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 September 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 November 2, 2001 was 19,298,106.
SPEEDUS.COM, Inc.
INDEX TO FORM 10-Q
Page(s)
PART I -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements
Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000................................3
Consolidated Statements of Operations (unaudited) for the
Three and Nine Months Ended September 30, 2001 and 2000..........4
Consolidated Statements of Cash Flows (unaudited) for the
Three and Nine Months Ended September 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.............................8-11
ITEM 3 -- Quantitative and Qualitative Disclosures About Market Risk.......11
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings................................................12
ITEM 2 -- Changes in Securities............................................12
ITEM 3 -- Defaults Upon Senior Securities..................................12
ITEM 4 -- Submission of Matters to a Vote of Security Holders..............12
ITEM 5 -- Other Information................................................12
ITEM 6 -- Exhibits and Reports on Form 8-K.................................12
Signature Page.............................................................13
2
ITEM 1. Financial Statements
SPEEDUS.COM, Inc.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
-------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 38,919,352 $ 38,594,815
Marketable securities 29,648 68,166
Due from broker 8,549,947 624,790
Prepaid expenses and other -- 62,098
Due from affiliates 93,112 93,112
Accounts and other receivables 317,968 94,816
------------ ------------
Total current assets 47,910,027 39,537,797
Property and equipment, net of accumulated
depreciation of $9,319,069 and $9,198,902 6,942,347 8,659,977
Goodwill, net of accumulated
amortization of $3,000,391 and $1,185,724 4,234,222 6,048,889
Other intangible assets, net of accumulated
amortization of $359,107 and $173,214 2,010,893 2,196,786
Other assets 645,918 1,184,735
------------ ------------
Total assets $ 61,743,407 $ 57,628,184
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 258,181 $ 270,202
Accrued liabilities 1,608,962 1,532,542
Securities sold and not purchased 6,872,825 952,032
Other current liabilities 11,333 18,005
------------ ------------
Total current liabilities 8,751,301 2,772,781
Commitments and Contingencies -- --
Stockholders' equity:
Common stock ($.01 par value; 40,000,000
shares authorized; 21,384,838 and 21,034,838
shares issued) 213,848 210,348
Preferred stock ($.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 90,289,432 90,292,432
Treasury stock (at cost; 1,982,332 and 309,800 shares) (1,635,772) (305,741)
Accumulated deficit (35,875,402) (35,341,636)
------------ ------------
Stockholders' equity 52,992,106 54,855,403
------------ ------------
Total liabilities and stockholders' equity $ 61,743,407 $ 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 Nine Months Ended
------------------------------ ------------------------------
September 30, September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues $ 19,891 $ 19,601 $ 66,272 $ 77,608
------------ ------------ ------------ ------------
Expenses:
Selling, general and administrative 966,156 1,480,137 3,967,330 3,774,791
Research and development 379,674 409,087 1,307,879 939,054
Depreciation and amortization 1,334,809 1,421,937 4,119,103 3,026,578
------------ ------------ ------------ ------------
Total operating expenses 2,680,639 3,311,161 9,394,312 7,740,423
------------ ------------ ------------ ------------
Operating loss (2,660,748) (3,291,560) (9,328,040) (7,662,815)
Investment income 3,239,555 487,691 8,877,866 2,026,077
Equity in loss of associated company (42,990) -- (83,592) (569,782)
Settlement of litigation -- (282,500) -- (282,500)
Interest expense -- (1,729) -- (7,949)
Other income -- 99,856 -- 99,856
------------ ------------ ------------ ------------
Net earnings/(loss) $ 535,817 $ (2,988,242) $ (533,766) $ (6,397,113)
============ ============ ============ ============
Per share:
Basic earnings/(loss) per common share $ 0.03 $ (0.14) $ (0.03) $ (0.32)
============ ============ ============ ============
Weighted average common shares
outstanding 19,998,290 20,971,360 20,165,860 20,260,934
============ ============ ============ ============
Diluted earnings/(loss) per common share $ 0.03 $ (0.14) $ (0.03) $ (0.32)
============ ============ ============ ============
Weighted average common shares
outstanding 20,005,002 20,971,360 20,165,860 20,260,934
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
4
SPEEDUS.COM, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended September 30,
-------------------------------
2001 2000
------------ -------------
Cash flows from operating activities:
Net loss $ (533,766) $ (6,397,113)
Adjustments to reconcile net loss to
net cash provided by/(used in) operating activities:
Depreciation and amortization 4,119,103 3,026,578
Stock based compensation 653,000 250,500
Equity in loss of associated company 83,592 569,782
Settlement of litigation -- 282,500
Changes in assets and liabilities:
Marketable securities 38,518 (236,648)
Due from broker (7,925,157) (559,773)
Prepaid expenses and other 62,098 (67,719)
Accounts and other receivables (223,152) (80,737)
Other assets 2,225 (19,042)
Accounts payable (12,021) 8,638
Accrued liabilities 76,420 168,302
Securities sold and not purchased 5,920,793 903,876
Other current liabilities (6,672) (39,505)
------------ ------------
Net cash provided by/(used in) operating
activities 2,254,981 (2,190,361)
------------ ------------
Cash flows from investing activities:
Investment in associated companies (200,000) (1,035,843)
Property and equipment additions (400,913) (1,426,365)
Intangible assets -- (570,000)
------------ ------------
Net cash used in investing activities (600,913) (3,032,208)
------------ ------------
Cash flows from financing activities:
Repurchase of stock (1,330,031) --
Proceeds from exercise of stock options or warrants 500 1,433
Repayment of notes payable -- (168,750)
------------ ------------
Net cash used in financing activities (1,329,531) (167,317)
------------ ------------
Net increase/(decrease) in cash
and cash equivalents 324,537 (5,389,886)
Cash and cash equivalents, beginning of period 38,594,815 44,613,101
------------ ------------
Cash and cash equivalents, end of period $ 38,919,352 $ 39,223,215
============ ============
Supplemental Cash Flow Disclosures:
Cash paid for interest during the period $ -- $ 11,991
============ ============
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 nine months ended September 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 September 30, 2001,
marketable securities consisted of publicly traded equity securities and were
recorded at fair market value. Their original cost was $621,000, unrealized
holding period losses were $591,000 and the carrying value was $30,000.
During the nine months ended September 30, 2001 and 2000, realized gains
in the amounts of $7,608,000 and $246,000, respectively, were recorded and are
included in 'Investment income' 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 September 30, 2001, the Company had sold securities it
had not purchased. The aggregate proceeds were $7,678,000, unrealized holding
period gains were $805,000 and the market value of the securities was
$6,873,000.
Revenue Recognition
The Company earns commissions from carriers through the sale and
activation of wireless phones. In accordance with the provisions of the
Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements", these revenues and associated costs are
deferred due to cancellation privileges and chargebacks from carriers.
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 quarter ended September 30, 2001, the weighted average common
shares for diluted earnings per share were determined by adding weighted average
shares in the amount of 6,712 for the assumed exercise of stock options to the
weighted average shares outstanding for basic earnings per share for a total of
20,005,002 weighted average shares outstanding for diluted earnings per share.
For the quarter ended September 30, 2000 and the nine months ended September 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").
6
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-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 nine months
ended September 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 $ 101,978
Operating loss $ (9,933,102)
Net loss $ (8,097,618)
Basic and diluted net loss per share $ (0.39)
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.
7
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, 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 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. 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 first half of 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. Future revenues from this and our mobile
wireless business are uncertain.
In January 2001, we co-invested with Siemens Corporate Research, Inc., a
subsidiary of Siemens Corporation, in a new company, Zargis Medical Corp. Zargis
Medical is building a service that will target primary care physicians who would
use the Zargis Medical technology service as part of general medical
examinations that, according to the National Center for Health Statistics,
totaled 46 million in 1999 for the US alone. Some of the major next steps
remaining for Zargis Medical include completion of the database technology,
clinical trials, FDA approval, marketing and roll-out, along with logical
additional strategic partnerships. Speedia Wireless, a wholly owned subsidiary
of the Company, has signed an exclusive contract with Zargis Medical to design
and develop the wireless applications and systems integration for Zargis
Medical, as well as provide transaction processing to support the commericial
roll-out of Zargis Medical's cardiac diagnostic products.
In August 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.
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
8
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.
Currently, we are also conducting a limited pilot program of our SPEED(sm)
broadband super high-speed Internet service and, at September 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.
Nine and Three Months Ended September 30, 2001 Compared to Nine and Three Months
Ended September 30, 2000
Revenues decreased $12,000 from $78,000 for the nine months ended
September 30, 2000 to $66,000 for the nine months ended September 30, 2001.
These revenues 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 $192,000 from
$3,775,000 for the nine months ended September 30, 2000 to $3,967,000 for the
nine months ended September 30, 2001 and decreased $514,000 from $1,480,000 for
the three months ended September 30, 2000 to $966,000 for the three months ended
September 30, 2001. The increase for the nine month periods 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
due to increases in compensation expense as a result of additions to senior
management and the Company's Portal. The decrease for the three month periods is
primarily a result of decreases in stock based compensation and legal expenses.
Research and development expenses increased $369,000 from $939,000 for the
nine months ended September 30, 2000 to $1,308,000 for the nine months ended
September 30, 2001 and decreased $29,000 from $ 409,000 for the three months
ended September 30, 2000 to $380,000 for the three months ended September 30,
2001. The increase for the nine month periods is primarily attributable to the
June 30, 2000 acquisition of the remaining 55% interest in Speedia, as discussed
above. The decrease for the three month periods is primarily a result of staff
reductions.
Depreciation and amortization increased $1,092,000 from $3,027,000 for the
nine months ended September 30, 2000 to $4,119,000 for the nine months ended
September 30, 2001 and decreased $87,000 from $1,422,000 for the three months
ended September 30, 2000 to $1,335,000 for the three months ended September 30,
2001. Amortization of the goodwill resulting from the Speedia acquisition on
June 30, 2000 discussed above was $1,815,000 and $605,000 for the nine and three
months ended June 30, 2001, respectively. This goodwill is being amortized over
a period of three years. The net increase in depreciation and amortization for
the nine month periods was offset by, and the decrease for the three month
periods was primarily caused by, certain fixed assets having become fully
depreciated.
Investment income increased $6,852,000 from $2,026,000 for the nine months
ended September 30, 2000 to $8,878,000 for the nine months ended September 30,
2001 and increased $ 2,752,000 from $488,000 for the three months ended
September 30, 2000 to $3,240,000 for the three months ended September 30, 2001.
Realized gain/(loss) increased $7,362,000 from net gains of $246,000 for the
nine months ended September 30, 2000 to net gains of $7,608,000 for the nine
months ended September 30, 2001 and increased $1,058,000 from net gains of
$67,000 for the three months ended September 30, 2000 to net gains of $1,125,000
for the three months ended September 30, 2001. $4,610,000 of the net gains
realized in the nine months ended September 30, 2001 were previously recognized
as unrealized gains in the six months ended June 30, 2001. The increase for the
three months ended September 30, 2001 compared to the three months ended
September 30, 2000 was also a result of $1,314,000 in net unrealized gains
recognized in the three months ended September 30, 2001 compared to unrealized
losses of $233,000 for the three months ended September 30, 2000. 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 $486,000 from $570,000 for the nine months ended
September 30, 2000 to $84,000 for the nine months ended September 30, 2001.
Equity in loss amounted to $43,000 for the three months ended September 30,
2001. The 2000
9
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.
During the nine and three months ended September 30, 2000, the Company
recognized an expense in the amount of $282,500 from the settlement of
litigation. No such amounts were recorded for the nine and three months ended
September 30, 2001.
During the nine and three months ended September 30, 2000, the Company
recognized other income in the amount of $100,000 from negotiating settlements
with vendors and others. No such amounts were recorded for the nine and three
months ended September 30, 2001.
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.
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 2002 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
10
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.
In August 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" was issued. FAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. FAS No. 143 is effective January 1, 2003 for the Company. In addition, in
August 2001, Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", was issued. SFAS No. 144
provides a single accounting model for long-lived assets to be disposed of and
changes the criteria that would have to be met to classify an asset as
held-for-sale. SFAS No. 144 retains the requirement of Accounting Principles
Board Opinion No. 30 to report discontinued operations separately from
continuing operations and extends that reporting to a component of an entity
that either has been disposed of or is classified as held for sale. SFAS No. 144
is effective January 1, 2002 for the Company. We are currently evaluating the
impact of these statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments at September 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.
11
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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its Annual Meeting of shareholders held on August 29, 2001, the Company
submitted the following matters to a vote of its shareholders, all of which were
approved:
1. Election of Directors:
Name of Director Votes For Votes Withheld
--------------------- ---------- --------------
Shant S. Hovnanian 16,229,500 78,013
Vahak S. Hovnanian 16,234,450 73,063
William F. Leimkuhler 16,232,860 74,653
Jeffrey Najarian 16,234,860 72,653
Christopher Vizas 16,228,885 78,628
2. Appointment of PricewaterhouseCoopers LLP as independent auditors of the
Company:
Votes For Votes Against Abstentions
---------- ------------- ------------
16,282,493 15,718 9,302
3. Approval of the Company's 1995 Stock Incentive Plan, as amended to
increase the number of shares of Common Stock available for issuance by
500,000 from 2,250,000 to 2,750,000:
Votes For Votes Against Abstentions
---------- ------------- ------------
15,501,904 791,912 13,697
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None.
b. Current Reports on Form 8-K:
None.
12
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: November 14, 2001 By: /s/ Shant S. Hovnanian
---------------------------
Shant S. Hovnanian
Chairman of the Board and Chief
Executive Officer
Date: November 14, 2001 By: /s/ Angela M. Vaccaro
---------------------------
Angela M. Vaccaro
Controller and Chief Accounting
Officer
13