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: March 31, 1999
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 , Loft 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 (the "Common Stock"), as of March 31, 1999 was 17,169,057
<PAGE>
SPEEDUS.COM, INC.
INDEX TO FORM 10-Q
Page(s)
-------
PART I -- FINANCIAL INFORMATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 3-5
Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (unaudited)
and December 31, 1998............................................ 6
Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 1999 and 1998........................ 7
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 1999 and 1998........................ 8
Notes to Consolidated Financial Statements (unaudited)............ 9
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings............................................. 10
ITEM 2 -- Changes in Securities......................................... 10
ITEM 3 -- Defaults Upon Senior Securities............................... 10
ITEM 4 -- Submission of Matters to a Vote of Security Holders........... 10
ITEM 5 -- Other Information............................................. 10
ITEM 6 -- Exhibits and Reports on Form 8-K.............................. 10
Signature Page.......................................................... 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
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, 1998.
Information Relating to Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Quarterly Report 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. These
statements appear in a number of places in this Quarterly Report 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 service and repay debt, the ability to incur additional debt, as necessary,
to make capital expenditures 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 Quarterly
Report 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.
Results of Operations
From 1992 until November 1998, the Company operated a 49-channel analog
subscription television system in Brooklyn, New York utilizing 1,300 MHz of
spectrum under a LMDS license from the FCC. The Company's LMDS license entitled
it to utilize 1,150 MHz of spectrum in the 28 GHz range covering the New York
Primary Metropolitan Statistical Area ("PMSA"), a region which covers the 5
boroughs of New York City as well as the New York Counties of Westchester,
Rockland, and Putnam. Under FCC rules, the Company has the right to use an
additional 150 MHz of spectrum until the first Ka band satellite is launched, an
event not expected to occur prior to 2002.
In November 1998, as a result of the assignment of 850 MHz of spectrum,
the Company discontinued its subscription television service.
The Company is using its 450 MHz FCC license and infrastructure to deliver
super high-speed Internet service in the Metro New York area. The Company has
built a full-featured Internet Service Provider (ISP) and configured its
Internet Broadband Broadcast System (IBBS) to deliver super high-speed Internet
service in Metro New York. The service is being marketed under the service mark
SPEED.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenue decreased $1,409,000 from $1,424,000 for the three months ended
March 31, 1998 to $15,000 for the three months ended March 31,1999. This
decrease is a result of the discontinuance of the Company's subscription
television business in November 1998 which has historically accounted for
substantially all of the Company's revenues. Revenues for the three months ended
March 31, 1999 reflect the early results of the Company's pilot program to
connect its first Internet subscribers.
Selling, general and administrative expenses decreased $1,496,000 from
$2,643,000 for the three months ended March 31, 1998 to $1,147,000 for the three
months ended March 31,1999. This decrease is primarily attributable to reduced
headcount-related costs as a result of personnel reductions during the first,
third and fourth quarters of 1998.
Depreciation and amortization decreased $696,000 from $1,377,000 for the
three months ended March 31, 1998 to $681,000 for the three months ended March
31, 1999. This decrease was due primarily to the 1998 write off of property and
equipment previously used by the Company in its discontinued subscription
television service.
Service costs, primarily fees paid to the providers of television
programming, amounted to $659,000 for the three months ended March 31, 1998.
They are no longer incurred as a result of the discontinuance of the Company's
subscription television
3
<PAGE>
business in November 1998.
Bad debt expense amounted to $150,000 for the three months ended March 31,
1998. Prior to the termination of subscription television services in early
November 1998, the Company experienced a high level of service cancellations and
a drastic decrease in collections from subscribers. The Company increased its
allowance for bad debts at December 31, 1998 to reflect these developments and
reserved the entire balance of accounts receivable in the amount of $1,020,000
at that time. The Company is considering several options to vigorously pursue
collection of past due accounts. Collections on these accounts receivable during
the three months ended March 31, 1999 were not material. The Company will
generally require residential subscribers to its high-speed Internet service to
provide credit card information for monthly billings and therefore does not
expect any material exposure for bad debts in the future.
Other income amounted to $360,000 for the three months ended March 31,
1999. During that period, the Company negotiated settlements with ten providers
of television programming. As of December 31, 1998, the Company had unpaid
amounts due to these entities in the aggregate amount of $853,000. The Company
has settled these billings for an aggregate of $493,000, resulting in a savings
of $360,000. The Company will continue to negotiate settlements with remaining
vendors but there can be no assurance that settlements will be obtained or
obtained on similar terms.
Interest expense and financing fees decreased $282,000 from $289,000 for
the three months ended March 31, 1998 to $7,000 for the three months ended March
31, 1999. This decrease is due to the repayment or repurchase of substantially
all of the Company's outstanding debt in the fourth quarter of 1998 with a
portion of the proceeds from the assignment of spectrum.
Interest income increased $189,000 from $7,000 for the three months ended
March 31, 1998 to $196,000 for the three months ended March 31, 1999 since the
Company had more funds available for investment after the assignment of spectrum
in November 1998.
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
discontinued subscription television services and expenses incurred in
connection with the LMDS rulemaking proceeding.
The Company is using its 450 MHz FCC license and infrastructure to deliver
super high-speed Internet service in the Metro New York area. The Company has
built a full-featured ISP and configured its IBBS network to deliver super
high-speed Internet service in Metro New York. The service is being marketed
under the service mark SPEED.
The SPEED service requires the purchase and installation of the SPEED
modem. The SPEED modems are currently only available from the Company for $350,
which along with the $150 installation cost can now be financed for up to 3
years. Increased signal coverage through additional Internet Broadcast Stations
is crucial to widespread availability of the SPEED service.
The marketing is limited to a pilot roll out and is not expected to
develop into a mass marketing campaign in the immediate future.
While the Company believes that consummation of the spectrum assignment
has provided sufficient liquidity to finance its current level of operations
through 1999, it 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. The
lack of additional capital could have a material adverse effect on the Company's
financial condition, operating results and prospects for growth.
Year 2000 compliance
The "Year 2000" or "Y2K" problem exists because of the potential for
computer programs to recognize a date using "00" as the year 1900 instead of the
year 2000 which could cause disruption of normal business operations.
If not addressed and completed on a timely basis, the Year 2000 problem
could lead to incomplete or inaccurate accounting, billing and customer service
functions with resultant financial loss, legal liability or business
interruption.
The Company has established a project team to address the extent, if any,
to which its systems may be affected by the Year 2000 problem and to establish
procedures to resolve Year 2000 issues. The project team includes Company
personnel and, to the extent necessary, outside consultants. The Company expects
to complete its assessment, as well as modification or replacement of software,
during 1999. At the present time, costs over the 1998-1999 period are estimated
to be less than $75,000 and approximately one-third of this amount has been
incurred and expensed through March 31, 1999.
4
<PAGE>
The Company has established that its Internet connectivity systems are
Year 2000 compliant and that the systems remaining subject to completion of
review are involved with accounting and related administrative functions. The
majority of the Company's accounting systems have also been determined to be
Year 2000 compliant. The Company believes that modification or replacement of
the remaining systems, if necessary, would not incur a material cost. During
1999, the Company will be reviewing contingency plans for processes that could
likely be affected by the Year 2000 problem with the primary focus being
unforeseen failures of computer software and hardware.
There are inherent uncertainties as to the extent to which the Year 2000
problem may effect the Company in the future. However, since the Year 2000
problem has been identified on such a broad basis, the Company believes that
relationships with vendors and suppliers, including systems and service
providers, in the future course of its business would only occur after the
Company has satisfied itself that such companies are Year 2000 compliant.
While the Company expects that its Year 2000 efforts will be successful,
failure of the Company's computer systems could have a material adverse effect.
5
<PAGE>
SPEEDUS.COM, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 11,256,569 $ 12,902,085
Due from affiliates 93,111 86,444
Prepaid expenses and other 61,848 23,348
Accounts receivable, net of
allowance for doubtful
accounts of $1,019,933 and
$1,019,933 5,350 --
------------ -----------
Total current assets 11,416,878 13,011,877
Property and equipment, net of
accumulated depreciation of
$6,169,465 and $5,488,766 12,190,980 12,836,368
Other assets 167,915 67,165
------------ -----------
Total assets $ 23,775,773 $ 25,915,410
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,584,044 $ 2,519,345
Accrued liabilities 868,218 807,499
Other current liabilities 210,474 203,812
Current portion of notes payable 168,750 168,750
------------ -----------
Total current liabilities 2,831,486 3,699,406
Notes payable 126,563 168,750
------------ -----------
Total liabilities 2,958,049 3,868,156
Commitments and Contingencies -- --
Stockholders' equity:
Common stock ($.01 par value;
40,000,000 shares authorized;
17,169,057 and 17,131,357 shares
issued and outstanding) 171,691 171,314
Preferred stock ($.01 par value;
20,000,000 shares authorized):
Series A Convertible ($1,000
stated value; 10,000 shares
authorized; no shares issued
and outstanding) -- --
Additional paid-in-capital 58,828,023 58,794,847
Accumulated deficit (38,181,990) (36,918,907)
------------ -----------
Stockholders' equity 20,817,724 22,047,254
------------ -----------
Total liabilities and stockholders'
equity $ 23,775,773 $ 25,915,410
============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
SPEEDUS.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31,
-------------------------------
1999 1998
------------- -------------
Revenues $ 15,211 $ 1,423,682
------------ ------------
Expenses:
Selling, general and administrative 1,146,725 2,643,281
Depreciation and amortization 680,699 1,377,366
Service costs -- 658,659
Bad debts -- 150,037
------------ ------------
Total operating expenses 1,827,424 4,829,343
------------ ------------
Operating loss (1,812,213) (3,405,661)
Other income 359,969 --
Interest income 196,478 6,914
Interest expense and financing fees (7,317) (289,002)
------------ ------------
Net loss $ (1,263,083) $ (3,687,749)
============ ============
Per share:
Basic loss per common share $ (0.07) $ (0.23)
============ ============
Weighted average common shares
outstanding 17,147,411 16,000,000
============ ============
Diluted loss per common share $ (0.07) $ (0.23)
============ ============
Weighted average common shares
outstanding 17,147,411 16,000,000
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
SPEEDUS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31,
-----------------------------
1999 1998
------------ -------------
Cash flows from operating activities:
Net loss $(1,263,083) $ (3,687,749)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 680,699 1,377,366
Amortization of placement fees -- 19,383
Provision for doubtful accounts -- 150,037
Changes in assets and liabilities:
Accounts receivable (5,350) (170,610)
Prepaid expenses and other (38,500) 61,570
Accounts payable (935,301) 2,927,379
Accrued liabilities 60,719 (975,031)
Other current liabilities 6,662 18,735
Due from affiliates (6,667) 46,076
Other noncurrent assets (100,750) --
----------- ------------
Net cash used in operating activities (1,601,571) (232,844)
----------- ------------
Cash flows from investing activities:
Property and equipment additions (35,311) (986,032)
----------- ------------
Net cash used in investing activities (35,311) (986,032)
----------- ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 33,553 --
Proceeds from notes payable -- 1,191,147
Repayment of notes payable (42,187) (330,000)
----------- ------------
Net cash used in provided by
financing activies (8,634) 861,147
----------- ------------
Net decrease in cash
and cash equivalents (1,645,516) (357,729)
Cash and cash equivalents, beginning of period 12,902,085 407,741
----------- ------------
Cash and cash equivalents, end of period $11,256,569 $ 50,012
=========== ============
Supplemental Cash Flow Disclosures:
Cash paid for interest during the period $ 7,317 $ --
=========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
SPEEDUS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of SPEEDUS.COM, SPEEDUSNY.COM, L.P. ("SPEEDUSNY"), a limited
partnership, and CellularVision Capital Corporation, the general partner of
SPEEDUSNY and a wholly-owned subsidiary of SPEEDUS.COM. 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 1998
audited consolidated financial statements and notes thereto on Form 10-K.
Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
2. Related Party Transactions
At December 31, 1997, the Company had outstanding long-term orders with
CT&T for the purchase of equipment in the aggregate amount of approximately
$3,200,000, net of deposits in the aggregate amount of approximately $600,000.
Approximately $1,400,000 of this amount, net of deposits, is represented by
set-top converters and head-end equipment which has been delivered to the
Company but have experienced performance problems, as a result of which CT&T is
presently involved in litigation with the vendor of this equipment. The Company
has not accepted billings for this equipment and no amounts are reflected in the
accompanying financial statements. As a result of discontinuing the subscription
television service, if the Company is ultimately forced to accept and pay for
this equipment, the equipment may have little or no value and would be written
off. Approximately $1,800,000 of this amount, net of deposits, represents
long-term orders which are still outstanding for modems that would be usable by
the Company in its high-speed internet access business. The Company is now
dealing directly with this vendor.
3. Other Income
During the three months ended March 31, 1999, the Company negotiated
settlements with ten providers of television programming. As of December 31,
1998, the Company had unpaid amounts due to these entities in the aggregate
amount of $853,000. The Company has settled these billings for an aggregate of
$493,000, resulting in a savings of $360,000. The Company will continue to
negotiate settlements with remaining vendors but there can be no assurance that
settlements will be obtained or obtained on similar terms.
4. Legal Proceedings
(a) There have been no material developments with respect to the legal
proceedings reported in Item 3 or in Note 10 to the consolidated financial
statements included in Item 14 of the Company's report on Form 10-K for the year
ended December 31, 1998.
(b) The Company has been named in two lawsuits brought in the normal
course of its business in the aggregate amount of approximately $240,000,
exclusive of expenses. 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. In the
event adverse judgments on these and all similar lawsuits are rendered in the
same period, the aggregate effect could be material to the Company's financial
position and it could have a material effect on operating results in the period
in which the matters are resolved.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
Since the date of the Company's report on Form 10-K for the year ended
December 31, 1998, there have been no material developments with respect to the
legal proceedings reported in Item 3 or in Note 11 to the financial statements
included in Item 14 of such report.
Note 5 to the accompanying 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
None.
ITEM 5 -- OTHER INFORMATION
None.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27* Financial Data Schedule
b. Current Reports on Form 8-K:
None
* Filed herewith
10
<PAGE>
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: May 16, 1999 By: /s/ Shant S. Hovnanian
Shant S. Hovnanian
Chairman and President
Date: May 16, 1999 By: /s/ Angela M. Vaccaro
Angela M. Vaccaro
Controller and Chief Accounting Officer
11
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,256,569
<SECURITIES> 0
<RECEIVABLES> 5,350
<ALLOWANCES> 1,019,933
<INVENTORY> 0
<CURRENT-ASSETS> 11,416,878
<PP&E> 12,190,980
<DEPRECIATION> 6,169,465
<TOTAL-ASSETS> 23,775,773
<CURRENT-LIABILITIES> 2,831,486
<BONDS> 0
0
0
<COMMON> 171,691
<OTHER-SE> 20,646,033
<TOTAL-LIABILITY-AND-EQUITY> 23,775,773
<SALES> 15,211
<TOTAL-REVENUES> 15,211
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,827,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,317
<INCOME-PRETAX> (1,263,083)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,263,083)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,263,083)
<EPS-PRIMARY> (.07)
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