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 three months ended March 31, 2008, we do not believe that reasonable changes in the projections would have had a material effect on share-based compensation expense.
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Revenues decreased $53,000 from $173,000 for the three months ended March 31, 2007 to $120,000 for the three months ended March 31, 2008. This decrease is primarily the result of the closing of one F&B store, with revenues of $61,000 for the three months ended March 31, 2007, in December 2007.
Selling, general and administrative expenses decreased $392,000 from $1,110,000 for the three months ended March 31, 2007 to $718,000 for the three months ended March 31, 2008. This decrease is primarily a result of decreases in legal expenses in connection with litigating patent infringement claims in the corporate segment and the closing of one F&B store in
December 2007.
Research and development expenses increased $140,000 from $354,000 for the three months ended March 31, 2007 to $494,000 for the three months ended March 31, 2008. This increase is primarily a result of increases in connection with new wireless initiatives by the Company in the Wibiki segment and continuing development of Zargis’ medical device
technology.
Depreciation and amortization increased $242,000 from $52,000 for the three months ended March 31, 2007 to $294,000 for the three months ended March 31, 2008. This increase is primarily a result of a $286,000 loss on the fixed asset component of F&B assets held for sale during the 2008 period.
Investment income decreased $141,000 from a net gain of $197,000 for the three months ended March 31, 2007 to a net gain of $56,000 for the three months ended March 31, 2008 in the corporate segment. Realized gains were $205,000 for the three months ended March 31, 2008. There were no trades during the three months ended March 31, 2007. Unrealized gains decreased
$261,000 from net gains of $17,000 for the three months ended March 31, 2007 to net losses of $244,000 for the three months ended March 31, 2008. Interest income decreased $85,000 from $180,000 for the three months ended March 31, 2007 to $95,000 for the three months ended March 31, 2008. These 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
The Company has recorded operating losses and negative operating cash flows in each year of its operations since inception.
Net cash used in operating activities was $1,386,000 for the three months ended March 31, 2008 compared to net cash used in operating activities of $1,238,000 for the three months ended March 31, 2007. This net increase in cash used in operating activities was primarily the result of a reduction in accrued liabilities.
Net cash provided by investing activities was $2,997,000 for the three months ended March 31, 2008 compared to net cash used in investing activities of $30,000 for the three months ended March 31, 2007. This net increase in cash provided by investing activities was primarily the result of a net increase in maturities of United States Treasury bills during the three
months ended March 31, 2008 and an decrease in property and equipment additions.
Net cash used in financing activities was $105,000 for the three months ended March 31, 2008 as a result of the redemption of preferred stock and repurchases of treasury stock.
At March 31, 2008, the Company’s future minimum lease payments due under non-cancelable leases aggregated $1,051,000. $230,000 of this amount is due during the remainder of 2008. $259,000, $138,000, $109,000 and $112,000 of this amount is due during the years ending December 31, 2009, 2010, 2011 and 2012, respectively, and $203,000 is payable thereafter. 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 $300,000 or $200,000 if the license agreement is terminated by the Company before September 2009 or September 2011, respectively.
The Company believes that it has sufficient liquidity to finance its current level of operations and expected capital requirements through the next twelve months. However, the Company does not expect to have earnings from operations until such time as it substantially increases its customer base and/or forms a strategic alliance for use of its 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. 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.
14
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 also sold 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.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements which upon future adoption would have an effect on the Company’s results of operations or financial position, except as disclosed below.
In September 2006, the Financial Accounting Standards Board issued FASB 157, “Fair Value Measurements”. FASB 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FASB 157 is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB adopted FASB Staff Position FAS 157-2, “Effective Date of FASB Statement No. 157,” to allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and nonfinancial liabilities hat are recognized at fair value on a nonrecurring basis. The Company does not expect adoption of FASB No. 157 to have a material effect on its results of operations or financial
position.
In February 2007, the Financial Accounting Standards Board issued FASB No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115,” which permits companies to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the
fair value option). Adoption of FASB 159 is optional. The Company has not elected to adopt the fair value option of FASB 159.
In December 2007, the Financial Accounting Standards Board issued FASB No. 141R, “Business Combinations”. FASB 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.
FASB 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FASB 141R will become effective as of the beginning of the Company’s fiscal year beginning after December 15, 2008. The impact that adoption of FASB No. 141R will have on the Company’s
consolidated financial statements will depend on the nature, terms and size of business combinations that occur after the effective date.
In December 2007, the Financial Accounting Standards Board issued FASB No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51”. FASB 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FASB 160 will become
effective as of the beginning of the Company’s fiscal year beginning after December 15, 2008. The Company is currently evaluating the impact that the adoption of FASB No. 160 will have on its consolidated financial condition or results of operations.
I
TEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s financial instruments at March 31, 2008 consist primarily of cash equivalents and due from broker, which are subject to interest rate risk, and marketable securities, which are subject to price risk.
As part of our overall investment strategy, we invest in publicly traded equity securities. We purchase these securities in anticipation of increases in the fair market values of the securities. We have also sold publicly traded equity securities that we do not own in anticipation of declines in the fair market values of the 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 which could have a material adverse effect on the Company’s consolidated financial statements.
15
The carrying value of cash equivalents and due from broker approximates market value since these highly liquid, interest earning investments are invested in money market funds. The Company’s investment in marketable securities consists of publicly traded equity securities classified as trading securities and are recorded at fair market value. Securities sold and
not repurchased are carried at the fair market value of the securities.
I
TEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.
Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report for the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, to be recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
16
PART II. OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
|
|
|
No material changes.
|
|
|
ITEM 1A.
|
RISK FACTORS
|
|
|
|
No material changes.
|
|
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
|
Stock repurchase program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
(a) Total Number
of Shares (or
Units) Purchased
|
|
(b) Average Price
Paid per Share (or
Unit)
|
|
(c) Total number
of Shares (or
Units) Purchased
as Part of Publicly
Announced Plans
or Programs
|
|
(d) Maximum
number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2008 -
March 31, 2008
|
|
|
0
|
|
$
|
—
|
|
|
0
|
|
$
|
414,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2008 -
February 29, 2008
|
|
|
0
|
|
$
|
—
|
|
|
0
|
|
$
|
414,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2008 -
March 31, 2008
|
|
|
3,567
|
|
$
|
1.35
|
|
|
3,567
|
|
$
|
410,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,567
|
|
$
|
1.35
|
|
|
3,567
|
|
$
|
410,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) On November 21, 2000, the Company announced that its Board of Directors had approved a stock repurchase program for the repurchase of up to $1,000,000 of Company stock through open market as well as privately negotiated transactions. Thereafter, the Board of Directors approved increases to the program in the aggregate amount of $5,500,000.
|
|
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
|
|
|
None.
|
|
|
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
|
|
|
None.
|
|
|
ITEM 5.
|
OTHER INFORMATION
|
|
|
|
None.
|
|
|
ITEM 6.
|
EXHIBITS
|
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
SPEEDUS CORP.
|
|
|
|
Date: May 15, 2008
|
By:
|
/s/ Shant S. Hovnanian
|
|
|
|
|
Shant S. Hovnanian
Chairman of the Board, President and Chief Executive Officer
|
|
|
|
Date: May 15, 2008
|
By:
|
/s/ Thomas M. Finn
|
|
|
|
|
Thomas M. Finn
Treasurer and Chief Financial and Accounting Officer
|
18