|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission file number:                   000-27582
SPEEDUS CORP.(Exact name of registrant as specified in its charter)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|Delaware                                                           |  | 13-3853788                          
|------------------------------------------------------------------ |  | ------------------------------------
|                                                                   |  |                                     
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer Identification
No.)
|                                                                   |  |                                     

|9 Desbrosses Street, Suite 402
    Brooklyn,
New York |  | 10013     
|----------------------------------------------------- |  | ----------
|                                                      |  |           
|(Address
of principal executive offices)              |  | (Zip Code)

|                                                    
|----------------------------------------------------
|888-773-3669                                        
|                                                    
|(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. YesxNoo
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                
|Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer
in Rule 12b-2 of the Exchange Act.                                                                                                                              

| | Large accelerated filero |  | Accelerated filero |  | Non-accelerated filer   x | 
| | ------------------------ |  | ------------------ |  | ------------------------- | 

|
|

|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YesoNox         
|---------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                 
|The number of outstanding shares of the registrants common stock, par value $.01 per share, as
of August 9, 2006 was 16,025,850.

|
|



|               | PART I  FINANCIAL INFORMATION                                                            |                                                                                                                   | Page  |     
|-------------- | ----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ----- | ----
|
|
|Item 1.        | Financial Statements                                                                      |                                                                                                                   |       |     
|               |                                                                                           |                                                                                                                  
|               |                                                                                           | Consolidated Balance Sheets (unaudited) as of June 30, 2006
      and December 31, 2005                           |       | 3   
|               |                                                                                           |                                                                                                                  
|               |                                                                                           | Consolidated Statements of Operations (unaudited) for the
      Three and Six Months Ended June 30, 2006 and 2005 |       | 4   
|               |                                                                                           |                                                                                                                  
|               |                                                                                           | Consolidated Statements of Cash Flows (unaudited) for the
      Six Months Ended June 30, 2006 and 2005           |       | 5   
|               |                                                                                           |                                                                                                                   |       |     
|               |                                                                                           | Condensed Notes to Consolidated Financial Statements (unaudited)                                                  |       | 6-13
|               |                                                                                           |                                                                                                                  
|Item 2.        | Managements Discussion and Analysis of Financial
    Condition and Results of Operations |                                                                                                                   | 13-18 |     
|               |                                                                                           |                                                                                                                   |       |     
|Item 3.        | Quantitative and Qualitative Disclosures About Market Risk                                |                                                                                                                   | 18    |     
|               |                                                                                           |                                                                                                                   |       |     
|Item 4.        | Controls and Procedures                                                                   |                                                                                                                   | 18    |     
|               |                                                                                          
|               | PART II  OTHER INFORMATION                                                               |                                                                                                                  
|               |                                                                                           |                                                                                                                   |       |     
|Item 1.        | Legal Proceedings                                                                         |                                                                                                                   | 19    |     
|               |                                                                                           |                                                                                                                   |       |     
|Item 1A.       | Risk Factors                                                                              |                                                                                                                   | 19    |     
|               |                                                                                           |                                                                                                                   |       |     
|Item 2.        | Unregistered Sales of Equity Securities and Use of Proceeds                               |                                                                                                                   | 19    |     
|               |                                                                                           |                                                                                                                   |       |     
|Item 3.        | Defaults Upon Senior Securities                                                           |                                                                                                                   | 19    |     
|               |                                                                                           |                                                                                                                   |       |     
|Item 4.        | Submission of Matters to a Vote of Security Holders                                       |                                                                                                                   | 19    |     
|               |                                                                                           |                                                                                                                   |       |     
|Item 5.        | Other Information                                                                         |                                                                                                                   | 19    |     
|               |                                                                                           |                                                                                                                   |       |     
|Item 6.        | Exhibits                                                                                  |                                                                                                                   | 19    |     
|               |                                                                                           |                                                                                                                   |      
|Signature Page |                                                                                           | 20                                                                                                                |      
|               |                                                                                          
|               |                                                                                           |                                                                                                                  
|               |                                                                                          

|Exhibit 10.1 | Employment Agreement, dated as of April 1, 2006,
between Speedus Corp. and Shant S. Hovnanian                                                                                 |  | 22-28 | 
|------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | 
|             |                                                                                                                                                                               | 
|Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 |  | 29    | 
|             |                                                                                                                                                                               | 
|Exhibit 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 |  | 30    | 
|             |                                                                                                                                                                               | 
|Exhibit 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002                         |  | 31    | 
|             |                                                                                                                                                                               | 
|Exhibit 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002                       |  | 32    | 

|2
|-



|SPEEDUS CORP.                 
|------------------------------
|CONSOLIDATED    BALANCE SHEETS
|(unaudited)                   
|                              

|                                                                                                                                            |   |            
|------------------------------------------------------------------------------------------------------------------------------------------- | - | -----------
|                                                                                                                                            |   |            
|                                                                                                                                            |   |            
|**ASSETS**                                                                                                                                  |   |            
|Current assets:                                                                                                                             |   |            
|Cash and cash equivalents                                                                                                                   | $ | 11,191,603 
|United States Treasury bills                                                                                                                |   | 4,989,800  
|Marketable securities                                                                                                                       |   | 528,334    
|Prepaid expenses and other                                                                                                                  |   | 224,285    
|Accounts and other receivables                                                                                                              |   | 2,900      
|                                                                                                                                            |   |            
|Total current assets                                                                                                                        |   | 16,936,922 
|Property and equipment, net of accumulated
        depreciation of $419,880 and $321,256                                                    |   | 665,271    
|Other intangible assets, net of accumulated
        amortization of $2,951,900 and $2,607,133                                               |   | 278,144    
|Other investments                                                                                                                           |   | 800,000    
|Other assets                                                                                                                                |   | 663,626    
|                                                                                                                                            |   |            
|Total assets                                                                                                                                | $ | 19,343,963 
|                                                                                                                                            |   |            
|                                                                                                                                            |   |            
|**LIABILITIES AND STOCKHOLDERS EQUITY**                                                                                                    |   |            
|Current liabilities:                                                                                                                        |   |            
|Accounts payable                                                                                                                            | $ | 86,112     
|Accrued liabilities                                                                                                                         |   | 1,095,542  
|                                                                                                                                            |   |            
|Total current liabilities                                                                                                                   |   | 1,181,654  
|                                                                                                                                            |   |            
|Minority interest                                                                                                                           |   |           
|                                                                                                                                            |   |            
|Commitments and Contingencies                                                                                                               |   |            
|                                                                                                                                            |   |            
|Stockholders equity:                                                                                                                       |   |            
|Common stock ($.01 par value; 50,000,000
            shares authorized; 21,750,174
            shares issued)                               |   | 217,502    
|Preferred stock ($.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                                                                                                                  |   | 91,338,639 
|Treasury stock (at cost; 5,724,324 and 5,632,275 shares)                                                                                    |   | (6,008,799 
|Accumulated deficit                                                                                                                         |   | (67,385,033
|                                                                                                                                            |   |            
|Stockholders equity                                                                                                                        |   | 18,162,309 
|                                                                                                                                            |   |            
|Total liabilities and stockholders equity                                                                                                  | $ | 19,343,963 
|                                                                                                                                            |   |            

|                                                                                        
|----------------------------------------------------------------------------------------
|The accompanying notes are an  integral part of these consolidated financial statements.

|3
|-



|SPEEDUS CORP.                        
|-------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS
|(unaudited)                          
|                                     

|                                                               |  
|-------------------------------------------------------------- | -
|                                                               |  
|**2006**                                                       |  
|                                                               |  
|                                                               |  
|Revenues                                                       | $
|                                                               |  
|                                                               |  
|Expenses:                                                      |  
|Selling, general and administrative                            |  
|Research and development                                       |  
|Depreciation and amortization                                  |  
|Cost of sales                                                  |  
|
|Total operating expenses                                       |  
|
|                                                               |  
|Operating loss                                                 |  
|                                                               |  
|Investment income/(loss)                                       |  
|Minority interest                                              |  
|
|Net loss                                                       | $
|
|                                                               |  
|Per share:                                                     |  
|Basic loss per common share                                    | $
|
|Weighted average common shares
          outstanding - basic   |  
|
|                                                               |  
|Diluted loss per common share                                  | $
|
|Weighted average common shares
          outstanding - diluted |  
|

|                                                                                        
|----------------------------------------------------------------------------------------
|The accompanying notes are an  integral part of these consolidated financial statements.

|4
|-



|SPEEDUS CORP.                        
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|(unaudited)                          
|                                     

|                                                                                          | **Six months ended June 30,** |           
|----------------------------------------------------------------------------------------- | ----------------------------- | ----------
|                                                                                          |                               |           
|                                                                                          | **2006**                      |           
|                                                                                          |                               |           
|Cash flows from operating activities:                                                     |                               |           
|Net loss                                                                                  | $                             | (3,503,870
|Adjustments to reconcile net loss to  
            net cash used in operating activities: |                               |           
|Depreciation and amortization                                                             |                               | 443,393   
|Unrealized investment (gains)/losses                                                      |                               | 432,940   
|Minority interest                                                                         |                               |          
|Stock based compensation                                                                  |                               | 547,678   
|Changes in operating assets and liabilities:                                              |                               |           
|Marketable securities                                                                     |                               | 213,551   
|Accounts and other receivables                                                            |                               | (2,400    
|Prepaid expenses and other                                                                |                               | (42,777   
|Due from broker                                                                           |                               |          
|Other assets                                                                              |                               | 27,818    
|Accounts payable                                                                          |                               | 17,420    
|Accrued liabilities                                                                       |                               | (53,806   
|Securities sold and not purchased                                                         |                               |          
|                                                                                          |                               |           
|Net cash used in operating activities                                                     |                               | (1,920,053
|                                                                                          |                               |           
|Cash flows from investing activities:                                                     |                               |           
|Property and equipment additions                                                          |                               | (337,696  
|United States Treasury bills:                                                             |                               |           
|Purchases                                                                                 |                               | (9,989,800
|Maturities                                                                                |                               | 5,000,000 
|Other investments                                                                         |                               |           
|Purchases                                                                                 |                               |          
|Transfer to Marketable Securities                                                         |                               |          
|                                                                                          |                               |           
|Net cash provided by/(used in) investing activities                                       |                               | (5,327,496
|                                                                                          |                               |           
|Cash flows from financing activities:                                                     |                               |           
|Repurchase of stock                                                                       |                               | (123,936  
|Proceeds from exercise of options or warrants                                             |                               |          
|                                                                                          |                               |           
|Net cash used in financing activities                                                     |                               | (123,936  
|                                                                                          |                               |           
|Net decrease in cash and cash equivalents                                                 |                               | (7,371,485
|Cash and cash equivalents, beginning of period                                            |                               | 18,563,088
|                                                                                          |                               |           
|Cash and cash equivalents, end of period                                                  | $                             | 11,191,603
|                                                                                          |                               |           

|                                                                                        
|----------------------------------------------------------------------------------------
|The accompanying notes are an  integral part of these consolidated financial statements.

|5
|-



|SPEEDUS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)
1.     Basis of Presentation
The
unaudited consolidated financial statements of Speedus Corp. 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 fair statements
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 2005 audited consolidated financial statements
and notes thereto on Form 10-K.
Operating
results for the three and six months ended June 30, 2006 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2006.
Financial statements and principles of consolidation
The
consolidated financial statements include the accounts of Speedus and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Companies
in which Speedus directly or indirectly owns more than 50% of the outstanding voting securities or
that Speedus has effective control over are accounted for under the consolidation method of accounting.
Under this method, those companies balance sheets and results of operations, from the date
Speedus acquired control, are included in Speedus consolidated financial statements. The interest
in the net assets and operations of these companies other stockholders is reflected in the
caption Minority interest in Speedus consolidated balance sheets and statements
of operations.
The
Companys share of earnings or losses of associated companies that are 20% to 50% owned is included
in the consolidated operating results using the equity method of accounting.
Companies
in which Speedus owns less than 20% of the outstanding voting securities and does not have the ability
to exercise significant influence are accounted for under the cost method of accounting.
Estimates
The
preparation of 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 and the difference could be material.
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 June 30, 2006 and December 31, 2005, marketable securities consisted of publicly traded equity
securities and were recorded at fair market value. Their original cost was $1,205,000 and $1,419,000,
unrealized losses since acquisition were $677,000 and $244,000 and the carrying value was $528,000
and $1,175,000, respectively. At June 30, 2006, based upon the fair market value of these securities
24% was invested in technology and telecommunications companies and 76% was invested in a coal company.
United States Treasury bills
United States Treasury bills are classified as held-to-maturity securities and are carried at amortized
cost.
Other investments
The
Company has invested in equity and debt instruments of non-publicly held companies and accounts for
them under the cost method since the Company does not have the ability to exercise significant influence
over operations. The Company monitors 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 records reductions in carrying
values when necessary. The Company does not believe there has been any impairment of other investments
at June 30, 2006.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6
|-



|Other investments consist of:
|-----------------------------
|                             

| |                                                                                                                                                                                                                                                                                                                                                                                                                 |  | June 30,
      2006 |         | December 31,
      2005 |   |        
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ----------------------- | - | -------
| |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                     |         |                         |   |        
| | (a) 791,667 shares of preferred stock of a non-publicly held cardiovascular technology company, recorded at cost in the amount of $300,000. In connection with this investment, the Company also received warrants to purchase 375,000 shares of common stock at the lesser of $.40 or 80% of the per share price sold in the next round of financing. This investment was acquired in 2004.                    |  | $                   | 300,000 |                         | $ | 300,000
| |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                     |         |                         |   |        
| | (b) an investment in an entity specifically formed to invest in convertible preferred stock in a non-publicly held online and directory assistance company, recorded at cost in the amount of $250,000. The preferred stock is convertible into shares of common stock at a conversion price equal to 50% of the price of the common stock in an initial public offering. This investment was acquired in 2005. |  |                     | 250,000 |                         |   | 250,000
| |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                     |         |                         |   |        
| | (c) an investment in an entity specifically formed to invest in a senior third-party note of a non-publicly held online and directory assistance company, recorded at cost in the amount of $250,000. The note is convertible into shares of common stock at a conversion price equal to the price of the common stock in an initial public offering. This investment was acquired in 2005.                     |  |                     | 250,000 |                         |   | 250,000
| |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                     |         |                         |   |        
| |                                                                                                                                                                                                                                                                                                                                                                                                                 |  | $                   | 800,000 |                         | $ | 800,000
| |                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                     |         |                         |   |        

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Securities Sold But Not Purchased
      The
        Company may sell publicly traded 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 amount that would be shown
        on the balance sheet as Securities sold and not purchased would represent the value of
        these securities at fair market value. At June 30, 2006 and December 31, 2005, there were no securities
        sold and not purchased.
      Due From Broker
      In
        connection with selling publicly traded securities that it does not own, the Company would be obligated
        to maintain balances with brokerage firms as security for these transactions. At June 30, 2006 and
        December 31, 2005, there were no restricted cash balances.
      Concentrations of Credit Risk
      Financial
        instruments that potentially could subject the Company to concentrations of credit risk consist largely
        of cash equivalents and marketable securities. These instruments are potentially subject to concentrations
        of credit risk but the Company believes that this risk is limited due to diversification and investments
        being made in investment grade securities.
      The Company may sell publicly traded equity securities that it does not own in anticipation of declines
        in the fair market values of the securities. When the Company sells securities that it does not own,
        it must borrow the securities it sold in order to deliver them and settle the trades. Thereafter,
        the Company must buy the securities and deliver them to the lender of the securities. The Companys
        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.
      Long-lived Assets
      The
        Company periodically evaluates the net realizable value of long-lived assets, including fixed and
        intangible assets, in accordance with Statement of Financial Accounting Standards No. 144, Accounting
        for the Impairment or Disposal of Long-Lived Assets, relying on anticipated future cash flows.
        The Companys evaluation of anticipated future cash flows considers operating results, business
        plans and economic projections, as well as, non-financial data such as market trends, product and
        development cycles, and changes in managements market emphasis. An impairment in the carrying
        value of an asset is recognized when the expected future operating cash flows derived from the asset
        are less than its carrying value.
      Goodwill and Other Intangible Assets
      The Company accounts for goodwill and other intangible assets in accordance with Statement of Financial
        Accounting

|7
|-



|Standards No. 142, Goodwill and Other Intangible Assets which requires the use of a nonamortization
approach to account for purchased goodwill and certain intangibles. Under the nonamortization approach,
goodwill is not being amortized into results of operations, but instead is reviewed for impairment
on a reporting unit basis at least annually and charged against results of operations only in the
periods in which the recorded value of goodwill is more than its implied fair value.
The Company owns broadband assets, included in intangible assets, with a carrying value of $206,000
at June 30, 2006 and currently does not generate significant revenues or cash flows. However, the
Company estimated that, based upon its review of recent transactions and other factors, the fair
value of certain patents that have no carrying value on its books would generate sufficient cash
to fully realize the assets described above.
Other intangible assets consist of: (i) the cost of a broadband patent and (ii) medical technology
in connection with the acquisition of a controlling interest in Zargis Medical. The broadband patent,
in the aggregate cost of $2,070,000 with accumulated amortization of $1,864,000 at June 30, 2006,
is being amortized over its remaining useful life of four years. Medical technology, in the aggregate
amount of $1,160,000 with accumulated amortization in the amount of $1,088,000 at June 30, 2006,
is being amortized over a period of three years.
For the three and six months ended June 30, 2006 and 2005, amortization expense relating to intangible
assets was $159,000 and $345,000 and $199,000 and $398,000, respectively. The estimated annual amortization
expense for the balance of fiscal 2006 and for fiscal 2007, the expiration of the remaining useful
life of the Companys intangible assets at June 30, 2006, is $244,000 and $34,000, respectively.
Amortization expense is included in Depreciation and amortization on the accompanying
consolidated statement of operations and not allocated to Selling, general and administrative,
Research and development or Cost of sales.
Revenue Recognition
Revenues from F&B Güdtfoods operations are recorded on a cash basis.
Earnings Per Share
Basic
and diluted earnings/(loss) per common share are determined in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share.
For
the three and six months ended June 30, 2006 and 2005, outstanding stock options and warrants in
the aggregate weighted average amount of 2,123,000, 1,926,000, 1,875,000 and 1,884,000, respectively,
have been excluded from the diluted loss per share since their effect would be antidilutive.
Stock Options
Prior
to January 1, 2006, the Company accounted for its employee stock options in accordance with
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
as amended, which defines a fair value method of measuring and accounting for compensation
expense from employee stock options. FASB 123 also allowed accounting for such options under the
intrinsic value method in accordance with Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees. The Company elected to use the intrinsic value method and adopted
the disclosure only provisions of FASB 123. Generally, no compensation cost was recognized since
stock options were issued with exercise prices equal to the market value of the underlying shares
on the grant date. The following table presents unaudited pro forma earnings and earnings per share
as if the fair value method of accounting was applied during the three and six months ended June 30, 2005:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | Three months 
      ended June 30,
      2005 |  | Six months 
      ended June 30,
      2005 |            |  
| | --------------------------------------------- |  | ------------------------------------------- | ---------- | -
|
| | Net loss as reported                          |  | $                                           | (1,380,680 | )
| | After tax effect of pro forma compensation    |  |                                             | (5,550     | )
| |                                               |  |                                             |            |  
| | Pro forma net loss                            |  | $                                           | (1,386,230 | )
| |                                               |  |                                             |            |  
| | Earnings/(loss) per share:                    |  |                                             |            |  
| | Basic - as reported                           |  | $                                           | (0.09      | )
| |                                               |  |                                             |            |  
| | Basic - pro forma                             |  | $                                           | (0.09      | )
| |                                               |  |                                             |            |  
| | Diluted - as reported                         |  | $                                           | (0.09      | )
| |                                               |  |                                             |            |  
| | Diluted - pro forma                           |  | $                                           | (0.09      | )
| |                                               |  |                                             |            |  

|                                                                                                                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The
fair value of these awards on the grant date was estimated using a Black-Scholes option pricing model.
Key assumptions used in valuing these options included risk-free interest rates between 2-4%, expected
lives of three years and volatility factors between 51-65%.

|8
|-



|Effective
January 1, 2006, the Company adopted FASB 123R using the modified prospective application method.
Under this method, for all unvested awards as of January 1, 2006, the Company records 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. For awards granted after January 1, 2006, the Company
records compensation cost based upon the fair value of those awards on the grant date over the service
period of each award on a straight line basis. As a result of adopting FASB 123R, the net loss for
the three and six months ended June 30, 2006 increased $516,000 and $547,000, respectively. Both
basic and diluted loss per share increased $0.03 during each of those periods.
The
fair value of the awards on the grant date was estimated using a Black-Scholes option pricing model.
Assumptions utilized in the model are evaluated and revised, as necessary, to reflect market conditions
and experience. Expected volatility of 145% has been calculated based on the historical volatility
of the Companys stock prior to the grant date. The expected term represents the period of time
that options granted are expected to be outstanding and is estimated based on historical option exercise
experience ranging between six and seven years. The risk-free interest rate of 5% is equivalent to
the U.S. Treasury yield in effect at the time of grant for the estimated life of the option grant.
The Company estimates forfeiture rates based on its historical experience.
Recent Accounting Pronouncements
In

June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting

for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109. FIN 48 clarifies

the accounting for uncertainty in income taxes recognized in an enterprises financial statements

in accordance with FASB Statement No. 109, Accounting for Income Taxes and prescribes

that a company should use a more-likely-than-not recognition threshold based on the technical merits

of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold

should be measured in order to determine the tax benefit to be recognized in the financial statements.

FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently

evaluating the impact of FIN 48 on its consolidated results of operations and financial condition.
In February 2006, the Financial Accounting Standards Board issued FASB No. 155, Accounting for
Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140.
FASB No. 155 allows companies to elect to measure at fair value entire financial instruments containing
embedded derivatives that would otherwise have to be accounted for separately. It also requires companies
to identify interests in securitized financial assets that are freestanding derivatives or contain
embedded derivatives that would have to be accounted for separately, clarifies which interest only
and principal only strips are subject to FASB No. 133, and amends FASB No. 140 to revise the conditions
of a qualifying special purpose entity due to the new requirement to identify whether interests in
securitized financial assets are freestanding derivatives or contain embedded derivatives. FASB No.
155 is effective for all financial instruments acquired, issued or subject to a remeasurement event
for the first fiscal year beginning after September 15, 2006. The Company does not expect adoption
of FASB No. 155 to have a material effect on its results of operations or financial position.
In
March 2006, the Financial Accounting Standards Board issued FASB No. 156, Accounting for Servicing
of Financial Assets  an amendment of FASB Statement No. 140. FASB No. 156 requires the
recognition of a servicing asset or liability each time a company undertakes an obligation to service
a financial asset in certain situations. It requires all separately recognized servicing assets and
liabilities to be initially measured at fair value, if practical. FASB No. 156 is effective for the
first fiscal year beginning after September 15, 2006. The Company does not expect adoption of FASB
No. 156 to have a material effect on its results of operations or financial position.
2. Stockholders Equity
Stock Options
(a)
In November 2005, stockholders approved the Companys 2005 Stock Incentive Plan to replace the
1995 Stock Incentive Plan which expired in October 2005. While no new grants can be made under the
1995 Plan, options outstanding at the expiration of the 1995 Plan will remain outstanding until exercise,
cancellation or expiration. Options available for grant at the expiration of the 1995 Plan have been
made available for grant under the 2005 Plan. To the extent that options granted under the 1995 Plan
are cancelled or expire, those options would be available for issuance under the 2005 plan. Similar
to the 1995 Plan, the 2005 Plan provides for the grant of various stockbased incentives, including
non-qualified and incentive stock options, to employees, directors and consultants. The Company has
issued new shares for the exercise of stock options and expects to continue to do so in the future.
See Note 1 for information on the Companys accounting policy for stock options.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9
|-



|Aggregate
stock option activity and weighted average exercise prices under both Plans for the six months ended
June 30, 2006 is summarized as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                      

| | Options                        |  | Price |           |  
| | ------------------------------ |  | ----- | --------- | -
|
| | Outstanding at January 1       |  |       | 1,726,459 |  
| | Granted                        |  |       | 409,000   |  
| | Exercised                      |  |       | 0         |  
| | Expired                        |  |       | (5,000    | )
| | Forfeited                      |  |       | 0         |  
| |                                |  |       |           |  
| | Outstanding at June 30         |  |       | 2,130,459 |  
| |                                |  |       |           |  
| | Exercisable at June 30         |  |       | 1,954,570 |  
| |                                |  |       |           |  
| | Available for grant at June 30 |  |       | 765,368   |  
| |                                |  |       |           |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Stock options have ten-year terms. 400,000 options granted are immediately exercisable and 9,000 options
      vest over a three year term.
      Stock based compensation expense recognized during the three and six months ended June 30, 2006
        was $499,000 and $515,000, respectively. At June 30, 2006, there was $109,000 of unamortized
        compensation cost related to outstanding stock options that is expected to be recognized over a weighted
        average period of 1.7 years.
      The following table aggregates certain information concerning currently outstanding and exercisable
        stock options under both Plans at June 30, 2006:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|  | Stock options outstanding |  | Stock options exercisable |          
|- | ------------------------- |  | ------------------------- | ---------
|
|
|
|$ | 0.83 - 1.00               |  |                           | 393,220  
|  | 1.07 - 2.08               |  |                           | 1,129,000
|  | 2.27 - 4.84               |  |                           | 566,500  
|  | 5.20 - 8.00               |  |                           | 31,739   
|  | 13.75                     |  |                           | 10,000   
|  |                           |  |                           |          
|  |                           |  |                           | 2,130,459
|  |                           |  |                           |          
|  |                           |  |                           |          

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Intrinsic value represents the excess of market value at June 30, 2006 over the exercise price of stock
        options.
      (b) In February 2002, the Board of Directors of Zargis Medical Corp. approved the Zargis 2002 Stock
        Option Plan and reserved 280,000 shares of Zargis common stock for issuance under the plan. The Zargis
        2002 Plan provides for the grant of various stockbased incentives, including non-qualified
        and incentive stock options, to employees, directors, advisors and consultants. To date, there have
        been no options exercised under the Zargis 2002 Plan.
      Zargis accounting policy for stock options is the same as the Companys. See Note 1.
      Aggregate
        stock option activity and weighted average prices under the Zargis 2002 Plan for the six months ended
        June 30, 2006 is summarized as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                | Options |         | Price |   |     
| | ------------------------------ | ------- | ------- | ----- | - | ----
|
| | Outstanding at January 1       |         | 180,134 |       | $ | 2.51
| | Granted                        |         | 50,000  |       |   | 3.50
| | Exercised                      |         |        |       |   | 0.00
| | Cancelled                      |         |        |       |   | 0.00
| |                                |         |         |       |   |     
| | Outstanding at June 30         |         | 230,134 |       | $ | 2.73
| |                                |         |         |       |   |     
| | Exercisable at June 30         |         | 121,220 |       | $ | 2.15
| |                                |         |         |       |   |     
| | Available for grant at June 30 |         | 49,866  |       |   |     
| |                                |         |         |       |   |     

|                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Stock options have ten-year terms. All options granted vest over a three year term.
      Stock based compensation expense recognized during the three and six months ended June 30, 2006
        was $17,000 and $33,000, respectively. At June 30, 2006, there was $195,000 of unamortized compensation
        cost related to outstanding stock options that is expected to be recognized over a weighted average
        period of 2.1 years.

|10
|--



|The following table aggregates certain information concerning currently outstanding and exercisable
stock options under the Zargis 2002 Plan at June 30, 2006:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                              

|  | Stock options outstanding |  | Stock options exercisable |        
|- | ------------------------- |  | ------------------------- | -------
|
|
|
|$ | 0.50                      |  |                           | 30,000 
|  | 1.75                      |  |                           | 10,500 
|  | 2.50                      |  |                           | 69,634 
|  | 3.50                      |  |                           | 120,000
|  |                           |  |                           |        
|  |                           |  |                           | 230,134
|  |                           |  |                           |        
|  |                           |  |                           |        

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Intrinsic value represents the excess of market value at June 30, 2006 over the exercise price of
      stock options.
      3.   Business Segment Information
      The following table sets forth the Companys financial performance by reportable operating segment
        for the three and six months ended June 30, 2006 and 2005. F&B Güdtfood and Zargis Medical
        are included in the consolidated financial statements of the Company since May 6, 2002 and February
        28, 2003, respectively, the dates of acquisition of majority interests. The development of Wibiki
        commenced during the quarter ended June 30, 2005, however, operations in that quarter were not material.

|11
|--



|                                 |  | **Three months ended June 30, 2006** |         
|-------------------------------- |  | ------------------------------------ | --------
|                                 |  |                                      |         
|                                 |  | **F&B**                              |         
|                                 |  |                                      |         
|Revenues from external customers |  | $                                    | 209,069 
|Depreciation and amortization    |  |                                      | 37,202  
|Operating loss                   |  |                                      | (438,877
|Investment income/(loss)         |  |                                      | 551     
|Other intangible assets          |  |                                      | 0       
|Fixed assets                     |  |                                      | 612,775 
|Total assets                     |  |                                      | 749,924 
|                                 |  |                                      |         

|
|

|                                 |  | **Three months ended June 30, 2005** |          |            |   |                              
|-------------------------------- |  | ------------------------------------ | -------- | ---------- | - | -----------------------------
|                                 |  |                                      |          |            |   |                              
|                                 |  | **F&B**                              |          | **Zargis** |   | **Corporate
      and other**
|                                 |  |                                      |          |            |   |                              
|Revenues from external customers |  | $                                    | 282,673  |            | $ |                             
|Depreciation and amortization    |  |                                      | 25,395   |            |   | 4,195                        
|Operating loss                   |  |                                      | (147,120 | )          |   | (350,636                     
|Investment income/(loss)         |  |                                      | 528      |            |   | 20                           
|Other intangible assets          |  |                                      | 0        |            |   | 401,201                      
|Fixed assets                     |  |                                      | 487,559  |            |   | 23,260                       
|Total assets                     |  |                                      | 641,993  |            |   | 211,884                      

|
|

|                                 |  | **Six months ended June 30, 2006** |         
|-------------------------------- |  | ---------------------------------- | --------
|                                 |  |                                    |         
|                                 |  | **F&B**                            |         
|                                 |  |                                    |         
|Revenues from external customers |  | $                                  | 427,801 
|Depreciation and amortization    |  |                                    | 83,003  
|Operating loss                   |  |                                    | (628,932
|Investment income/(loss)         |  |                                    | 1,026   

|
|

|                                 |  | **Six months ended June 30, 2005** |          |            |   |                              
|-------------------------------- |  | ---------------------------------- | -------- | ---------- | - | -----------------------------
|                                 |  |                                    |          |            |   |                              
|                                 |  | **F&B**                            |          | **Zargis** |   | **Corporate
      and other**
|                                 |  |                                    |          |            |   |                              
|Revenues from external customers |  | $                                  | 509,086  |            | $ |                             
|Depreciation and amortization    |  |                                    | 47,771   |            |   | 8,188                        
|Operating loss                   |  |                                    | (317,970 | )          |   | (683,621                     
|Investment income/(loss)         |  |                                    | 481      |            |   | 38                           

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The Company has no foreign operations. During the three and six months ended June 30, 2006 and 2005,
the Company did not have sales to any individual customer greater than 10% of total Company revenues.
The Companys accounting policies for segments are the same as those described in Note 1.
4.   Legal Proceedings
(a) On May 11, 2006, we filed two separate complaints against Cellco Partnership (d/b/a Verizon Wireless) in
the United States District Court for the Southern District of Florida, in which we assert Verizon
Wireless is infringing two of our patents. Verizon Wireless is a joint venture of Verizon Communications
Inc. and Vodafone Group PLC. The suits address technologies now used by Verizon to transmit television
to wireless users over cellular networks and the simultaneous transmission of analog and digital
signals within the same bandwidth. On July 27, 2006, one of these cases was transferred to the United
States District Court for the District of New Jersey.
(b)
On June 2, 2006, we filed two separate complaints against Alltel Corp. in United States District
Court in the Southern District of Florida, in which we assert Alltel is infringing two of our patents.
The suits address technologies now used by Alltel to transmit television to wireless users over cellular
networks and the simultaneous transmission of analog and digital signals within the same bandwidth.
5.   Employment Agreement
Shant S. Hovnanian, Chairman and Chief Executive Officer of the Company, has been acting under the
terms of an employment agreement that expired April 25, 2005. The Compensation Committee of the Board
of Directors has approved a new

|12
|--



|employment agreement for
Mr. Hovnanian effective April 1, 2006 which has a three-year term and provides for an annual salary
of $275,000. Under the agreement, Mr. Hovnanian is entitled to be considered for an annual performance
based bonus targeted at 50% or greater of his base salary, use of a Company apartment and car, a
country club membership (which Mr. Hovnanian has not taken) and a $2,000,000 term life insurance
policy with the beneficiary designated by Mr. Hovnanian. In connection with the agreement, Mr. Hovnanian was also
granted 400,000 options in August 2006 to purchase shares of our Common Stock at market value. The options are fully
vested and immediately exercisable.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13
|--



|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF 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, 2005.
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.
Business Activities
Speedus Corp. is a holding company that owns significant equity interests in diverse businesses. We
seek business opportunities across all industries for potential transactions and relationships in
which we can apply our current resources and management strengths. The companies that we target,
either public or privately held, will be seeking growth or restructuring capital to pursue near term
business objectives in demonstrated markets. We will continue to pursue opportunities involving our
expertise in the medical device and wireless markets, as well as those areas involving our broadband
assets as attractive opportunities present themselves.
We have 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. Zargis Acoustic
Cardioscan® (Cardioscan®), Zargis core product, is the first and only FDA-authorized
computer-assisted medical device designed to support physicians in analyzing heart sounds for the
identification of suspected systolic and diastolic murmurswhich are a potential sign of heart
disease. We own 90% of F&B Güdtfood Holding Corp., the creator and operator of the original
Eurocentric chic and quick café, which is operating two stores in Manhattan. We
own a portfolio of patents that allow for high-speed wireless communications. 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. For additional information on each of our business
segments, see the discussions below and Condensed Notes to Consolidated Financial Statements
(unaudited)Note 3, Business Segment Information.
Zargis Medical Corp.In January 2001, we co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens Corporation,
in Zargis Medical Corp. to develop non-invasive, diagnostic support solutions that automatically
analyze acoustical data from a patient to determine physiologically significant features useful in
medical diagnosis. The development of Zargis patented technology is a pioneering effort in
medicine which uses advanced signal processing algorithms deployed on standard computer platforms.
The first Zargis device, Cardioscan, received its initial FDA authorization in May 2004 and additional
authorizations in September 2005 and March 2006. Cardioscan is currently being tested by a small
group of physicians during general medical examinations and physicals to help detect and analyze
suspected heart murmurs which could be a sign of valvular and congenital heart disease. According
to the National Center for Health Statistics, the number of general medical examinations, administered
in the US totaled 64 million in 2000 alone. Zargis is currently researching, and conducting trials
on, additional noninvasive diagnostic support tools that process acoustical data from the body in
order to provide an accurate and intelligible assessment of a patients health. These assessments
may be used by physicians and other healthcare providers to assist in the early identification or
monitoring of heart, lung, vascular and other conditions and to provide better patient treatment.
Major next steps remaining for Zargis include continuing market trials and clinical trials for new
applications of the Zargis technology and the formation of strategic partnerships designed to support
product commercialization.
In February 2003, we acquired a controlling interest in Zargis Medical. At June 30, 2006, as a result
of continued investment, our ownership interest was approximately 79%.
F&B Güdtfood. We own 90% of F&B Güdtfood, the creator and operator of the original Eurocentric chic
and quick café,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14
|--



|which is operating two stores in Manhattan. The acquisition price was $3,500,000 in May 2002. In February
2003, we reduced our cash investment in F&B Güdtfood and received $1,775,000 while maintaining
our original 51% interest. In December 2003, as a result of renegotiation, our interest increased
to 80% without an additional investment. As a result of certain milestones not having been met, in
2005 our interest increased to 90%. We expect that F&B Güdtfood will begin selling F&B
Güdtfood franchises through its wholly owned subsidiary, F&B Güdtfood Franchise Corp.
We have also entered into a management services contract with F&B Güdtfood that will result
in direct revenues to us although these revenues will be eliminated on our consolidated financial
statements.
Intellectual Property.  We have accumulated a portfolio of patents that teach and cover the improvement of high-speed
wireless communication systems to allow greater information content, reliability, clarity, more efficient
use of licensed spectrum as compared to prior systems and other advances. We have 6 domestic patents
with expiration dates ranging from 2007 through 2017, with approximately 46 international counterparts
in 28 countries. We also have 4 domestic patents pending and 14 patents pending in an additional
3 countries. Certain wireless communications systems may employ a number of different combinations
of our patented technology to maximize operational and spectrum efficiency. While we believe that
there is great value in our patented technologies, it is a lengthy and expensive process to investigate
and pursue licensing/patent infringement cases. We are evaluating a strategy for the utilization
of these patents in the future, which may include pursuit of licensing or development of other strategic
opportunities with users of the underlying technology. We have licensed technology in the past, both
domestically and internationally, but are not currently receiving any license fees.
On May 11, 2006, we filed two separate complaints against Cellco Partnership (d/b/a Verizon Wireless) in
United States District Court in the Southern District of Florida, in which we assert Verizon Wireless
is infringing two of our patents. Verizon Wireless is a joint venture of Verizon Communications Inc.
and Vodafone Group PLC. The suits address technologies now used by Verizon to transmit television
to wireless users over cellular networks and the simultaneous transmission of analog and digital
signals within the same bandwidth. On July 27, 2006, one of these cases was transferred to the United
States District Court in the District of New Jersey.
On June 2, 2006, we filed two separate complaints against Alltel Corp. in United States District
Court in the Southern District of Florida, in which we assert Alltel is infringing two of our patents.
The suits address technologies now used by Alltel to transmit television to wireless users over cellular
networks and the simultaneous transmission of analog and digital signals within the same bandwidth.
Wibiki. During 2005, our technology resources and experience in wireless broadband enabled us
to conceive a new software-based wireless network that leverages existing Wi-Fi infrastructures to
reduce cost, complexity and risk for users when accessing the Internet wirelessly. We named that
network Wibiki. Wibiki offers free beta software designed to improve access to free Wi-Fi, including
streamlining registration and security configuration of Wi-Fi clients and routers. Wibiki software
for laptops and routers can be downloaded from www.wibiki.com. Wibikis business model will employ
a user opt-in advertising service we call AdChooser to generate revenues that keep Wibiki services
free to users.
Local Multipoint Distribution Service (LMDS) license.We have an FCC commercial operating license, awarded to us in recognition of our efforts in developing
and deploying LMDS technology and for spearheading its regulatory approval at the FCC, which covers
150 MHz of spectrum in the New York City area. The license has been renewed as a standard LMDS license
through February 1, 2006. Renewal of the license has been applied for and is currently pending. 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 currently determinable. 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.
We will not commence a full marketing effort using our LMDS technology until new LMDS equipment becomes
commercially available with cost and performance that allow implementation of an economically viable
business model. We cannot determine when this will occur and this equipment may never be available
to us on this basis.
Other.We have invested a portion of our assets in a portfolio of marketable securities consisting of publicly
traded equity securities. We have also invested a portion of our assets in equity and debt instruments
of non-publicly held companies. 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.
We
have generated operating losses and negative operating cash flows since our inception and expect
to continue to do so in the near future.
Critical Accounting Policies
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 1 to our consolidated financial statements included
in this Form 10-Q and Note 2 to our consolidated financial statements included in our 2005
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15
|--



|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, United States treasury bills and
marketable securities and may include securities sold and not purchased. 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. Securities sold and not repurchased are also carried at the fair
market value of the securities. 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.
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.
Specifically, we own broadband assets, included in intangible assets, which had a carrying value
of $0.2 million at June 30, 2006 and currently do not generate significant revenues or cash flows.
However, as of December 31, 2005, we estimated that, based upon our review of historical transactions
and other factors, the fair value of certain patents that have no carrying value on our books would
generate sufficient cash to fully realize our assets described above as of December 31, 2005. These
estimates may differ from actual results due to, among other things, technological changes, economic
conditions, changes to our business model or changes in our operating performance.
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.
Three and Six Months Ended June 30, 2006 Compared to Three and Six Months Ended June 30, 2005
Revenues decreased $82,000 from $510,000 for the six months ended June 30, 2005 to $428,000 for the
six months ended June 30, 2006 and decreased $74,000 from $283,000 for the three months ended June
30, 2005 to $209,000 for the three months ended June 30, 2006. These decreases are primarily a result
of a reduction in menu prices at the Companys first store and the temporary closing of the
second store for renovations.
Selling, general and administrative expenses increased $523,000 from $1,940,000 for the six months
ended June 30, 2005 to $2,463,000 for the six months ended June 30, 2006 and increased $634,000 from
$965,000 for the three months ended June 30, 2005 to $1,599,000 for the three months ended June 30,
2006. These increases are primarily a result of increases in stock based compensation.
Research and development expenses increased $206,000 from $696,000 for the six months ended June 30,
2005 to $902,000 for the six months ended June 30, 2006 and increased $75,000 from $370,000 for the
three months ended June 30, 2005 to $445,000 for the three months ended June 30, 2006. This increase
is primarily a result of new wireless initiatives by the Company.
Depreciation and amortization decreased $20,000 from $463,000 for the six ended June 30, 2005 to $443,000
for the six months ended June 30, 2006 and decreased $28,000 from $233,000 for the three months ended
June 30, 2005 to $205,000 for the three months ended June 30, 2006. These decreases are primarily
a result of a decrease in amortization of medical technology from the completion of amortization
of early tranches of medical technology resulting from the Zargis acquisition, net of an increase
as a result of renovation to one of the F&B Restaurant stores.
Investment income decreased $245,000 from a net gain of $281,000 for the six months ended June 30,
2005 to a net gain of $36,000 for the six months ended June 30, 2006 and investment loss increased
$77,000 from a net loss of $1,000 for the three months ended June 30, 2005 to a net loss of $78,000
for the three months ended June 30, 2006. Realized gains increased $255,000 from net losses of $155,000
for the six months ended June 30, 2005 to net gains of $100,000 for the six months ended June 30,
2006 and increased $195,000 from net losses of $195,000 for the three months ended June 30, 2005.
There were no sales of marketable securities during the three months ended June 30, 2006. Unrealized
gains decreased $659,000 from net gains of $226,000 for the six months ended June 30, 2005 to net
losses of $433,000 for the six months ended June 30, 2006 and decreased $331,000 from net gains of
$69,000 for the three months ended June 30, 2005 to net losses of $262,000 for the three months ended
June 30, 2006. Interest income increased $159,000 from $210,000 for the six months ended June 30,
2005 to $369,000 for the six months ended June 30, 2006 and increased $58,000 from $125,000 for the
three months ended June 30, 2005 to $183,000 for the three months ended June 30, 2006. These increases
in interest income, net of decreases as a result of a lesser amount of funds available for short-term investment,
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|16
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|are primarily the result of increased interest rates. These investment 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.
Minority interest represents the interest of minority stockholders in the losses of F&B Güdtfood
and Zargis Medical since the dates of acquisition of a majority interest. Through the three and six
months ended June 30, 2006, F&B Güdtfood and Zargis Medical continued to generate losses
which, during 2005, reduced the minority interest balance to zero. As result, the Company is consolidating
100% of the losses for these entities and continues to fund their operations with intercompany loans
or additional investment, which are eliminated in consolidation.
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 $1,920,000 for the six months ended June 30, 2006 compared
to net cash used in operating activities of $3,016,000 for the six months ended June 30, 2005. This
net decrease in cash used in operating activities is primarily the result of the sale of marketable
securities, net of an increase in cash used to fund an increase in net loss.
Net cash used in investing activities was $5,327,000 for the six months ended June 30, 2006 compared
to net cash provided by investing activities of $1,099,000 for the six months ended June 30, 2005.
This net increase in cash used in investing activities is primarily the result of a $6,000,000 decrease
in maturities of United States Treasury bills and an increase in property and equipment additions
in the amount of $324,000 during the six months ended June 30, 2006.
Net cash used in financing activities was $124,000 for the six months ended June 30, 2006 compared
to net cash used in financing activities of $30,000 for the six months ended June 30, 2005. This
net increase in cash used in financing activities is primarily a result of an increase in repurchases
of treasury stock and a decrease in the proceeds received from the exercise of stock options.
At
June 30, 2006, the Companys future minimum lease payments due under non-cancelable leases aggregated
$1,519,000. $164,000 of this amount is due during the remainder of 2006. $276,000, $284,000, $233,000
and $138,000 of this amount is due during the years ending December 31, 2007, 2008, 2009 and 2010,
respectively, and the balance 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 $500,000, $300,000 or $200,000 if the license agreement is terminated by the Company before September
2007, 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.
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 also 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.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
In
June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109. FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprises financial statements
in accordance with FASB Statement No. 109, Accounting for Income Taxes and prescribes
that a company should use a more-likely-than-not recognition threshold based on the technical merits
of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold
should be measured in order to determine the tax benefit to be recognized in the financial statements.
FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently
evaluating the impact of FIN 48 on its consolidated results of operations and financial condition.
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|17
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|In
February 2006, the Financial Accounting Standards Board issued FASB No. 155, Accounting for
Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140.
FASB No. 155 allows companies to elect to measure at fair value entire financial instruments containing
embedded derivatives that would otherwise have to be accounted for separately. It also requires companies
to identify interests in securitized financial assets that are freestanding derivatives or contain
embedded derivatives that would have to be accounted for separately, clarifies which interest only
and principal only strips are subject to FASB No. 133, and amends FASB No. 140 to revise the conditions
of a qualifying special purpose entity due to the new requirement to identify whether interests in
securitized financial assets are freestanding derivatives or contain embedded derivatives. FASB No.
155 is effective for all financial instruments acquired, issued or subject to a remeasurement event
for the first fiscal year beginning after September 15, 2006. The Company does not expect adoption
of FASB No. 155 to have a material effect on its results of operations or financial position.
In March 2006, the Financial Accounting Standards Board issued FASB No. 156, Accounting for
Servicing of Financial Assets  an amendment of FASB Statement No. 140. FASB No. 156 requires
the recognition of a servicing asset or liability each time a company undertakes an obligation to
service a financial asset in certain situations. It requires all separately recognized servicing
assets and liabilities to be initially measured at fair value, if practical. FASB No. 156 is effective
for the first fiscal year beginning after September 15, 2006. The Company does not expect adoption
of FASB No. 156 to have a material effect on its consolidated results of operations or financial position.
ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Companys financial instruments at June 30, 2006 consist primarily of cash equivalents, which
are subject to interest rate risk, and marketable securities and United States Treasury bills, 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
in the past and may in the future also sell 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.
The
carrying value of cash equivalents and United States Treasury bills approximates market value since
these highly liquid, interest earning investments are invested in money market funds and short-term
government securities, respectively. 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.
ITEM 4.       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.
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 June 30, 2006 that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
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|18
|--



|PART II. OTHER INFORMATION
|--------------------------
|                          

|ITEM 1.  |  | LEGAL PROCEEDINGS                                                                                
|-------- |  | -------------------------------------------------------------------------------------------------
|         |  |                                                                                                  
|         |  | Note
4 to the accompanying consolidated financial statements is incorporated herein by reference.
|         |  |                                                                                                  
|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)** |        
| | --------------------------------------------- |  |  | -------------------------------------------------------------- |  | - | -------------------------------------------------------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
| |                                               |  |  |                                                                |  |   |                                                          |  |  |                                                                                                                                     |  |                                                                                                                                                                                          |        
| | April 1, 2006 -
               April 30, 2006 |  |  | 6,725                                                          |  | $ | 1.17                                                     |  |  | 6,725                                                                                                                               |  | $                                                                                                                                                                                        | 574,121
| | May 1, 2006 -
               May 31, 2006     |  |  | 29,966                                                         |  | $ | 1.31                                                     |  |  | 29,966                                                                                                                              |  | $                                                                                                                                                                                        | 534,962
| | June 1, 2006 -
               June 30, 2006   |  |  | 31,164                                                         |  | $ | 1.40                                                     |  |  | 31,164                                                                                                                              |  | $                                                                                                                                                                                        | 491,388
| | Total                                         |  |  | 67,855                                                         |  | $ | 1.34                                                     |  |  | 67,855                                                                                                                              |  | $                                                                                                                                                                                        | 491,388

| |                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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                                           

| |  |                     |  |                                                                                                                                                                               
| |  | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit number 10.1 |  | Employment Agreement, dated as of April 1, 2006,
between Speedus Corp. and Shant S. Hovnanian.                                                                                
| |  |                     |  |                                                                                                                                                                               
| |  | Exhibit number 31.1 |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of
1934, as Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
| |  |                     |  |                                                                                                                                                                               
| |  | Exhibit number 31.2 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of
1934, as Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
| |  |                     |  |                                                                                                                                                                               
| |  | Exhibit
number 32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.                            
| |  |                     |  |                                                                                                                                                                               
| |  | Exhibit number 32.2 |  | Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.                            

|19
|--



|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: August 14, 2006 | By: /s/ Shant S. Hovnanian                                  
|                      | Shant S. Hovnanian                                          
|                      | Chairman
of the Board, President and Chief Executive Officer

|                      |                                                     
|--------------------- | ----------------------------------------------------
|                      |                                                     
|Date: August 14, 2006 | By: /s/ Thomas M. Finn                              
|                      | Thomas M. Finn                                      
|                      | Treasurer
and Chief Financial and Accounting Officer

|20
|--



EXHIBIT INDEX Exhibit number

        Description
  10.1

        Employment Agreement, dated as of April 1, 2006, between Speedus Corp. and Shant
S. Hovnanian.
 31.1

        Certification of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 31.2

        Certification of Chief Financial Officer Pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
  32.1

        Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
  32.2

        Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.