UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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.COM, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3853788
---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 58th Street, Suite 7E
Brooklyn, New York 11220
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
718-567-4300
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 |X| No |_|
The number of outstanding shares of the registrant's common stock, par value
$.01 per share, as of August 7, 2001 was 19,945,406.
SPEEDUS.COM, Inc.
INDEX TO FORM 10-Q
Page(s)
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements
Consolidated Balance Sheets as of June 30, 2001 (unaudited)
and December 31, 2000 ........................................... 3
Consolidated Statements of Operations (unaudited) for the
Three and Six Months Ended June 30, 2001 and 2000 ............... 4
Consolidated Statements of Cash Flows (unaudited) for the
Three and Six Months Ended June 30, 2001 and 2000 ............... 5
Notes to Consolidated Financial Statements (unaudited) .......... 6-7
ITEM 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 8-10
ITEM 3 -- Quantitative and Qualitative Disclosures About Market Risk ...... 10
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings ............................................... 11
ITEM 2 -- Changes in Securities ........................................... 11
ITEM 3 -- Defaults Upon Senior Securities ................................. 11
ITEM 4 -- Submission of Matters to a Vote of Security Holders ............. 11
ITEM 5 -- Other Information ............................................... 11
ITEM 6 -- Exhibits and Reports on Form 8-K ................................ 11
Signature Page ............................................................ 12
2
ITEM 1. Financial Statements
SPEEDUS.COM, Inc.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 43,201,705 $ 38,594,815
Marketable securities 43,008 68,166
Due from broker 3,359,712 624,790
Prepaid expenses and other 2,009 62,098
Due from affiliates 93,112 93,112
Accounts and other receivables 9,016 94,816
------------ ------------
Total current assets 46,708,562 39,537,797
Property and equipment, net of accumulated
depreciation of $9,049,107 and $9,198,902 7,410,153 8,659,977
Goodwill, net of accumulated
amortization of $2,395,502 and $1,185,724 4,839,111 6,048,889
Other intangible assets, net of accumulated
amortization of $297,143 and $173,214 2,072,857 2,196,786
Other assets 690,283 1,184,735
------------ ------------
Total assets $ 61,720,966 $ 57,628,184
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 315,932 $ 270,202
Accrued liabilities 1,184,689 1,532,542
Securities sold and not purchased 7,606,845 952,032
Other current liabilities 17,919 18,005
------------ ------------
Total current liabilities 9,125,385 2,772,781
Commitments and Contingencies -- --
Stockholders' equity:
Common stock ($.01 par value; 40,000,000
shares authorized; 21,234,838 and 21,034,838
shares issued) 212,348 210,348
Preferred stock ($.01 par value; 20,000,000
shares authorized):
Series A Junior Participating ($.01 par value;
4,000 shares authorized; no shares issued -- --
and outstanding)
Additional paid-in-capital 90,290,932 90,292,432
Treasury stock (at cost; 1,245,232 and 309,800 shares) (1,496,480) (305,741)
Accumulated deficit (36,411,219) (35,341,636)
------------ ------------
Stockholders' equity 52,595,581 54,855,403
------------ ------------
Total liabilities and stockholders' equity $ 61,720,966 $ 57,628,184
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
SPEEDUS.COM, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues $ 21,877 $ 22,605 $ 46,381 $ 58,007
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 1,463,600 1,255,230 3,001,174 2,294,654
Research and development 443,117 324,618 928,205 529,967
Depreciation and amortization 1,400,069 771,618 2,784,294 1,604,641
------------ ------------ ------------ ------------
Total operating expenses 3,306,786 2,351,466 6,713,673 4,429,262
------------ ------------ ------------ ------------
Operating loss (3,284,909) (2,328,861) (6,667,292) (4,371,255)
Investment income/(loss) (240,348) 937,481 5,638,311 1,538,386
Equity in loss of associated company (20,590) (336,468) (40,602) (569,782)
Interest expense and financing fees -- (2,541) -- (6,220)
------------ ------------ ------------ ------------
Net loss $ (3,545,847) $ (1,730,389) $ (1,069,583) $ (3,408,871)
============ ============ ============ ============
Per share:
Basic loss per common share $ (0.18) $ (0.09) $ (0.05) $ (0.17)
============ ============ ============ ============
Weighted average common shares
outstanding 20,179,102 20,015,278 20,251,034 19,901,817
============ ============ ============ ============
Diluted loss per common share $ (0.18) $ (0.09) $ (0.05) $ (0.17)
============ ============ ============ ============
Weighted average common shares
outstanding 20,179,102 20,015,278 20,251,034 19,901,817
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
SPEEDUS.COM, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended June 30,
-----------------------------
2001 2000
------------- -------------
Cash flows from operating activities:
Net loss $ (1,069,583) $ (3,408,871)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,784,294 1,604,641
Stock based compensation 653,000 167,000
Equity in loss of associated company 40,602 569,782
Changes in assets and liabilities:
Marketable securities 25,158 (601,820)
Due from broker (2,734,922) --
Prepaid expenses and other 60,089 (92,359)
Accounts and other receivables 85,800 330
Other assets 850 (9,042)
Accounts payable 45,730 110,779
Accrued liabilities (347,853) 105,270
Securities sold and not purchased 6,654,813 --
Other current liabilities (86) --
------------ ------------
Net cash provided by/(used in) operating activities 6,197,892 (1,554,290)
------------ ------------
Cash flows from investing activities:
Investment in associated company (200,000) (1,035,843)
Property and equipment additions (200,763) (1,179,035)
Intangible assets -- (570,000)
------------ ------------
Net cash used in investing activities (400,763) (2,784,878)
------------ ------------
Cash flows from financing activities:
Repurchase of stock (1,190,739) --
Proceeds from exercise of stock options or warrants 500 1,433
Repayment of notes payable -- (126,562)
------------ ------------
Net cash used in financing activities (1,190,239) (125,129)
------------ ------------
Net increase/(decrease) in cash
and cash equivalents 4,606,890 (4,464,297)
Cash and cash equivalents, beginning of period 38,594,815 44,613,101
------------ ------------
Cash and cash equivalents, end of period $ 43,201,705 $ 40,148,804
============ ============
Supplemental Cash Flow Disclosures:
Cash paid for interest during the period $ -- $ 10,266
============ ============
Non cash transactions:
Common stock issued for intangible assets $ -- $ 1,800,000
============ ============
Common stock issued/contingently issuable for acquisitions $ -- $ 6,729,171
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
5
SPEEDUS.COM, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of SPEEDUS.COM, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
These financial statements 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 accruals)
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 2000
audited consolidated financial statements and notes thereto on Form 10-K.
Operating results for the three and six months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
Marketable Securities
All marketable securities are defined as trading securities under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." At June 30, 2001,
marketable securities consisted of publicly traded equity securities and were
recorded at fair market value. Their original cost was $633,000, unrealized
holding period losses were $590,000 and the carrying value was $43,000.
During the six months ended June 30, 2001 and 2000, realized gains in the
amounts of $6,483,000 and $179,000, respectively, were recorded and are included
in `Investment income/(loss)' in the consolidated statements of operations.
During the six months ended June 30, 2001 and 2000, decreases of $1,822,000 and
increases of $54,000, respectively, in unrealized gains are included in
`Investment income/(loss)' in the consolidated statements of operations.
Securities sold but not purchased
The Company may sell 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. The amounts shown on the consolidated balance sheet
as `Securities sold but not purchased' represent the value of these securities
at fair market value. At June 30, 2001, the Company had sold securities it had
not purchased. The aggregate proceeds were $6,638,000, unrealized holding period
losses were $969,000 and the market value of the securities was $7,607,000.
Earnings Per Share
Basic and diluted loss per common share are determined in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
For the three and six months ended June 30, 2001 and 2000, stock options
and warrants have been excluded from the diluted loss per share since their
effect would be antidilutive.
Research and Development Costs
Research and development costs are expensed as incurred.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
2. Acquisition and Investment in Associated Company
a. On June 30, 2000, the Company purchased the remaining 55% interest in
Speedia, LLC that it did not already own. The Company issued an aggregate of
950,000 shares of its Common Stock to Speedia's selling shareholders, Starpoint
Solutions, Inc. (formerly TIS Worldwide, Inc.) and Daniel Doyon (collectively,
the "Sellers").
This acquisition was accounted for using the purchase method of
accounting. The results of operations of Speedia have been included in the
consolidated statements of operations for the periods subsequent to June 30,
2000. The excess of the purchase price, valued at approximately $6.8 million
(including the value of contingent shares, as discussed below), over the fair
value of the net assets acquired was approximately $7.2 million which has been
recorded as goodwill and is being amortized over a period of 3 years.
The purchase contract obligated the Company to issue in the aggregate an
additional 183,334 shares of its Common Stock to the Sellers at December 31,
2000 since 90% of VisionStar Incorporated was not effectively contributed to the
Company within 6 months from June 30, 2000. VisionStar, a company whose majority
shareholder is Shant S. Hovnanian, a co-founder and Chairman and Chief Executive
Officer of the Company, holds a license from the FCC, granted in May 1997, to
construct, launch and operate a Ka-
6
band telecommunications satellite positioned over the continental United States.
A Special Committee of the Company's Board of Directors was evaluating Mr.
Hovnanian's offer for the contribution of his interest in VisionStar to the
Company. On September 22, 2000, the Company announced that discussions on the
offer of Mr. Hovnanian have been terminated.
The purchase contract also obligated the Company to issue in the aggregate
an additional 183,334 shares of its Common Stock to the Sellers if the Company's
share price did not reach $10 per share within 180 days from February 9, 2001.
Unaudited pro forma operating results of the Company for the six months
ended June 30, 2000, as though the acquisition of SPEEDIA had occurred on
January 1, 2000, with adjustment to give effect to the amortization of goodwill,
are as follows:
Revenues $ 82,377
Operating loss $ (6,641,542)
Net loss $ (5,679,158)
Basic and diluted net loss per share $ (0.27)
b. In January 2001, the Company and Siemens Corporate Research, Inc., a
subsidiary of Siemens Corporation, co-invested in a new company, Zargis Medical
Corp. Zargis was formed to develop and market advanced diagnostic decision
support products and services for primary care physicians and other Healthcare
professionals. Speedia Wireless, a wholly owned subsidiary of the Company, has
signed an exclusive contract with Zargis to design and develop the wireless
applications for Zargis, as well as provide transaction processing to support
the commercial rollout of Zargis' cardiac diagnostic products.
3. Stockholders' Equity
On January 11, 2001, the Company's Board of Directors adopted a
stockholder rights plan in which preferred stock purchase rights (the "Rights")
will be distributed as a dividend at the rate of one Right for each share of the
Company's Common Stock.
Each Right generally will entitle stockholders, in certain circumstances,
to buy one one-ten thousandth of a newly issued share of Series A Junior
Participating Preferred Stock of the Company at an exercise price of $50.00. The
Rights generally will be exercisable and transferable apart from the Common
Stock only if a person or group acquires beneficial ownership of 17% or more of
the Common Stock or commences a tender or exchange offer upon consummation of
which such person or group would beneficially own 17% or more of the Common
Stock.
If any person becomes the beneficial owner of 17% or more of the Company's
Common Stock, then each Right not owned by a 17% or more stockholder or certain
related parties will entitle its holder to purchase, at the right's then-current
exercise price, shares of Common Stock (or, in certain circumstances as
determined by the Board, cash, other property, or other securities) having a
value of twice the Right's exercise price. In addition, if, after any person has
become a 17% or more stockholder, the Company is involved in a merger or other
business combination transaction with another person in which its Common Stock
is changed or converted, or sells 50% or more of its assets or earning power to
another person, each Right will entitle its holder to purchase, at the Right's
then-current exercise price, shares of common stock of such other person having
a value of twice the Right's exercise price.
The Company will generally be entitled to redeem the Rights at $.01 per
Right at any time until the tenth day following public disclosure that a person
or group has become the beneficial owner of 17% or more of the Company's common
stock. The Rights will expire on January 26, 2011.
4. Legal Proceedings
The Company is subject to various claims and proceedings that occur in the
ordinary course of business. The Company believes it has substantial defenses to
a material portion of these claims and is prepared to pursue litigation if a
reasonable and structured settlement cannot be reached with the parties. Based
on information currently available, the Company believes that none of these
current claims or proceedings, either individually or in the aggregate, will
have a material effect on its business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
7
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, 2000.
Information Relating to Forward-Looking Statements
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.
Operations
We are developing and providing wireless data services that enable and
enhance the use of Internet-based content on mobile devices. We currently
provide on a promotional basis wireless e-mail and Internet content, including
directories, financial data, sports, news and entertainment, to consumers. We
have expanded our wireless data services to include products and services that
enable businesses to communicate efficiently and effectively with their mobile
workforce and customers in real time through a wide variety of mobile computing
and communications devices. In addition, we maintain a web site that provides
Internet users with information about high-speed Internet access. We also own
fixed wireless spectrum in the New York City metropolitan area that we may
commercialize in the future to support high-speed, or broadband, Internet access
service.
We changed our business focus in November 1998, terminating our
subscription television service. Since changing our focus, we have yet to
generate any revenue from our wireless data products and services business.
Since 1999, our only significant source of revenue was $550,000 received from XO
Communications, Inc. as discussed below. The balance of revenues in 1999 and
through the six months ended June 30, 2001, generally subscriber fees from our
pilot program for high-speed Internet service and co-hosting revenues from the
use of our Data Center, have not been material and future revenues from this and
our mobile wireless business are uncertain.
We have generated operating losses and negative operating cash flows since
our inception and expect to continue to do so in the future.
From 1992 until November 1998, we operated a 49-channel analog
subscription television service utilizing 1,300 MHz of spectrum under a LMDS
license from the FCC. The FCC commercial operating license was awarded to us in
recognition of our efforts in developing and deploying LMDS technology, and for
spearheading its regulatory approval at the FCC. In September 1997, our pioneer
LMDS license was renewed as a standard LMDS license through February 1, 2006.
The license provides that the spectrum may be used for a wide variety of fixed
wireless purposes, including wireless local loop telephony, high-speed Internet
access and two-way teleconferencing. The license covered 1,150 MHz of spectrum
in the 28 GHz range encompassing the New York Primary Metropolitan Statistical
Area, a region which includes the five boroughs of New York City as well as the
New York Counties of Westchester, Rockland, and Putnam. Under FCC authorization,
the license includes an additional 150 MHz of spectrum until the first Ka band
satellite is launched, an event which is not expected to occur prior to 2002.
In November 1998, we assigned an 850 MHz portion of our license to WinStar
Communications, Inc. as an alternative source of financing that was needed at
the time. In connection with this assignment, we terminated our subscription
television service because we no longer had sufficient spectrum to deliver those
services. As a result, while we were able to repay, repurchase and redeem debt
(in the aggregate amount of approximately $11.2 million) and preferred stock
(approximately $4.6 million) in connection with the 1998 assignment as required
under those indentures and substantially strengthen our financial position, we
eliminated the only source of revenues that we had at the time. In October 1999,
we assigned a 150Mhz portion of our license to XO. From July 1999 to October
1999, pending regulatory approval of the license assignment, XO made monthly
payments of approximately $172,000 to us. We are an emerging growth company with
no certainty as to the amount of future cash flows from operations.
Our SPEED411(sm) portal, which is located at www.speedus.com and
www.speed411.com, promotes high-speed Internet access on a nationwide basis by
providing users with information on how to get high-speed access and how to take
advantage of offerings available to high-speed users. The portal may give us an
opportunity to generate revenues from Web site advertising, referral fees and
commissions on product sales. Revenues to date from these sources have not been
material.
8
Currently, we are also conducting a limited pilot program of our SPEED(sm)
broadband super high-speed Internet service and, at June 30, 2001, had less than
100 subscribers. A full marketing effort will not commence until new LMDS
equipment becomes commercially available with cost and performance that allow
implementation of SPEED(sm)service on an economically attractive basis. We
cannot determine when this will occur and this equipment may never be available
to us on this basis. Revenues from our high-speed Internet service would consist
of subscriber fees, as well as the sales and installations of modems; however,
the pricing structure of the service could change in response to market and
other competitive conditions. Revenues to date from these sources have not been
material. We estimate that the total annual cost of the pilot program is
approximately $500,000.
In August of 2001, we launched 007Phones.com, an e-commerce portal
designed to provide consumers and businesses with an easy-to-use, online method
of researching and purchasing wireless phones and carrier services. Through our
relationships with national wireless carriers, we are able to offer several
carrier networks and dozens of phone options. In addition, we see an opportunity
to create custom private label versions of the 007phones.com portal for
businesses with high traffic Internet sites. We are still in the testing phase
of this portal and unsure if it will ever become profitable. If successful,
007phones.com should give us the opportunity to develop additional revenues from
the wireless messaging services developed through Speedia, our wholly owned
subsidiary.
Six and Three Months Ended June 30, 2001 Compared to Six and Three Months Ended
June 30, 2000
Revenues decreased $12,000 from $58,000 for the six months ended June 30,
2000 to $46,000 for the six months ended June 30, 2001 and decreased $1,000 from
$23,000 for the three months ended June 30, 2000 to $22,000 for the three months
ended June 30, 2001. The revenues for these periods reflect the early results of
the Company's pilot program to connect its first Internet subscribers and
co-hosting revenues from use of the Company's Data Center. The Company intends
to continue this pilot program until a final determination can be made on the
availability of equipment on an economically attractive basis. We cannot
determine when this will occur and this equipment may never be available to us
on this basis. We estimate that the total annual cost of the pilot program is
approximately $500,000.
Selling, general and administrative expenses increased $706,000 from
$2,295,000 for the six months ended June 30, 2000 to $3,001,000 for the six
months ended June 30, 2001 and increased $209,000 from $1,255,000 for the three
months ended June 30, 2000 to $1,464,000 for the three months ended June 30,
2001. This increase is primarily attributable to the June 30, 2000 acquisition
of the remaining 55% interest in Speedia, a facilities-based wireless
application service provider, which the Company did not already own. This
acquisition was accounted for using the purchase method of accounting. The
results of operations of Speedia are included in the consolidated statements of
operations beginning with the quarter ended September 30, 2000. Selling, general
and administrative expenses also increased as a result of increases in
compensation expense as a result of additions to senior management, including
research and development and the Company's Portal.
Research and development expenses increased $398,000 from $530,000 for the
six months ended June 30, 2000 to $928,000 for the six months ended June 30,
2001 and increased $118,000 from $325,000 for the three months ended June 30,
2000 to $443,000 for the three months ended June 30, 2001. This increase is
primarily attributable to the June 30, 2000 acquisition of the remaining 55%
interest in Speedia, a facilities-based wireless application service provider,
which the Company did not already own. The results of operations of Speedia are
included in the consolidated statements of operations beginning with the quarter
ended September 30, 2000.
Depreciation and amortization increased $1,179,000 from $1,605,000 for the
six months ended June 30, 2000 to $2,784,000 for the six months ended June 30,
2001 and increased $628,000 from $772,000 for the three months ended June 30,
2000 to $1,400,000 for the three months ended June 30, 2001. $1,210,000 and
$605,000 of the net increases for the six and three months ended June 30, 2001,
respectively, are a result of amortization of the goodwill resulting from the
Speedia acquisition on June 30, 2000 discussed above. This goodwill is being
amortized over a period of three years.
Investment income/(loss) increased $4,100,000 from income of $1,538,000
for the six months ended June 30, 2000 to income of $5,638,000 for the six
months ended June 30, 2001 and decreased $1,177,000 from income of $937,000 for
the three months ended June 30, 2000 to a loss of $240,000 for the three months
ended June 30, 2001. Realized gain/(loss) increased $6,304,000 from net gains of
$179,000 for the six months ended June 30, 2000 to net gains of $6,483,000 for
the six months ended June 30, 2001 and increased $6,031,000 from net gains of
$73,000 for the three months ended June 30, 2000 to net gains of $6,104,000 for
the three months ended June 30, 2001. $5,265,000 of the net gains realized in
the three and six months ended June 30, 2001 were previously recognized as
unrealized gains in the three months ended March 31, 2001. The decrease for the
three months ended June 30, 2001 compared to the three months ended June 30,
2000 was a result of $1,101,000 in net unrealized losses recognized in the three
months ended June 30, 2001. Investment gains or losses will fluctuate based upon
changes in the market value of the underlying investments and are not
necessarily indicative of the results that may be expected for any future
periods.
Equity in loss decreased $529,000 from $570,000 for the six months ended
June 30, 2000 to $41,000 for the six months ended June 30, 2001 and decreased
$315,000 from $336,000 for the three months ended June 30, 2000 to $21,000 for
the three months ended June 30, 2001. The 2000 period primarily reflects the
Company's 45% interest in Speedia's operations, accounted for under the equity
method. As discussed above, subsequent to June 30, 2000, upon the acquisition of
the remaining 55% interest in Speedia, the results of operations of Speedia are
included in the consolidated statements of operations. The 2001 period reflects
the Company's current 50% interest in Zargis Medical Corp.'s operations,
accounted for under the equity method. In January 2001, the Company and Siemens
Corporate Research, Inc., a subsidiary of Siemens Corporation, acquired equal
stakes in Zargis, formerly Sound Diagnostics, Inc., as a result of their seed
funding of Zargis. Zargis was formed to develop and market advanced diagnostic
decision support products and services for primary care physicians and other
Healthcare professionals. Zargis is currently focusing on technology to assist
the primary care physician in the detection of valvular heart disease, by
identifying cases that might otherwise go undetected and by improving the
recognition of innocent heart murmurs, thereby reducing the number of
unnecessary referrals for more expensive diagnostic evaluations. Speedia has
signed an exclusive contract with Zargis to design and develop the wireless
applications, as well as provide transaction processing to support the
commercial rollout of Zargis' cardiac diagnostic products.
Liquidity and Capital Resources
The Company has recorded operating losses and negative operating cash
flows in each year of its operations since inception, primarily due to the
start-up costs in connection with the commercial roll-out of the Company's
system, slower than anticipated consumer acceptance of the Company's now
terminated subscription television services and expenses incurred in connection
with the LMDS rulemaking proceeding.
9
The Company believes that consummation of the spectrum assignments in
November 1998 and October 1999 for net proceeds of approximately $15.5 million
and $19.8 million, respectively, after the repayment and repurchase of debt (in
the aggregate amount of approximately $11.2 million) and redemption of preferred
stock (approximately $4.6 million) in connection with the 1998 assignment as
required under those indentures and the sale of Common Stock in July 1999 for
net proceeds of approximately $19.8 million have provided sufficient liquidity
to finance its current level of operations and expected capital requirements
through the 2001 fiscal year. However, the Company does not expect to have a
positive operating cash flow until such time as it substantially increases its
Internet customer base and/or forms a strategic alliance for use of its Internet
capabilities in the future. We cannot predict when this will occur. We have no
material non-cancelable commitments and the amount of future capital funding
requirements will depend on a number of factors that we cannot quantify,
including the success of our business, the extent to which we expand our
high-speed Internet service if suitable equipment becomes available and the
types of services we offer, as well as other factors that are not within our
control, including competitive conditions, government regulatory developments
and capital costs.
Internet broadcast stations used in our pilot high-speed Internet service
had an original cost of approximately $500,000 each. Until new equipment becomes
available, if at all, we cannot predict whether new broadcast stations would be
necessary or what they would cost at that time. Our wireless data services for
mobile devices business is more adaptable for future growth and future capital
funding requirements would generally not be material.
Generally, our wireless data services will be priced based on the amount
of ongoing service usage that our customers utilize, either in the form of a
monthly fee for each registered user, or a fee for each wireless transaction
that is delivered through our services. Additionally, there are initial set-up
fees that will vary greatly depending on the amount of time and materials that
we incur in tailoring the services for each customer.
Our selling costs will increase as we market these products. However, most
of the costs associated with our wireless data services are labor related and
these costs will only be incurred as new business is signed. The hardware cost
associated with maintaining the services will not increase significantly with
added customers.
The lack of additional capital in the future could have a material adverse
effect on the Company's financial condition, operating results and prospects for
growth.
Recent Accounting Pronouncements
In July 2001, Statement of Financial Accounting Standards No. 141,
"Business Combinations" and Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" were issued requiring business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadening the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles will
be evaluated against this new criterion and may result in certain intangibles
being included into goodwill, or alternatively, amounts initially recorded as
goodwill may be separately identified and recognized apart from goodwill. FAS
No. 142 requires the use of a nonamortization approach to account for purchased
goodwill and certain intangibles. Under a nonamortization approach, goodwill and
certain intangibles will not be amortized into results of operations, but
instead would be reviewed for impairment and charged against results of
operations only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. As required, on January 1, 2001
we will adopt the provisions of each statement that apply to goodwill and
intangible assets acquired prior to June 30, 2001. The adoption of these
accounting standards is expected to reduce our amortization of goodwill and
intangible assets commencing January 1, 2002; however, impairment reviews will
be required and would result in future periodic write-downs if the recorded
value of goodwill and certain intangibles is more than its fair value.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments at June 30, 2001 consist primarily of
cash equivalents, which are subject to interest rate risk, and marketable
securities and securities sold and not repurchased, which are subject to equity
price risk.
The carrying value of cash equivalents approximates market value since
these highly liquid, interest earning investments have short maturities. There
was no significant investment in marketable securities, which consist of
publicly traded equity securities classified as trading securities and were
recorded at fair market value. Securities sold and not repurchased are carried
at the fair market value of the securities.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 4 to the accompanying consolidated financial statements is
incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES
Note 3 to the accompanying consolidated financial statements is
incorporated herein by reference.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
b. Current Reports on Form 8-K:
None.
* Filed herewith
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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.COM, Inc.
Date: August 14, 2001 By: /s/ Shant S. Hovnanian
----------------------
Shant S. Hovnanian
Chairman of the Board and
Chief Executive Officer
Date: August 14, 2001 By: /s/ Angela M. Vaccaro
---------------------
Angela M. Vaccaro
Controller and Chief Accounting Officer
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