UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
þ
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2009
OR
¨
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from _____________________ to
_______________________
Commission
file
number: 000-27582
SPEEDUS
CORP.
(Exact
name of registrant as specified in its charter)
|
|
Delaware
|
|
13-3853788
|
|
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification No.)
|
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1
Dag Hammarskjold Blvd.
|
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Freehold, New Jersey
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07728
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(Address
of principal executive offices)
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(Zip
Code)
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888-773-3669
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(Registrant's
telephone number, including area code)
|
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Not Applicable
|
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(Former
name, former address and former fiscal year, if changed since last
report)
|
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Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
þ
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
|
Non-accelerated
filer
¨
|
Smaller
reporting company
þ
|
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
þ
T
The
number of shares of Common Stock outstanding as of October 12, 2009 was
3,935,596
SPEEDUS
CORP.
INDEX
TO FORM 10-Q
|
PART
I -- FINANCIAL INFORMATION
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Page
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Item
1.
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3
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4
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5
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6-13
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Item
2.
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13-18
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Item
3.
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19
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Item
4T.
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19
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PART
II -- OTHER INFORMATION
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Item
1.
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20
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Item
1A.
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20
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Item
2.
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20
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Item
3.
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21
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Item
4.
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21
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Item
5.
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21
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Item
6.
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21
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22
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Exhibit
31.1
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Certification
of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of The
Sarbanes-Oxley Act of 2002
|
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Exhibit
31.2
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of The
Sarbanes-Oxley Act of 2002
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Exhibit
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
|
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Exhibit
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
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SPEEDUS
CORP.
CONSOLIDATED
BALANCE SHEETS
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(unaudited)
|
|
|
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|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,870,882
|
|
|
$
|
6,007,757
|
|
|
U.S.
Treasury Bills
|
|
|
1,749,965
|
|
|
|
-
|
|
|
Marketable
securities
|
|
|
3,008
|
|
|
|
2,633
|
|
|
Other
current assets
|
|
|
141,414
|
|
|
|
58,068
|
|
|
Total
current assets
|
|
|
3,765,269
|
|
|
|
6,068,458
|
|
|
Property
and equipment, net of accumulated depreciation of $51,799 and
$39,150
|
|
|
34,362
|
|
|
|
47,011
|
|
|
Other
assets
|
|
|
22,447
|
|
|
|
22,447
|
|
|
Total
assets
|
|
$
|
3,822,078
|
|
|
$
|
6,137,916
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
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|
|
|
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|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
221,373
|
|
|
$
|
174,293
|
|
|
Accrued
liabilities
|
|
|
1,815,787
|
|
|
|
1,898,167
|
|
|
Convertible
note to minority shareholder
|
|
|
523,164
|
|
|
|
328,883
|
|
|
Current
portion of redeemable preferred stock
|
|
|
392,298
|
|
|
|
378,110
|
|
|
Total
current liabilities
|
|
|
2,952,622
|
|
|
|
2,779,453
|
|
|
|
|
|
|
|
|
|
|
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|
Redeemable
preferred stock ($.0001 par value; 100,000 shares authorized; 70,940
shares issued and outstanding), net of current portion
|
|
|
392,298
|
|
|
|
378,110
|
|
|
Total
liabilities
|
|
|
3,344,920
|
|
|
|
3,157,563
|
|
|
|
|
|
|
|
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Commitments
and Contingencies
|
|
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Stockholders'
equity:
|
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|
|
|
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Preferred
stock ($.01 par value; 20,000,000 shares authorized): Series A Junior
Participating ($.01 par value; 4,000 shares authorized; no shares
issued)
|
|
|
-
|
|
|
|
-
|
|
|
Common
stock ($.01 par value; 50,000,000 shares authorized; 5,438,006 shares
issued)
|
|
|
54,380
|
|
|
|
54,380
|
|
|
Additional
paid-in-capital
|
|
|
92,264,295
|
|
|
|
92,178,868
|
|
|
Treasury
stock (at cost; 1,502,410 shares)
|
|
|
(6,136,611
|
)
|
|
|
(6,136,611
|
)
|
|
Accumulated
deficit
|
|
|
(85,704,906
|
)
|
|
|
(83,116,284
|
)
|
|
Stockholders'
equity
|
|
|
477,158
|
|
|
|
2,980,353
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
3,822,078
|
|
|
$
|
6,137,916
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
SPEEDUS
CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
For the three months ended June
30,
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For the six months ended June
30,
|
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|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Revenues
|
|
$
|
24,900
|
|
|
$
|
124,345
|
|
|
$
|
74,700
|
|
|
$
|
124,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling,
general and administrative
|
|
|
813,770
|
|
|
|
1,413,673
|
|
|
|
1,797,605
|
|
|
|
1,955,330
|
|
|
Research
and development
|
|
|
430,129
|
|
|
|
606,218
|
|
|
|
965,369
|
|
|
|
1,100,430
|
|
|
Depreciation
and amortization
|
|
|
5,912
|
|
|
|
25,518
|
|
|
|
12,649
|
|
|
|
29,130
|
|
|
Cost
of sales
|
|
|
3,279
|
|
|
|
404
|
|
|
|
3,338
|
|
|
|
476
|
|
|
Total
operating expenses
|
|
|
1,253,090
|
|
|
|
2,045,813
|
|
|
|
2,778,961
|
|
|
|
3,085,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(1,218,566
|
)
|
|
|
(1,921,468
|
)
|
|
|
(2,704,261
|
)
|
|
|
(2,961,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
1,062
|
|
|
|
55,012
|
|
|
|
160,141
|
|
|
|
16,000
|
|
|
Interest
income
|
|
|
1,278
|
|
|
|
40,124
|
|
|
|
9,978
|
|
|
|
134,675
|
|
|
Other
income
|
|
|
-
|
|
|
|
-
|
|
|
|
2,800
|
|
|
|
-
|
|
|
Interest
expense
|
|
|
(24,298
|
)
|
|
|
(18,500
|
)
|
|
|
(47,656
|
)
|
|
|
(18,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(1,250,148
|
)
|
|
|
(1,844,832
|
)
|
|
|
(2,588,622
|
)
|
|
|
(2,828,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
|
(78,374
|
)
|
|
|
-
|
|
|
|
(460,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,250,148
|
)
|
|
$
|
(1,923,206
|
)
|
|
$
|
(2,588,622
|
)
|
|
$
|
(3,289,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.32
|
)
|
|
|
(0.46
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.70
|
)
|
|
Discontinued
operations
|
|
|
-
|
|
|
|
(0.02
|
)
|
|
|
-
|
|
|
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted
|
|
$
|
(0.32
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - basic and diluted
|
|
|
3,935,596
|
|
|
|
3,988,805
|
|
|
|
3,935,596
|
|
|
|
3,990,375
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
SPEEDUS
CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
For the six months ended June
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,588,622
|
)
|
|
$
|
(3,289,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
12,649
|
|
|
|
323,679
|
|
|
Unrealized
investment (gains) losses
|
|
|
(375
|
)
|
|
|
86,676
|
|
|
Stock
based compensation
|
|
|
85,327
|
|
|
|
137,392
|
|
|
Accrued
dividends on preferred stock
|
|
|
28,376
|
|
|
|
18,500
|
|
|
Accrued
interest on convertible note
|
|
|
19,281
|
|
|
|
-
|
|
|
Changes
in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
-
|
|
|
|
(136,204
|
)
|
|
Other
current assets
|
|
|
(83,346
|
)
|
|
|
182,973
|
|
|
Other
assets
|
|
|
-
|
|
|
|
65,603
|
|
|
Accounts
payable
|
|
|
47,080
|
|
|
|
10,335
|
|
|
Accrued
liabilities
|
|
|
(82,380
|
)
|
|
|
(201,881
|
)
|
|
Net
cash used in operating activities
|
|
|
(2,562,010
|
)
|
|
|
(2,802,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment additions
|
|
|
-
|
|
|
|
(7,022
|
)
|
|
United
States Treasury bills:
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
(1,749,965
|
)
|
|
|
-
|
|
|
Maturities
|
|
|
-
|
|
|
|
2,996,700
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
(1,749,965
|
)
|
|
|
2,989,678
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Convertible
note financing in subsidiary by minority investor
|
|
|
175,000
|
|
|
|
-
|
|
|
Exercise
of stock options in subsidiary
|
|
|
100
|
|
|
|
-
|
|
|
Redemption
of preferred stock
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
Repurchase
of stock
|
|
|
-
|
|
|
|
(4,828
|
)
|
|
Net
cash provided by (used in) financing activities
|
|
|
175,100
|
|
|
|
(104,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(4,136,875
|
)
|
|
|
82,350
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
6,007,757
|
|
|
|
8,845,358
|
|
|
Cash
and cash equivalents, end of period
|
|
|
1,870,882
|
|
|
|
8,927,708
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information of business acquired:
|
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired:
|
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
|
|
|
|
191,000
|
|
|
Non
current assets
|
|
|
|
|
|
|
34,000
|
|
|
Other
intangible assets
|
|
|
|
|
|
|
584,400
|
|
|
Less-liabilities
assumed:
|
|
|
|
|
|
|
|
|
|
Redeemable
preferred stock
|
|
|
|
|
|
|
(809,400
|
)
|
|
Cash
paid
|
|
|
|
|
|
|
-
|
|
|
less-cash
acquired
|
|
|
|
|
|
|
-
|
|
|
Acquisition
of business, net of cash acquired
|
|
|
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SPEEDUS
CORP
.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The unaudited consolidated financial
statements of Speedus Corp. have been prepared in accordance with generally
accepted accounting principles for interim financial information. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. These financial
statements do not include all information and notes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the Company's 2008
audited consolidated financial statements and notes thereto on Form
10-K.
Operating results for the three months
and six months ended June 30, 2009 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009.
Business
activities
Speedus
Corp. operates primarily through its two majority-owned subsidiaries Zargis
Medical Corp. and Density Dynamics Corporation.
In 2001
we co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens
Corporation, in Zargis Medical Corp. to develop advanced diagnostic decision
support products and services for primary care physicians, pediatricians,
cardiologists and other healthcare professionals. In March of 2008 we
acquired a majority interest in Density Dynamics Corporation, a company breaking
new ground in the development of environmentally friendly solid-state storage
and I/O acceleration technology.
For
additional information on each of these business segments and our other assets
and operations, see the discussions below and “Notes to Consolidated Financial
Statements — Note 11, Business Segment Information.”
Zargis
Medical Corp.
Zargis is
a medical device company focused on improving health outcomes and cost
effectiveness through the development of computer-aided medical devices and
telemedicine based delivery systems. Zargis was formed in 2001
when we co-invested with Siemens Corporate Research, Inc., a subsidiary of
Siemens Corporation. As part of this transaction, Siemens contributed
certain intellectual property including a core technology used in the Zargis
Cardioscan™ device (Cardioscan).
In
February 2003, we acquired a controlling interest in Zargis Medical of
approximately 63%. At June 30, 2009, as a result of continued investment, our
primary equity ownership was approximately 93%.
In
October 2007, Zargis and the 3M Company entered into an exclusive multi-year
marketing alliance involving Zargis’ heart sound analysis software and 3M
Littmann’s next-generation electronic stethoscope. Under the agreement, Zargis
will support 3M in its efforts to develop a next-generation stethoscope that
will be compatible with Zargis’ heart sound analysis software. In addition, the
alliance provides Zargis with a wide-range of marketing and promotional
opportunities along with exclusive rights to sell its heart sound analysis
software through the global distribution network of the Littmann
brand. The agreement with 3M, based on the total number of
Zargis fully diluted shares as of the agreement date, grants 3M a 5% equity
position in Zargis following the first sale of Zargis’ software through the 3M
distribution channel (which occurred in August of 2009) and an additional 5%
equity in Zargis in the event that other conditions are met. The
agreement also entitles 3M to a royalty payment based on sales of certain Zargis
products and a seat on the Zargis Board of Directors.
Density
Dynamics
In March
2008, we obtained approximate a 75% primary equity ownership in Density Dynamics
Corporation. Density Dynamics is a newly formed company that was created to
acquire the technology, assets and some of the operations of a developer and
marketer of ultra-high speed storage systems for server networks and other
applications. See Note 2 for further discussion.
Other
Business Activities
F&B
Gudtfood.
As a
result of continued losses, in October 2008 we transferred the operations and
liabilities of the remaining F&B restaurant store in to an unrelated third
party for no consideration. We have reflected the accounts of F&B
as a discontinued operation in our consolidated financial statements for the
three months and six months ended June 30, 2008.
Local
Multipoint Distribution Service (LMDS) License
We have
an FCC commercial operating license which covers between 150 – 300 MHz of
spectrum in the New York City area. The license has been renewed through
February 1, 2016 conditioned upon demonstrating to the FCC by June 1, 2012 that
we are providing “substantial service.” This entity had limited operations
during the three months and six months ended June 30, 2009 and
2008.
Internet
initiatives
In the
fourth quarter of 2008, we ceased allocation of any material resources to our
portfolio of Internet initiatives, which included NetfreeUs, Wibiki, Adchooser
and iMarklet. These entities had limited operations during the three and six
months ended June 30, 2009 and 2008.
Liquidity
and Capital Resources
We have
recorded operating losses and negative operating cash flows since our inception
and have limited revenues. At June 30, 2009, we had an accumulated deficit of
approximately $85,705,000. We do not expect to have earnings from operations or
positive operating cash flow until such time as our strategic investments
achieve successful implementation of their business plans and/or form alliances
for the use of our capabilities in the future.
We may
not have funds sufficient to finance our operations and enable us to meet our
financial obligations for the next twelve months. There can be no assurances
that we will be able to consummate any capital raising transactions,
particularly in view of current economic conditions. The inability to generate
future cash flow or raise funds to finance our strategic investments could have
a material adverse effect on our ability to achieve our business
objectives.
These
conditions raise substantial doubt about our ability to continue as a going
concern.
If we are
not able to reduce or defer our expenditures, secure additional sources of
revenue or otherwise secure additional funding, we may be unable to continue as
a going concern, and we may be forced to restructure or significantly curtail
our operations, file for bankruptcy or cease operations. In addition, a
bankruptcy filing by one or more of our strategic investments could cause us to
lose our investment and/or control and could prevent us from sharing in any
future success of those strategic investments. The accompanying financial
statements do not include any adjustments relating to the recoverability of the
carrying amount of recorded assets or the amount of liabilities that might
result should the Company be unable to continue as a going
concern. Should we be successful in securing the necessary capital to
continue operations, it is likely that such arrangements would result in
significant dilution to each shareholder’s ownership interest in the
Company.
Financial
Statements and Principles of Consolidation
The
consolidated financial statements include the accounts of Speedus and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Companies
in which Speedus directly or indirectly owns more than 50% of the outstanding
voting securities or that Speedus has effective control over are accounted for
under the consolidation method of accounting. Under this method, those
companies’ balance sheets and results of operations, from the date Speedus
acquired control, are included in Speedus’ consolidated financial statements.
Through June 30, 2009, Zargis Medical and Density Dynamics continued to generate
losses which have reduced the minority investors’ interest to zero. As
result, the Company is consolidating 100% of the losses for these entities and
continues to fund their operations with intercompany loans or additional
investment, which are eliminated in consolidation.
Companies
in which Speedus owns less than 20% of the outstanding voting securities and
does not have the ability to exercise significant influence are accounted for
under the cost method of accounting.
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of operating revenues and expenses during the reporting
periods. Significant estimates and assumptions include the adequacy of the
calculations related to stock based compensation, other than temporary
impairment of investments and the realizable value of assets held for sale.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid interest earning investments with original
maturities of three months or less to be cash equivalents. At June 30, 2009 and
December 31, 2008, cash equivalents consisted of money market
funds. At times the Company has cash and cash equivalents balances in
excess of the FDIC and SPIC insured limits.
Marketable
Securities
All
marketable securities are defined as trading securities under the provisions of
Statement of Financial Accounting Standards (‘SFAS’) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." At June 30, 2009 and
December 31, 2008, marketable securities consisted of publicly traded equity
securities which were recorded at the fair market value of approximately $3,000
and approximately $2,600 as of June 30, 2009 and December 31, 2008,
respectively.
Securities
sold and not purchased
The
Company has in the past and may in the future sell publicly traded equity
securities it does not own in anticipation of declines in the fair market values
of the securities. When the Company effects such transactions, it must borrow
the securities it sold in order to deliver them and settle the trades. These
amounts are shown on the balance sheet as ‘Securities sold and not purchased’
and represent the value of these securities at fair market value. The Company’s
potential for loss on these transactions is unlimited since the value of the
underlying security can keep increasing which could have a material adverse
effect on the Company’s consolidated financial statements. At June
30, 2009 and December 31, 2008, there were no securities sold and not
purchased.
Fair
Value of Financial Instruments
Cash and
cash equivalents, U.S. Treasury bills, accounts payable and accrued expenses are
reflected in the consolidated balance sheets at their carrying value, which
approximates fair value due to the short-term nature of these instruments and
the variability of the respective interest rates, where
applicable. Pursuant to SFAS No. 157 “Fair Value Measurements”,
the fair value of our cash equivalents and U.S. Treasury bills
are determined based on “Level 1” inputs, which consist of quoted
prices in active markets for identical assets.
Property
and Equipment
Office
equipment and leasehold improvements are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets, ranging from
three to seven years, but not longer than initial lease terms in the case of
leasehold improvements. When assets are fully depreciated, it is the
Company’s policy to remove the costs and related accumulated depreciation from
its books and records.
Long-lived
assets
The
Company periodically evaluates the net realizable value of long-lived assets,
including fixed and intangible assets, in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, relying on
anticipated future cash flows. The Company’s evaluation of anticipated future
cash flows considers operating results, business plans and economic projections,
as well as, non-financial data such as market trends, product and development
cycles, and changes in management’s market emphasis. An impairment in the
carrying value of an asset is recognized when the expected future operating cash
flows derived from the asset are less than its carrying value.
Revenue
Recognition
Zargis
Medical recognizes revenue upon completion of services performed under
contracts, in accordance with the provisions of the Securities and Exchange
Commission Staff Accounting Bulletin No. 104, "Revenue
Recognition".
Income
Taxes
As
required by Statement SFAS No. 109, “Accounting for Income Taxes,” the Company
is required to provide for deferred tax assets or liabilities arising due to
temporary differences between the book and tax basis of the Company’s assets and
liabilities. As required by Statement SFAS No. 109, “Accounting for Income
Taxes,” the Company is required to provide for deferred tax assets or
liabilities arising due to temporary differences between the book and tax basis
of the Company’s assets and liabilities.
As of June 30, 2009, the Company has a
deferred tax asset of approximately $51.3 million, relating primarily to
operating losses. An offsetting valuation allowance of $51.3 million has been
established as the Company had no ability to carryback its losses and a limited
earnings history.
At March 31, 2009, the Company had net
operating loss carryforwards of approximately $109 million which expire between
2015 and 2029. Under the provisions of the Internal Revenue Code, certain
substantial changes in the Company’s stock ownership may result in a limitation
on the amounts of net operating loss carryforwards which can be utilized in
future years.
Effective January 1, 2007, the Company
adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109”. FIN 48
prescribes a comprehensive model for the manner in which a company should
recognize, measure, present and disclose in its financial statements all
material uncertain tax positions that the Company has taken or expects to take
on a tax return. As of June 30, 2009, the only tax
jurisdictions to which the Company is subject are the United States and several
states where the Company operates. Open tax years relate to years in which
unused net operating losses were generated. Thus, the Company’s open tax years
extend back to 1996. In the event that the Company concludes that it is subject
to interest and/or penalties arising from uncertain tax positions, the Company
will present interest and penalties as a component of income
taxes. No amounts of interest or penalties were recognized in the
Company’s Consolidated Balance Sheet or Consolidated Statement of Operations as
of and for the three and six months ended June 30, 2009 and 2008.
Earnings
Per Share
Basic and
diluted earnings (loss) per common share are determined in accordance with SFAS
No. 128, For the three months ended June 30, 2009 and June 30, 2008
outstanding stock options and warrants in the weighted average amounts of
1,558,000 and 551,000 , respectively have been excluded from the diluted loss
per share since their effect would be antidilutive. For the six months ended
June 30, 2009 and June 30, 2008 outstanding stock options and warrants in the
weighted average amounts of 1,547,000 and 551,000, respectively have been
excluded from the diluted loss per share since their effect would be
antidilutive.
Stock
Options
The
Company accounts for stock options under SFAS 123R, “Share-Based
Payment”. Under this method, the Company records compensation cost
based upon the fair value of those awards on the grant date over the service
period of each award on a straight line basis. Stock based compensation expense
was approximately $42,000 and approximately $100,000 for the three months ended
June 30, 2009 and 2008, respectively, and approximately $85,000 and
approximately $137,000 for the six months ended June 30, 2009 and
2008, respectively.
The fair value of the awards on the
grant date was estimated using a Black-Scholes option pricing model. Assumptions
utilized in the model for Speedus, Zargis, and DDC are evaluated and revised, as
necessary, to reflect market conditions and experience. For the three and six
months ended June 30, 2009, key assumptions used in valuing these options
included a risk-free interest rate of approximately 2.4%, an expected
life of seven years ,and a volatility factor of approximately125%. For the three
and six months ended June 30, 2008, key assumptions used in valuing these
options included a risk-free interest rate of approximately 3%, an expected life
of six years and a volatility factor of approximately106%.
Under the
provisions of Emerging Issues Task Force No. 96-18, “Accounting for equity
instruments that are issued to other than employees for acquiring or in
conjunction with selling, goods and services”, the fair value of the equity
interests will be recognized as an expense over a period of time when the
requisite conditions are met.
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board issued FASB
No. 141R, “Business Combinations”. FASB 141R establishes principles and
requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree. FASB 141R also provides
guidance for recognizing and measuring the goodwill acquired in the business
combination and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. FASB 141R will become effective as of the beginning of the
Company’s fiscal year beginning after December 15, 2008. The impact that
adoption of FASB No. 141R will have on the Company’s consolidated financial
statements will depend on the nature, terms and size of business combinations
that occur after the effective date.
In
December 2007, the Financial Accounting Standards Board issued
FASB No. 160, “Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51”. FASB 160 establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. FASB 160 will become effective as of the
beginning of the Company’s fiscal year beginning after December 15, 2008.
The adoption of FASB No. 160 did not have a material impact on the
consolidated results of operations and financial condition.
In May
2009, the FASB issued FASB Statement No. 165 (SFAS No. 165), “Subsequent
Events”, which is effective for reporting periods ending after June 15, 2009.
SFAS 165 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before financial statements
are issued, or are available to be issued. The Company adopted SFAS
No. 165 and it did not have an impact on the Company’s consolidated financial
statements. The Company evaluated all events or transactions that occurred
after June 30, 2009 up through October 12, 2009. During this period no
material subsequent events came to our attention.
In
April 2009, the FASB issued FSP FAS 107-1 and APB Opinion No. 28-1,
“Interim Disclosures about Fair Value of Financial Instruments,” which requires
disclosures about fair value of financial instruments for interim reporting
periods as well as in annual financial statements. The Company has
adopted the provisions of this FSP effective June 30, 2009 and has included the
required disclosures in this filing.
In April
2008, the FASB issued Staff Position FSP 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3
is effective for financial statements issued after December 15
2008. The adoption of FSP 142-3 did not have a material impact on the
consolidated results of operations and financial condition.
In May
2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). The statement is intended to
improve financial reporting by identifying a consistent hierarchy for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with GAAP. Prior to the issuance of SFAS 162,
GAAP hierarchy was defined in the American Institute of Certified Public
Accountants (“AICPA”) Statement on Auditing Standards (SAS) no. 69, “The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles”. Unlike SAS 69, SFAS 162 is directed to the entity rather
than the auditor. SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board Auditing amendments to
AU Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles”, SFAS 162 is effective November 15, 2008 and did
not have any material impact on the Company’s results of operations, financial
condition or liquidity.
In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock “ (“EITF
07-5”). EITF 07-5 provides that an entity should use a two step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions. It also clarifies the
impact of foreign currency denominated strike prices and market-based employee
stock option valuation instruments on the evaluation. EITF 07-5 is
effective for fiscal years beginning after December 15, 2008. The
implementation of this standard did not have a material impact on the Company’s
consolidated financial position and results of operations.
In
October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active” (“FSP
157-3”). FSP 157-3 clarifies the application of SFAS No. 157 in a
market that is not active and addresses application issues such as the use of
internal assumptions when relevant observable data does not exist, the use of
observable market information when the market is not active, and the use of
market quotes when assessing the relevance of observable and unobservable
data. FSP 157-3 is effective for all periods presented in accordance
with SFAS No. 157. The adoption of FSP 157-3 did not have a
significant impact on the Company’s consolidated financial statements or the
fair values of its financial assets and liabilities.
In June
2009, the FASB issued Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
(“SFAS 168”). SFAS 168 will become the single source of authoritative
nongovernmental U.S. generally accepted accounting principles (“GAAP”),
superseding existing FASB, American Institute of Certified Public Accountants
(“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting
literature. SFAS 168 reorganizes the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent structure.
Also included is relevant Securities and Exchange Commission guidance organized
using the same topical structure in separate sections. SFAS 168 will be
effective for financial statements issued for reporting periods that end after
September 15, 2009.
On March
5, 2008, the Company acquired approximately a 75% primary equity ownership in
Density Dynamics Corporation, a newly formed company that was created to acquire
the technology, assets and some of the operations of a developer and marketer of
ultra-high speed storage systems for server networks and other applications. The
acquisition price was $1,000,000. In exchange, the Company received $1,000,000
of redeemable preferred stock from DDC, which has been eliminated in
consolidation.
This acquisition was accounted for
using the purchase method of accounting. The results of operations of DDC have
been included in the consolidated statements of operations from the date of
acquisition. The acquisition has been allocated as follows as of the acquisition
date: $191,000 to current assets, $34,000 to non current assets, $584,000 to
other intangible assets and $809,000 to liabilities. The $584,000 allocated as
an intangible asset (reflecting intellectual property assets of DDC) was being
amortized over a period of seven years until written off as impaired in the
fourth quarter of 2008.
In
connection with the acquisition, DDC issued $809,400 of redeemable preferred
stock to the 25% owner, $100,000 of which was redeemed at the time of closing.
The redeemable preferred stock accrues dividends equal to 8% of the original
purchase price of $10 per share (the “Original Purchase Price”). The redeemable
preferred stock will be redeemed for the Original Purchase Price plus accrued
and unpaid dividends as follows: $70,000 during the year ended December 31,
2009, $50,000 out of a future financing by the Company, 50% out of the cash flow
of DDC as defined, and to the extent that any redeemable preferred shares remain
outstanding, the balance will be redeemed in 2013.
The
Company has reflected this redeemable preferred stock as a liability on its
December 31, 2008 and March 31, 2009 consolidated balance sheet. For the
three months ended June 30, 2009 and 2008 accrued dividends on the redeemable
preferred stock to the minority owner in the amount of approximately $14,200 and
$18,500 respectively, has been recorded as interest expense. During the
six months ended June 30, 2009 approximately $28,400 and approximately $18,500
has been recorded as interest expense.
In July
2008, DDC sold 300,000 shares of its common stock for a price of $1 per share.
225,000 shares were sold to Speedus and 75,000 shares were sold to the minority
owner of DDC. The investment by Speedus has been eliminated in consolidation.
The investment by the minority owner has been reflected in additional
paid-in-capital during the year ended December 31, 2008. In connection with this
sale of stock, DDC issued seven year warrants to purchase 56,250 and 18,750
shares of DDC common stock to Speedus and the minority owner, respectively, for
a purchase price of $1 per share.
In
October 2008, DDC sold $500,000 in 8% convertible notes, in the amounts of
$250,000 to each of the Company and the minority owner. In December 2008, DDC
agreed to sell an additional $500,000 in 8% convertible notes, in the amounts of
$250,000 to each of the Company and the minority owner. At December 31, 2008,
$75,000 had been advanced by each of the Company and the minority
owner. During the first three months of 2009, the remaining balance
of $175,000 was advanced by each of the Company and the minority owner. The
aggregate amount under the notes is due December 31, 2009 unless otherwise
converted in connection with any financings completed by DDC. The loan by the
Company has been eliminated in consolidation. For the three months ended June
30, 2009 and 2008, accrued interest on the convertible note to the minority
owner in the amount of approximately $10,100 and $0 has been recorded
as interest expense, respectively. For the six months ended June 30, 2009 and
2008 accrued interest on the convertible note to the minority owner in the
amount of approximately $19,300 and $0 has been recorded as interest expense,
respectively.
|
3.
|
Discontinued
operations
|
During
December 2007, the Company closed one of its F&B Restaurant stores as a
result of continued losses. At December 31, 2007, based upon an offer to
purchase the leasehold estate, the Company recorded a loss in the amount of
$71,000 representing the difference between the carrying value of the leasehold
estate and the estimated net proceeds to be received by the Company in the
amount of $342,000 which had been recorded as assets held for sale. In April
2008, the landlord did not agree to the proposed sale and terminated the lease
effective May 2008. As a result, the Company recorded an additional loss in the
amount of $342,000 during the year ended December 31, 2008. As a result of
continued losses, in October 2008 the Company transferred the operations and
right to use the assets of its remaining F&B Restaurant store to an
unrelated third party for no consideration. The net assets and liabilities and
results of operations of F&B are presented as discontinued operations for
all periods presented in these financial statements.
The loss from discontinued operations
of F&B for the three months and six months ended June 30, 2008 consists
of:
|
|
|
Period ended June 30, 2008
|
|
|
|
|
Three
|
|
|
Six
|
|
|
|
|
Months
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
132,868
|
|
|
$
|
253,102
|
|
|
Cost
of sales
|
|
|
45,147
|
|
|
|
81,180
|
|
|
Selling,
general and administrative
|
|
|
161,631
|
|
|
|
624,100
|
|
|
Depreciation
|
|
|
4,464
|
|
|
|
8,549
|
|
|
Total
operating expenses
|
|
|
211,242
|
|
|
|
713,829
|
|
|
Operating
loss
|
|
|
(78,374
|
)
|
|
|
(460,727
|
)
|
|
Investment
income
|
|
|
-
|
|
|
|
-
|
|
|
Net
loss from discontinued operations
|
|
$
|
(78,374
|
)
|
|
$
|
(460,727
|
)
|
|
4.
|
Business
Segment Information
|
The
following table sets forth the Company's financial performance by reportable
operating segment for the three months and six months ended June 30, 2009 and
2008.
|
|
|
Three months ended June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Zargis
|
|
|
DDC
|
|
|
and other
|
|
|
Totals
|
|
|
Revenues
from external customers
|
|
$
|
24,900
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
24,900
|
|
|
Depreciation
and amortization
|
|
|
1,997
|
|
|
|
3,915
|
|
|
|
-
|
|
|
|
5,912
|
|
|
Operating
loss
|
|
|
(353,766
|
)
|
|
|
(413,931
|
)
|
|
|
(450,869
|
)
|
|
|
(1,218,566
|
)
|
|
Fixed
assets
|
|
|
5,157
|
|
|
|
29,205
|
|
|
|
-
|
|
|
|
34,362
|
|
|
Total
assets
|
|
|
149,962
|
|
|
|
179,122
|
|
|
|
3,492,994
|
|
|
|
3,822,078
|
|
|
|
|
Three months ended June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Zargis
|
|
|
DDC
|
|
|
and other
|
|
|
Totals
|
|
|
Revenues
from external customers
|
|
$
|
124,345
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
124,345
|
|
|
Depreciation
and amortization
|
|
|
2,899
|
|
|
|
22,619
|
|
|
|
-
|
|
|
|
25,518
|
|
|
Operating
loss
|
|
|
(529,747
|
)
|
|
|
(555,348
|
)
|
|
|
(836,373
|
)
|
|
|
(1,921,468
|
)
|
|
Fixed
assets
|
|
|
15,409
|
|
|
|
38,872
|
|
|
|
-
|
|
|
|
54,281
|
|
|
Total
assets
|
|
|
81,549
|
|
|
|
1,225,226
|
|
|
|
9,240,391
|
|
|
|
10,547,166
|
|
|
|
|
Six months ended June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Zargis
|
|
|
DDC
|
|
|
and other
|
|
|
Totals
|
|
|
Revenues
from external customers
|
|
$
|
74,700
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
74,700
|
|
|
Depreciation
and amortization
|
|
|
4,819
|
|
|
|
7,830
|
|
|
|
-
|
|
|
|
12,649
|
|
|
Operating
loss
|
|
|
(744,856
|
)
|
|
|
(1,063,552
|
)
|
|
|
(895,853
|
)
|
|
|
(2,704,261
|
)
|
|
Fixed
assets
|
|
|
5,157
|
|
|
|
29,205
|
|
|
|
-
|
|
|
|
34,362
|
|
|
Total
assets
|
|
|
149,962
|
|
|
|
179,122
|
|
|
|
3,492,994
|
|
|
|
3,822,078
|
|
|
|
|
Six months ended June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Zargis
|
|
|
DDC
|
|
|
and other
|
|
|
Totals
|
|
|
Revenues
from external customers
|
|
$
|
124,345
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
124,345
|
|
|
Depreciation
and amortization
|
|
|
6,511
|
|
|
|
22,619
|
|
|
|
-
|
|
|
|
29,130
|
|
|
Operating
loss
|
|
|
(1,054,950
|
)
|
|
|
(578,188
|
)
|
|
|
(1,327,883
|
)
|
|
|
(2,961,021
|
)
|
|
Fixed
assets
|
|
|
15,409
|
|
|
|
38,872
|
|
|
|
-
|
|
|
|
54,281
|
|
|
Total
assets
|
|
|
81,549
|
|
|
|
1,225,226
|
|
|
|
9,240,391
|
|
|
|
10,547,166
|
|
The
Company has no
foreign operations. During the three and six months ended June 30, 2009 and
2008, the Company had sales to the U.S. Army greater than 10% of total Company
revenues. The Company's accounting policies for segments are the same as those
described in Note 1.
DDC was
acquired in March 2008 and had no significant operations during the three months
ended March 31, 2008.
|
5.
|
Commitments
and Contingencies
|
Withholding
Tax Dispute
On March
30, 2004, the Company entered into an Employment Agreement with Mr. Shant S.
Hovnanian, effective as of April 25, 2002 (the “Employment Agreement”),
providing for Mr. Hovnanian’s employment as President and Chief Executive
Officer of the Company. The Employment Agreement provided that Mr.
Hovnanian was to be paid an annual salary. The Employment Agreement
separately provided for Mr. Hovnanian to receive a contingent payment equal to
20% of the net proceeds (after legal and other expenses) realized by the Company
from a Technology Rights Agreement dispute against Western International
Communications and certain related claims. The Company reached a $15
million settlement of this claim in February 2004, resulting in a contingent
payment of approximately $2.8 million, which was paid to an entity that Mr.
Hovnanian controlled.
On
January 22, 2009, the Internal Revenue Service (the “IRS”) issued a “30-day
letter” to the Company asserting that withholding income tax was due to the IRS
in connection with this payment, plus interest and penalties, which totaled
approximately $1.3 million (“Claim”). Thereafter, on February 23,
2009, the IRS issued notice of its intention to levy in respect of these
claims. The Company appealed the IRS proposed tax adjustment and
while the appeal process is underway, any related IRS levy has been
stayed. The Company took the step to set aside sufficient cash to
satisfy the Claim and other potential obligations that may arise with respect to
this issue. The Company has established a reserve of $1.3 million in accrued
expenses and recorded a charge to selling, general and administrative expenses
for this claim at December 31, 2008.
Recently, the Company met with
officials of the IRS and proposed a settlement that would relieve the Company of
responsibility for payment of the Federal income tax withholding with respect to
the $2.8 million payment in exchange for the payment by the Company of Social
Security and Medicare taxes (including associated interest) on such
amount. While the Company reasonably believes that a settlement will
be achieved and expects a decision before the end of October of 2009, there can
be no assurance that a settlement will be reached or that the ultimate payment
will be below the amount levied.
|
ITEM
2.
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
|
The following discussion and analysis
of financial condition and results of operations should be read in conjunction
with the corresponding discussion and analysis included in the Company's Report
on Form 10-K for the year ended December 31, 2008.
Cautionary
Statement Regarding Forward-Looking Information
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contain “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
These statements appear in a number of places in this Form 10-Q and include
statements regarding the intent, belief or current expectations of the Company
or its officers with respect to, among other things, the ability of the Company
to make capital expenditures, the ability to incur additional debt, as
necessary, to service and repay such debt, if any, as well as other factors that
may effect the Company’s financial condition or results of operations.
Forward-looking statements may include, but are not limited to, projections of
revenues, income or losses, capital expenditures, plans for future operations,
financing needs or plans, compliance with covenants in loan agreements, plans
for liquidation or sale of assets or businesses, plans relating to products or
services of the Company, assessments of materiality, predictions of future
events, and the ability to obtain additional financing, including the Company’s
ability to meet obligations as they become due, and other pending and possible
litigation, as well as assumptions relating to the foregoing. All statements in
this Form 10-Q regarding industry prospects and the Company’s financial position
are forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.
Business
Activities
The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with the corresponding discussion and
analysis included in the Company's Report on Form 10-K for the year ended
December 31, 2008.
Cautionary
Statement Regarding Forward-Looking Information
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contain “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
These statements appear in a number of places in this Form 10-Q and include
statements regarding the intent, belief or current expectations of the Company
or its officers with respect to, among other things, the ability of the Company
to make capital expenditures, the ability to incur additional debt, as
necessary, to service and repay such debt, if any, as well as other factors that
may effect the Company’s financial condition or results of operations.
Forward-looking statements may include, but are not limited to, projections of
revenues, income or losses, capital expenditures, plans for future operations,
financing needs or plans, compliance with covenants in loan agreements, plans
for liquidation or sale of assets or businesses, plans relating to products or
services of the Company, assessments of materiality, predictions of future
events, and the ability to obtain additional financing, including the Company’s
ability to meet obligations as they become due, and other pending and possible
litigation, as well as assumptions relating to the foregoing. All statements in
this Form 10-Q regarding industry prospects and the Company’s financial position
are forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.
Business
Activities
Overview
Speedus
Corp. operates primarily through its two majority-owned subsidiaries Zargis
Medical Corp. and Density Dynamics Corporation.
In 2001
we co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens
Corporation, in Zargis Medical Corp. to develop advanced diagnostic decision
support products and services for primary care physicians, pediatricians,
cardiologists and other healthcare professionals. In March of 2008 we
acquired a majority interest in Density Dynamics Corporation, a pioneer {revise
accordingly} in the development of DRAM based energy efficient solid-state
drives (SSD) with I/O acceleration technology.
For
additional information on each of these business segments and our other assets
and operations, see the discussions below and “Notes to Consolidated Financial
Statements — Note 10, Business Segment Information.”
Zargis
Medical Corp
.
Zargis is
a medical device company focused on improving health outcomes and cost
effectiveness through the development of computer-aided medical devices and
telemedicine based delivery systems. Zargis was formed in 2001
when we co-invested with Siemens Corporate Research, Inc., a subsidiary of
Siemens Corporation. As part of this transaction, Siemens contributed
certain intellectual property including a core technology used in the Zargis
Cardioscan™ device (Cardioscan).
Cardioscan
is a non-invasive, diagnostic support solution that automatically analyzes
acoustical data from a patient to determine whether or not the patient possesses
a suspected diastolic or systolic murmur and whether or not they present a Class
I indication for echocardiography referral. Heart murmurs can be a
sign of serious types of valvular or other heart disease. Zargis’
patented technology utilizes advanced signal processing algorithms deployed on a
standard pc computer platform. Cardioscan received its initial FDA
clearance in May 2004 and additional clearances in September 2005 and March
2006.
In
addition to the development of Cardioscan, Zargis has been awarded several
contracts by the U.S. Army, most recently in October of 2008, to develop
prototype versions of telemedicine systems for use in cardiology. These systems
record, synchronize and analyze heart sounds, lung sounds and ECG signals in
pediatric patients who are being cared for by remote military treatment
facilities. The systems have been fully integrated with an existing Army
telehealth platform.
Demand
for medical systems designed to remotely project the expertise of cardiologists
and other medical specialists is growing very rapidly within both military and
civilian environments worldwide and it is for this reason that Zargis has
identified the field of telemedicine as a key focus area for product
commercialization.
In
February 2003, we acquired a controlling interest in Zargis Medical of
approximately 63%. At December 31, 2008, as a result of continued investment,
our primary equity ownership interest was approximately 93%.
In
October 2007, Zargis and the 3M Company entered into an exclusive multi-year
marketing alliance involving Zargis’ heart sound analysis software and 3M
Littmann’s next-generation electronic stethoscope. Under the agreement, Zargis
will support 3M in its efforts to develop a next-generation stethoscope that
will be compatible with Zargis’ heart sound analysis software. In addition, the
alliance provides Zargis with a wide-range of marketing and promotional
opportunities along with exclusive rights to sell its heart sound analysis
software through the global distribution network of the Littmann
brand. The agreement with 3M, based on the total number of Zargis
fully diluted shares as of the agreement date, grants 3M a 5% equity position in
Zargis following the first sale of Zargis’ software through the 3M distribution
channel (which occurred in August of 2009) and an additional 5% equity in Zargis
in the event that other conditions are met. The agreement also
entitles 3M to a royalty payment based on sales of certain Zargis products and a
seat on the Zargis Board of Directors.
Density
Dynamics
In March
2008, we obtained approximately a 75% equity interest in Density Dynamics
Corporation. Density Dynamics is a newly formed company that was created to
acquire the technology, assets and some of the operations of a developer and
marketer of ultra-high speed storage systems for server networks and other
applications.
Density
Dynamics is continuing development of its line of DRAM based energy efficient
solid-state technology. The Density Dynamics RamFlash (RF-SSD) and
pure DRAM solid-state drive (DR-SSD) Jet.io products are unique because they
provide a scalable industry standard 3.5” drive format and also use a
proprietary design with DRAM memory for core storage functions in a uniquely
compact 3.5-inch form factor alleviating I/O bottlenecks using dramatically
lower power than other storage solutions.
Other
Business Activities
F&B
Gudtfood.
As a
result of continued losses, in October 2008 we transferred the operations and
liabilities of the remaining F&B restaurant store in to an unrelated third
party for no consideration. We have reflected the accounts of F&B
as a discontinued operation in our consolidated financial statements for the
three and six months ended June 30, 2009.
Local
Multipoint Distribution Service (LMDS) License
We have
an FCC commercial operating license which covers between 150 – 300 MHz of
spectrum in the New York City area. The license has been renewed through
February 1, 2016 conditioned upon demonstrating to the FCC by June 1, 2012 that
we are providing “substantial service.” This entity had limited operations
during the three and six months ended June 30, 2009 and 2008.
Internet
initiatives
In the
fourth quarter of 2008, we ceased allocation of any material resources to our
portfolio of Internet initiatives, which included NetfreeUs, Wibiki, Adchooser
and iMarklet. These entities had limited operations
during the three and six months ended June 30, 2009 and
2008.
Investments
We have
invested a portion of our assets in a portfolio of marketable securities
consisting of publicly traded equity securities. We have in the past and may in
the future sell publicly traded equity securities we do not own in anticipation
of declines in the fair market values of these securities. As of June 30, 2009
and December 31, 2008, we had not sold any securities that we did not
own.
Critical
Accounting Policies
General
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements. The preparation of those
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
operating revenues and expenses during the reporting periods. Actual results
could differ from those estimates. For a description of all of our accounting
policies, see Note 2 to our consolidated financial statements included in
this Form 10-K. However, we believe the following critical accounting policies
affect the more significant judgments and estimates used in the preparation of
our consolidated financial statements.
Financial
instruments
Our
financial instruments consist primarily of cash equivalents, U.S. Treasury bills
and marketable securities. The carrying value of cash equivalents approximates
market value since these highly liquid, interest earning investments are
invested in money market funds. Marketable securities consist of publicly traded
equity securities classified as trading securities and are recorded at fair
market value, i.e., closing prices quoted on established securities markets.
Significant changes in the market value of securities that we invest in could
have a material impact on our financial position and results of
operations.
We have
also invested in equity and debt instruments of non-publicly held companies and
account for them under the cost method since we do not have the ability to
exercise significant influence over operations. We monitor these investments for
other than temporary impairment by considering current factors including
economic environment, market conditions, operational performance and other
specific factors relating to the business underlying the investment, and record
reductions in carrying values when necessary.
Long-lived
assets
Long-lived
assets, including fixed assets and other intangibles, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of any such asset may not be recoverable through estimated
future cash flows from that asset. The estimate of cash flow is based upon,
among other things, certain assumptions about expected future operating
performance.
Share-Based
Payments
We
account for share-based payments under FASB 123R, “Share-Based Payment.” Under
this method, we record compensation cost based upon the fair value of those
awards on the grant date over the remaining service period of each award on a
straight line basis.
We
estimate the value of these awards on the date of grant using a Black-Scholes
option pricing model. The determination of the fair value of these awards on the
date of grant is affected by our stock price as well as assumptions regarding a
number of complex and subjective variables. These variables include our expected
stock price volatility over the term of the awards, expected term, risk-free
interest rate, expected dividends and expected forfeiture rates.
If
factors change and we employ different assumptions in the application of FASB
123R in future periods, the compensation expense that we record under FASB 123R
may differ significantly from what we have recorded in the current period. There
is a high degree of subjectivity involved when using option pricing models to
estimate share-based compensation under FASB 123R. Consequently, there is a risk
that our estimates of the fair values of these awards on the grant dates may
bear little resemblance to the actual values realized upon the exercise,
expiration, early termination or forfeiture of those share-based payments in the
future. Employee stock options may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally estimated on the grant
date and reported in our consolidated financial statements. Alternatively, value
may be realized from these instruments that are significantly in excess of the
fair values originally estimated on the grant date and reported in our
consolidated financial statements. During the six months ended June 30,
2009 and 2008 {conform Q1 as well}, we do not believe that reasonable changes in
the projections would have had a material effect on share-based compensation
expense.
Contingencies
We
account for contingencies in accordance with Statement of Financial Accounting
Standards No. 5, “Accounting for Contingencies”. SFAS No. 5 requires that we
record an estimated loss when information available prior to issuance of our
financial statements indicates that it is probable that an asset has been
impaired or a liability has been incurred at the date of the financial
statements and the amount of the loss can be reasonably estimated. Accounting
for contingencies such as environmental, legal and income tax matters requires
us to use our judgment. While we believe that our accruals for these matters are
adequate, if the actual loss is significantly different than the estimated loss,
our results of operations will be affected in the period that the difference is
known.
Three
and Six Months Ended June 30, 2009 Compared toThree and Six Months Ended June
30, 2008
Revenues
decreased from $124,000 for the three months ended June 30, 2008 to $25,000 for
the three months ended June 30, 2009. Revenues decreased from $124,000 for the
six months ended June 30, 2008 to $75,000 for the six months ended June 30,
2009. These decreases in revenue are primarily the result of lower contracted
service revenue earned by Zargis.
Selling,
general and administrative expenses decreased 42% from approximately $1,413,000
for the three months ended June 30, 2008 to approximately $814,000 for the three
months ended June 30, 2009. This decrease was the result of approximately
$400,000 in patent litigation expenses, approximately $70,000 in internet
initiative expenses, and approximately $130,000 in Density Dynamics staff
related expenses that were incurred during the three months ended June 30,
2008 that were not incurred in the three months ended June 30, 2009. These
reductions in spending were offset by approximately $30,000 in additional
spending at Zargis on general and administrative expenses. Selling, general and
administrative expenses decreased 8% from approximately $1,955,000 for the six
months ended June 30, 2008 to approximately $1,807,000 for the six months ended
June 30, 2009. This decrease was the result of approximately $450,000 in patent
litigation expenses, and approximately $200,000 in internet initiative expenses
that were incurred during the six months ended June 30, 2008 that were not
incurred in the six months ended June 30, 2009. These decreases were
offset by approximately $350,000 in Density Dynamics expenses,
approximately$100,000 in consulting fees in the corporate segment, and
approximately $52,000 in additional general and administrative spending at
Zargis during the six months ended June 30, 2009 compared to the six months
ended June 30, 2008. Density Dynamics was acquired in March of
2008.
Research
and development expenses decreased 29% from approximately $606,000 for the three
months ended June 30, 2008 to approximately $430,000 for the three months ended
June 30, 2009. This reduction of approximately $176,000
was primarily related to the elimination of Internet Initiative projects in the
three months ended June 30, 2009 that had occurred during the six months ended
June 30, 2008. Research and development expenses decreased 12% from
approximately $1,100,000 for the six months ended June 30, 2008 to approximately
$965,000 for the six months ended June 30, 2009. This reduction of
approximately $135,000 was primarily related to the elimination of Internet
Initiative projects of approximately $275,000 and a reduction in Zargis
development expenses of approximately $25,000 during the six months ended June
30, 2009 that had occurred during the six months ended 2008. These
reductions were offset by approximately $165,000 in development
expenses at Density Dynamic during the six months ended June 30, 2009
that did not occur during the six months ended June 30, 2008.
Depreciation
and amortization decreased 77% from approximately $26,000 for the three months
ended June 30, 2008 to approximately $6,000 for the three months ended June 30,
2009. Depreciation and amortization decreased 55% from approximately $29,000 for
the six months ended June 30, 2008 to approximately $13,000 for the six months
ended June 30, 2009.
Investment
income decreased from approximate $55,000 during the three months ended June 30,
2008 to approximately $1,000 during the three months ended June 30, 2009.
This decrease was primarily the result of reduced trading activity during the
three months ended June 30, 2009. Investment income increased from
approximately $16,000 in the six months ended June 30, 2009 to approximately
$160,000 in the six months ended June 30, 2009. This increase was primarily
related to more favorable trading results during the six months ended June 30,
2009 primarily during the first three months of 2009 compared with unfavorable
trading results during the six months ended June 30, 2008. Interest income
decreased from approximately $40,000 in three months ended June 30, 1008 to
approximately $1,000 during the three months ended June 30, 2009. Interest
income decreased from approximately $135,000 in the six months ended June 30,
2008 to approximately $10,000 during the six months ended June 30, 2009. These
reductions in interest income were primarily due to a reduction in the
amount of capital available for investment purposes during the three and
six months ended June 30, 2009. Other income was $0 during the three
months ended June 30, 2008 and 2009. Other income increased from $0 in the
six months ended June 30, 2008 to approximately $3,000 during the six months
ended June 30, 2009. This increase was related to the sale of a domain
name during the six months ended June 30, 2009. Interest expense increased
from approximately $19,000 in the three months ended June 30, 2008 to
approximately $24,000 during the three months ended June 30, 2009.
Interest expense increased from approximately $19,000 for the six months ended
June 30, 2008 to approximately $48,000 for the six months ended June 30,
2009. These increases in interest expense are primarily due to dividends
payable on redeemable preferred stock and interest payable on a convertible note
to a minority owner of Density Dynamics. Investment and interest income amounts
will fluctuate based upon changes in the market value of the underlying
investments, overall market conditions and the amount of funds available for
short-term investment and are not necessarily indicative of the results that may
be expected for any future periods.
Liquidity
and Capital Resources
We have
recorded operating losses and negative operating cash flows since our inception
and have limited revenues. At June 30, 2009, we had an accumulated deficit of
approximately $85,705,000. We do not expect to have earnings from operations or
positive operating cash flow until such time as our strategic investments
achieve successful implementation of their business plans and/or form alliances
for the use of our capabilities in the future.
We may
not have funds sufficient to finance our operations and enable us to meet our
financial obligations for the next twelve months. There can be no assurances
that we will be able to consummate any capital raising transactions,
particularly in view of current economic conditions. The inability to generate
future cash flow or raise funds to finance our strategic investments could have
a material adverse effect on our ability to achieve our business
objectives.
The
report of our registered public accounting firm for the fiscal year ended
December 31, 2008 contains an explanatory paragraph which states that there
is substantial doubt about our ability to continue as a going
concern.
If we are
not able to reduce or defer our expenditures, secure additional sources of
revenue or otherwise secure additional funding, we may be unable to continue as
a going concern, and we may be forced to restructure or significantly curtail
our operations, file for bankruptcy or cease operations. In addition, a
bankruptcy filing by one or more of our strategic investments could cause us to
lose our investment and/or control and could prevent us from sharing in any
future success of those strategic investments. The accompanying financial
statements do not include any adjustments relating to the recoverability of the
carrying amount of recorded assets or the amount of liabilities that might
result should the Company be unable to continue as a going
concern. Should we be successful in securing the necessary capital to
continue operations, it is likely that such arrangements would result in
significant dilution to each shareholder’s ownership interest in the
Company.
Net cash
used in operating activities was approximately $2,562,000 for the six months
ended June 30, 2009 compared to approximately $2,803,000 for the six months
ended June 30, 2008. This reduction in the net cash used in operating activities
is primarily related to corporate cost cutting initiatives of approximately
$450,000 in litigation expenses, and approximately $275,000 in internet
initiative expenses, that are offset by approximately $484,000 in negative
changes in operating assets and liabilities.
Net cash
used in investing activities was $1,750,000 for the six months ended June 30,
2009 compared to net cash provided by investing activities of approximately
$2,990,000 for the six months ended June 30, 2008. This net increase in net cash
used in investing activities was primarily due to the maturation of a U.S.
Treasury bill of approximately $2,997,000 in the six months ended June 30, 2008,
and the purchase of a U.S. Treasury Bill in the amount of approximately
$1,750,000 during the six months ended June 30, 2009.
Net
cash provided from financing activities was approximately $175,000 for the six
months ended June 30, 2009 compared to net cash used in financing activities of
approximately $(105,000) for the six months ended June 30, 2008. This net
increase in cash provided by financing activities is a result of proceeds
received from convertible note financing by a minority investor in the six
months ended June 30, 2009 and the redemption of preferred stock and the
repurchase of company stock that occurred in the six months ended June 30,
2008.
At June
30, 2009, the Company’s future minimum lease payments due under non-cancelable
leases aggregated approximately $72,000. Approximately $57,000 of this amount is
due during the year ending December 31, 2009, and the balance
of approximately $15,000 is due during the year ending
December 31, 2010. In addition, in connection with a license
agreement to which the Company is a party, a termination payment will be payable
by the Company in the amount of $200,000 if the license agreement is terminated
by the Company before September 1, 2011.
We have
invested a portion of our assets in a portfolio of marketable securities
consisting of publicly traded equity securities. We purchase these securities in
anticipation of increases in the fair market values of the securities. We have
in the past and may in the future sell publicly traded equity securities we do
not own in anticipation of declines in the fair market values of these
securities. When we sell securities that we do not own, we must borrow the
securities we sold in order to deliver them and settle the trades. Thereafter,
we must buy the securities and deliver them to the lender of the securities. Our
potential for loss on these transactions is unlimited since the value of the
underlying security can keep increasing. At June 30, 2009 and December 31, 2008
we had not sold any securities that we did not own.
Off-Balance
Sheet Arrangements
The Company does not have any
off-balance sheet arrangements.
Recent
Accounting Pronouncements
See Note 1 to the consolidated
financial statements for a full description of recent accounting pronouncements
including the impact the future adoption would have on the Company’s results of
operations or financial position.
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
The Company’s financial instruments at
June 30, 2009 consist primarily of cash equivalents which are invested primarily
in money market accounts, and marketable securities.
The
Company has in the past and may in the future sell publicly traded equity
securities it does not own in anticipation of declines in the fair market values
of the securities. When the Company effects such transactions, it must borrow
the securities it sold in order to deliver them and settle the trades. These
amounts are shown on the balance sheet as ‘Securities sold and not purchased’
and represent the value of these securities at fair market value. The Company’s
potential for loss on these transactions is unlimited since the value of the
underlying security can keep increasing which could have a material adverse
effect on the Company’s consolidated financial statements. At June
30, 2009 and December 31, 2008 we had not sold any securities that we did not
own.
|
ITEM
4T.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls And Procedures
The
Company, under the supervision and with the participation of its management,
including the Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the design and operation of the Company's "disclosure
controls and procedures," as such term is defined in Rules l3a-15e and l5d-I5e
promulgated under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act"). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, the Company's disclosure controls
and procedures were ineffective as of the end of the period covered by this
report. This conclusion was based on the material weaknesses indentified in the
Company's internal control over financial reporting as noted below. Such
controls and procedures are designed to ensure that all material information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is accumulated and communicated as appropriate to allow
timely decisions regarding required disclosure and that all such information is
recorded, processed, summarized and reported as specified in the rules and forms
of the SEC.
Management's
Quarterly Report on Internal Control over Financial Reporting
The
Company's management conducted an evaluation of the effectiveness of the
Company's internal control over financial reporting, based on the framework and
criteria established in Internal Control ─ Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, the Company's management assessed the effectiveness of the Company's
internal control over financial reporting for the period ended June 30, 2009 and
concluded that such internal control over financial reporting was not effective
with respect to the material weakness described below. This report
does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. We were not required to have, nor have we engaged
our registered public accounting firm to perform, an audit on our
internal control over financial reporting pursuant to the rules of the
Securities and Exchange Commission that permit us to provide only managements’
report in this annual report.
A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim consolidated
financial statements will not be prevented or detected on a timely basis. In its
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2008, management identified the following material
weaknesses:
|
|
·
|
Timely
closing of books and filing of
reports
|
|
|
·
|
Failure
to file timely tax returns. Although we have filed extensions
and made payments, where applicable, no income tax returns have been filed
since 2005.
|
Management
commenced a number of efforts to remediate the weaknesses noted above including
the hiring of a financial consultant and the appointment of a new
CFO.
Changes
in Internal Control over Financial Reporting
There
have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during the fiscal quarter ended June 30, 2009 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART
II. OTHER INFORMATION
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
Withholding
Tax Dispute {Update}
On March 30, 2004, the Company entered
into an Employment Agreement with Mr. Shant S. Hovnanian, effective as of April
25, 2002 (the “Employment Agreement”), providing for Mr. Hovnanian’s employment
as President and Chief Executive Officer of the Company. The
Employment Agreement provided that Mr. Hovnanian was to be paid an annual
salary. The Employment Agreement separately provided for Mr.
Hovnanian to receive a contingent payment equal to 20% of the net proceeds
(after legal and other expenses) realized by the Company from a Technology
Rights Agreement dispute against Western International Communications and
certain related claims. The Company reached a $15 million settlement
of this claim in February 2004, resulting in a contingent payment of
approximately $2.8 million, which was paid to an entity that Mr. Hovnanian
controlled.
On January 22, 2009, the Internal
Revenue Service (the “IRS”) issued a “30-day letter” to the Company asserting
under two different theories that withholding tax was due to the IRS in
connection with this payment, plus interest and penalties. Under its
primary theory, the IRS claims that the Company owes (i) $794,161 in connection
with unpaid FICA, FUTA and withholding taxes under Sections 3101, 3111 and 3402
of the Internal Revenue Code (the “Code”), (ii) a negligence penalty of $158,832
under Section 6662 of the Code for failure to withhold the proper tax, (iii) a
failure to deposit penalty of $4,127 under Section 6656 of the Code and (iv) all
associated interest thereon. Under the IRS’s alternative position,
the IRS claims that the Company owes (i) $797,078 for backup withholding taxes
under Section 3406 of the Code, and (ii) a penalty of $199,000 associated with
the Company’s alleged failure to withhold the proper backup withholding taxes
and (iii) a penalty of $579, 921 for intentional disregard under Sections 6721
and 6722 of the Code for failure to file information return
1099-MISC. In addition, on February 23, 2009, the IRS issued notice
of its intention to levy $1,311,868.65 in respect of these claims. The Company
has appealed an IRS proposed tax adjustment to the IRS’s administrative appeal
group, and its appeal has been accepted. As of September 16, 2009, the
Company is pursuing its appeal, cooperating with the IRS, and complying with the
IRS’ internal appeal process. While the appeal process is underway, any
related IRS levy has been stayed. However, if the Company is not
successful in its appeal with the IRS, upon expiration of the temporary stay and
the exhaustion of other administrative and judicial procedures available to the
Company, the IRS may ultimately proceed with levying the Company’s
assets. The Company has established a reserve of $1.3 million in
accrued expenses and a charge to selling, general and administrative expenses
for this claim at December 31, 2008.
In March
of 2009, the Company set aside in a separate account a cash balance sufficient
to satisfy such claim if deemed to be necessary and other potential claims and
obligations that may arise in the future with respect to this
issue.
No
material changes.
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
Stock
repurchase program:
|
Period
|
|
(a)
Total Number of Shares (or Units) Purchased
|
|
|
(b)
Average Price Paid per Share (or Unit)
|
|
|
(c)
Total number of Shares (or Units) Purchased as Part of Publicly Announced
Plans or Programs
|
|
|
(d)
Maximum number (or Approximate Dollar Value) of Shares (or Units) that May
Yet Be Purchased Under the Plans or Programs (1)
|
|
|
January
1, 2008 - March 31, 2008
|
|
|
0
|
|
|
$
|
-
|
|
|
|
0
|
|
|
$
|
414,922
|
|
|
February
1, 2008 - February 29, 2008
|
|
|
0
|
|
|
$
|
-
|
|
|
|
0
|
|
|
$
|
414,922
|
|
|
March
1, 2008 - March 31, 2008
|
|
|
3,567
|
|
|
$
|
1.35
|
|
|
|
3,567
|
|
|
$
|
410,094
|
|
|
Total
|
|
|
3,567
|
|
|
$
|
1.35
|
|
|
|
3,567
|
|
|
$
|
410,094
|
|
(1) On
November 21, 2000, the Company announced that its Board of Directors had
approved a stock repurchase program for the repurchase of up to $1,000,000 of
Company stock through open market as well as privately negotiated transactions.
Thereafter, the Board of Directors approved increases to the program in the
aggregate amount of $5,500,000.
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
|
ITEM
5.
|
OTHER
INFORMATION
|
N
Nasdaq
Compliance
The
Company expects that it will file its Form 10-K for the year ended December 31,
2008, and its 10-Q for the periods ending March 31, 2009 and June 30, 2009, on
or before October 13, 2009, at which time the Company will be in compliance with
Marketplace Rule 5250(c)(1).
one.
|
|
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of The
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of The
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of
2002.
|
|
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
SPEEDUS
CORP.
|
|
|
|
|
Date:
October 12, 2009
|
By:
/s/ Shant S.
Hovnanian
|
|
|
Shant
S. Hovnanian
|
|
|
Chairman
of the Board, President and Chief Executive Officer
|
|
|
|
|
Date:
October 12, 2009
|
By:
/s/ John A.
Kallassy
|
|
|
John
A. Kallassy
|
|
|
Treasurer
and Chief Financial and Accounting
Officer
|
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