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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 30, 2007
BBM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
UTAH 333-88480 #04-3648721
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
61 Broadway, Suite 1905, New York, NY 10006
(Address of Principal Executive Offices) (Zip Code)
(212) 430 6369
Registrant's Telephone Number, Including Area Code
PRIME RESOURCE, INC.
1245 E. Brickyard Road, Suite 590, Salt Lake City, UT 84106
(Address of Principal Executive Offices) (Zip Code)
________________________________________________________________________________
(Former name or former address, if changed since the last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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SECTION 2 - FINANCIAL INFORMATION
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On March 30, 2007 at 7:43 p.m. ET, BBM Holdings, Inc. f/k/a Prime Resource, Inc.
(the "Registrant" or "BBM") completed the acquisition of Broadband Maritime
Inc., a Delaware corporation, with operations in New York, New York
("Broadband"). The acquisition was made pursuant to an Agreement and Plan of
Merger, dated January 15, 2007, by and among Prime Resource, Inc., Prime
Acquisition, Inc., a wholly-owned subsidiary of Prime Resource, Inc. ("Merger
Sub") and Broadband, as amended by the First Amendment to the Agreement and Plan
of Merger, dated February 13, 2007, and the Second Amendment to the Agreement
and Plan of Merger, dated March 16, 2007 (the "Merger Agreement").
Pursuant to the Merger Agreement, at 7:43 p.m. ET on March 30, 2007, the
effective time of the merger (the "Effective Time"), Merger Sub merged with and
into Broadband, with Broadband continuing as the surviving entity and sole
wholly-owned subsidiary of Prime Resource, Inc. (the "Merger"). Broadband is a
telecommunications engineering and service company offering turn key, always-on
Internet access to commercial shipping fleets.
The requisite Broadband stockholder approval of the Merger (majority of
outstanding common and preferred, as converted, and at least sixty-seven percent
of the outstanding Class A Preferred voting as a class) was obtained on March
22, 2007. The Board of Directors of the Registrant voted to voluntarily extend
to its shareholders dissenters' rights pursuant to the applicable provisions of
Utah law; the corresponding shareholder approval was obtained on January 15,
2007.
Prior to completion of the acquisition, on March 22, 2007, Prime Resource, Inc.
amended its Articles of Incorporation to increase its total authorized capital
from 50,000,000 shares to 60,000,000 shares, of which 50,000,000 shares are
common stock, no par value, ("Common Stock") and 10,000,000 shares are preferred
stock, no par value, ("Preferred Stock") 1,454,090 of which are designated as
Series A Preferred Stock. On March 30, 2007, Prime Resource, Inc. declared and
paid a dividend payable in shares of Series A Preferred Stock at the rate of one
share of Series A Preferred Stock per issued and outstanding share of Common
Stock.
On March 22, 2007, Prime Resource, Inc. amended its Articles of Incorporation to
change its name to BBM Holdings, Inc.
In accordance with the Merger Agreement, BBM issued an aggregate of
23,773,144.074562 shares Common Stock to the shareholders of Broadband in
consideration for their surrender of their Broadband shares. BBM issued one
share of Common Stock per 0.0595589330784 share of Broadband Preferred Stock
issued and outstanding immediately prior to the Effective Time, and one share of
Common Stock per 59.5589330784 shares of Broadband Common Stock issued and
outstanding immediately prior to the Effective Time. In connection with the
Merger, BBM also issued, or reserved for issuance upon surrender of outstanding
warrants or options, warrants and options to purchase an aggregate of
14,979,835.3539571 shares Common Stock in consideration for the surrender of
warrants and options to purchase Broadband Common Stock. Each warrant and option
to purchase Broadband Common Stock granted and unexercised immediately prior to
the Effective Time (a "Broadband Option"), vested or unvested, represents the
right to receive an option or warrant, as the case may be, to acquire Common
Stock at the rate of one share of Common Stock per 59.5589330784 shares
Broadband Common Stock upon exercise of the Broadband Option. The substituted
warrants will retain the exercise period provided for at the time of their
original issuance, which in each case was 5 years. The per share exercise price
of the warrants, which ranged from $0.01 to $0.02, has been adjusted
proportionately.
Prior to the Effective Time, BBM was an inactive public company without
significant assets, liabilities or any business purpose. Broadband is a company
with a substantial accumulated deficit and no profits to date.
For a period of approximately twelve months following the Effective Time and
subject to the terms and conditions of the Merger Agreement, three principals of
BBM (Andrew W. Limpert, Terry M. Deru, and Scott E. Deru) are required to
indemnify BBM for certain matters, including breaches of representations and
warranties and covenants included in the Merger Agreement.
Background of the Registrant
BBM (formerly Prime Resource, Inc.) is a Utah corporation that was organized on
March 29, 2002 as a successor entity to Prime, LLC, a Utah limited liability
company. Prime Resource, Inc. (n/k/a BBM Holdings, Inc.) was primarily engaged
in group insurance brokerage as well as investment and pension consulting,
through its wholly-owned subsidiaries, Belsen Getty, LLC and Fringe Benefit
Analysts, LLC.
Prime Resource, Inc. (n/k/a BBM Holdings, Inc.) completed a public offering of
150,000 shares of its Common Stock in July 2002. BBM has reporting obligations
under Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
As of April 30, 2006, substantially all the assets (other than approximately
$35,000 of cash or other liquid assets and common stock and warrants to purchase
common stock of Lightspace Corporation having an approximate value of $372,000
as of September 30, 2006) and liabilities of Prime Resource, Inc. were
transferred to a private business entity controlled by the principal
shareholders of Prime Resource, Inc. (pre-Merger) in exchange for a reduction in
the number of the Registrant's shares held by such shareholders and other
consideration.
Immediately prior to the Effective Time, the Registrant was a "shell"
corporation that did not have any active business purpose or active business
assets.
Background of Broadband
Broadband Maritime Inc., formerly ePCX.com Inc., is incorporated under the laws
of the State of Delaware. It was formed as a New Hampshire corporation in
November 1999. Broadband was founded to develop innovative, cost-effective voice
and data network solutions for use in niche markets. Its operations are managed
from its New York, NY office.
Broadband is a US-based telecommunications service provider. Broadband has
developed a broadband internet service for the maritime industry. Application of
its model enables the maritime sector to shift the industry standard from low
speed dial up services to higher speed Internet and voice communication
services. Broadband anticipates that this service will provide online utility to
the ships with such service and remote management to the ship owner.
DESCRIPTION OF BUSINESS
Broadband is a telecommunications engineering and service company offering a
turn key solution providing always-on Internet access to commercial shipping
fleets, as well as ship-to-shore telephone service with worldwide termination.
Broadband's technology provides online connectivity to global traveling vessels
as well as international telephone service from the ship to worldwide
destinations. The system provides the connection that could also support
incremental revenue opportunities from the sale of additional communication and
entertainment services.
Based in New York City, Broadband has 39 full-time employees, more than a third
of whom are engineers, and four part-time employees. Broadband has developed
proprietary technology (both in hardware and software) that constitute the core
of Broadband's product offerings. As of March 30, 2007, Broadband had completed
fourteen full installations. Broadband also had approximately 100 systems in the
pipeline.
Broadband has representation throughout Europe, Asia and the United States with
resellers who represent complementary products and services.
The Service.
Broadband's global communications system delivers redundant, global broadband
Internet access and unlimited data transmission to commercial ships at sea for a
flat monthly fee. Service offerings start with bi-directional speed of 64Kbps up
to 512Kbps. An upgrade in speed does not require a change of hardware.
Broadband's product and service affords its customer a "one stop shop" service,
as compared to contracting with four or more separate vendors for other
equipment, service and billing.
The service includes telephony between the ship and the customer's management
office at a current rate of $0.10 per minute, compared to approximate current
rates of $1.00 to $5.00 per minute for other providers. The crew may also
benefit from low cost telephone rates to call home. Broadband provides the ship
owner with incentive to sell telephone cards to the crew through a 10%
commission on the retail price of the card.
Broadband's hardware, software and proprietary network are expected to deliver
significant operational and financial savings for ship owners and operators
through enhanced real-time fleet management, reduced fuel consumption, enhanced
equipment monitoring and improved crew retention.
Intellectual Property.
Broadband has developed its own shipboard antenna system. Broadband initiated
its system deployment in February 2003 by integrating off-the-shelf stabilized
antenna and radio communication systems. In May 2003, Danaos Management
Consultants and Danaos Shipping developed an interest in the Broadband solution
and participated in providing the operational and commercial requirements for
Broadband's product. During the following year, Broadband combined in-house and
outsourced engineering resources to develop an antenna to meet its combination
of technical, operational and financial requirements.
Broadband also designed and implemented a global satellite network which
includes network management utilities. The global coverage area limits are
approximately 75 degrees north to 65 degrees south. The current network plan
includes eleven satellites and six teleports.
Broadband produced its first prototype antenna system in July 2004. The system
was installed aboard several vessels on a test basis and operated for two years
until the production system was introduced in August 2006. Incorporating test
results from prototype testing, the production antenna system now provides
service to a variety of categories of merchant ships trading in oceanic regions
around the world. Broadband's radio frequency communication system has been
designed to achieve efficiency in recurring costs while delivering global
broadband coverage at sea.
Trademarks.
On March 26, 2003 Broadband applied for a service mark for BROADBAND MARITIME
(and Design) to the United States Patent and Trademark Office. The mark was
granted federal registration on December 13, 2005, Reg. No. 3,025,044.
On May 16, 2006 Broadband applied for trademark for its C-Bird product name and
design to the United States Patent and Trademark Office. The application was
filed on May 22, 2006, and is currently pending.
Market Profile.
There are 92,000 sea-going, self-propelled vessels of 100 gross tons or more
(source: Lloyds Register of Ships 2005-2006). Of these, 40,000 or more are
potential candidates for the Broadband solution based upon size, age of ship,
cargo and route. It is estimated that more than 3,000 new ships will be built to
be delivered from 2007 to 2009. The industry is highly fragmented. There are
more than 14,000 ship operators and more than 1,000 ship managers worldwide.
Competitive Landscape.
The competitive maritime VSAT (very small aperture terminal) solutions are
generally targeted to oil and gas platforms or service vessels, cruise and ferry
ships, and naval or research vessels. Competitive market participants, including
Telenor, ShipEquip, MCP, Caprock and Stratos, integrate mainly off-the-shelf
equipment. MCP has focused mainly on the cruise, ferry and naval markets, while
the other companies have focused more on the oil and gas industry. One main
distinction among these providers is geographical location.
Broadband has concentrated its initial marketing efforts on those companies in
the merchant sector which it believes have the highest data communication needs
and monthly spending budgets. These shipping companies represent over 10,000
ships. Broadband expects to compete in the maritime VSAT solutions market by
focusing on top tier merchant customers.
MANAGEMENT DISCUSSION AND ANALYSIS
REVENUE
Broadband has two main revenue recognition policies in place: 1) recognition of
revenue from the sale of equipment after installation and acceptance by its
customer and 2) recognition of revenue in connection with services and
maintenance contracts as they are earned. Broadband defers revenue in connection
with prepaid calling cards until the customer has actually utilized the service.
Broadband's revenue for the fiscal year ended September 30, 2006 was $124,311,
compared to $296,730 for the prior year. Revenue decreased from 2005 to 2006
primarily because Broadband delayed invoicing in 2006 in response to a delay in
customer acceptance of products. Customer acceptance was delayed due to product
and satellite vendor issues which have been addressed. This portion of the
contracts has been invoiced in the first quarter of fiscal year 2007. Revenue
for the first quarter of fiscal year ending September 30, 2007 (unaudited) shows
significant growth from the same period a year earlier, an increase from $47,500
to $462,000. The significant increase in revenue is mainly due to the fact that
the production system has been accepted by clients who are paying the
Non-Recurring Revenue portion of the contracts. The Recurring Revenue portion,
which includes internet and voice services, is also beginning to increase.
Broadband has relied on a limited number of customers for a substantial portion
of total revenues. Revenues from major customers, each of which accounts for
more than 10% or greater of total revenues, accounted for 73% for three
customers and 92% for four customers in fiscal 2006 and 2005, respectively.
Broadband contracts with certain service providers to supply manufacturing,
technology and communication services for its operations. Services from two
major suppliers accounted for 32% and 24% in fiscal 2006 and 2005, respectively.
GROSS MARGIN
Gross margin on Broadband's historical operations is not a meaningful measure of
financial performance in view of low revenue during Broadband's development
stage. Gross revenue consists of revenue less cost of goods and services, and
the gross margin figure is negative. Gross margin is expected to become positive
throughout the current fiscal year as revenue grows.
OPERATING EXPENSES
Operating expenses for the fiscal year ended September 30, 2006 were $4,963,645
compared to $4,901,968 a year earlier. This increase of approximately 1.3%,
despite reduced annual revenues, reflects an increase in selling, general and
administrative expense. Broadband spent approximately $1,226,000 on research and
development for the fiscal year ended September 30, 2005 compared to
approximately $1,222,000 for the fiscal year ended September 30, 2006.
INCOME TAX
At September 30, 2006, Broadband had net operating loss carry forwards for U.S
federal and state tax purposes of approximately $14,374,000, expiring at varying
times from years ending September 30, 2022 through September 30, 2026.
Under Section 382 of the Internal Revenue Code, if a corporation undergoes an
"ownership change" (generally defined as greater than 50% change (by value) in
its equity ownership over a three year period), the corporation's ability to use
its pre-change of control net operating loss carry forward and other pre-change
attributes against its post-change income may be limited. The Section 382
limitation is applied
annually so as to limit the use of pre-change net operating loss carry forwards
to an amount that generally equals the value of a corporation's stock
immediately before the ownership change multiplied by a designated federal
long-term tax-exempt rate. In addition, Broadband may be able to increase the
base Section 382 limitation amount during the first five years following
ownership change to the extent Broadband realizes built-in gains during that
time period. A built-in gain generally is gain or income attributable to an
asset that was held at the date of the ownership change and that had a fair
market value in excess of the tax basis at the date of the ownership change.
NET LOSS
The net loss for the fiscal year ended September 30, 2006 was $4,738,483, or
$0.05 per common share, compared to a net loss of $4,745,483, or $0.17 per
common share, the prior year. Broadband has experienced net losses during fiscal
2005 and 2006 primarily because of significant product development costs, for
the reasons discussed above.
LIQUIDITY
Cash and cash equivalents at fiscal year ended September 30, 2006 were $34,105,
compared to $3,918,981 at September 30, 2005. Broadband completed a private
placement of its equity securities with gross proceeds of approximately
$2,500,000 in October 2006 and completed an additional private placement of its
equity securities with gross proceeds of approximately $4,500,000 in March 2007.
The Registrant anticipates that in order for Broadband to continue its planned
operations it will need to raise additional funds before September 30, 2007,
either through the sale of debt or equity. It currently has received no
commitments to receive either debt or equity financing.
Between January and June 2005, Broadband borrowed a total of $650,000 in bridge
loans from investors. In August 2005, in connection with a reorganization and
equity financing, the total of the bridge loans of $680,970 (which included
accrued interest) was converted into 68,097,000 shares of common stock based on
a ratio of 100 shares of common stock for each $1.00 of bridge loans and accrued
interest. Between July and September 2006, Broadband borrowed a total of
$815,000 in zero coupon loans from investors. In connection with an equity
financing, approximately $457,000 of zero coupon loans were converted to Class A
Preferred stock.
ACCOUNTS RECEIVABLE
Accounts receivable, net, represents uncollateralized customer obligations due
under normal trade terms generally requiring payment within 30 days from the
invoice date. Follow-up correspondence is made if unpaid accounts receivable go
beyond the invoice due date. Payments of accounts receivable are allocated to
specific invoices identified on the customer's remittance advice.
Accounts receivable, net, are stated at the amount management expects to collect
from outstanding balances. The carrying amount of accounts receivable is reduced
by a valuation allowance that reflects management's best estimate of the amount
that will not be collected. Management individually reviews all accounts
receivable balances that exceed the due date and estimates the portion, if any,
of the balances that will not be collected. Management provides for probable
uncollectible amounts through a charge to earnings and a credit to a valuation
allowance based on its assessment of the current status of individual accounts.
Balances that are still outstanding after management has used reasonable
collection efforts are written off through a charge to the valuation allowance
and a credit to accounts receivable-trade.
Accounts receivable net of an allowance for doubtful accounts were approximately
$10,000 and $35,000 at September 30, 2006 and 2005, respectively.
FORWARD LOOKING STATEMENTS
Safe Harbor Statements under The Private Securities Litigation Reform Act of
1995: This report contains forward-looking statements, including statements
regarding funding, product performance, market acceptance and earnings. Such
statements are subject to certain risks and uncertainties, and actual
circumstances, events or results may differ materially from those projected in
such forward-looking statements. Factors that could cause or contribute to
differences include lack of access to funding sources, environmental factors,
level of performance of vendors' products/service, availability of other
products and competition in the marketplace. We caution investors not to place
undue reliance on any forward-looking statements. We do not undertake, and
specifically disclaim any obligation, to update or revise such statements to
reflect new circumstances or unanticipated events as they occur.
AVAILABLE INFORMATION
Registrant is subject to the information requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith, files annual and quarterly
reports and other information with the Securities and Exchange Commission (the
"SEC"). Reports and other information filed by Registrant with the SEC can be
inspected and copied at the public reference room maintained by the SEC at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Information on the
operation of the public reference room may be obtained by calling
1-800-SEC-0330. The SEC also maintains a site on the World Wide Web at
www.sec.gov that contains reports and other information regarding registrants
that file electronically with the SEC, and certain of Registrant's filings are
available on the website.
DESCRIPTION OF PROPERTY
Neither the Registrant nor Broadband owns any real estate. Broadband leases
office facilities under operating leases, which expire at various times through
July 31, 2010 for the following locations:
a. Newmark & Co. Real Estate, Inc. - Lease for office space at 61 Broadway,
New York, New York.
b. AM Property Management. - Lease for office space at 65 Broadway, New York,
New York.
c. Preston Wilkins & Martin PLLC. - Sublease for office space at 65 Broadway,
New York, New York.
Future aggregate annual minimum lease payments under these operating leases are
approximately as follows:
Years ending September 30: 2007 $ 300,000
2008 $ 286,000
2009 $ 252,000
2010 $ 214,000
TOTAL: $1,052,000
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The tables below set forth, as of March 30, 2007, the date of the Merger, the
beneficial owners of five percent (5%) or more of any class of voting securities
of the Registrant as well as the number of shares of equity securities of the
Registrant owned by the directors and executive officers of the Registrant:
BENEFICIAL OWNERS OF 5% OR MORE OF REGISTRANT'S VOTING SECURITIES
(3) (4)
(1) (2) Amount and Nature of Percent of
Title of Class Name and Address of Beneficial Owner Beneficial Owner(*) Class
-------------- -------------------------------------- -------------------- ----------
Common Stock AIGH Investment Partners, LLC 3,153,294 Common 17.44%
6006 Berkeley Avenue 1,511,107 Warrants
Baltimore MD 21209
Common Stock Asia Marketing Limited 1,815,311 Common 10.33%
P.O. Box 3236 881,480 Warrants
Ramat Gam 52131 Israel
Common Stock Camco 1,014,951 Common 5.84%
c/o Charles Alpert 466 Arbuckle Avenue 487,848 Warrants
Cedarhurst, NY 11516
Common Stock FAME Associates 1,091,356 Common 6.35%
111 Broadway, 20th Floor 545,678 Warrants
New York, NY 10006
Common Stock Ganot Corporation 1,479,205 Common 8.45%
4000 Hollywood Blvd 530 N 713,427 Warrants
Hollywood, FL 33021
Common Stock Globis entities (**) 2,437,507 Common 14.24%
60 Broad Street 1,248,900 Warrants
New York NY 10004
Common Stock LaPlace Group, LLC 1,098,901 Common 6.32%
3666 Shannon Road 529,823 Warrants
Cleveland Hts, OH 44118
Common Stock South Ferry #2, LP 2,845,917 Common 15.81%
1 State Street Plaza 29th Floor 1,357,519 Warrants
New York NY 10004
Common Stock St. Lucia Investment & Trade Corp 1,306,943 Common 7.46%
C/O Broadband Maritime Inc. 620,756 Warrants
61 Broadway, Suite 1905
New York, NY 10006
(*) Rounded to nearest share; warrants are warrants to purchase common stock of
the Registrant.
(**) Includes shares held by Globis Capital Partners and Globis Overseas Fund
Ltd.
MANAGEMENT COMMON STOCK OWNERSHIP
(3) (4)
(1) (2) Amount and Nature of Percent of
Title of Class Name of Beneficial Owner Beneficial Owner(*) Class
-------------- ------------------------------------- -------------------- ----------
Common Stock Mary Ellen Kramer & Zevi Kramer, JTEN 277,036 1.10%
Common Stock Ira A. Greenstein 96,523.36 0.38%
Common Stock Andrew W. Limpert 321,495 1.27%
Series A
Preferred Stock Andrew W. Limpert(**) 321,495 22.11%
(*) Rounded to nearest share. Shares listed for individuals may include spouse
or grantor trust.
(**) Dividend in the form of preferred shares declared, but shares not yet
issued.
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are the directors and executive officers of the
Registrant:
1. MARY ELLEN KRAMER, age 49, Director, President and Chief Executive
Officer.
Ms. Kramer has served as Director, President and Chief Executive Officer of
the Registrant since March 30, 2007. Ms. Kramer also currently serves as a
director, President and Chief Executive Officer for Broadband Maritime Inc. Ms.
Kramer began her career in the financial world by becoming Vice President of
Management Information Systems and Telecommunications for Central National Bank
and Meadowlands National Bank from 1980 to 1985. In these positions she was
responsible for all data and item processing and telecommunications for 2 banks
with a total of 11 branches. She has also managed telecommunications services
for building tenants at 900 Third Avenue, New York, NY, which the bank owned.
Subsequently, from 1985 to 1994, she became a financial systems consultant
serving many banking and financial clients such as Bank of China, Broadway
National Bank, Bank of New England, the FDIC, The Bedford House Companies and
Beacon Hill Services Corporation. In these capacities she developed and
implemented private banking systems, multi-currency financial reporting systems,
precious metals and foreign exchange trading packages and the first automated
IRS 4789 reporting system to be accepted by the Internal Revenue Service.
As founder and President of Itel Inc. from 1994 to 1997, Ms. Kramer
established an international callback network in 65 worldwide locations
servicing 8,000 customers such as Chrysler, Fiat, Pepsi, Sheraton Hotels,
Ministry of Justice - Argentina, Globosat, and Journal do Brazil.
Ms. Kramer, as President of Allied Communication Holdings LLC, from 1997 to
1998, developed an all digital private network in Sao Paulo, Brazil.
As President of Americom Networks International, from 1998 to 1999, Ms.
Kramer developed voice network into 5 cities in 4 countries - Argentina, Israel,
The Philippines and Thailand.
Ms. Kramer, as the current President and founder of Broadband, has also
acted as its sales manager, negotiating agreements with vendors and customers
and has been responsible for operations.
Ms. Kramer received a B.S. in Management and Computer Science from New York
University.
Mary Ellen Kramer and Zevi Kramer are married to one another.
2. ZEVI KRAMER, age 50, Director and Chief Innovation Officer.
Mr. Kramer has served as Director and Chief Innovation Officer of the
Registrant since March 30, 2007. Mr. Kramer also currently serves as a director
and Chief Innovation Officer for Broadband Maritime Inc. From 1980 to 1985, Mr.
Kramer began his career designing Communication and Navigation Systems for the
Israeli Air Force. Projects included the development of a radar direction
finding systems for guided bomb units, an electronic navigation system for
guided
bomb units, and a high security airborne data and video communication link. Mr.
Kramer managed a technical staff of 15.
Mr. Kramer became project manager at ECI Telecom from 1985 to 1988 where
he was involved in the development of the automatic gear for the Israeli Tank
Merkava.
From 1988 to 1993, Mr. Kramer was the retail manager of 11 electronic
appliance stores. Subsequently, from 1993 to 1994, Mr. Kramer served as the
President of Sky Telecom Ltd., an international callback company, handling its
systems, operations and marketing.
Subsequently, from 1994 to 1997, Mr. Kramer served as President of
Electroflow, a leading Israeli power quality consulting firm. His duties
included designing and implementing power solutions for industrial plants and
offices in highly computerized environments.
From 1998 to 1999 he served as Director of Network Development for Americom
Networks International, which headed the deployment of both satellite and fiber
voice networks between New York and the Far East, Middle East and South America.
During his tenure, he established foreign partnerships in network node countries
and he developed joint ventures with several vendors to produce unique and
innovative network solutions for Americom Networks.
Mr. Kramer has been associated with Broadband from 1999 to the present in
developing both business models and network designs required for Broadband's
specific market applications in developing countries and the maritime industry.
Mr. Kramer received his B.S. in Electronic Engineering from Tel Aviv
University.
Mary Ellen Kramer and Zevi Kramer are married to one another.
3. IRA A. GREENSTEIN, age 46, Director and Chairman of the Board.
Mr. Greenstein has served as a Director of the Registrant since March 30,
2007. Mr. Greenstein also currently serves as a director and Chairman of the
Board for Broadband Maritime Inc. Mr. Greenstein has since 2001 been the
President of IDT Corporation (NYSE: IDT), a local, long distance and calling
card services provider. Prior to joining IDT in 2000, Mr. Greenstein was a
partner in the law firm of Morrison & Foerster LLP, where he served as the
Chairman of that firm's New York office's Business Department. Concurrently, Mr.
Greenstein served as General Counsel and Secretary of Net2Phone, Inc.
Prior to joining Morrison & Foerster, Mr. Greenstein was an associate in
the New York and Toronto offices of Skadden, Arps, Slate, Meagher & Flom LLP.
Mr. Greenstein served on the Securities Advisory Committee and as second counsel
to the Ontario Securities Commission.
Mr. Greenstein serves on the Board of Document Security Systems, Inc.
(AMEX:DMC), is a Director of Zedge, Inc. and is on the Board of Advisors of the
Columbia Law School Center on Corporate Governance. Mr. Greenstein received a
B.S. from Cornell University and a J.D. from Columbia University Law School.
4. JARLE PEDERSEN, age 45, Vice President Operations.
Mr. Pedersen has served as Vice President Operations of the Registrant
since March 30, 2007. Mr. Pedersen also currently serves as a Vice President of
Operations for Broadband Maritime Inc. Mr. Pedersen has more than 20 years
experience in the information technology and financial services industries. He
has broad strategic, financial, operational and international leadership
background. Mr. Pedersen has comprehensive experience in finance, accounting,
reporting and treasury functions as Chief Financial Officer for companies and
international business units. He also has strategy and corporate development
experience, including start-ups, turnarounds and M&A activity. He has
operational and administrative management experience as Country General Manager
of a business unit of StorageTek and Chief Executive Officer of an e-business
software company.
Prior to joining Broadband in February 2007, from 2005 to 2007, Mr.
Pedersen was Chief Financial Officer of Hudson Systems, and from 2004 to 2005,
he served as Chief Financial Officer of Contopronto - a Pan-European mobile
payments provider. From 1990 to 2000, Mr. Pedersen was a member of the Norwegian
senior management team of Computer Associates, heading finance and operations
during the 10 year period when the company experienced annual revenue growth
from $5M to $100M.
Mr. Pedersen holds a Bachelor of Commerce degree from Dalhousie University,
Canada, and a Masters in Business Studies from Canterbury Business School. He is
a former member of the Supervisory Board of DnBNor Kort, the credit card
subsidiary of the largest financial services group in Norway.
5. ANDREW W. LIMPERT, age 37, Director.
Mr. Limpert has served as a Director of the Registrant since 2002. Mr.
Limpert also currently serves as a director for Broadband Maritime Inc. He has
been a financial and retirement planner with Belsen Getty, LLC since 1998 and
continues in this role as well as acting as a business and financial consultant
to various small public and private companies. From 1993 to 1998, he worked with
Prosource Software of Park City, Utah, as a software sales agent. In 1998, Mr.
Limpert served briefly as an interim outside director in a small public company,
then known as Mt. Olympus Resources, Inc. He resigned as part of a
reorganization of Olympus in November 1998.
Mr. Limpert received a Bachelor of Science degree in Finance from the
University of Utah and an MBA in Finance from Westminister College.
Each director serves until the next annual meeting of shareholders and each
executive officer serves until the next annual meeting of directors. Dates for
the next annual meeting of shareholders and annual meeting of directors have not
yet been set.
EXECUTIVE COMPENSATION
All information required to be disclosed by Item 402 of Regulation S-B is
incorporated by reference to Item 10 of Part III of the Registrant's annual
report on Form 10-KSB for the year ended December 31, 2006.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Broadband Maritime Services, Inc. ("Services"), which is owned by an officer of
Broadband (the "Owner"), was formed to provide customer service to Broadband's
customers in accordance with the Sabbath Work Rules and other requirements of
Orthodox Jewish Law. Broadband entered into a Management Services Agreement with
Services on August 4, 2005, in which Services provides management services to
Broadband in exchange for a fee. Broadband has transferred to Services all of
its existing agreements with customers to provide broadband satellite services
and Services has agreed to assume Broadband's obligations under the customer
agreements. The management fee is equal to the revenues received by Services
less related expenses paid by Services. Broadband has an option to acquire
ownership of Services for $1.00 upon the occurrence of the following events: the
Owner ceasing to be employed by Broadband or certain reorganizations of
Broadband, such as a public offering or merger. This arrangement has remained in
place since the Effective Time.
See also Executive Compensation section regarding certain promissory notes of
Broadband with certain of its officers.
DESCRIPTION OF SECURITIES
The following description is a summary of the rights, powers and preferences of
the Registrant's Common Stock and Preferred Stock and is qualified in its
entirety by the provisions of our Articles of Incorporation and Bylaws, copies
of which are attached as exhibits to this Report.
General
The Registrant is authorized to issue 60,000,000 shares of capital stock, of
which 50,000,000 shares are Common Stock and 10,000,000 shares are Preferred
Stock, no par value. The Preferred Stock may be issued from time to time in one
or more classes as may be determined by the Board of Directors. The Board of
Directors is authorized to fix the number of shares of any class of Preferred
Stock and to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued class of Preferred
Stock.
All shares of Common Stock outstanding are validly issued, fully paid and
non-assessable.
Series A Preferred Stock
1,454,090 shares of the authorized Preferred Stock are classified as Series A
Preferred Stock, which shares are (a) not entitled to any dividends (except with
respect to the Lightspace Securities), (b) not entitled to vote on any matter
except as required by law or which adversely impacts the Series A Stock
disproportionately from any other class or series of capital stock and (c) not
entitled to be paid any amount in cash or other assets of the Registrant upon
the occurrence of any liquidation, dissolution or winding-up of the Registrant.
Each share of Series A Stock represents the right to exchange such share for a
proportionate amount of the Lightspace Securities.
All shares of Series A Preferred Stock outstanding are validly issued, fully
paid and non-assessable.
Voting Rights
Each share of Common Stock entitles the holder to one vote, either in person or
by proxy, at meetings of the shareholders. The holders are not permitted to vote
their shares cumulatively. Accordingly, the holders of Common Stock holding, in
the aggregate, more than fifty percent of the total voting rights can elect all
of our directors and, in such event, the holders of the remaining minority
shares will not be able to elect any of such directors. The vote of the holders
of a majority of the issued and outstanding shares of Common Stock entitled to
vote thereon is sufficient to authorize, affirm, ratify or consent to any
corporate act or action, except as otherwise provided by mergers or sale company
law.
Series A Preferred Stock is non-voting and is not convertible into Common Stock.
Dividends
All shares of Common Stock will participate proportionally in dividends if the
Registrant's Board of Directors declares dividends. Dividends may be paid in
cash, property or additional shares of Common Stock. With the exception of the
issuance of Series A Preferred Stock to holders of Common Stock (at a ratio of
1:1) prior to the Effective Time, the Registrant has not paid any dividends
since its inception and presently anticipates that all earnings, if any, will be
retained for development of its business. Any future dividends will be at the
discretion of the Board of Directors and will depend upon, among other things,
our future earnings, operating and financial condition, capital requirements,
and other factors. There can be no assurance that any dividends on the Common
Stock will be paid in the future.
Miscellaneous Rights and Provisions
The holders of Common Stock have no preemptive or other subscription rights,
conversion rights, redemption or sinking fund provisions. In the event of the
Registrant's dissolution, whether voluntary or involuntary, each share of Common
Stock is entitled to share proportionally in any assets available for
distribution to holders of the Registrant's equity after satisfaction of all
liabilities and payment of the
applicable liquidation preference and preference of any outstanding shares of
preferred stock as may be created, if any.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Registrant's Common Stock is not traded on any exchange and there are no
current plans to seek listing of the Common Stock on any exchange. There is no
active trading activity in the Registrant's Common Stock and there are no
assurances that an active trading market for the Common Stock will develop.
Prime commenced trading on the over the counter Electronic Bulletin Board
(OTCBB) on May 28, 2004. Its trading symbol is PRRO. Following are the quarterly
high and low sales prices for the Registrant's shares in calendar years 2006 and
2005:
High Low
----- -----
Q1 2006 $1.50 $1.15
Q2 $2.00 $1.25
Q3 $1.25 $1.25
Q4 $1.30 $1.25
High Low
----- -----
Q1 2005 $6.15 $4.00
Q2 $6.00 $2.50
Q3 $5.25 $1.10
Q4 $5.25 $1.50
There are approximately 220 record holders of the Registrant's Common Stock.
The Registrant does not anticipate paying any dividends, whether in cash, stock
or other property, in the foreseeable future. The Registrant plans to retain any
future earnings and any future earnings of Broadband for use in Broadband's
business. Any decisions as to future payment of dividends will depend on the
Registrant's earnings and financial position and such other factors, as the
Registrant's Board of Directors deems relevant.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
to be issued upon Weighted-average
exercise of exercise price of
outstanding options, outstanding options,
warrants and rights warrants and rights
Plan Category (a) (b)
------------- -------------------- --------------------
Options Granted to Employees 265,080 $ 0.595589
Options Granted to Directors 519,829 $ 0.595589
Options Granted to Finders 14,362 $ 0.595589
Founder Performance Options 1,696,929 $ 0.595589
Director Warrants 257,396 $ 1.191179
Investor Warrants 11,575,356 $ 1.191179
Griffin Securities Warrants 650,883 $0.7941189
LEGAL PROCEEDINGS
The Registrant is not a party to any pending legal proceedings and its property
is not the subject of any pending legal proceedings.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Registrant has not changed its accountants in the last two years. Broadband
has employed the services of Rothstein, Kass & Company P.C. in connection with
the audits of its September 30, 2006 and 2005 financial statements. Neither the
Registrant nor Broadband has a conflict or disagreement with its current
accountants concerning any accounting policies or financial disclosures.
RECENT SALES OF UNREGISTERRED SECURITIES
Common Stock Offering Together with Warrants and Options to Acquire Common Stock
Pursuant to the Merger Agreement, the Registrant offered up to 23,773,144.074562
shares of Common Stock, together with warrants and options to acquire up to
14,979,835.3539571 shares of Common Stock, of the Registrant (the "Offering").
Warrants to purchase 12,483,634.9225525 shares of Common Stock and options to
acquire 2,496,200.43140469 shares of Common Stock (the "Warrants" and "Options,"
respectively) were issuable pursuant to a merger (the "Merger") in accordance
with the Merger Agreement. The Offering was made by the Registrant only to
existing shareholders of Broadband with respect to the Common Stock and existing
holders of options and warrants to acquire shares of Broadband with respect to
the Warrants and Options pursuant to Rule 506, Regulation D as promulgated by
the Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Act"). Therefore, the Common Stock, Warrants and Options
offered and issued in connection with the Merger have not been registered under
the Act or any state or foreign securities laws and were issued in reliance on
exemptions therefrom. No public market exists for the Common Stock, Warrants or
Options, and there can be no assurance that a public market for the Common
Stock, Warrants or Options of the Registrant will develop in the future.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be available to the Registrant's directors, officers and controlling
persons, we have been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed by the SEC and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities, other than the payment by the Registrant of expenses incurred
or paid by its directors, officers or controlling persons in the successful
defense of any action, suit or proceedings, is asserted by such director,
officer, or controlling person in connection with any securities being
registered, the Registrant may, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by the Registrant is
against public policy as expressed by the SEC and will be governed by the final
adjudication of such issues.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant believes (i) that it has normal and customary indemnification
provisions under its By-laws and Articles of Incorporation, as well as those
generally provided by Utah law and (ii) that Broadband has normal and customary
indemnification provisions under its By-laws and Certificate of Incorporation,
as well as those generally provided by Delaware law. It is believed these
provisions would indemnify all officers and directors from any good faith
mistake or omission in the performance of his or her duties including cost of
defense. Such indemnity would not extend to intentionally wrongful acts
including fraud or misappropriation.
SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT
ITEM 5.01 CHANGE IN CONTROL OF REGISTRANT
In connection with the Registrant's acquisition of Broadband that closed on
March 30, 2007, there has been a change in the control of the Registrant as a
result of the 23,773,144.074562 shares issued as merger consideration to the
shareholders of Broadband immediately prior to the Effective Time in exchange
for 100% of the issued and outstanding shares of all classes of Broadband
capital stock. Immediately following the Effective Time, former shareholders of
Broadband held approximately 94.24% of the issued and outstanding shares of
Common Stock.
Prior to the Merger the Registrant was controlled by three principal
shareholders (Mr. Terry Deru, Mr. Scott Deru and Mr. Andrew Limpert) who
collectively owned or controlled approximately 83% of the issued and outstanding
shares of the Registrant's common stock and currently own or control
approximately 4.79% of the issued and outstanding shares of the Registrant's
common stock.
ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS
In accordance with the Merger Agreement, the three members of the Board of
Directors of Broadband immediately prior to the Effective Time and one of the
members of BBM's board of directors immediately prior to the Effective Time (Mr.
Andrew W. Limpert) became the board of directors of BBM upon the Effective Time.
In accordance with the Merger Agreement, Mr. Limpert submitted his resignation
as an officer of the Registrant, effective at the Effective Time, and Messrs.
Terry Deru and Scott Deru each submitted resignations from their positions as
directors and officers of the Registrant, effective at the Effective Time.
In accordance with the Merger Agreement, the executive officers of Broadband
immediately prior to the Effective Time became the executive officers of BBM and
it's wholly-owned subsidiary upon the Effective Time.
Information required to be disclosed pursuant to Items 401(a)(4), (a)(5), (c)
and Items 404(a) of Regulation S-B are disclosed in Item 2.01 of this current
report.
ITEM 5.06 CHANGE IN SHELL COMPANY STATUS
On March 30, 2007 (the "Effective Date"), Prime Acquisition, Inc., a Delaware
corporation formed on December 18, 2006 and a wholly-owned subsidiary of the
Registrant, merged with and into Broadband, ceasing its separate existence. As a
result of the Merger, Broadband is the surviving corporation and the
Registrant's only wholly-owned subsidiary and sole operating entity.
In connection with the Merger, the Articles of Incorporation of the Registrant
were amended on March 22, 2007, to (1) change its name to "BBM Holdings, Inc."
and (2) increase the total authorized capital stock of the Registrant to
60,000,000 shares of which 50,000,000 shares were designated common stock, no
par value, and 10,000,000 shares were designated preferred stock, no par value.
1,454,090 shares of the Preferred Stock were designated Series A Preferred Stock
(the "Series A Stock"), all of which Series A Stock are to be issued to the
pre-merger shareholders of the Registrant at the rate of one share of Series A
Stock per share of Common Stock outstanding. Each share of Series A Stock
represents the right to exchange such share for a pro rata share (among the
issued and outstanding Series A Stock) of whatever right, title and interest is
held by the Registrant in the Units consisting of 465,000 shares of common stock
of Lightspace Corporation, a Delaware corporation and warrants to purchase
common stock of Lightspace Corporation (the "Lightspace Securities"), described
in the Form 10QSB-A filed by the Registrant on November 16, 2006.
Broadband's certificate of incorporation, its Bylaws and the persons serving as
Broadband's officers and directors remain unchanged from immediately prior to
March 30, 2007. In addition, in connection with the Merger, the directors of
Broadband immediately prior to the Merger (with the addition of one director who
was a director of BBM immediately prior to the effective time of the Merger) are
the directors of the Registrant and Broadband. Also in connection with the
Merger, the officers of Broadband immediately prior to the Merger are the
officers of the Registrant and Broadband.
The Merger was effectuated by the exchange of shares, excluding, if any, those
shares owned by shareholders of Broadband who properly exercised their appraisal
rights under Section 262 of the Delaware General Corporation Law (the "DGCL").
Pursuant to the Merger Agreement, (A) one share of Common Stock was issued per
0.0595589330784 share of Broadband Preferred Stock issued and outstanding
immediately prior to the Effective Date, (B) one share of Common Stock was
issued per 59.5589330784 shares of Broadband Common Stock issued and outstanding
immediately prior to the Effective Date and (C) each debenture, warrant, option
and other right with respect to shares of any class of the Broadband granted and
unexercised immediately prior to the Effective Time (a "Broadband Option"),
vested or unvested, was converted into a debenture, warrant, option or other
right, as the case may be, to acquire Common Stock at the rate of one share of
Common Stock per 59.5589330784 shares of Broadband Common Stock equivalent and
one share of Common Stock per 0.0595589330784 shares of Broadband Preferred
Stock equivalent issuable upon exercise of the Broadband Option, with the
exercise price adjusted accordingly.
Moreover, at the Effective Time, each share of common stock, no par value per
share, of Merger Sub issued and outstanding immediately prior to the Effective
Time was converted into the right to receive one share of Broadband Common
Stock. Therefore, the Registrant owns all of the issued outstanding capital
stock of the surviving corporation (i.e., 10,000 shares of Broadband Common
Stock) and the pre-Merger shareholders of Broadband own shares of Common Stock
in the parent of Broadband only. Subject to exchange, all share certificates
that formerly represented Broadband capital stock represent only the right to
receive shares of the Registrant's Common Stock into which such shares of
Broadband capital stock have been converted in accordance with the terms of the
Merger.
In the Merger Agreement, Broadband made customary representations and warranties
to the Registrant and the Merger Sub, including with regard to capitalization,
corporate authority, litigation, compliance with laws, environmental matters,
intellectual property and taxes. Similarly, the Registrant made customary
representation and warranties to Broadband, including with regard to
capitalization, corporate authority, litigation, compliance with laws,
environmental matters, taxes, SEC documents and financial statements. These
representation and warranties must be true and correct in all material respects
as of the Closing Date (as that term is defined and used in the Merger
Agreement) as a condition to effectuating the Merger.
In accordance with the Merger Agreement, each of Broadband's directors and
officers and each holder of ten percent or more of its outstanding voting
securities entered into a Lock-up Agreement pursuant to which they agreed not to
sell their Common Stock for a period of 180 days from the effective date of a
registration statement on Form SB-2 filed with the SEC regarding the Common
Stock.
In the Merger Agreement, the principal officers of the Registrant immediately
prior to the effective time of the Merger, jointly and severally, agreed to
defend, indemnify and hold harmless, to the fullest extent permitted under
applicable law (and, jointly and severally, also advance expenses as incurred to
the fullest extent permitted under applicable law), Broadband against any Costs
(as that term is defined and used in the Merger Agreement) incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to (a) any inaccuracy in or breach of any representation and warranty made by
the Registrant or the Merger Sub in the Merger Agreement or in any closing
document delivered to Broadband in connection therewith; (b) any breach by the
Registrant or the Merger Sub or failure by the Registrant or the Merger Sub to
comply with, any of their covenants or obligations thereunder; and (c) any
claims by parties other than the Registrant to the extent caused by acts or
omissions of the Registrant or the Merger Sub on or prior to the Closing Date,
including for Costs which arise or arose out of the Registrant's operation or
disposition of its business. The indemnification obligations are subject to the
following limitations: (a) claims thereunder must be delivered to the
indemnifying parties on the first anniversary of the earlier of the date on
which the Registrant's 2006 audited financial statements and opinion of its
auditors are delivered or March 31, 2007, with limited exceptions for Costs and
breaches of environmental representations and (b) Broadband shall not be
entitled to recover its Costs in excess of $5,000,000, with limited exceptions
for breaches of environmental representations.
In connection with the Merger, the Registrant will issue to Griffin Securities,
Inc. (or its assignee), as financial advisor to Broadband in connection with the
Merger, the following:
- warrants to purchase 433,922 shares of Common Stock with an
anticipated exercise price of $0.595589.
- warrants to purchase 216,961 shares of Common Stock with an
anticipated exercise price of $1.191179.
In each case, the warrants will terminate, to the extent not exercised, on or
before the date which is five years from the date of issuance.
Information required to be disclosed pursuant to Items 401 and 404 of Regulation
S-B are disclosed in Item 2.01 of this current report.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Broadband Maritime Inc. for Fiscal Years Ending
September 30, 2005 and September 30, 2006.
BROADBAND MARITIME INC.
Financial Statements
And
Report of Independent Registered
Public Accounting Firm
September 30, 2006 and 2005
Table of Contents
Report of Independent Registered Public Accounting Firm 1
Financial Statements
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Stockholders' Equity (Deficit) 4
Statements of Cash Flows 5
Notes to the Financial Statements 6 - 21
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Broadband Maritime Inc.
We have audited the accompanying balance sheets of Broadband Maritime Inc. as of
September 30, 2006 and 2005, and the related statements of operations, changes
in stockholders' equity (deficit), and cash flows for each of the years in the
two year period ended September 30, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Broadband Maritime Inc. as of
September 30, 2006 and 2005, and the results of its operations and its cash
flows for each of the years in the two year period ended September 30, 2006, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's ability to continue in the normal course of
business is dependent upon the success of future operations. The Company has
incurred cumulative losses of approximately $15,325,000 since inception and
utilized cash of approximately $8,370,000 for operating activities during the
two years ended September 30, 2006. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding those matters are also described in Note 2. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
November 25, 2006
1
BROADBAND MARITIME INC.
BALANCE SHEETS
SEPTEMBER 30,
---------------------------
2006 2005
------------ ------------
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 34,105 $ 3,918,981
ACCOUNTS RECEIVABLE, NET 9,930 35,150
INVENTORIES 1,037,927 818,681
PREPAID EXPENSES AND OTHER CURRENT ASSETS 153,384 140,962
------------ ------------
TOTAL CURRENT ASSETS 1,235,346 4,913,774
MACHINERY AND EQUIPMENT, NET 312,074 462,805
SECURITY DEPOSITS 226,497 225,041
------------ ------------
$ 1,773,917 $ 5,601,620
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 653,918 $ 528,280
ACCRUED EXPENSES 797,729 858,286
DEFERRED REVENUE 24,383 25,706
NOTE PAYABLE AND OTHER LOANS 971,946 156,946
------------ ------------
TOTAL CURRENT LIABILITIES 2,447,976 1,569,218
LONG-TERM LIABILITIES 9,250 9,250
------------ ------------
2,457,226 1,578,468
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK; CLASS A
$0.0001 PAR VALUE, 700,000 AUTHORIZED
SHARES; ISSUED AND OUTSTANDING 572,021
IN 2006 AND 572,021 IN 2005 57 57
COMMON STOCK, $0.0001 PAR VALUE, 1,300,000,000
AUTHORIZED SHARES; ISSUED AND OUTSTANDING
97,459,217 IN 2006 AND 96,808,941 IN
2005 - SEE NOTE 10 9,746 9,681
ADDITIONAL PAID-IN CAPITAL 14,632,073 14,600,115
ACCUMULATED DEFICIT (15,325,185) (10,586,701)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (683,309) 4,023,152
------------ ------------
$ 1,773,917 $ 5,601,620
------------ ------------
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENT.
BROADBAND MARITIME INC.
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
-------------------------
2006 2005
----------- -----------
NET REVENUES $ 124,311 $ 296,730
----------- -----------
OPERATING EXPENSES
COST OF REVENUES 1,202,925 1,204,550
SELLING, GENERAL AND ADMINISTRATIVE 2,513,523 2,462,532
RESEARCH AND DEVELOPMENT COSTS 1,221,675 1,225,686
STOCK-BASED COMPENSATION 25,521 9,200
----------- -----------
TOTAL OPERATING EXPENSES 4,963,644 4,901,968
----------- -----------
OPERATING LOSS (4,839,333) (4,605,238)
----------- -----------
INTEREST INCOME 58,945 13,787
INTEREST EXPENSE -- (154,032)
OTHER INCOME 41,905 --
----------- -----------
NET LOSS $(4,738,484) $(4,745,483)
=========== ===========
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.05) $ (0.17)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 97,012,412 27,155,172
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
BROADBAND MARITIME INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED SEPTEMBER 30, 2006 AND 2005
Class A $1.50 Par Class A 5%
Value Convertible Broadband -
Preferred Stock Preferred Stock Pre-Merger
--------------------- -------------------- Common Stock
Redemption Redemption ------------------------
Shares Value Shares Value Shares Amount
-------- ---------- ------- ---------- ---------- -----------
BALANCES OCTOBER 1, 2004 383,809 $ 575,713 -- $-- 14,346,679 $ 3,451,192
Forfeiture of employee common stock awards
Cancellation of common stock for services
related to convertible debentures (33,892) (22,030)
Cancellation of common stock for directors
fees (20,001) (13,001)
40,000 shares of employee vested common stock
awards
Forfeiture of common stock by founders (6,370,000) (153,581)
Issuance of vested employee shares
Issuance of common stock for cash @ $0.01 per
share
Issuance of common stock from debt conversion
Issuance of common stock in preferred stock
conversion (383,809) (575,713)
Issuance of common stock in loan conversion
Issuance of common stock in merger (7,922,786) (3,262,580)
Issuance of preferred class A stock @ $10.00
per share 572,021 57
Legal fees incurred in issuance of preferred
class A stock
Net loss
-------- --------- ------- --- ---------- -----------
BALANCES SEPTEMBER 30, 2005 -- -- 572,021 57 -- --
Issuance of common stock under ESOP @ $0.01
per share employee shares
Issuance of common stock under option
exercise @ $0.01 per share
Stock-based compensation on 14,506,500
employee options granted
Stock based compensation on 1,170,406
finder/director options granted
Net loss
-------- --------- ------- --- ---------- -----------
BALANCES SEPTEMBER 30, 2006 -- $ -- 572,021 $57 -- $ --
======== ========= ======= === ========== ===========
Broadband - Post
Merger
Common Stock Additional
------------------------ Paid-In Deferred
Shares Amount Capital Compensation
----------- ---------- ---------- ------------
BALANCES OCTOBER 1, 2004 -- $ -- $ 525,894 (203,100)
Forfeiture of employee common stock awards (193,900) 193,900
Cancellation of common stock for services
related to convertible debentures
Cancellation of common stock for directors
fees
40,000 shares of employee vested common stock
awards 9,200
Forfeiture of common stock by founders 153,581
Issuance of vested employee shares 40,000 4 (4)
Issuance of common stock for cash @ $0.01 per
share 17,500 2 173
Issuance of common stock from debt conversion 20,347,846 2,035 4,067,534
Issuance of common stock in preferred stock
conversion 383,809 38 575,675
Issuance of common stock in loan conversion 68,097,000 6,810 674,160
Issuance of common stock in merger 7,922,786 792 3,261,788
Issuance of preferred class A stock @ $10.00
per share 5,720,151
Legal fees incurred in issuance of preferred
class A stock (184,937)
Net loss
---------- ---------- ----------- ---------
BALANCES SEPTEMBER 30, 2005 96,808,941 9,681 14,600,115 --
Issuance of common stock under ESOP @ $0.01
per share employee shares 650,276 65 6,437
Stock-based compensation on 14,506,500
employee options granted 22,200
Stock based compensation on 1,170,406
finder/director options granted 3,321
Net loss
---------- ---------- ----------- ---------
BALANCES SEPTEMBER 30, 2006 97,459,217 $ 9,746 $14,632,073 $ --
========== ========== =========== =========
Total
Accumulated Stockholders'
Deficit Equity(Deficit)
------------ ---------------
BALANCES OCTOBER 1, 2004 $ (5,841,218) $(1,491,519)
Forfeiture of employee common stock awards --
Cancellation of common stock for services
related to convertible debentures (22,030)
Cancellation of common stock for directors
fees (13,001)
40,000 shares of employee vested common stock
awards 9,200
Forfeiture of common stock by founders --
Issuance of vested employee shares --
Issuance of common stock for cash @ $0.01 per
share 175
Issuance of common stock from debt conversion 4,069,569
Issuance of common stock in preferred stock
conversion --
Issuance of common stock in loan conversion 680,970
Issuance of common stock in merger --
Issuance of preferred class A stock @ $10.00
per share 5,720,208
Legal fees incurred in issuance of preferred
class A stock (184,937)
Net loss (4,745,483) (4,745,483)
------------ -----------
BALANCES SEPTEMBER 30, 2005 $(10,586,701) $ 4,023,152
Issuance of common stock under ESOP @ $0.01
per share employee shares 6,502
Stock-based compensation on 14,506,500
employee options granted 22,200
Stock based compensation on 1,170,406
finder/director options granted 3,321
Net loss (4,738,484) (4,738,484)
------------ -----------
BALANCES SEPTEMBER 30, 2006 $(15,325,185) $ (683,309)
============ ===========
See accompanying notes to financial statements.
BROADBAND MARITIME INC.
STATEMENTS OF CASH FLOWS
SEPTEMBER 30,
------------------------
2006 2005
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,738,484) $(4,745,483)
Adjustments to reconcile net loss to
net cash used in operating activities:
Inventory obsolescence (271,759) 424,728
Depreciation 263,459 203,869
Loss on disposal of fixed asset 43,406
Directors fees reversed (13,001)
Cancellation of accrued compensation (270,000)
Stock based compensation 25,521 9,200
Employee compensation for services 175
Fees related to convertible debt issuance reversed (22,030)
Accrued interest related to common stock conversion
of convertible debentures 181,069
Accrued interest related to common stock conversion
of bridge loans 30,970
Changes in operating assets and liabilities:
Accounts receivable 25,220 211,705
Inventories 52,513 (542,565)
Prepaid expense and other current assets (13,878) (49,744)
Accounts payable 125,638 245,539
Accrued expenses (60,551) 506,735
Other liabilities and deferred revenue (1,323) 9,270
----------- -----------
Net cash used in operating activities (4,550,244) (3,819,563)
----------- -----------
INVESTING ACTIVITIES
Purchases of machinery and equipment - net (156,134) (345,394)
Payment for security deposits 0 (11,324)
----------- -----------
Net cash used in investing activities (156,134) (356,718)
----------- -----------
FINANCING ACTIVITIES
Proceeds from the issuance of common stock 6,502
Proceeds from the issuance of convertible debentures 0 1,524,000
Proceeds from bridge loans 815,000 650,000
Proceeds from the issuance of preferred stock 0 5,535,271
----------- -----------
Net cash provided by financing activities 821,502 7,709,271
----------- -----------
Net increase (decrease) in cash and cash equivalents (3,884,876) 3,532,990
Cash and cash equivalents, beginning of year 3,918,981 385,991
----------- -----------
Cash and cash equivalents, end of year $ 34,105 $3,918,981
----------- -----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of common stock in convertible debt conversion 4,069,569
Issuance of common stock in bridge loan conversion 680,970
Issuance of common stock in preferred stock conversion 575,713
Forfeiture of common stock by founders (153,581)
See accompanying notes to financial statements.
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
Broadband Maritime Inc. (the "Company" or "BBMDE") was organized under the laws
of Delaware in July 2005. The Company previously operated under Broadband
Maritime Inc., a New Hampshire corporation ("BBMNH") (See Note 7 for further
details). The Company is a United States based telecommunications service
provider who provides global high speed internet and voice communications
equipment and services to customers in the maritime industry.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company has
incurred cumulative losses of approximately $15,325,000 since inception and has
utilized cash of approximately $8,370,000 for operating activities during the
two years ended September 30, 2006. The recoverability of a major portion of the
recorded asset amounts shown in the accompanying balance sheets is dependent
upon the Company's completion of its product development, product acceptance and
the ability to obtain additional financing on an as needed basis. The Company's
financial condition raises substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Management recognizes that the Company must generate additional revenue to
achieve profitable operations. Management's plans to increase revenue include
the completion of the development of its transmission equipment and the
continued building of its customer base. Management will also seek to increase
revenue through the development of alternate uses of its equipment.
There can be no assurance that the Company will be able to successfully complete
its product development, or that it will be successful in obtaining product
acceptance or that it will be able to obtain sufficient debt or equity
financing.
In September 2006, the Company entered into a Preliminary Letter of Intent for
Merger Agreement (the "Merger Agreement") with Prime Resources, Inc. ("Prime"),
a public "shell" company. It is anticipated that this merger will be in the form
of a reverse triangular merger whereby a wholly-owned subsidiary of Prime will
merge with the Company leaving the Company as the surviving entity wholly-owned
by Prime. As a condition of the closing, the Company is required to complete a
private placement financing of not less than $2,500,000 in the form of preferred
stock. This private placement was completed on October 31, 2006 and $2,500,000
was raised.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments purchased with an original
maturity date of three months or less to be cash equivalents. The Company held
approximately nil and $3,898,000 in money market and bank savings accounts as of
September 30, 2006 and 2005, respectively.
-12-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE, NET
Accounts receivable, net, represents uncollateralized customer obligations due
under normal trade terms generally requiring payment within 30 days from the
invoice date. Follow-up correspondence is made if unpaid accounts receivable go
beyond the invoice due date. Payments of accounts receivable are allocated to
specific invoices identified on the customer's remittance advice.
Accounts receivable, net, are stated at the amount management expects to collect
from outstanding balances. The carrying amount of accounts receivable is reduced
by a valuation allowance that reflects management's best estimate of the amount
that will not be collected. Management individually reviews all accounts
receivable balances that exceed the due date and estimates the portion, if any,
of the balances that will not be collected. Management provides for probable
uncollectible amounts through a charge to earnings and a credit to a valuation
allowance based on its assessment of the current status of individual accounts.
Balances that are still outstanding after management has used reasonable
collection efforts are written off through a charge to the valuation allowance
and a credit to accounts receivable- trade.
Accounts receivable is presented net of an allowance for doubtful accounts of
$6,000 and $8,000 at September 30, 2006 and 2005, respectively.
INVENTORIES, NET
Inventories are stated at the lower of cost or market, with cost determined on
the last-in first-out method.
MACHINERY AND EQUIPMENT, NET
Machinery and equipment, net is stated at cost less accumulated depreciation.
Machinery and equipment, net is depreciated on the straight-line method over the
estimated useful lives of the respective asset, which is currently three years
for all assets. Maintenance and repairs are charged to operations, while
betterments and improvements are capitalized.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adheres to Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and
periodically assesses the recoverability of the carrying amounts of long-lived
assets, including intangible assets. A loss is recognized when expected
undiscounted future cash flows are less than the carrying amount of the asset.
The impairment loss is the difference by which the carrying amount of the asset
exceeds its fair value.
-13-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from the sale of equipment after installation and
acceptance by its customer. The Company recognizes revenue in connection with
services and maintenance contracts over the course of the related contracts with
the customers. The Company defers the revenue from prepaid calling cards, until
the customers have utilized the prepaid minutes purchased on the cards.
The Company's revenue recognition policy complies with the Securities and
Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition", amended by SAB 104. Revenue is recognized when all of the
following criteria are met:
- Persuasive evidence of an arrangement exists - A non-cancelable
signed agreement between the Company and the customer is
considered to be evidence of an arrangement.
- Delivery has occurred or services have been rendered - Revenues
are recognized only on the delivery of equipment and acceptance
by customers or on the delivery of service.
- The seller's price to the buyer is fixed or determinable - The
Company generally considers payments that are due within a year
to be fixed or determinable based upon its successful collection
history on such arrangements.
- Collectibility is reasonably assured - The Company runs normal
business credit checks on unknown new customers to minimize the
risk of a customer avoiding payment. Collection is deemed
probable if the Company expects that the customer will be able to
pay amounts under the arrangement as payments become due. If the
Company determines that collection is not probable, the revenue
is deferred and recognized upon cash collection. The Company also
seeks a deposit wherever possible before commencing work on a new
contract.
ADVERTISING
The Company complies with the requirements of AICPA Statement of Position (SOP)
93-7, "Reporting on Advertising Costs," in which advertising costs are charged
to operations as incurred. Advertising expenses included in selling, general and
administrative expenses for the years ended September 30, 2006 and 2005, were
approximately $44,000 and $145,000, respectively.
RESEARCH AND DEVELOPMENT COSTS
The Company complies with the provisions of SFAS No. 2, "Accounting for Research
and Development Costs". Expenditures for research, development and engineering
of products and manufacturing processes are charged to operations as incurred.
STOCK-BASED COMPENSATION
As allowed by SFAS No. 123 "Accounting for Stock-Based Compensation" (amended by
SFAS No.148 "Accounting for Stock-Based Compensation-Transition and Disclosure
an amendment of Financial
-14-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
Accounting Standards Board ("FASB") Statement No. 123"), the Company has elected
to measure stock-based compensation expense using the intrinsic value method
prescribed by Accounting Principles Board ("APB") No. 25 "Accounting for Stock
Issued to Employees" and provide disclosure-only provisions of SFAS No. 123.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the estimated fair value for the Company's common stock at the date
of the grant over the exercise price an employee or other individual must pay to
acquire stock. If the Company had determined compensation expense based on the
fair value using the Black Scholes option-pricing model at the grant dates
consistent with SFAS Nos. 123 and 148, there would have been an increase in the
Company's net loss due to the nominal market value of the Company's stock of
approximately $26,000 and nil as of September 30, 2006 and 2005, respectively.
INCOME TAXES
The Company complies with SFAS No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to financial reporting for income
taxes. The asset and liability approach requires the recognition of deferred tax
assets and liabilities for the expected future consequences of temporary
differences between the carrying amounts and the tax bases of the assets and
liabilities. Deferred taxes are classified as current or noncurrent, depending
on the classification of the assets and liabilities to which they relate,
including the recognition of income tax benefits for loss carry forwards, credit
carry forwards and certain temporary differences for which tax benefits have not
previously been recorded. Valuation allowances are established, when necessary,
to reduce the deferred income tax assets to the amount expected to be realized.
LOSS PER COMMON SHARE
The Company complies with SFAS No. 128 "Earnings per Share." Under SFAS No. 128,
basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Diluted loss per
common share incorporates the dilutive effect of common stock equivalents on an
average basis during the period. The calculation of diluted loss per common
share excludes potential common shares if the effect is anti-dilutive.
Therefore, basic and diluted loss per share were the same for the years ended
September 30, 2006 and 2005.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company complies with the requirements of SFAS No. 107, "Disclosure about
Fair Value of Financial Instruments", which includes cash and cash equivalents,
accounts receivable, accounts payable and other current liabilities, for which
the carrying amounts approximate fair value due to their short maturities.
-15-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company extends credit based on an evaluation of the customer's financial
condition, generally without requiring collateral. Exposure to losses on
receivables is principally dependent on each customer's financial condition. The
Company monitors its exposure for credit losses and maintains allowances for
anticipated losses when required. Substantially all of the Company's receivables
are expected to be collected within one year. Financial instruments that
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalent accounts in financial institutions and
accounts receivable. The Company places its cash primarily in checking and money
market accounts.
Cash and cash equivalents are maintained at financial institutions, which from
time to time exceed the federal depository insurance coverage limit, the
composition and maturities of which are regularly monitored by management.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an amendment of
ARB No. 43, Chapter 4". SFAS No. 151 has been issued to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage), which requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of "so
abnormal." In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. Management of the Company does not believe the
effects of SFAS No. 151 have a material effect on the financial statements, as
the Company has not incurred any inventory costs that meet the definition of "so
abnormal."
In December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based
Compensation (Revised)". SFAS No. 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. SFAS No. 123(R) focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123(R) requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award over the requisite service period
(usually the vesting period). No compensation costs are recognized for equity
instruments for which employees do not render the requisite service. The
grant-date fair value of employee share options and similar instruments will be
estimated using option-pricing models adjusted for the unique characteristics of
those instruments (unless observable market prices for the same or similar
instruments are available). If an equity award is modified after the grant date,
incremental compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair value of the
original award immediately before the modification. The Company will
prospectively adopt SFAS No. 123(R) effective October 1, 2006.
-16-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In May 2005, the FASB issued SFAS No.154 ("SFAS No. 154"), "Accounting Changes
and Error Correction Replacement of APB Opinion No. 20 and FASB Statement No.
3". SFAS No. 154 replaces APB Opinion No. 20, "Accounting Changes" (Opinion 20),
and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial
Statements", and changes the requirements for the accounting for and reporting
of a change in accounting principle. Opinion 20 previously required that most
voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new
accounting principle. SFAS No. 154 requires retrospective application to prior
periods' financial statements of changes in accounting principle. SFAS No. 154
defines retrospective application as an application of a different accounting
principle to prior accounting periods as if that principle had always been used.
SFAS No. 154 also requires that a change in depreciation, amortization, or
depletion method for long-lived, non-financial assets be accounted for as a
change in accounting estimate affected by a change in accounting principle. We
are required to adopt the provisions of SFAS No. 154 by October 1, 2006,
although earlier adoption is permitted. We are currently evaluating the
provisions of SFAS No. 154.
In July 2006, the FASB published FASB Interpretation ("FIN") No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes", to address the noncomparability in
reporting tax assets and liabilities resulting from a lack of specific guidance
in SFAS 109, "Accounting for Income Taxes", on the uncertainty in income taxes
recognized in an enterprise's financial statements. FIN 48 will apply to fiscal
years beginning after December 15, 2006, with earlier adoption permitted. The
Company does not expect this new FIN to have any impact upon its financial
position, results of operations or cash flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure 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 may differ from those estimates.
RECLASSIFICATION
Certain 2005 amounts have been reclassified in order to conform to the 2006
presentation.
-17-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4 - INVENTORIES, NET
Inventories, net consist of the following at September 30, 2006 and 2005:
2006 2005
---------- --------
Raw materials $ 655,271 $506,938
Work-in-process 198,860 191,024
Finished goods 183,796 120,719
---------- --------
$1,037,927 $818,681
========== ========
The Company has provided an inventory valuation allowance in the amount of
approximately $144,000 and $416,000 at September 30, 2006 and 2005,
respectively, for inventory items that have become obsolete in relationship to
the final product design.
NOTE 5 - MACHINERY AND EQUIPMENT, NET
Machinery and equipment, net consist of the following at September 30, 2006 and
2005:
2006 2005
-------- --------
Equipment and computers $829,154 $718,197
Furniture and fixtures 36,513 43,779
-------- --------
Less: accumulated depreciation 865,667 761,976
553,593 299,171
-------- --------
$312,074 $462,805
======== ========
Repairs and maintenance expenses for the years ended September 30, 2006 and 2005
were approximately $12,000 and $6,000, respectively.
-18-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consist of the following at September 30, 2006 and 2005:
Rent $139,133 $157,890
Customer claims 120,443 156,275
Research and development contracts 150,000
Upgrade costs 218,444 150,000
Vacation 82,643 58,190
Professional fees 132,268 63,634
Other 104,798 122,297
-------- --------
$797,729 $858,286
======== ========
NOTE 7 - REORGANIZATION AND EQUITY REFINANCING
In July 2005, the Board of Directors authorized the formation of Broadband
Maritime Inc., a Delaware corporation ("BBMDE"). In August 2005, in connection
with the acquiring of additional equity financing, BBMNH merged with BBMDE, with
BBMDE remaining as the surviving corporation. Concurrent with the merger, BBMNH
converted all of its outstanding convertible debentures into its own common
stock.
In addition, all of BBMNH's outstanding bridge financing and outstanding
convertible preferred Class A stock, $1.50 par value were converted into its own
common stock. All unissued preferred stock (Class A and B) of BBMNH were then
cancelled. BBMNH then exchanged all of its common stock for common stock of
BBMDE on a one for one basis.
This transaction between the Company and BBMNH, which are entities under common
control, was accounted for in a manner similar to a pooling of interests whereby
the assets and liabilities of BBMNH were transferred to the Company at
historical amounts. The financial statements are prepared as if the transaction
had occurred at the beginning of the periods presented herein, and present the
financial data of previously separate entities.
In August 2005, BBMDE sold 572,021 shares of new convertible preferred Class A
stock, $0.0001 par value, for aggregate proceeds of $5,720,208 to both new and
existing shareholders. The convertible preferred Class A stock has a 5%
cumulative annual dividend. In connection with this sale, the founders of BBMNH
agreed to surrender 6,370,000 shares of common stock in BBMDE. The founders
further agreed to convert $156,946 of accrued compensation into a note payable
(the "Deferred Compensation Conversion Agreement"). The note is payable together
with simple interest at 2% upon attaining certain defined financial milestones
prior to June 30, 2007. If these financial milestones are not met, then the note
will become null and void.
NOTE 8 - SHORT-TERM FINANCING
Between January and June 2005, the Company borrowed a total of $650,000 in
bridge loans from investors. In August 2005, in connection with the
reorganization and equity financing (See Note 7), the total of the bridge loans
$680,970 (including accrued interest) was converted into 68,097,000 shares of
common stock based on a ratio of 100 shares of common stock for each $1.00 of
bridge loans and accrued interest.
-19-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8 - SHORT-TERM FINANCING (CONTINUED)
Between July and September 2006, the Company was provided a total of $815,000 in
bridge loans from investors. In connection with the equity financing (See Note
15) approximately $457,000 of the bridge loans were converted into Convertible
Preferred Class A Stock.
NOTE 9 - CONVERTIBLE DEBENTURES
During the year ended September 30, 2005, the Company sold $1,524,000 of
additional convertible debentures under a Securities Purchase Agreement (the
"Agreement") entered into during the year ended September 30, 2004 with several
investors that were convertible on demand, bore interest at a rate of 8% per
annum, had a $1,000 face value and matured in March 2007, which was subsequently
modified to March 2008, and convertible at the rate of one share of the
Company's common stock for each $3.00 of convertible debentures and accrued
interest. In March 2005, the conversion rate for the debentures issued under the
Agreement was modified to 1 share of common stock for each $1.19 of convertible
debentures and accrued interest. In connection with the March 2005 modification
in conversion rate, the founders of the Company agreed to cancel $270,000 of
their accrued compensation as of September 30, 2005.
In August 2005, pursuant to the reorganization and equity refinancing (See Note
7), the Company further adjusted the conversion rate for all of its issued and
outstanding convertible debentures, amounting to $4,069,569 (including interest
of $181,069), to 1 share of the Company's common stock for each $0.20 of
convertible debentures and accrued interest. All convertible debentures
outstanding as of the August 2005 reorganization and equity refinancing were
converted to 20,347,846 shares of the Company's common stock. The Company issued
33,892 shares of common stock for services rendered in connection with the sale
of the debentures and these shares were cancelled effective September 30, 2005
and subsequently replaced with stock options.
The accrued interest added to the principal amount of the convertible debentures
and charged to operations amounted nil and $119,731 for the years ended
September 30, 2006 and 2005, respectively.
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT)
In anticipation of the merger with BBMDE (See Note 7), in July 2005 BBMNH
amended its certificate of incorporation providing for the authorized number
common shares to be increased to 1,300,000,000 with a par value of $0.0001 and
the authorized number of Class A convertible preferred shares to be increased to
700,000 with a par value of $0.0001.
Preferred Stock:
Class A 5% Convertible $0.0001 par value
Dividends: The Class A stockholders are entitled to receive, when and as
declared by the board of directors, cash dividends at the rate of 5% per
share per year, accruing semi-annually on January 15th and July 15th, and
such dividends shall be cumulative. Class A stockholders are entitle to
participate with the common stockholders in any dividend or distribution
declared on common stock. The Company had dividends in arrears related to
Class A convertible $0.0001 par value of approximately $335,000 and $45,000
for the years ended September 30, 2006 and 2005, respectively.
-20-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Preferred Stock (continued):
Conversion: Class A preferred stock is convertible at a ratio of 1,000
shares of common stock for each share of Class A preferred stock.
Control: The Class A stockholders are entitled to vote upon any matter
submitted for approval of common shareholders, have the right to approve
certain material events of the corporation by a 67% vote as described in
the Certificate of Incorporation and have the right to designate two
members of the board of directors.
Liquidation: In the event of the liquidation of the Company, holders of
Class A preferred stock shall be entitled to receive, prior to and in
preference to any distributions to common stockholders, an amount equal to
the consideration paid to acquire the stock plus all accrued but unpaid
dividends, on a per share basis.
Common Stock:
During the year ended September 30, 2004, the Company issued 20,001 common
shares to three directors for services rendered to the Company. The fair value
of the shares of $13,001 was charged to operations in 2004. These shares were
cancelled effective September 30, 2005 and subsequently replaced with Company
stock options.
During the year ended September 30, 2005, in connection with the conversion of
the convertible debentures issued from the Agreement (See Note 9), the Company
issued 20,347,846 common shares. Also during the year ended September 30, 2005,
the Company issued 383,809 common shares as a result of all of the BBMNH Class A
preferred stock $1.50 par value shareholders converting their preferred shares
into common shares due to the merger of BBMNH and BBMDE (See Note 7). In
addition, the Company issued 175 common shares to a former employee for
services. The Company cancelled 20,001 shares of common stock awarded to
directors for services for the year ended September 30, 2004 and were
subsequently replaced with stock options. Lastly, during the year ended
September 30, 2005, the Company issued 68,097,000 common shares resulting from
the conversion of all outstanding bridge loans from investors.
In addition, as a requirement of the Class A 5% Preferred Subscription
Agreement, the founders entered into a surrender agreement with respect to all
of their 6,370,000 common shares.
During the year ended September 30, 2005, in connection with the reorganization
as per Note 7, the Company exchanged 7,922,786 shares of pre-merger common stock
for 7,922,786 shares of post-merger common stock.
During the year ended September 30, 2006 the Company issued 635,275 common
shares to employees from the exercise of stock options under the Employee Stock
Option Plan, adopted in December 2005, at $0.01 per share. In addition, 12,500
shares of common stock were sold from the exercise of stock options relating to
services rendered in connection with the sale of convertible debentures (Note
8). The Company
-21-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Common Stock (continued):
also sold 2,500 common shares to an individual under a stock option exercise
relating to the conversion of a bridge loan.
Common Stock Awards, Options and Deferred Compensation:
The Company has entered into a Performance Option Agreement (the "Option
Agreement") with the founders granting them approximately 101,000,000 options
which will vest and become exercisable only if the Company achieves certain
defined financial targets through June 30, 2007. The exercise price is equal to
$0.01 per share subject to adjustments in exercise price due to merger,
consolidation, capital readjustments or other similar transactions The options
granted under the Option Agreement will terminate on the sooner of July 26,
2008, or June 30, 2007, to the extent the options have not become exercisable by
such date.
During January 2005, the Company entered into a warrant agreement entitling an
investor to purchase 25,000 shares of common stock at an exercise price of $1.50
per share subject to adjustment. As of September 30, 2005, the number of shares
and exercise price were adjusted as per the warrant agreement to 3,750,000
shares at $0.01 per share, respectively.
The Company discontinued a promotional stock award program effective September
30, 2005 and the remaining 193,900 non-vested shares were forfeited.
In December 2005, the Company adopted an Employee Stock Option Plan ("ESOP") in
which eligible employees enter into a Stock Option Agreement (the "SOA")
allowing them to purchase a specific number of shares, as determined by length
of service and compensation level, at an exercise price of $0.01 per share.
Eligibility is based upon full-time service. The options may be exercised
beginning on the first anniversary of the commencement of the term of employee's
employment to a maximum of one-fifth of the stock subject to their SOA and
subsequently exercised over the next four years at the anniversary date. To the
extent that the options under the SOA have not been exercised as of the seventh
anniversary of the commencement of the term of the employee's employment, the
option will expire. The Board of Directors may, in its sole discretion,
accelerate the exercisability of any outstanding options. The Board has
allocated approximately 67,000,000 shares of common stock to the ESOP.
In April 2006, the Company entered into a stock option agreement with certain
Company directors granting them 300,000 options exercisable through April 30,
2007 at $0.01 for services rendered during the year ended September 30, 2004 in
lieu of stock issued and subsequently cancelled.
In April 2006, the Company entered into a stock option agreement with certain
individuals granting them 867,906 options exercisable through April 30, 2007 at
$0.01 for services rendered in connection with the sale of convertible
debentures during the years ended September 30, 2005 and 2004 in lieu of stock
issued and subsequently cancelled, as per Note 9.
In April 2006, the Company entered into a stock option agreement with an
individual granting 2,500 options exercisable through April 30, 2007 at $0.01
for services in connection with the bridge financing, as per Note 8, during the
year ended September 30, 2005.
-22-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Common Stock Awards, Options and Deferred Compensation (continued)
The following is a summary at September 30, 2006 and 2005:
WEIGHTED
PROMOTIONAL PER SHARE AVERAGE
COMMON STOCK EMPLOYEE STOCK/OPTION STOCK/OPTION
AWARDS OPTIONS ESOP PRICE PRICE
------------ ----------- ---------- ------------ ------------
Outstanding October 1, 2004 390,000 150,000 -- $0.23-$1.50 $0.79
Granted 101,067,300 $ 0.01 $0.01
Forfeited (40,000) $ 0.23 $0.23
Expired (350,000) $0.23-$0.65 $0.55
-------- ----------- ---------- -----
Outstanding September 30, 2005 -- 101,217,300 -- $0.01-$1.50 $0.01
Granted 1,170,406 14,506,500 $ 0.01 $0.01
Exercised (15,000) (635,275) $ 0.01 $0.01
Expired (150,000) $ 1.50 $1.50
-------- ----------- ----------
Outstanding September 30, 2006 -- 102,222,706 13,871,225 $ 0.01 $0.01
-------- ----------- ----------
Shares/Options exercisable at
September 30, 2006 1,155,406 3,001,285 $ 0.01 $0.01
----------- ---------- -----
Shares/Options exercisable at
September 30, 2005 150,000 $ 1.50 $1.50
----------- -----
The following table summarizes information about stock options outstanding at
September 30, 2006
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, EXERCISE
EXERCISE PRICE 2006 LIFE PRICE 2006 PRICE
-------------- ------------- ----------- -------- ------------- --------
$0.01 101,066,800 2.8 years -- -- --
$0.01 13,871,225 6.4 years $0.01 3,001,285 $0.01
$0.01 1,155,906 0.6 years $0.01 1,155,406 $0.01
----------- ---------
116,093,931 4,156,691
=========== =========
-23-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Loss Per Common Share
The loss per common share at September 30, 2006 and 2005 includes the current
outstanding common shares in the aggregate of 97,459,217 and 96,808,941,
respectively. It does not include 572,021 shares of Preferred Class A $0.0001
par value which can be converted into 572,021,000 common shares, 3,750,000
warrants which can be converted into 3,750,000 common shares, and 116,093,931
and 101,217,300, options which can be converted into 116,093,931 and 101,217,300
common shares as of September 30, 2006 and 2005, respectively.
NOTE 11 - INCOME TAXES
At September 30, 2006, the Company has net operating loss carryforwards for U.S
federal and state tax purposes of approximately $14,374,000, expiring at varying
times from years ending September 2022 through September 2026.
Under Section 382 of the Internal Revenue Code, if a corporation undergoes an
"ownership change" (generally defined as greater than 50% change (by value) in
its equity ownership over a three year period), the corporation's ability to use
its pre-change of control net operating loss carry forward and other pre-change
attributes against its post-change income may be limited. The Section 382
limitation is applied annually so as to limit the use of pre-change net
operating loss carry forwards to an amount that generally equals the value of a
corporation's stock immediately before the ownership change multiplied by a
designated federal long-term tax-exempt rate. In addition, the Company may be
able to increase the base Section 382 limitation amount during the first five
years following ownership change to the extent the Company realizes built-in
gains during that time period. A built-in gain generally is a gain or income
attributable to an asset that was held at the date of the ownership change and
that had a fair market value in excess of the tax basis at the date of the
ownership change.
A reconciliation of income tax expense to the benefit computed at the expected
rate of 44% for the years ended September 30, 2006 and 2005 is approximately as
follows:
2006 2005
----------- -----------
Benefit at statutory rate $ 2,085,000 $ 2,088,000
Non-cash interest on convertible debentures (53,000)
Stock-based compensation 7,000 (22,000)
Other 90,000 (12,000)
Valuation allowance (2,182,000) (2,001,000)
----------- -----------
$ -- $ --
=========== ===========
-24-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES (CONTINUED)
Deferred tax assets consist of the following at September 30, 2006 and 2005:
2006 2005
----------- -----------
Net operating loss carryforward $ 6,325,000 $ 4,157,000
Deferred compensation 69,000 68,000
Inventory reserve 63,000 187,000
Upgrade reserve 96,000 66,000
Product warranty 17,000 (4,000)
Research and development credits 219,000 116,000
----------- -----------
6,789,000 4,590,000
Valuation allowance (6,789,000) (4,590,000)
----------- -----------
$ -- $ --
=========== ===========
The Company has provided a full valuation allowance against its net deferred tax
asset since realization of these benefits cannot be reasonably assured.
The Company will continue to periodically assess the realization of its deferred
tax assets based on actual and forecasted operating results.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office facilities under non-cancellable operating leases,
which expire at various times through July 31, 2010.
The Company has entered into contracts for communication space on satellites to
provide its customers with adequate telecommunication capability ("bandwidth").
These contracts expire at various dates through October 2010.
Future aggregate minimum lease payments under these operating leases are
approximately as follows:
Years Ending Office
September 30, Facilities Bandwidth Total
------------- ---------- ---------- ----------
2007 $ 300,000 $ 975,000 $1,275,000
2008 286,000 692,000 978,000
2009 252,000 405,000 657,000
2010 214,000 65,000 279,000
2011 8,000 8,000
---------- ---------- ----------
Total $1,052,000 $2,145,000 $3,197,000
========== ========== ==========
-25-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Operating Leases (continued)
The Company has subleased one of its office facilities for approximately $3,000
per month through May 2008.
Rent expense, net charged to operations for the years ended September 30, 2006
and 2005, was approximately $230,000 and $296,000, respectively.
Bandwidth expense charged to cost of revenues for the years ended September 30,
2006 and 2005 was approximately $709,000 and $544,000, respectively.
Employment agreements
On November 29, 1999, the Company entered into employment agreements with its
President and its Chief Innovation Officer (the "Founders"), which provide for
annual compensation plus participation in future benefit programs. Under the
terms of the agreements each officer is to receive an annual base salary of
$180,000. These employment agreements were amended on August 4, 2005 eliminating
the termination dates and provide for termination upon three months
notification. Also on August 4, 2005, the Company and the Founders entered into
a Deferred Compensation Conversion Agreement (See Note 7).
Contingencies
Various lawsuits and claims arising in the ordinary course of business have been
instituted against the Company. While the ultimate effects of such litigation
cannot be determined at the present time, it is management's opinion, based on
the advice of legal counsel, that any liabilities resulting from the actions
would not have a material effect on the Company's financial position, results of
operations or cash flows.
NOTE 13 - RETIREMENT PLAN
In January 2004, the Company adopted a 401(K) plan (the "Plan") in which
eligible employees may elect to defer a certain percentage of their salary to a
qualified retirement plan. Eligibility is based on an age requirement, as
defined in the Plan's document. All employee contributions vest immediately.
Employer contributions to the Plan are at the discretion of the Company's Board
of Directors. No employer matching contributions were made for the years ended
September 30, 2006 and 2005.
NOTE 14 - CUSTOMER AND SUPPLIER CONCENTRATIONS
The Company has relied on a limited number of customers for a substantial
portion of total revenues. Revenues from three and four customers, 10% or
greater of total revenues, accounted for 73% and 92% in fiscal years ended
September 30, 2006 and 2005, respectively.
-26-
BROADBAND MARITIME INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 - CUSTOMER AND SUPPLIER CONCENTRATIONS (CONTINUED)
The Company contracts with certain service providers to supply manufacturing,
technology and communication services for its operations. Services from two
suppliers accounted for 32% and 24% in fiscal years ended September 30, 2006 and
2005, respectively.
NOTE 15 - SUBSEQUENT EVENTS
Between July and September 2006, the Company was provided a total of $815,000 in
bridge loans from investors. In connection with the October 2006 private
placement financing (see Note 2), approximately $457,000 of these bridge loans
was converted to Preferred Class A 5% stock. The remaining shareholder bridge
loans of $358,000 were repaid to the investors as these bridge loans were in
excess of the allowable allocation to the individual shareholder.
The Option Agreement (see Note 10) with the Founders was amended on October 31,
2006, whereby the achievement of certain defined financial targets was extended
to September 30, 2008. The termination date of the options granted under the
Option Agreement was also amended to the sooner of September 30, 2008, or
September 30, 2009, to the extent the options have not become exercisable by
such date.
In October 2006, the Company entered into a Subscription Agreement to sell to
the Investors an aggregate of up to 500,000 shares of convertible preferred
Class A stock, $0.0001 par value, in Units with 5-year warrants, exercisable to
purchase an aggregate of up to 250,000,000 shares of common stock at $.02 per
share, in two tranches of up to 250,000 Units each, for an aggregate price of up
to $2,500,000 per tranche.
The first tranche was closed on October 31, 2006 and $2,500,000 was received
from investors. The second tranche may be called by the Company upon meeting
certain conditions as defined in the Subscription Agreement. The investors that
are eligible to participate in the second tranche have the right to waive the
conditions defined in the Subscription Agreement.
In anticipation of the Subscription Agreement, the Company amended its
certificate of incorporation providing for the authorized number of common stock
to be increased to 2,200,000,000 with a par value of $0.0001 and Class A
convertible preferred shares to be increased to 1,072,000 with a par value of
$0.0001.
In connection with the Subscription Agreement, the Performance Option Agreement
(Note 10) with the founders was amended October 31, 2006 whereby the achievement
of certain defined financial targets was extended to September 30, 2008. The
termination date of the options was also amended to the sooner of September 30,
2008, or September 30, 2009, to the extent the options have not become
exercisable by such date.
-27-
(b) PRO FORMA FINANCIAL INFORMATION
On March 30, 2007, BBM Holdings, Inc. f/k/a Prime Resource, Inc. completed the
acquisition of Broadband Maritime Inc. The pro forma financial information below
is based on audited financial statements for Prime Resource Inc. for fiscal
years ended December 2005 and 2006 and audited financial statements for
Broadband Maritime Inc. for fiscal year ended September 2006 and un audited
financial statements for Broadband Maritime Inc. for the first three months of
fiscal year ending September 30, 2007. The pro forma statements should be read
in conjunction with the historical financial statements used in the preparation
of such pro forma statements. The pro forma information presented is not
necessarily indicative of that which would have been attained had the
transaction occurred at an earlier date.
-28-
PRIME RESOURCE INC. AND BROADBAND MARITIME INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 1, 2005 - SEPTEMBER 30, 2006
CONDENSED
PRIME BROADBAND PRO FORMA COMBINED
RESOURCE MARITIME ADJUSTMENTS PROFORMA
----------- ------------ ----------- -----------
Net Revenues $ 0 $ 124,311 $ 124,311
Operating Expenses
Cost of revenues 0 1,202,925 1,202,925
SG&A 83,091 2,513,523 2,596,614
R&D 0 1,221,675 1,221,675
Stock-based compensation 0 25,521 25,521
----------- ------------ ------------
Total operating expense 83,091 4,963,644 5,046,735
Interest income 0 58,945 58,945
Interest expense 0 0 360,000
Other income 0 41,904 360,000 41,904
----------- ------------ ------------
-29-
Net operating income -83,091 -4,738,484 -5,181,575
Net operating income before taxes -83,091 -4,738,484 -5,181,575
Income taxes -27,800 0 -27,800
----------- ------------
NET INCOME $ -55,291 $ -4,738,484 $ -5,153,775
=========== ============ ============
a) To show the effect of interest expense of the $4,500,000 financing
(assuming an annual interest rate of 8%) which was contingent on satisfaction
of conditions to closing the Merger.
PRIME RESOURCE INC. AND BROADBAND MARITIME INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2006
CONDENSED
PRIME BROADBAND PRO FORMA COMBINED
RESOURCE MARITIME ADJUSTMENTS PROFORMA
----------- ------------ ----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 15,079 $ 149,918 $ 164,997
Accounts receivable, net 0 413,473 413,473
Inventories, net 0 981,248 981,248
Prepaid expenses and other 0 124,503 124,503
--------- ------------ ------------
Total current assets 15,079 1,669,142 1,684,221
Machinery and equipment, net 0 307,683 307,683
Investments in non-trading
securities 372,268 0 372,268
Other assets 0 0 0
-30-
Security deposits 0 226,496 226,496
--------- ------------ ------------
TOTAL ASSETS $ 387,347 $ 2,203,321 $ 2,590,668
========= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 23,284 $ 645,800 $ 669,084
Accrued expenses 0 821,763 821,763
Deferred revenue 0 25,137 25,137
Dividend payable 372,268 0 372,268
Note payable and other loans 0 381,946 381,946
Total current liabilities 395,552 1,874,646 2,270,198
Long Term Liabilities 0 9,250 9,250
TOTAL LIABILITIES 395,552 1,883,896 2,279,448
Stockholders' equity (Deficit)
Convertible preferred stock:
Class A 0 82 -82 a) 0
Treasury stock -849,316 0 -849,316
Common stock 964,802 9,761 -9,761 b) 964,802
Additional paid-in capital 0 16,889,823 -113,848 b)c) 16,775,975
Deficit incurred from re-entering
the dev. Stage -43,206 0 43,206 c) 0
Retained Earnings -80,485 -16,580,241 80,485 c) -16,580,241
Total stockholders' equity
(deficit) -8,205 319,425 0 311,220
--------- ------------ -------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 387,347 $ 2,203,321 0 $ 2,590,668
========= ============ ======== ============
a) Preferred stock Class A converted to Additional Paid-in capital.
b) Common Stock converted to Additional Paid-in capital.
c) Elimmation of Prime Resource Retained Earnings and Deficit incurred from
re-entering the dev. Stage transferred to Additional paid-in capital.
PRIME RESOURCE INC. AND BROADBAND MARITIME INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED DECEMBER 31, 2006
CONDENSED
PRIME BROADBAND PRO FORMA COMBINED
RESOURCE MARITIME ADJUSTMENTS PROFORMA
----------- ------------ ----------- -----------
Net Revenues $ 0 $ 462,443 $ 462,443
-31-
Operating Expenses
Cost of revenues 0 587,660 587,660
SG&A 29,909 772,962 802,871
R&D 0 356,879 356,879
--------- ------------ ------------
Total operating expense 29,909 1,717,501 1,747,410
Interest income 0 2 2
Interest expense 0 1 60,000 a) 60,001
--------- ------------ ------------
Net operating income -29,909 -1,255,057 -1,344,965
Net operating income before taxes -29,909 -1,255,057 -1,344,965
Income taxes -24,687 0 -24,687
--------- ------------ ------------
NET INCOME (LOSS) -5,222 -1,255,057 -1,320,278
========= ============ ============
a) To show the effect of interest expense of the $4,500,000 financing
(assuming an annual interest rate of 8%) which was contingent on
satisfaction of conditions to closing the Merger.
(c) LIST OF EXHIBITS
2.1 Agreement and Plan of Merger among Prime Resource, Inc., Prime
Acquisition, Inc. and Broadband Maritime Inc., dated as of January 15,
2007
2.2 First Amendment to Agreement and Plan of Merger among Prime Resource,
Inc., Prime Acquisition, Inc., and Broadband Maritime Inc., dated as of
February 13, 2007
2.3 Second Amendment to Agreement and Plan of Merger among Prime Resource,
Inc., Prime Acquisition, Inc., and Broadband Maritime Inc., dated as of
March 16, 2007.
3.1 Articles of Incorporation of Prime Resource, Inc. n\k\a BBM Holdings,
Inc.
3.2 Amendment to the Articles of Incorporation of Prime Resource, Inc. n\k\a
BBM Holdings, Inc.
3.3 Bylaws of BBM Holdings, Inc. f/k/a Prime Resource, Inc.
-32-
10.1 Employment Agreement between Broadband Maritime Inc. and Jarle Pedersen
effective as of February 8, 2007
10.2 Employment Agreement between Broadband Maritime Inc. and Zevi Kramer
dated November 29, 1999.
10.3 Employment Agreement between Broadband Maritime Inc. and Mary Ellen
Kramer dated November 29, 1999
21 List of Subsidiaries
99.1 Press Release, dated April 1, 2007
FORWARD LOOKING STATEMENTS
Safe Harbor Statements under The Private Securities Litigation Reform Act of
1995: This report contains forward-looking statements, including statements
regarding funding, product performance, market acceptance and earnings. Such
statements are subject to certain risks and uncertainties, and actual
circumstances, events or results may differ materially from those projected in
such forward-looking statements. Factors that could cause or contribute to
differences include lack of access to funding sources, environmental factors,
level of performance of vendors' products/service, availability of other
products and competition in the marketplace. We caution investors not to place
undue reliance on any forward-looking statements. We do not undertake, and
specifically disclaim any obligation, to update or revise such statements to
reflect new circumstances or unanticipated events as they occur.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
BBM Holdings, Inc.
f/k/a PRIME RESOURCE, INC.
Date: April 5, 2007 /s/ Mary Ellen Kramer
----------------------------------------
Mary Ellen Kramer, President
-33-
INDEX TO EXHIBITS; DESCRIPTION OF EXHIBITS
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger among Prime Resource, Inc., Prime
Acquisition, Inc. and Broadband Maritime Inc., dated as of January 15,
2007
2.2 First Amendment to Agreement and Plan of Merger among Prime Resource,
Inc., Prime Acquisition, Inc., and Broadband Maritime Inc., dated as of
February 13, 2007
2.3 Second Amendment to Agreement and Plan of Merger among Prime Resource,
Inc., Prime Acquisition, Inc., and Broadband Maritime Inc., dated as of
March 16, 2007.
3.1 Articles of Incorporation of Prime Resource, Inc. n\k\a BBM Holdings,
Inc.
3.2 Amendment to the Articles of Incorporation of Prime Resource, Inc. n\k\a
BBM Holdings, Inc.
3.3 Bylaws of BBM Holdings, Inc. f/k/a Prime Resource, Inc.
10.1 Employment Agreement between Broadband Maritime Inc. and Jarle Pedersen
effective as of February 8, 2007
10.2 Employment Agreement between Broadband Maritime Inc. and Zevi Kramer
dated November 29, 1999.
10.3 Employment Agreement between Broadband Maritime Inc. and Mary Ellen
Kramer dated November 29, 1999
21 List of Subsidiaries
99.1 Press Release, dated April 1, 2007
-34-