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8-K/A - 8-K/A - SOUTHERN STATES SIGN Cov328631_8ka.htm

 

SOUTHERN STATES SIGN COMPANY

 FORM 10 DISCLOSURE

 

Three and Nine Months Ended September 30, 2010

 

TABLE OF CONTENTS

  

PART I
FINANCIAL INFORMATION
   
Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 28
Item 4. Controls and Procedures. 28
PART II
OTHER INFORMATION
   
Item 1. Legal Proceedings 28
Item 1A. Risk Factors. 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Mine Safety Disclosures 28
Item 5. Other Information. 28
Item 6. Exhibits 28

 

1
 

 

PART I 

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

CONTE ROSSO & PARTNERS S.R.L. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NONE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

 

  PAGE
Consolidated Balance Sheets 3
   
Consolidated Statement of Stockholders’ Equity 5
   
Consolidated Statements of Operations 6
   
Consolidated Statements of Cash Flows 8
   
Notes to Consolidated Financial Statements 9

 

2
 

 

CONTE ROSSO & PARTNERS S.R.L. GROUP

CONSOLIDATED BALANCE SHEET

 

€/000     09/30/2012   12/31/2011 
   Notes  US GAAP
Statement
(Unaudited)
   US GAAP
Statement
(Audited)
 
ASSETS             
CURRENT ASSETS             
              
Cash and cash equivalents      211    545 
Net trade and other receivables      6.968    9.765 
Trade receivables      4.789    11.294 
Other receivables      2.179    1.591 
Trade and other receivables total      6.968    12.885 
Less allowance for doubtful accounts  1        (3.120)
Related parties receivables  2   18.720    1.527 
Tax receivables      1.655    3.824 
              
Advance payment on purchase and other current assets  3   150    6.608 
Advance payment on purchase of properties           6.450 
Other current assets      150    158 
Available-for-sale assets           8.363 
Real estate held for resale  4        8.363 
Total current assets      27.704    30.632 
              
NON-CURRENT ASSETS             
Investment in other companies  5   15    387 
Net properties, plant and equipment  6   68.978    93.830 
Properties, plant and equipment      91.028    114.085 
Less accumulated depreciation      (22.050)   (20.255)
Goodwill  7   1.221    1.565 
Net other intangible assets  8   11    1.437 
Other intangible assets      40    1.523 
Less accumulated amortization      (29)   (86)
Other non-current assets      8.838    7.633 
Related parties non-current loans  2   8.607    2.547 
Other financial assets  9   4    254 
Accruals and deferred costs      227    353 
Other non-current receivables  10        4.479 
              
Total non-current assets      79.063    104.852 
              
Total assets      106.767    135.484 

 

 

3
 

 

CONTE ROSSO & PARTNERS S.R.L. GROUP

CONSOLIDATED BALANCE SHEET

 

€/000     09/30/2012   12/31/2011
   Notes  US GAAP
Statement
(Unaudited)
   US GAAP 
Statement (Audited)
LIABILITIES and  EQUITY             
              
CURRENT LIABILITIES             
Bank overdrafts  11   2.987    10.332 
Current maturities of long term loans  11   7.704    15.121 
Trade payables      7.410    9.895 
Related parties payables  2   4.938    607 
Tax payables      909    2.739 
Others current liabilities      2.688    17.847 
Total current liabilities      26.636    56.540 
              
NON-CURRENT LIABILITIES             
Long term loans  11   45.976    50.296 
Shareholder's loans  12   811    2.383 
Severance indemnity fund           21 
Other non-current liabilities      269    671 
Total non-current liabilities      47.056    53.371 
Total liabilities      73.693    109.912 
              
EQUITY             
Common shares      98    98 
Reserves      4.275    3.405 
Retained earnings / (Accumulated loss)      26.635    24.998 
Net comprehensive income/(loss) of period      1.967    (2.969)
              
Equity attributable to owners of Conte Rosso & Partners S.r.l.      32.976    25.532 
              
NON-CONTROLLING INTERESTS IN THE CONSOLIDATED SUBSIDIARIES      98    41 
              
Total liabilities, equity and non-controlling interests      106.767    135.484 

 

 

 

4
 

 

 

CONTE ROSSO & PARTNERS S.R.L. GROUP

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

 

€/000  Common
shares
   Reserves   Retained
earnings/
(accumulated
loss)
   Net
comprehensive
income/(loss) of
period
   Equity
attributable to
non-
controlling
Interests
   TOTAL
EQUITY
 
Total equity at December 31, 2010 (*)   98    1.184    5.095    (3.324)   342    3.395 
Loss allocation             (3.324)   3.324           
                               
Total comprehensive loss for the year                  (2.969)   (698)   (3.667)
Transactions with owners                              
Shareholders loans renounce        2.480    21.288              23.768 
Changes in partnerships             1.680         396    2.076 
Reserve write-off to cover accumulated losses        (259)   259                
Total transactions with owners        2.221    23.227         396    25.844 
                               
Total equity at December 31, 2011 (*)   98    3.405    24.998    (2.969)   41    25.572 
Loss allocation             (2.969)   2.969           
Total comprehensive income for the year                  1.967    (6)   1.961 
                               
Transactions with owners                              
Reserve write-off to cover accumulated losses        (803)   803                
Changes in subsidiaries partnerships        1.673    3.803         64    5.540 
                               
Total transactions with owners        870    4.606         64    5.540 
                               
Total equity at September 30, 2012 (**)   98    4.275    26.635    1.967    98    33.074 

 

5
 

 

CONTE ROSSO & PARTNERS S.R.L. GROUP

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

€/000  Three months
ended 9/30/2012
   Three months
ended 9/30/2011
 
   US GAAP
Statement
(Unaudited)
   US GAAP
Statement 
(Unaudited)
 
Revenue from operations   3.904    3.180 
           
Operating costs and expenses          
           
Operating costs   405    (346)
Administrative and other costs   236    (444)
EBITDA   4.545    2.390 
           
Amortization and depreciation   (684)   (768)
Interest expenses   (313)   (1.109)
Operating income/(loss)   3.547    513 
Other income / (loss)          
Interest income/(loss)   10    17 
Other income/(loss)        (58)
Total other income / (loss)   10    (41)
Income/(loss) from continuing operations, before income taxes   3.557    471 
Income taxes   (36)   (27)
Net income/(loss) for the period   3.521    444 
           
STATEMENT OF COMPREHENSIVE INCOME/(LOSS)          
           
€/000          
           
Net income/(loss for the year)   3.521    444 
Total comprehensive income/(loss) for the year   3.521    444 
 - Net income/(loss) attributable to owners of Conte Rosso & Partners S.r.l.   3.362    516 
 - Net income/(loss) attributable to non-controlling interests in the consolidated subsidiaries   159    (72)

 

6
 

 

CONTE ROSSO & PARTNERS S.R.L. GROUP

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

€/000  9 months
ended
09/30/2012
   9 months
ended
09/30/2011
 
   US GAAP
Statement
(Unaudited)
   US GAAP
Statement
(Unaudited)
 
Revenue from operations   6.907    4.697 
           
Operating costs and expenses          
           
Operating costs   (576)   (1.626)
Administrative and other costs   (258)   (3.079)
EBITDA   6.073    (8)
           
Amortization and depreciation   (1.996)   (2.154)
Interest expenses   (2.002)   (2.792)
Operating income/(loss)   2.075    (4.954)
Other income / (loss)          
Interest income/(loss)        18 
Other income/(loss)        2.504 
Total other income / (loss)        2.522 
Income/(loss) from continuing operations, before income taxes   2.075    (2.432)
Income taxes   (112)   (105)
Net income/(loss) for the period   1.962    (2.536)
           
STATEMENT OF COMPREHENSIVE INCOME/(LOSS)          
€/000          
Net income/(loss for the year)   1.962    (2.536)
           
Total comprehensive income/(loss) for the year   1.962    (2.536)
- Net income/(loss) attributable to owners of Conte Rosso & Partners S.r.l.   1.967    (2.170)
           
- Net income/(loss) attributable to non-controlling interests in the consolidated subsidiaries   (5)   (366)

 

7
 

 

 

CONTE ROSSO & PARTNERS S.R.L. GROUP

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   9 months
ended
9/30/2012
   9 months
ended
9/30/2011
 
€/000  US GAAP
Statement
(Unaudited)
   US GAAP
Statement
(Audited)
 
Cash Flows from Operating Activities          
Net incombe (loss)   1.962    (3.667)
           
Depreciation and amortization of non-current assets   1.996    2.834 
Allowance and depreciation for doubtful accounts   9    5.746 
Change in deferred taxes   0    (45)
Other non-cash adjustments        1.765 
Cash flows from operations before changes in assets and liabilities   3.967    6.633 
Changes in assets and liabilities          
Change in Real Estate held for resale   8.363    1.727 
Change in trade receivables   3.376    (8.682)
Change in related parties receivables   (17.193)   1.318 
Change in other receivables   (588)   (973)
           
Change in advance payment on purchase of properties   6.450    7.406 
Change in other assets   134    (477)
Change in trade payables   (2.485)   4.947 
Change in related parties payables   4.331    (813)
Change in other payables   (8.621)   (1.499)
Change in income current taxes   339    210 
Change in other liabilities   (61)   (1.658)
Net cash provided by Operating Activities (A)   (1.987)   8.139 
           
Cash Flows from Investing Activities          
Proceeds from sale of intangible assets   1.426    9 
Payment for purchase of properties, plant and equipment        (26.208)
Proceeds from sale of properties, plant and equipment   22.856      
Proceeds from sale of associates and other company   372    667 
Payment for financial investing activity   (5.810)   (2.551)
Other investing change   4.823    (672)
           
Net cash used in investing activities (B)   23.667    (28.754)
           
Cash Flows from Financing Activities          
Net borrowings from bank overdrafts   (7.345)   973 
Net proceeds from issuance of long-term debt        14.353 
Net proceeds from issuance of shareholders loan   (2.932)   5.404 
Net repayment of long-term debt   (11.737)     
           
Net cash provided by Financing Activities (C )   (22.014)   20.729 
           
Net Increase/(decrease) in Cash and Cash Equivalents (A+B+C)   (334)   115 
           
Cash and cash equivalents at beginning of the period   545    430 
           
Cash and cash equivalents at end of the period   211    545 

 

8
 

  

CONTE ROSSO & PARTNERS S.R.L. GROUP 

(FORMERLY ALL REAL ESTATE S.R.L. GROUP)

 

Notes to unaudited Consolidated Financial Statements

 for the nine months ended September 30, 2012 and 2011

 (Euros, thousands)

 

THE COMPANY AND ITS OPERATIONS

 

Conte Rosso & Partners S.r.l. (formerly “All Real Estate S.r.l. – “CR&P” or “the Company”) is a limited liability company incorporated in Italy. Operations are carried out through CR&P and its subsidiary companies, and mainly consist of investment in hotel business.

 

Currently the Company and its subsidiaries (together “CR&P Group” or “the Group”) are in start-up phase. Most of the equity investments have been made recently and have not started to yield income.

 

At September 30, 2012 the consolidated operating subsidiaries are the following:

 

Subsidiary  %   % voting     Principal
   Ownership1   capital   Location  activity
               
Aral Immobiliare S.r.l.   100.00    100.00   Italy  Real estate
                 
Bruno Buozzi Immobiliare S.r.l.   100.00    100.00   Italy  Real estate
                 
C.R.&P. Service S.c.a.r.l.   35.75    35.75   Italy  Group’s
                exclusive
                financial
                services
                 
Galzignano Terme Golf & Resort S.p.A.   100.00    100.00 Company   Italy  Investment
                 
Primesint S.r.l.   70.00    70.00   Italy  Real estate
                 
Ripa Hotel & Resort S.r.l.   100.00    100.00   Italy  Hotel
                 
Terme di Galzignano S.p.A.   100.00    100.00   Italy  Hotel

 

 

1 The percentage of ownership and voting capital where the subsidiary is owned indirectly is calculated using the equity ratio. 

 

9
 

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of consolidation

 

All majority-owned subsidiaries in which CR&P has both voting share and management control are consolidated. All significant intercompany accounts and transactions are eliminated. Subsidiaries over which control is achieved through other means, such as stockholders agreement, are also consolidated even if less than 51% of voting capital is held. The equity attributable to non-controlling interests in subsidiaries is shown separately in the consolidated financial statements. The consolidation has been prepared according to the parent company policy. Investments in unconsolidated associates are accounted for under the equity method.

 

The carrying value of our equity investments is accounted for at historic cost.

 

Associate is defined as a business in which the Group participate through a non-controlling interest but has significant influence over the operating and financial policies of the investee.

 

The financial year of all consolidated companies ends on December 31. The financial year ended December 31, 2009 is the first year of consolidation.

 

Since most of subsidiaries were acquired before 2009, December 31, 2008 has been taken as the date of acquisition of controlling ownership.

 

Under Italian law, the Company is not obliged to prepare consolidated financial statements.

 

Basis of presentation

 

The consolidated financial statements for the nine months ended September 30, 2012 and for the fiscal year ended December 31, 2011 are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements for the nine months ended September 30, 2012 are unaudited, the consolidated financial statements for the fiscal year ended December 31, 2011 are audited. The separate financial statements of each subsidiary and of the Company used for the consolidation have been prepared in accordance with the accounting practices adopted in Italy (“Italian GAAP”), then reclassified and adjusted in accordance with US GAAP.

 

Historical cost is used as the measurement basis unless otherwise indicated. In this regard it is noted that some valuations carried out by independent experts, which estimate the current value of the primary properties, indicate a potential significant revaluation of the carrying value of real estate of the Group, if the fair value method were applied.

 

The Company has considered subsequent events through November 9, 2012 being the date these unaudited consolidated financial statements ended September 30, 2012 were issued. Certain of these events will have significant effects on the financial statements for the year to December 31, 2012. The results of operations for the nine months ended September 30, 2012 are not indicative of the results that may be expected for the full year. A description of such significant subsequent events is given in the relevant notes below.

 

The Euro is the functional currency of all companies included in these consolidated financial statements.

 

10
 

 

 

Major acquisitions and divestments

 

In line with the strategy to expand operations in hotel business areas, in September 2012 the following subsidiaries were sold to certain counterparties attributable to majority shareholders of CR&P, therefore be considered as related parties:

 

Subsidiary divested in  %   % voting      Principal
September, 2012  Ownership2   capital   Location  activity
                 
8 + 23 Immobiliare S.r.l.   96.00    96.00   Italy  Real estate
                 
Aros S.r.l.   95.00    95.00   Italy  Real estate
                 
Carciano Immobiliare S.r.l.   95.10    95.10   Italy  Real estate
                 
C.R.&P. Immobiliare S.r.l.   90.00    90.00   Italy  Real estate
                 
Enital S.r.l.   50.00    50.00   Italy  Power & Petrochemical
                 
Guinean Energy Enterprises S.A.   71.25    71.25   Guinea  Power & Plantation
                 
Investimenti Immobiliari S.r.l.   95.00    95.00   Italy  Real estate
                 
Investimenti Industriali Triestini S.r.l.   50.00    50.00   Italy  Real estate
                 
Preneste Real Estate S.r.l.   100.00    100.00   Italy  Real estate
                 
West African Enterprises Ltd.   75.00    75.00   United Kingdom  Sub-holding

 

Consequently, the companies mentioned above were deconsolidated and financial reports for the period ended September 30, 2012 reflect the effects of sales of such equity investments.

 

Acquisition of Masseria Santo Scalone Hotel & Resort S.r.l.

 

On September 24, 2012 CR&P acquired 100.00% of the equity capital of Masseria Santo Scalone Hotel & Resort S.r.l. (“Masseria”). The cost of acquisition of Masseria was €10,000.00, paid in cash.

 

The primary asset of Masseria is a resort spa located in Ostuni (Brindisi – Apulia region, Italy). Masseria is a fortified farm house built in the XVI century. This complex is composed of several houses around a central larger building and it is currently undergoing a major refurbishment which will transform it into a five-star luxury resort with beauty farm and spa. An additional 24 rooms (to the already existing 19 rooms) will be built within the next year together with a new conference room and a pool.

 

 

2 As of the date of divesting. The percentage of ownership and voting capital where the subsidiary is owned indirectly is calculated using the equity ratio.

 

11
 

 

The balance sheet effects of the acquisition of Masseria are summarized below:

 

Acquisition of Masseria Santo Scalone Hotel & Resort S.r.l.

   €’000 
Net cash outflow   10 
Net assets acquired   10 
Goodwill/(Badwill)   0 

 

Following table summarizes the acquisition costs, which represent the fair value, of Masseria assets and liabilities:

 

Purchase price allocation for the acquisition of Masseria Santo Scalone Hotel & Resort S.r.l.

 

   September 24,
2012
 
     
Total purchase price   10 
      
Allocated to:     
Property, plant and equipment   4,903 
Intangible assets   3 
Cash and cash equivalents   10 
Current maturity of long-term debt   (2,898)
Related parties payables   (300)
Trade payables   (1.708)
Goodwill/(Badwill)   0 

 

West African Enterprises Ltd. (United Kingdom) incorporation

 

West African Enterprises Ltd. was incorporated in March 2012 and the Group has a 75.00% interest in its issued share capital held through the Group’s parent company.

 

The West African Enterprises Ltd. was established to hold the companies acquisitions of the Group in Africa.

 

Guinean Energy Enterprises S.A. (Republic of Guinea) incorporation

 

Guinean Energy Enterprises S.A. was incorporated in April 2012 and the Group has a 95.00% indirect interest (71.25% calculating as equity ratio method) in its issued share capital held through West African Enterprises Ltd., the Group’s African sub-holding.

 

12
 

 

The Guinean Energy Enterprises S.A. was established to seek to exploit opportunities in the Republic of Guinea and in particular opportunities in oil palm plantations, construction and operation of power plants, real estate development and construction and operation of hotels.

 

Divestment of 75.00 % interest in West African Enterprises Ltd. and of 71.25 % interest in Guinean Energy Enterprises S.A.

 

A 75.00% interest in the Company’s subsidiary West African Enterprises Ltd. was sold on September 30, 2012 to Masoledo S.r.l., considered as related parties. Consequently, after this transaction, CR&P deconsolidated also the investment in the subsidiary Guinean Energy Enterprises S.A., owned by W.A.E.

 

Divestment of 50.00 % interest in Investimenti Industriali Triestini S.r.l.

 

A 50.00 % interest in the Company’s subsidiary Investimenti Industriali Triestini S.r.l. (“IIT”) (the owner together with another subsidiary, Enital S.r.l., of a part of the petrochemical & power plants in Livorno, Italy) was sold on January 1, 2011 to A. & E. Immobiliare S.a.s. The remaining 50% ownership and voting interest in IIT was sold on September 27, 2012.

 

After this transaction, CR&P deconsolidated the investment.

 

Divestment of 100.00 % interest in Preneste S.r.l.

 

A 50.00% interest in the Company’s subsidiary Preneste S.r.l. was sold on September 24, 2012 to Mr. De Rosa. The remaining 50.00% interest in the company is held by Mr. Antonio Conte.

 

After this transaction, CR&P deconsolidated the investment.

 

Divestment of interest in the consolidated subsidiaries owned by Investimenti Immobiliari S.r.l.3

 

A 95.00% interest in the Company’s subsidiary Investimenti Immobiliari S.r.l. was sold on September 24, 2012 to Masoledo S.r.l., a counterparty attributable to majority shareholders of CR&P, therefore be considered as related parties. Consequently CR&P also sold the relevant interest in the subsidiaries owned indirectly through Investimenti Immobiliari, as shown in the following table:

 

Company  % of interest 
     
8 + 23 Immobiliare S.r.l.   96.00 
      
Aros S.r.l.   95.00 
      
Carciano Immobiliare S.r.l.   95.10 
      
C.R.&P. Immobiliare S.r.l.   90.00 

 

 

3 This sub-group consists of the following subsidiaries: Investimenti Immobiliari, Aros, C.R.P. Immobiliare, Carciano Immobiliare, 8+23.

 

13
 

 

After this transaction, CR&P deconsolidated the investments.

 

Divestment of 50.00 % interest in Enital S.r.l.

 

A 50.00% interest in the Company’s subsidiary Enital S.r.l. was sold on September 24, 2012 to Masoledo S.r.l., considered as related parties.

 

After this transaction, CR&P deconsolidated the investment.

 

Cash and cash equivalents

 

Cash and cash equivalents comprise cash balances, cash on current accounts with banks, bank deposits and other highly liquid short-term investments with original maturities of less than three months.

 

Accounts receivable and loans issued

 

Receivables and loans issued are stated at cost less an allowance for doubtful debts. Management quantifies this allowance based on current information regarding the customers’ and borrowers’ ability to repay their obligations. Amounts previously written off which are subsequently collected are recognized as income.

 

Investment in associates and other companies

 

Investments in associates are accounted for under the equity method.

 

Investments in other companies are accounted for under the historical cost.

 

The impairment losses are determined primarily on the basis of critical information concerning the issuer, if known and assessable.

 

Property, plant and equipment

 

Property, plant and equipment are stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Property, plant and equipment also includes assets under construction and plant and equipment awaiting installation.

 

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in an item of property, plant and equipment. All other expenditures are recognized as expenses in the consolidated statement of income as incurred.

 

Capitalization ceases when construction is interrupted for an extended period or when the asset is substantially complete.

 

Where funds are borrowed specifically for the purpose of acquiring or constructing a qualifying asset, the amount of interest costs to be capitalized in a period on that asset is the actual interest cost incurred on the borrowing during the period.

 

Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets.

 

Depreciation commences from the time an asset is put into operation. Depreciation is not charged on assets to be disposed of or on land. The range of the estimated useful lives is as follows:

 

-Buildings and constructions: 33 years

 

14
 

 

-Machinery and equipment: 2 – 20 years

 

-Others: 5 years

 

Real estate assets are stated at historical cost. Expenditures for repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method. Buildings are depreciated over their estimated useful lives of approximately 33 years, with the rates used for individual buildings being based on the property’s age, overall physical condition, type of construction materials and intended use.

 

Improvements to buildings are depreciated over the shorter of the estimated useful life of the improvement or the remaining useful life of the building at the time the improvement is completed.

 

Real estate investments and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.

 

Due to the recent date of acquisition of most of the real estate investments and/or that they are the subject of ongoing building development and the consequent inability to assess their longer term earning capacity, no impairment test has been performed to date.

 

Assets to be disposed of are separately presented on the balance sheet and reported at their historic cost since the expected realization value is greater. These assets and the relevant liabilities are classified separately as held for sale in the consolidated balance sheet and are no longer depreciated. An analysis of these assets and liabilities is presented separately in the relevant section of these notes.

 

Assets and liabilities held for resale

 

In connection with the strategy of concentrating in the portfolio of hotel investments, in the periods presented we sold most of the subsidiaries involved in real estate business. These sales are concluded at the date of presentation of the interim financial statements ended September 30, 2012.

 

Consequently, the properties and relevant liabilities held for resale are no longer recognized as a result of the deconsolidation of the subsidiaries sold.

 

About the assets and liabilities held for resale recognized in the fiscal year ended December 31, 2011, the Company has assessed that the potential realizable (or realized) value of these assets at the market value are higher than the net asset carrying value and accordingly no impairment has been provided for.

 

Goodwill and Other Intangible Assets

 

Since the Company doesn’t have the technical and evaluation information to reassess the correct identification of the assets acquired and the liabilities assumed, based on fair value, in application of purchase accounting to our acquisitions, tangible and identifiable intangible assets and liabilities of the acquired entity are recorded at the acquisition cost. According to information held by the Management, the acquisition cost of properties held by the Group does not differ significantly from the fair value at the date of the acquisition. Where the investment in subsidiary is greater than the net asset value the excess is treated as goodwill arising on consolidation in the balance sheet. Where the investment in subsidiary is smaller than the net asset value the difference is initially recognized as a gain in the first consolidated income statement, then accounted as accumulated earning within equity of the following years.

 

Goodwill and indefinite-life intangible assets are not amortized, but are tested for impairment at least annually.

 

Due to the recent date of acquisition of most of the real estate investments and/or that they are the subject of ongoing building development and the consequent inability to assess their longer term earning capacity, no impairment test has been performed to date.

 

15
 

 

Leasing

 

All lease agreements of the Company and its subsidiaries are accounted for as finance leases. The Company recognizes the asset and associated liability on its balance sheet. Finance leases are capitalized at the beginning of the lease at the lower of the fair value of the leased property and the present value of minimum lease payments. Each installment of the lease is apportioned between the liability and finance charges so as to achieve an equal reduction in capital due for each payment made at constant rate on the remaining financial balances.

 

Derivative financial instruments

 

The Company uses derivative financial instruments principally for the management of exposure to variable interest rates on long-term financing. All derivative financial instruments are classified as assets or liabilities and are accounted for at trade date. The Company measures all derivative financial instruments based on fair values derived from market prices of the instruments. Changes in the fair value of a derivative that is significant and that is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset or liability, are recorded in the income statement.

 

In the fiscal year ended December 31, 2011, there was only one derivative instrument hedging the risk of variable interest rates (an “interest rate cap”), the notional amount of was €4 million. This derivative instrument hedges the risk from change of interest rate on a mortgage loan facility with “bullet” repayments originally of € 8 million of which € 6.6 million is outstanding and included on the consolidated balance sheet as at December 31, 2011.

 

Due to the deconsolidation of the subsidiary Investimenti Immobiliari, wich has recorded the derivative instrument, the relevant effects will stop to affect the period subsequent September 30, 2012.

 

Shareholders loans

 

Shareholders loans to the Group are all non-interest bearing. Italian law provides that the shareholders loans to a limited liability company ("S.r.l.") are not preferred and their repayment is subordinated to other categories of debt. As a result all shareholder loans are classified as non-current liabilities.

 

Severance indemnity fund

 

According to Italian accounting principles reflecting local law and applicable employment contracts, certain post-employment benefits accrue during the period of employment. Under U.S. GAAP, post-employment benefits are defined either as de fined contribution plans or defined benefit plans.

 

In defined contribution plans, the company's obligation is limited to the payment of contributions to the Government or to a fund. Defined benefit plans are pension, insurance and healthcare programs which cover the company's obligation, even implicitly, to provide the benefits due to former employees. The liabilities associated with defined benefit plans are determined on the basis of actuarial assumption (discounting) and accrued in the financial statements over the employment period required to obtain the benefits.

 

The severance indemnity fund required by Italian law is a liability similar to a defined benefit plan, which, however, according to Italian accounting principles, is not subject to discounting. Given the small number of Group employees any difference between the present provisions in the financial statements prepared in accordance with Italian GAAP and discounted value of these benefits is considered to be immaterial.

 

16
 

 

Reserves

 

Reserves are represented by provisions of profits required by the law, the Company statute and the decisions of directors.

 

Commitments and contingencies

 

a) As of September 30, 2012, the following guarantees have been provided or obtained (no changes occurred subsequently):

 

Guarantees given by the Group to banks or third parties

 

   €’000 
Mortgage on property   111,113 
Sureties   1,800 
Pledges   250 
Total   113,163 

 

Guarantees given on behalf of the Group by third parties

   €’000 
Sureties   106,692 
Pledges   492 
Total   107,184 

 

Guarantees given by banks on behalf of the Group

   €’000 
Sureties   5,223 
Total   5,223 

 

Sureties received from third parties include an amount of €78,992,000 under a warranty deed jointly signed by third parties and related parties in connection with the financial leasing agreement having an initial value of €38,730,000 entered into by Ripa Hotel & Resort S.r.l.

 

b) The Company and certain subsidiaries are defendants in legal actions in the normal course of business. Based on the advice of legal counsel, management believes that the amounts recognized and recorded as debt provisions or asset negative adjustments are sufficient to cover probable losses in connection with such actions.

 

The risk provisions or negative adjustments are recognized when in accordance with the opinion of legal counsel the liability is probable and measurable.

 

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Stockholder’s equity

 

As of today, the share capital stock of CR&P is represented by 98.000 quotas, fully paid as to €98,000. In accordance with Italian law, this share is registered with the Register of Companies at the Italian Chamber of Commerce.

 

On November 1, 2012, Mr. Antonio Conte and Ms. Maddalena Olivieri, the holders of all of the outstanding capital stock of CR&P transferred all of the issued and outstanding capital stock of CR&P to Southern States Sign Company (“SOST”) in exchange for 21,250,000 newly issued shares of SOST common stock (the “Share Exchange”). Pursuant to the Share Exchange Agreement, CR&P become a wholly owned subsidiary of SOST.

 

Revenue Recognition

 

In order to recognize revenue four basic criteria must be met:

 

-existence of persuasive evidence that an arrangement exists;

 

-delivery has occurred or services have been rendered;

 

-the seller’s price to the buyer is fixed and determinable; and

 

-collectability is reasonably assured.

 

The Group’s revenue recognition policies are consistent with these criteria. The judgments involved in revenue recognition include understanding the terms of agreements and determining the appropriate time to recognize revenue for each transaction based on such terms. Each transaction is evaluated to determine: (i) at what point in time revenue is earned, (ii) whether contingencies exist that impact the timing of recognition of revenue and (iii) how and when such contingencies will be resolved. The timing of revenue recognition could vary if different judgments were made.

 

Taxes

 

Income taxes

 

Italian income taxes comprise national (27.50%) and regional (approximately 5%) income tax. The statutory composite enacted tax rate applicable in the periods presented is approximately 32.50%.

 

The Group has not taken advantage of the tax consolidation facility allowed by the Italian Fiscal Authority. Provisions for deferred taxes liabilities are always recognized, whist deferred tax assets are only recognized when their future recovery is considered probable.

 

To date there are some matters pending with the Italian Tax Authorities, which the Group's management believes will not occur any significant additional liabilities, also based on the opinion expressed by the Group’s fiscal advisors.

 

The Group's management believes that even in the event of any future investigations, no additional tax liabilities would emerge beyond those already recorded in the audited financial statements.

 

Tax losses carryforwards

 

Under Italian tax law the operating loss carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset against national income tax, in the limit of 80% of taxable annual income, except for the operating losses recorded in the first three years since the incorporation of the company, which can be used without limits.

 

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The following is a summary of operating losses carried forward available for offset against future profits.

 

TAX LOSSES CARRYFORWARDS (in Euros)
     
Company  Tax losses, total 
     
Conte Rosso & Partners S.r.l.   - 
Aral Immobiliare Srl   186.860,00 
Bruno Buozzi Immobiliare Srl   - 
Galzignano Terme Golf & Resort S.p.A.   79.062,00 
Primesint Srl   170.758,00 
Ripa Hotel & Resort Srl   464.066,00 
Terme di Galzignano SpA   2.736.996,00 
      
TOTAL   3.637.742,00 

 

Non-recognized subsequent events

 

Subsequent to September 30, 2012, the following events occurred. No adjustments have been made in the financial statements for the nine months period ended September 30, 2012 for these events:

 

Reverse merger of CR&P and Southern State Sign Company

 

On November 1, 2012, Mr. Antonio Conte and Ms. Maddalena Olivieri, the holders of all of the outstanding capital stock of CR&P transferred all of the issued and outstanding capital stock of CR&P to Southern States Sign Company (“SOST”) in exchange for 21,250,000 newly issued shares of SOST common stock (the “Share Exchange”). Pursuant to the Share Exchange Agreement, CR&P become a wholly owned subsidiary of SOST.

 

Outlook for future profitability

 

The group is currently in a start-up phase and is seeking to grow its business and has not yet reached managed all assets to create income. In particular, at this stage of development it is concentrating in acquiring suitable hotel assets rather than on the achievement of profitability. Shareholders and management of CR&P are confident that these investments in future years will contribute to the profitability of the Group, when put in use or sold.

 

NOTES TO THE ACCOUNTS

 

1) Allowance for doubtful accounts

 

The provision for 2011 arises from the agreement relating to the property at Via Carciano, Rome, Italy and reflects a partial uncertainty in the determination of the additional revenue established in the agreement with the seller, given the fact that the conditions for its payment are still pending.

 

Carciano Immobiliare has been deconsolidated in September, 2012.

 

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2) Related parties receivables and payables

 

Related parties receivables and payables relate primarily to intercompany transactions between the Group and the CR&P's subsidiaries subsequently deconsolidated in September 2012. As of today, the companies deconsolidated are related to the Masoledo S.r.l. Group, either owned by the CEO and shareholder of CR&P, Mr. Antonio Conte and by his wife, Ms. Maddalena Olivieri.

 

In particular, in September 2012 CR&P disposed of all its businesses related to renewable energy and real estate to a sister company named Masoledo and it acquired Masseria Santo Scalone Hotel e Resort S.r.l. As a result of these transactions CR&P now holds a five year financial receivable of approximately € 8,6 million due from Masoledo. The terms and conditions of such receivable are set out in a deed entered into between CR&P and Masoledo, which requires Masoledo to pay interest of 6% per annum. Masoledo will repay the receivable by applying the net of banks debt and mortgage loans repayments sale proceeds of any disposals to third parties of such renewable energy and real estate businesses, and, in any case, will reimburse its payable by not later than September 2017.

 

The amount shown as receivables as at September 30, 2012 and December 31, 2011 also relates to an interest-free loan to Mr. Antonio Conte, given to complete certain acquisitions, and which is repayable in 32 monthly installments. The amount outstanding as of the September 30, 2012 is €2.7 million, of which €0.6 million is classified as current asset and €2.1 million as non-current asset.

 

3) Advance payment on purchase and other current assets

 

Advance payments are primarily deposit paid in connection with real estate being acquired as detailed in the table below.

 

Advance payment on purchase and other        
current assets  Sep. 30, 2012   Dec. 31, 2011 
Advance payment on purchase   €'000    €'000 
           
Roma, via Carciano, building        4.600 
          
Salerno, Sala Abbagnano, land under development program        1.850 
           
Total advance payment on purchase        6.450 
           
Other current assets   150    158 
           
Total   150    6.608 

 

These advance payments are related to subsidiaries sold in September, 2012.

 

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4) Real estate held for resale

 

The following are the real estate assets held for resale:

 

Assets held for resale  Sep. 30, 2012   Dec. 31, 2011 
   € '000   € '000 
Roma - Via Bruxelles, building        3.235 
           
Anzio (RM) - Loc. via della Cannuccia, building        2.428 
           
Pisa, via San Martino, building        2.700 
           
Total        8.363 

 

Liabilities associated with Assets held for resale  Sep. 30, 2012   Dec. 31, 2011 
         
Roma - Via Bruxelles, building        2.413 
          
Total        2.413 

 

These real estate assets held for resale are related to subsidiaries sold in September, 2012.

 

5) Investment in other companies

 

The amount as at September 30, 2012 is represented by the investment in Erre Hotel S.r.l. Of the total of €387,000 as at December 31, 2011, €372,000 is represented by the investment in Intermedia Finance S.p.A. which is carried at cost. These acquisitions have been made with the aim of diversifying investments portfolio.

 

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6) Property, plant and equipment

 

Property, plant and equipment comprises:

 

Property, plant and equipment  Sep. 30, 2012   Dec. 31, 2011 
   € '000   € '000 
           
Hotel Ripa building, plant and equipment   41.853    41.623 
          
Terme di Galzignano golf, building, other plant and equipment   40.420    40.420 
           
Masseria Santo Scalone, hotel building   4.900      
           
Via Buozzi, Rome, building   3.300    3.300 
           
Petrochemical and power plant (ENITAL S.r.l.)        14.284 
           
Porto Cervo (OT), Sardinia, Building        833 
           
Porto Rotondo (OT), Sardinia, Building        421 
           
Fregene (RM) - Via Capo d'Orlando, building        1.456 
           
Trieste - Loc. Villa Opicina, industrial building        2.523 
           
Milano, via Azario, building        7.205 
           
Other properties, plant and equipment   555    2.020 
           
Less accumulated depreciation   (22.050)   (20.255)
           
Total, net   68.978    93.830 

 

7) Goodwill

 

Goodwill comprises:

 

Goodwill  € '000   € '000 
   Sep. 30, 2012   Dec. 31, 2011 
Ripa Hotel & Resort S.p.A. - acquisition of hotel management business unit in 2008   1.149    1.149 
Consolidation difference   72    416 
           
Total   1.221    1.565 

 

22
 

 

The greater part, €280,000, of goodwill as of the period ended December 31, 2011, arising on consolidation results from the acquisition of Investimenti Immobiliari S.r.l. As of today, this subsidiary has been deconsolidated.

 

8) Other Intangible Assets

 

As at December 31, 2011 other intangible assets includes an interest in a time share property with a net value of €1.4 million, which was separately identified as a result of the acquisition of a subsidiary 8 +23 S.r.l. in 2008. The amount of time share property has been impaired to reflect its fair value.

 

In the fiscal year ended December 31, 2011 are also € 0.7 million for improvements expenses to property of Via Carciano, Rome (owned by the subsidiary company Carciano Immobiliare S.r.l.) being purchased. Due to a transaction which has been signed with third party during 2011, whose effects are still pending, such expenses has been written-off.

 

8+23 S.r.l. and Carciano Immobiliare S.r.l. has been deconsolidated in September, 2012.

 

The remaining other intangible assets primarily comprise software and other minor items which are being amortized over their estimated useful lives ranging up to 5 years.

 

9) Other financial assets

 

In December 31, 2011 other financial assets comprises of a life insurance policy put in place as collateral for a bank overdraft.

 

10) Other non-current receivables

 

Other non-current receivables comprise primarily (December 31, 2011: €4.48 million) of payments made for the acquisition of a multiuse property in Sora (Frosinone), Italy by the subsidiary company, Aros S.r.l. The property is being acquired from a bankrupt estate pursuant to an agreement entered into with the judge supervising the bankruptcy. The Group is making stage payments for the benefit of the bankruptcy creditors and upon completion of such payments title to the property will be transferred to the Group.

 

Aros S.r.l. has been deconsolidated in September, 2012.

 

23
 

 

 

11) Bank overdrafts and Long term debt

 

Amounts of financial debt due to non-related parties are:

 

Financial debt  € '000   € '000 
Current liabilities  Sep. 30, 2012   Dec. 31, 2011 
         
Mortgage loan on property   6.558    13.852 
Leasing   1.146    1.269 
Bank overdrafts   2.987    10.332 
Total   10.691    25.453 

 

Long term liabilities  Sep. 30, 2012   Dec. 31, 2011 
         
Mortgage loan on property   16.766    20.707 
Leasing   29.210    29.589 
Total   45.976    50.296 

 

24
 

 

The following table sets out the main terms of the long-term financial debt (€’000):

 

 

As at September 30, 2012, there are no unused credit lines.

 

12) Shareholder’s loans

 

In order to strengthen the Group’s capital position and taking into account future financial commitments to enable the hotel business and development projects to be progressed, in the last quarter of 2011, Mr. Conte waived repayment of a shareholder’s loan of € 23.8 million.

 

25
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

 

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

 

The following discussion and analysis of our results of operations and financial condition for the three months ended September 30, 2012 and should be read in conjunction with the notes to those financial statements that are included in Item 1 of Part 1 of this Quarterly Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this Quarterly Report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements. The identification in this Quarterly Report of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

 

Company Overview and Plan of Operations

 

We were incorporated as Conte Rosso and Partners S.r.l. (formerly All Real Estate S.r.l.) on November 29, 2005, in the Republic of Italy for the purpose of acting as a holding company and therefore investing in operating companies active in the leisure/travel/hotel industry. Our initial focus is on the Italian market area but we are planning to invest also in European and American companies operating in such industries.

 

Our planned expenses for the current fiscal year will total approximately €,3,930,000 million and will consist of legal, consulting, technical expenses as well as interest expenses and taxes.

 

We believe that our current cash on hand and the cash produced by our operations will enable us to fund our planned expenses for the remainder of our current fiscal year.

 

Results of operations for the three months and nine months ended September 30, 2012 and September 30, 2011.

 

During the three and nine months ended September 30, 2012, we incurred a consolidated net income pertaining to our Group of € 3,362,000 and € 1.967.000 respectively, compared to a consolidated net income pertaining to our Group of € 516,000 and a consolidated net loss pertaining to our Group of € 2.170.000 incurred during the three and nine months ended September 30, 2011.

 

Liquidity and Capital Resources

 

As of September 30, 2012, we had total current assets of € 27,704,000 consisting of cash, trade and other receivables, related parties receivables, and prepaid expenses. We had current liabilities of € 26,636,000 as of September 30, 2012, consisting of bank overdrafts, trade payables, related parties payables and other current liabilities. Accordingly, we had working capital of € 1,068,000 as of September 30, 2012.  As outlined above, we expect to spend a total of approximately € 3,930,000 toward the implementation of our business over the course of the current fiscal year, including legal, consulting, and technical expenses as well as interest expenses and taxes. We believe that our current cash on hand will enable us to fund our planned expenses for our current fiscal year which began January 1, 2012.

 

26
 

 

Off Balance Sheet Arrangements

 

As of September 30, 2012, we had the following off balance sheet arrangements:

 

Guarantees given by the Group to banks or third parties

   €’000 
Mortgage on property   111,113 
Sureties   1,800 
Pledges   250 
Total   113,163 

 

Guarantees given on behalf of the Group by third parties

   €’000 
Sureties   106,692 
Pledges   492 
Total   107,184 

 

Guarantees given by banks on behalf of the Group

   €’000 
Sureties   5,223 
Total   5,223 

 

Sureties received from third parties include an amount of € 78,992,000 under a warranty deed jointly signed by third parties and related parties in connection with the financial leasing agreement having an initial value of € 38,730,000 entered into by Ripa Hotel & Resort S.r.l.

 

27
 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

During the three months ended September 30, 2012, we were not subject to the disclosure controls and procedures requirements of Rule 13a-15 under the Exchange Act.

 

PART II

 

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

 

ITEM 1A. RISK FACTORS.

 

Not Applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURE.

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

Not Applicable.

 

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