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, 2000
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
incorporation or organization) Identification No.)
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 (the "Common Stock"), as of March 31, 2000 was 20,004,838 .
<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 ...............................3-4
Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999 ...................................................5
Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 2000 and 1999...............................6
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 2000 and 1999...............................7
Notes to Consolidated Financial Statements (unaudited) ..................8
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings ...................................................9
ITEM 2 -- Changes in Securities ...............................................9
ITEM 3 -- Defaults Upon Senior Securities .....................................9
ITEM 4 -- Submission of Matters to a Vote of Security Holders .................9
ITEM 5 -- Other Information ...................................................9
ITEM 6 -- Exhibits and Reports on Form 8-K ....................................9
Signature Page ...............................................................10
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, 1999.
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 (the
"Exchange Act"). 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 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 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.
Operations
Our FCC commercial operating license was awarded to us in recognition of
our efforts in developing and deploying Local Multipoint Distribution Service
("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
covers 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.
We have launched a SPEED(sm) Portal to promote broadband high-speed
Internet access on a nationwide basis. Our portal is designed to provide users
with information on how to get high-speed access and how to take advantage of
offerings available to high-speed users.
Currently, we are also conducting a limited pilot program of our SPEED(sm)
broadband super high-speed Internet service. SPEED(sm) is delivered via 14
Internet Broadcast Stations operating under the Company's FCC license covering
Metro New York. Our Internet broadcast signal is currently not available at all
locations in our license area. 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.
In areas where our signal penetrates, we believe that we offer both small
business and residential customers the lowest-cost, highest downstream speed
Internet access solution available.
In September 1999, we announced our equity investment in SPEEDIA, LLC, a
mobile web to wireless information and e-commerce service company. We also
explore additional incubation opportunities in Internet and e-commerce
companies. Our Network Operations Center ("NOC") is an ideal facility to house
new, cost-conscious Internet startups that need Internet backbone connectivity
and quick ramp-up and expansion capabilities.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues increased $20,000 from $15,000 for the three months ended March
31, 1999 to $35,000 for the three months ended March 31, 2000. This reflects the
early results of the Company's pilot program to connect its first Internet
subscribers.
Selling, general and administrative expenses increased $98,000 from
$1,147,000 for the three months ended March 31, 1999 to $1,245,000 for the three
months ended March 31, 2000. This increase is primarily attributable to
increases in compensation
3
<PAGE>
expense as a result of additions to senior management, including research and
development and the Company's Portal, and legal expenses in connection with
Intellectual Property activities.
Equity in loss of associated company amounted to $233,000 for the three
months ended March 31, 2000. During 1999, the Company made cash investments for
a 45% equity interest in SPEEDIA, LLC which investment is being accounted for
under the equity method. No similar item was recorded for the first quarter of
1999 because the Company was just making its initial investments at that time.
Interest and investment income increased $523,000 from $196,000 for the
three months ended March 31, 1999 to $719,000 for the three months ended March
31, 2000 since the Company had more funds available for investment.
The Company incurred unrealized losses on investments in the amount of
$119,000 for the quarter ended March 31, 2000. No such losses were recognized in
1999.
Other income amounted to $360,000 for the three months ended March 31,
1999. During 1999, the Company negotiated settlements with vendors. For the
three months ended March 31, 2000, these settlements were not material.
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.
While the Company believes that it has sufficient liquidity to finance its
current level of operations, 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 in the future 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" concern 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.
Although the date is now past January 1, 2000, and we have not experienced
immediate adverse impact from the transition to the Year 2000, we cannot provide
assurance that we or our suppliers and customers have not been affected in a
manner that is not yet apparent. In addition, some computer programs that were
date sensitive to the Year 2000 may not have been programmed to process the Year
2000 as a leap year, and any negative consequential effects remain unknown. As a
result, we will continue to monitor our Year 2000 compliance and the Year 2000
compliance of our suppliers and customers.
4
<PAGE>
SPEEDUS.COM, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,008,344 $ 44,613,101
Marketable securities 605,696 --
Due from affiliates 93,112 93,112
Prepaid expenses and other 50,000 50,000
Accounts receivable 7,782 8,064
------------ ------------
Total current assets 42,764,934 44,764,277
Property and equipment, net of accumulated
depreciation of $8,644,147 and $8,092,906 10,888,562 10,958,977
Intangible assets 2,070,000 --
Other assets 55,405 46,036
------------ ------------
Total assets $ 55,778,901 $ 55,769,290
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 454,596 $ 554,739
Accrued liabilities 1,149,663 1,065,236
Current portion of notes payable 168,751 210,938
Other current liabilities -- 138,937
------------ ------------
Total current liabilities 1,773,010 1,969,850
Commitments and Contingencies -- --
Stockholders' equity:
Common stock ($.01 par value; 40,000,000
shares authorized; 20,004,838 and 19,670,959
shares issued and outstanding) 200,048 196,710
Preferred stock ($.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 81,757,294 79,875,699
Accumulated deficit (27,951,451) (26,272,969)
------------ ------------
Stockholders' equity 54,005,891 53,799,440
------------ ------------
Total liabilities and stockholders' equity $ 55,778,901 $ 55,769,290
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
SPEEDUS.COM, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 35,402 $ 15,211
------------ ------------
Expenses:
Selling, general and administrative 1,244,773 1,146,725
Depreciation and amortization 833,023 680,699
------------ ------------
Total operating expenses 2,077,796 1,827,424
------------ ------------
Operating loss (2,042,394) (1,812,213)
Equity in loss of associated company (233,314) --
Interest and investment income 719,420 196,478
Unrealized losses on investments (118,515) --
Interest expense (3,679) (7,317)
Other income -- 359,969
------------ ------------
Net loss $ (1,678,482) $ (1,263,083)
============ ============
Per share:
Basic loss per common share $ (0.08) $ (0.07)
============ ============
Weighted average common shares
outstanding 19,788,357 17,147,411
============ ============
Diluted loss per common share $ (0.08) $ (0.07)
============ ============
Weighted average common shares
outstanding 19,788,357 17,147,411
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
SPEEDUS.COM, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,678,482) $ (1,263,083)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 833,023 680,699
Stock based compensation 83,500 --
Equity in loss of associated company 233,314 --
Changes in assets and liabilities: --
Marketable securities (605,696) --
Accounts receivable 282 (5,350)
Prepaid expenses and other -- (38,500)
Accounts payable (100,143) (935,301)
Accrued liabilities 84,427 60,719
Other current liabilities (138,937) 6,662
Due from affiliates -- (6,667)
Other assets (9,369) (100,750)
------------ ------------
Net cash used in operating activities (1,298,081) (1,601,571)
------------ ------------
Cash flows from investing activities:
Investment in associated company (233,314) --
Intangible assets (270,000) --
Property and equipment additions (762,608) (35,311)
------------ ------------
Net cash used in investing activities (1,265,922) (35,311)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 1,433 33,553
Repayment of notes payable (42,187) (42,187)
------------ ------------
Net cash used in provided by financing activities (40,754) (8,634)
------------ ------------
Net decrease in cash
and cash equivalents (2,604,757) (1,645,516)
Cash and cash equivalents, beginning of period 44,613,101 12,902,085
------------ ------------
Cash and cash equivalents, end of period $ 42,008,344 $ 11,256,569
============ ============
Supplemental Cash Flow Disclosures:
Cash paid for interest during the period $ 4,313 $ 7,317
============ ============
Non cash transactions:
Common stock issued for intangible assets $ 1,800,000 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<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, Inc. 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 1999
audited consolidated financial statements and notes thereto on Form 10-K.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
Trading securities are carried at fair market value on the accompanying
consolidated balance sheet at March 31, 2000. The difference between their cost
and fair market value at March 31, 2000 has been recorded in the accompanying
consolidated statement of operations for the three months ended March 31, 2000.
2. Patents
In February 2000, the Company, through BroadBand Patents, LLC, a new
wholly-owned subsidiary, purchased certain intellectual property from GEC
Partners, LLP, an unaffiliated third party, pertaining to wireless transmissions
including U. S. Patent 5,594,937 titled "System for the transmission and
reception of directional radio signals utilizing a gigahertz implosion
concept.". The purchase price of $2,000,000 was paid $200,000 in cash and
$1,800,000 by the issuance of 332,942 shares of the Company's Common Stock.
3. Legal Proceedings
There have been no material developments with respect to the legal
proceedings reported in Item 3 or in Note 8 to the consolidated financial
statements included in Item 14 of the Company's report on Form 10-K for the year
ended December 31, 1999.
8
<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, 2000, there have been no material developments with respect to the
legal proceedings reported in Item 3 or in Note 8 to the financial statements
included in Item 14 of such report.
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
9
<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 15, 2000 By: /s/ Shant S. Hovnanian
-----------------------
Shant S. Hovnanian
Chairman and President
Date: May 15, 2000 By: /s/ Angela M. Vaccaro
---------------------
Angela M. Vaccaro
Controller and Chief Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 42,008,344
<SECURITIES> 605,696
<RECEIVABLES> 7,782
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,764,934
<PP&E> 10,888,562
<DEPRECIATION> 8,644,147
<TOTAL-ASSETS> 55,778,901
<CURRENT-LIABILITIES> 1,773,010
<BONDS> 0
0
0
<COMMON> 200,048
<OTHER-SE> 53,805,843
<TOTAL-LIABILITY-AND-EQUITY> 55,778,901
<SALES> 35,402
<TOTAL-REVENUES> 35,402
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,077,796
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,679
<INCOME-PRETAX> (1,678,482)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,678,482)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,678,482)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
