Summary of SPEEDUS CORP - Yahoo! Finance

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.

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Business Activities

Cautionary Statement Regarding Forward-Looking Information

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.

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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.

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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.

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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.

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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.

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