  from accounting policies.  Effective  corporate tax rates are 40% and 15% for the Company's Canadian and United  States operations respectively for both 2002 and 2001. 

   

**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. The  standard billing terms granted to customers are due upon invoices issued to  customers.  

   

**Earnings  (loss) per share (EPS)**

** **

Basic  EPS is determined using net earnings (loss) divided by the weighted average  shares outstanding during the year.  Diluted  EPS is computed by dividing net earnings (loss) 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.  

** **

**Earnings  (loss) per share (EPS) (continued)**

** **

As  the acquisition has been recorded as a reverse acquisition, EPS for 2002 was  calculated using the number of shares outstanding after the acquisition. The  EPS for 2001 was calculated using the number of shares issued in the reverse  acquisition.  

   

**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 year.   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, 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.      LEASE RECEIVABLE

   

                                                                                                                                                                                                                     2002                                          2001

Equipment  leased out

                                     Aggregate of payments receivable                                $            -         $       33,454

                                     Less: unearned interest                                                           -                  (3,740)

                                                                                                                                 -                  29,714

                                     Less: current portion                                                               -                  17,189

                                                                                                                    **$            -     **   $       12,525

The  lease has been terminated during the last quarter of 2002.   The Company recovered the assets for its own use.  

   

4.   PROPERTY, PLANT AND EQUIPMENT

      

                                                                                                                                                

                                                                                                                      2002                  2001

   

**                                                                                              Accumulated    Net  Book        Net  Book**

**                                                                               Cost         Depreciation        Value              Value**

      

        Computer equipment                     $       11,448                        $ 5,772              $ 5,676            $           8,080   

        Telephone equipment                           140,944                         53,488               87,456                       94,811 

        Software                                                      1                           -                             1                     -          

**                                                        $      152,393                        $ 59,260            $ 93,133           $           102,891**

   

**5.    NOTE PAYABLE**

** **

The promissory note payable is unsecured, maturing April 30,  2003 with a simple interest rate at 10% per annum.   

   

**6.     NOTES PAYABLE TO STOCKHOLDERS**

   

The promissory notes payable are unsecured, due on demand  with interest at the rate of 8% per annum, compounded annually.   In the event of default by the Company, the interest rate increases to  10%.  

   

7.      LOANS PAYABLE

                                                                                                                                               

                                                                                                             2002                       2001

   

**        Bove Telecom Services Inc.                                                          $       31,176           $       30,879**

        The Company has loans payable which are non‐interest bearing and  have no specific repayment terms. 

        The lenders stated that they will not request payment within the next  fiscal year.

   

8.      DUE TO STOCKHOLDERS

                                                                                                                                                

                                                                                                                      2002                 2001

** **

        Best Holding Limited                                                                               $       20,239    $       68,011

        Media Fund Limited                                                                                          61,197             68,011

**        Total                                                                                                     $       81,436    $      136,022**

The  Company has loans payable to its stockholders which are non‐interest  bearing and have no specific repayment terms.   The stockholders stated that they will not request repayment within the  next fiscal year.  

   

   

   

   

   

   

9.      CAPITAL STOCK

   

Authorized:    50,000,000 voting common shares with par value of $0.001 each.

24,000,000  preferred shares with par value of $0.001 each. Each preferred share is  convertible to 10 common shares. Conversion is applicable only upon achieving  certain revenue, profit and share price targets to be set by the Board of  Directors.  These shares have no  redemption rights.

   

Issued  and outstanding:  9,046,000 common  shares

                                        500,000 preferred  shares

** **

**10.   STOCK SPLIT**

** **

On March 23, 2002, the predecessor company, Prime  Teleservices Inc. split its common shares by a ratio of 5,000,000 to 1. The  consolidated statements of stockholders' deficit were prepared assuming that  the split occurred as of March 16, 2001.  

   

**11.   PROVISION FOR INCOME TAXES**

   

       The provision for income taxes of the Company consists of the  following:  

                                                                                                                                                    

                                                                  Income (loss)   Tax    rates                  2002                 2001 

   

        Canadian operation

                Current taxes                                                                            $            -         $            -     

                Deferred taxes benefits                                                                     (8,724)                   -     

                                                           $     (22,015)**             **40%  **                  **(8,724)     ****             -  

        U.S. operation  

                Current taxes                                                                                       -                       -     

                Deferred taxes benefits                                                                         -                       -     

                                                                  1,509                 15%                         -                        -          

**                                                        $     (20,506)   **                       **               $ (8,724)        $           -          **

As of December 31, 2002, the Company has deferred tax assets  of $8,684.   

   

Deferred  income taxes result from significant temporary differences between income for  financial reporting purposes and taxable income. This difference arose  principally from the use of accelerated tax depreciation.  

   

 

**12. PRO FORMA FINANCIAL STATEMENTS**

 

Thefollowing summary, prepared on a pro forma basis, combines the consolidatedresults of operations of the Company with Prime Teleservices, Inc. for the yearended December 31, 2002 and 2001 as if the acquisitions of Prime Teleservices,Inc. took place at the beginning of the years presented. 

 

 

**      Pro-forma Consolidated Balance Sheet**

                                                                                                            2002                   2001

      Assets

      Current assets                                                                                $       460,027$       339,122

      Long-term assets                                                                                       93,133         241,395    

                                                                                                                     553,160         580,517    

      Liabilities and stockholders' equity

      Current liabilities                                                                                      596,837         354,018    

      Long‐term liabilities                                                                                  112,611         225,897    

                                                                                                                     709,448         579,915    

      Stockholders' equity (deficit)                                                                   (156,288)               602    

                                                                                                             $       553,160$       580,517

** **

**      Pro‐forma Consolidated Income Statement**

                                                                                                                2002                  2001

      Revenues                                                                                        $       976,406$       186,975

      Operating costs and expenses                                                               1,012,988         260,250

      Operating profit (loss)                                                                               (36,582)        (73,275)    

      Other income (expenses)                                                                             7,497               600    

      Earnings (loss) before taxes                                                                     (29,085)        (72,675)    

      Income taxes                                                                                            (8,724)              -          

      Net earnings (loss) for the year                                                         $       (20,361)$       (72,675)    

Weightedaverage common shares outstanding                                        9,046,000      9,046,000

Earnings(loss) per share                                                                 $       (0.002) $       (0.008) ****

 

13.  COMPARATIVE FIGURES

 

Certainbalances of the preceding period have been reclassified to conform with thecurrent year's financial statement presentation.

 

 

**EVANCIC PERRAULT ROBERTSON**

 
** **
 
**Item 8. Changes in andDisagreements with Accountants on Accounting and Financial Disclosures.

 

There have been nodisagreements on accounting and financial disclosure matters. On October 24,2002, the Company dismissed David Coffey, CPA and retained the services ofEvancic Perrault and Robertson as the Company's independent auditors. This wasaccomplished because of the Company's proximity to its new auditors.

 

 
**PART III

 

Item 9. Directors,Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)of the Exchange Act**
 

The following table setsforth the directors and executive officers of the Company, their ages, and allpositions held with the Company.

 

Name
Age
Position(s)
Alexander J.      Martyniak
38
Director
Piero Dante      Guglielmi
37
President,      Secretary
 
**Mr. Piero DanteGuglielmi received training in international marketing from Simon FraserUniversity in Vancouver, British Columbia. Between 1989 and 1996, he was incharge of research and development, as well as, corporate filing for NorthAmerican Fire Guardian Technology, Inc. >From 1996 until January 2001 Mr.Guglielmi was in charge of technical marketing and a director of North AmericanFire Guardian Technology, Inc. In January 2001, North American Fire GuardianTechnology Inc. underwent corporate restructuring, and the company's name waschanged to Rival Technologies Inc. In August 2002, Mr. Guglielmi was electedPresident by the shareholders of Rival Technologies and remains in the positionpresently.

 
**Mr. Alexander J.Martyniak received a diploma in International Business from Langara College,in Vancouver, B.C. From 1992 to 1994, Mr. Martyniak owned and operated PrimalexDevelopment, in New Westminster, B.C. Primalex was an interior finishing andpainting contract company. >From 1994 to 1996, he was the owner and operatorof Pronto Moda Clothing, Vancouver, B.C., a clothing importer and distributor.During 1997, Mr. Martyniak was on a Co-op Work Team for Industry Canada, inVancouver, B.C. On that team, he marketed Internet training and trained businessowners and managers on the business applications of the Internet. Since May of1998, Mr. Martyniak has been the commercial attache and Business DevelopmentManager for the Italian Chamber of Commerce of British Columbia. In thatposition, he assists Italian and Canadian companies in bilateral trade andinvestment, organizes trade missions and business meetings, organizespromotional events, conducts market research and writes marketing reports; doesbusiness and marketing consulting, cultivates relationships with the Chamber'smembers, and is responsible for public relations with the business community andgovernments.

 

Currently there are noagreements or understanding for any officer or director to resign at the requestof another person and that none of the officers or directors are acting onbehalf of or will act at the direction of any other person.

 
**Item 10. ExecutiveCompensation.

 

There has been noexecutive compensation in any form. It is anticipated that the officers anddirectors will receive compensation as sales of equipment and services areachieved, including salaries and stock compensation. The Company has allotted$250,000 in its Plan of Operation for "Administrative Expenses." Noneof the planned administrative expenses include compensation for any of theofficers or directors of the Company.

 
**Item 11. SecurityOwnership of Certain Beneficial Owners and Management.

 

The following is a tabledetailing the current shareholders of our stock who own 5% or more of the commonstock, and shares owned by our Directors and Officers:

 
**Title of Class**Name and Address      of Beneficial Owner
**Business Nature      of Corporations and Affiliation to Officers or Directors of Company****Amount and nature      of beneficial ownership**Percent of Class
Common
Media Fund limited

Mr. Lau Kwai Shing

7A, 17/F, Blk A,      Hyde Tower, Kung Lok Rd., Kwun Tong, Hong Kong

Privately held      company acting as a holding company for various investments

 

No affiliation
900,000
9.9%
Common
Virgo Enterprises      Co.

Mr. Wong Yu Shun

Flat A, Supreme      Ind'l Bldg, 15-17 Shan Mei St., Fo Tan, N, Hong Kong

Privately held      company acting as a holding company for various investments

 

No affiliation
720,000
7.9%
Common
Ms. Kam-Lan Mak

24/Flat 2, Ka Wo      House, Po Nga Court, Taipo, NT, Hong Kong

Private investor

 

No affiliation
680,000
7.5%
Common
Best Holding      Limited

Ms. Tong Ka Wing

#14, G/F, Third      Lane, Siu Lek Yuen Village, Shatin, Hong Kong

Privately held      company acting as a holding company for various stock investments

 

 

No affiliation
900,000
9.9%              
Common
Best Reliance      Limited

Ms. Jerry Cheung

Unit 7, 4/f, Block      C, 491 Castle Peak Road, Kowloon, Hong Kong

Privately held      company acting as a holding company for various investments

 

 

No affiliation
600,000
6.6%
Common
Ms. Lai-Bing Fung

Rm 1012, Blk B,      Cornhill Garden, Quarry Bay, Hong Kong

Private investor

 

No affiliation
800,000
8.8%
Preferred
Polinvest, LTD

Elizabeth      Biachi-Roos

Morgan &      Morgan Trust Corporation Ltd. Pasea Estate, Road Town, Tortola (B.V.I.) 

Privately held      company acting as a holding company for various stock investments

 

 

No affiliation
500,000
100%
 
**Item 12. CertainRelationships and Related Transactions.

 

No persons who may, inthe future, be considered a promoter will receive or expect to receive assets,services or other consideration from us. No assets will be or are expected to beacquired from any promoter on behalf of our company. We have not entered intoany agreements that require disclosure to our shareholders.

 
**Item 13. Exhibits andReports on Form 8-K**
 

Exhibits

 

Exhibit No.
Document
Location
3.1
Articles of      Incorporation
Previously Filed
3.2
Bylaws
Previously filed
23
Consent of Auditor
Included
 

Reports on Form 8-K

 

On July 25, 2002, ashare exchange agreement between Net Magic and the Company was filed on form8-K. On October 29, 2002, a notification of change in accountants was filed onform 8-K..

 
**Signatures**
 

In accordance withSection 13 or 15(d) of the Exchange Act, the registrant caused this amendedreport to be signed on its behalf by the undersigned, thereunto duly authorized.

 

PRIME EQUIPMENT, INC.

 

 

/s/ Perry Guglielmi

Perry Guglielmi,President

Dated: 06/10/2003
 

 

In accordance with theExchange Act, this amended report has been signed below by the following personson behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

/s/ Alexander J.Martyniak

Alexander J. Martyniak,Director

Dated: 06/10/2003
 

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Perry Guglielmi, certify that:

1. I have reviewed this amended annual report on Amended Form10-KSB of Prime Equipment, Inc. for the year ended December 31, 2002;

2. Based on my knowledge, this amended annual report does notcontain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under whichsuch statements were made, not misleading with respect to the period covered bythis amended annual report;

3. Based on my knowledge, the financial statements, and otherfinancial information included in this amended annual report, fairly present inall material respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this amendedannual report.

4. The registrant's other certifying offering officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have: a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this amended annual report is beingprepared; b) evaluated the effectiveness of the registrant's disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisamended annual report (the "Evaluation Date"); and c) presented inthis amended annual report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

5. The registrant's other certifying officers and I havedisclosed, based on our most recent evaluation, to the registrant's auditors andthe audit committee of registrant's board of directors (or persons performingthe equivalent function): a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant'sability to record, process, summarize and report financial data and haveidentified for the registrant's auditors any material weaknesses in internalcontrols; and b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant's internalcontrols; and

6. The registrant's other certifying officers and I haveindicated in this amended annual report whether or not there were significantchanges in internal controls or in other factors that could significantly affectinternal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

Date: June 10, 2003
 

/s/ Perry Gugleilmi

Perry Guglielmi

President

 ***************************