UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the quarterly period ended September 30, 2009





OR





 ̈           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from _____________________ to
_______________________





Commission
file
number:                   000-27582








SPEEDUS
CORP.


(Exact
name of registrant as specified in its charter)





Delaware
            
            13-3853788(State
      or other jurisdiction of
            
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)1
      Dag Hammarskjold Blvd.Freehold,
      New Jersey
            
            07728(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. Yes x No  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      reporting company x(Do
      not check if a smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ̈No x


The number of shares of
Common Stock outstanding as of November 16, 2009 was
3,935,596
















INDEX TO FORM 10-Q





PART
I -- FINANCIAL INFORMATION





PageItem
      1.     Financial
      StatementsConsolidated Balance Sheets as of September 30, 2009
      (unaudited) and December 31, 2008
            3Consolidated Statements of Operations (unaudited) for the
      Three and Nine Months Ended September 30, 2009 and
2008
            4Consolidated Statements of Cash Flows (unaudited) for the Nine
      Months Ended September 30, 2009 and 2008
            5Condensed Notes to Consolidated Financial Statements
      (unaudited)
            6-13Item
      2.     Management's Discussion and
      Analysis of Financial Condition and Results of
    Operations
            14-18Item
      3.     Quantitative and Qualitative
      Disclosures About Market Risk
            19Item
      4T.  Controls and Procedures
            19PART
      II -- OTHER INFORMATIONItem
      1.     Legal
      Proceedings
            20Item
      1A.  Risk Factors
            20Item
      2.     Unregistered Sales of Equity
      Securities and Use of Proceeds
            21Item
      3.     Defaults Upon Senior
      Securities
            21Item
      4.     Submission of Matters to a
      Vote of Security Holders
            21Item
      5.     Other
      Information
            21Item6.     
      Exhibits
            21Signature Page
            22





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
            23Exhibit
      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
            24Exhibit
      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
            25Exhibit
      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.
            26


2
 Index


SPEEDUS CORP.


CONSOLIDATED
BALANCE SHEETS








September 30,
            
            
            December 31,2009
            
            
            2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            1,048,480
            
            
            $
            6,007,757U.S.
      Treasury Bills
            
            
            1,749,982
            
            
            
            -Accounts
      receivable
            
            
            170,162
            
            
            
            17,390Inventory
            
            
            103,596
            
            
            
            30,000Marketable
      securities
            
            
            4,166
            
            
            
            2,633Other
      current assets
            
            
            36,794
            
            
            
            10,678Total
      current assets
            
            
            3,113,180
            
            
            
            6,068,458Property
      and equipment, net of accumulated depreciation of $57,029 and
      $39,150
            
            
            29,132
            
            
            
            47,011Other
      assets
            
            
            22,447
            
            
            
            22,447Total
      assets
            
            $
            3,164,759
            
            
            $
            6,137,916LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
            
            $
            331,320
            
            
            $
            174,293Accrued
      liabilities
            
            
            1,755,911
            
            
            
            1,898,167Convertible
      note to minority shareholder
            
            
            533,386
            
            
            
            328,883Current
      portion of redeemable preferred stock
            
            
            399,392
            
            
            
            378,110Total
      current liabilities
            
            
            3,020,009
            
            
            
            2,779,453Redeemable
      preferred stock ($.0001 par value;100,000 shares authorized; 70,940 shares
      issued and outstanding), net of current portion
            
            
            399,392
            
            
            
            378,110Total
      liabilities
            
            
            3,419,401
            
            
            
            3,157,563Commitments
      and ContingenciesStockholders'
      equity (deficit):Preferred
      stock ($.01 par value; 20,000,000 shares authorized):Series
      A Junior Participating ($.01 par value; 4,000 shares authorized; no shares
      issued)
            
            
            -
            
            
            
            -Common
      stock ($.01 par value; 50,000,000 shares authorized; 5,438,006 shares
      issued)
            
            
            54,380
            
            
            
            54,380Additional
      paid-in-capital
            
            
            92,480,648
            
            
            
            92,178,868Treasury
      stock (at cost; 1,502,410 shares)
            
            
            (6,136,611
            )
            
            
            (6,136,611
            )Accumulated
      deficit
            
            
            (86,653,059
            )
            
            
            (83,116,284
            )Stockholders'
      equity (deficit)
            
            
            (254,642
            )
            
            
            2,980,353Total
      liabilities and stockholders' equity (deficit)
            
            $
            3,164,759
            
            
            $
            6,137,916





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


3
 Index


SPEEDUS CORP.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(unaudited)








Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Revenues
            
            $
            247,236
            
            
            $
            4,735
            
            
            $
            321,936
            
            
            $
            129,080Expenses:Selling,
      general and administrative
            
            
            629,874
            
            
            
            1,521,845
            
            
            
            2,437,103
            
            
            
            3,477,175Research
      and development
            
            
            396,920
            
            
            
            543,792
            
            
            
            1,362,289
            
            
            
            1,644,222Depreciation
      and amortization
            
            
            5,230
            
            
            
            26,266
            
            
            
            17,879
            
            
            
            55,396Cost
      of sales
            
            
            140,644
            
            
            
            10,568
            
            
            
            143,982
            
            
            
            11,044Total
      operating expenses
            
            
            1,172,668
            
            
            
            2,102,471
            
            
            
            3,961,253
            
            
            
            5,187,837Operating
      loss
            
            
            (925,432
            )
            
            
            (2,097,736
            )
            
            
            (3,639,317
            )
            
            
            (5,058,757
            )Investment
      income
            
            
            1,158
            
            
            
            (181,845
            )
            
            
            161,299
            
            
            
            (165,845
            )Interest
      income
            
            
            531
            
            
            
            32,298
            
            
            
            10,509
            
            
            
            166,973Other
      income
            
            
            -
            
            
            
            -
            
            
            
            2,800
            
            
            
            -Interest
      expense
            
            
            (24,410
            )
            
            
            (14,132
            )
            
            
            (72,066
            )
            
            
            (32,632
            )Loss
      from continuing operations
            
            
            (948,153
            )
            
            
            (2,261,415
            )
            
            
            (3,536,775
            )
            
            
            (5,090,261
            )Loss
      from discontinued operations
            
            
            -
            
            
            
            (5,174
            )
            
            
            -
            
            
            
            (465,901
            )Net
      loss
            
            $
            (948,153
            )
            
            $
            (2,266,589
            )
            
            $
            (3,536,775
            )
            
            $
            (5,556,162
            )Per
      share:Loss
      per common share - basic and diluted:Continuing
      operations
            
            $
            (0.24
            )
            
            $
            (0.57
            )
            
            $
            (0.90
            )
            
            $
            (1.27
            )Discontinued
      operations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.12
            )Loss
      per common share - basic and diluted
            
            $
            (0.24
            )
            
            $
            (0.57
            )
            
            $
            (0.90
            )
            
            $
            (1.39
            )Weighted
      average common shares outstanding - basic and diluted
            
            
            3,935,596
            
            
            
            3,982,353
            
            
            
            3,935,596
            
            
            
            3,987,682





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


4
 Index


SPEEDUS CORP.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(unaudited)








For
      the nine months ended September 30,2009
            
            
            2008Cash
      flows from operating activities:Net
      loss
            
            $
            (3,536,775
            )
            
            $
            (5,556,162
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            17,879
            
            
            
            354,219Unrealized
      investment (gains) losses
            
            
            (1,533
            )
            
            
            319,747Stock
      based compensation
            
            
            216,415
            
            
            
            185,260Access
      and exclusivity fee
            
            
            85,265
            
            
            
            -Accrued
      dividends on preferred stock
            
            
            42,564
            
            
            
            32,632Accrued
      interest on convertible note
            
            
            29,503
            
            
            
            -Changes
      in operating assets and liabilities, net of acquisition:Accounts
      receivable
            
            
            (152,772
            )
            
            
            (4,850
            )Inventory
            
            
            (73,596
            )
            
            
            (24,900
            )Marketable
      securities
            
            
            -
            
            
            
            896Due
      from broker
            
            
            -
            
            
            
            (880,000
            )Other
      current assets
            
            
            (26,116
            )
            
            
            209,669Other
      assets
            
            
            -
            
            
            
            67,623Accounts
      payable
            
            
            157,027
            
            
            
            108,288Accrued
      liabilities
            
            
            (142,256
            )
            
            
            (239,299
            )Securities
      sold and not yet purchased
            
            
            -
            
            
            
            779,361Net
      cash used in operating activities
            
            
            (3,384,395
            )
            
            
            (4,647,516
            )Cash
      flows from investing activities:Property
      and equipment additions
            
            
            -
            
            
            
            (11,062
            )United
      States Treasury bills:Purchases
            
            
            (1,749,982
            )
            
            
            -Maturities
            
            
            -
            
            
            
            2,996,700Net
      cash (used in) provided by investing activities
            
            
            (1,749,982
            )
            
            
            2,985,638Cash
      flows from financing activities:Convertible
      note financing in subsidiary by minority investor
            
            
            175,000
            
            
            
            75,000Exercise
      of stock options in subsidiary
            
            
            100
            
            
            
            -Redemption
      of preferred stock
            
            
            -
            
            
            
            (100,000
            )Repurchase
      of stock
            
            
            -
            
            
            
            (17,346
            )Net
      cash provided by (used in) financing activities
            
            
            175,100
            
            
            
            (42,346
            )Net
      decrease in cash and cash equivalents
            
            
            (4,959,277
            )
            
            
            (1,704,224
            )Cash
      and cash equivalents, beginning of period
            
            
            6,007,757
            
            
            
            8,845,358Cash
      and cash equivalents, end of period
            
            
            1,048,480
            
            
            
            7,141,134Supplemental
      information of business acquired:Fair
      value of assets acquired:Other
      current assets
            
            
            
            
            
            
            191,000Non
      current assets
            
            
            
            
            
            
            34,000Other
      intangible assets
            
            
            
            
            
            
            584,400Less-liabilities
      assumed:Redeemable
      preferred stock
            
            
            
            
            
            
            (809,400
            )Cash
      paid
            
            
            
            
            
            
            -less-cash
      acquired
            
            
            
            
            
            
            -Acquisition
      of business, net of cash acquired
            
            
            
            
            
            $
            -





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


5
 Index


SPEEDUS
CORP.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





1.
            Basis
      of Presentation




The
unaudited consolidated financial statements of Speedus Corp.  (the
“Company” or “Speedus”) 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 adjustments)
considered necessary for a fair presentation have been included. These financial
statements do not include all information and notes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the Company's 2008
audited consolidated financial statements and notes thereto on Form
10-K.




Operating
results for the three months and nine months ended September 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.




Business
activities




Speedus
Corp. operates primarily through its two majority-owned subsidiaries Zargis
Medical Corp. (“Zargis”) and Density Dynamics Corporation (“DDC”).




In 2001
we co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens
Corporation, in Zargis Medical Corp. to develop advanced diagnostic decision
support products and services for primary care physicians, pediatricians,
cardiologists and other healthcare professionals.  In March of 2008 we
acquired a majority interest in Density Dynamics Corporation, a company breaking
new ground in the development of DRAM based, energy efficient, solid-state
drives (“SSD”), with I/O acceleration technology.




For
additional information on each of these business segments and our other assets
and operations, see the discussions below and “Notes to Consolidated Financial
Statements — Note 4, Business Segment Information.”




Zargis
Medical Corp.


Zargis is
a medical device company focused on improving health outcomes and cost
effectiveness through the development of computer-aided medical devices and
telemedicine based delivery systems.   Zargis was formed in 2001
when we co-invested with Siemens Corporate Research, Inc., a subsidiary of
Siemens Corporation.  As part of this transaction, Siemens contributed
certain intellectual property including a core technology used in the Zargis
CardioscanTM device (Cardioscan).




In
February 2003, we acquired a controlling interest in Zargis Medical of
approximately 63%. At September 30, 2009, as a result of continued investment,
our equity ownership was approximately 90%.




In
October 2007, Zargis and the 3M Company entered into an exclusive multi-year
marketing alliance involving Zargis’ heart sound analysis software and 3M
Littmann’s next-generation electronic stethoscope. Under the agreement, Zargis
will support 3M in its efforts to develop a next-generation stethoscope that
will be compatible with Zargis’ heart sound analysis software. In addition, the
alliance provides Zargis with a wide-range of marketing and promotional
opportunities along with exclusive rights to sell its heart sound analysis
software through the global distribution network of the Littmann
brand.   The agreement with 3M, based on the total number of
Zargis fully diluted shares as of the agreement date, grants 3M a 5% equity
position in Zargis following the first sale of Zargis’ software through the 3M
distribution channel (which occurred in August of 2009) as an access and
exclusivity fee and an additional 5% equity in Zargis in the event that other
conditions are met.  The agreement also entitles 3M to a royalty
payment based on sales of certain Zargis products and a seat on the Zargis Board
of Directors.  In the three and nine months ended September 30, 2009
the Company recorded a charge to cost of sales of approximately $85,000 on the
Consolidated Statements of Operations reflecting the fair value of the 5% equity
position vested by 3M in August 2009.




Density
Dynamics Corporation


In March
2008, we obtained approximately a 75% primary equity ownership in Density
Dynamics Corporation. Density Dynamics Corporation is a newly formed company
that was created to acquire the technology, assets and some of the operations of
a developer and marketer of ultra-high speed storage systems for server networks
and other applications.  See Note 2 for further
discussion.


6
 Index


Other
Business Activities




F&B
Gudtfood, (“F&B”).


As a
result of continued losses, in October 2008 we transferred the operations and
liabilities of the remaining F&B restaurant store in to an unrelated third
party for no consideration.  We have reflected the accounts of F&B
as a discontinued operation in our consolidated financial statements for the
three months and nine months ended September 30, 2008.




Local
Multipoint Distribution Service (LMDS) License


We have
an FCC commercial operating license which covers between 150 – 300 MHz of
spectrum in the New York City area. The license has been renewed through
February 1, 2016 conditioned upon demonstrating to the FCC by June 1, 2012 that
we are providing “substantial service.” This entity had limited operations
during the three months and nine months ended September 30, 2009 and
2008.




Internet
initiatives


In the
fourth quarter of 2008, we ceased allocation of any material resources to our
portfolio of Internet initiatives, which included NetfreeUs, Wibiki, Adchooser
and iMarklet. These entities had limited operations during the three and nine
months ended September 30, 2009 and 2008.




Liquidity
and Capital Resources




We have
recorded operating losses and negative operating cash flows since our inception
and have limited revenues. At September 30, 2009, we had an accumulated deficit
of approximately $86,653,000. We do not expect to have earnings from operations
or positive operating cash flow until such time as our strategic investments
achieve successful implementation of their business plans and/or form alliances
for the use of our capabilities in the future.




We may
not have funds sufficient to finance our operations and enable us to meet our
financial obligations for the next twelve months. There can be no assurances
that we will be able to consummate any capital raising transactions,
particularly in view of current economic conditions. The inability to generate
future cash flow or raise funds to finance our strategic investments could have
a material adverse effect on our ability to achieve our business
objectives.




These
conditions raise substantial doubt about our ability to continue as a going
concern.




If we are
not able to reduce or defer our expenditures, secure additional sources of
revenue or otherwise secure additional funding, we may be unable to continue as
a going concern, and we may be forced to restructure or significantly curtail
our operations, file for bankruptcy or cease operations. In addition, a
bankruptcy filing by one or more of our strategic investments could cause us to
lose our investment and/or control and could prevent us from sharing in any
future success of those strategic investments. The accompanying financial
statements do not include any adjustments relating to the recoverability of the
carrying amount of recorded assets or the amount of liabilities that might
result should the Company be unable to continue as a going
concern.  Should we be successful in securing the necessary capital to
continue operations, it is likely that such arrangements would result in
significant dilution to each shareholder’s ownership interest in the
Company.




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.
Through September 30, 2009, Zargis Medical and Density Dynamics continued to
generate losses which have reduced the minority investors’ interest 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.




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 accounting principles
generally accepted in the United States of America 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. Significant estimates and assumptions
include the adequacy of the calculations related to stock based compensation,
other than temporary impairment of investments and certain accruals. Actual
results could differ from those estimates.


7
 Index


Cash
and Cash Equivalents


The
Company considers all highly liquid interest earning investments with original
maturities of three months or less to be cash equivalents. At September 30, 2009
and December 31, 2008, cash equivalents consisted of money market
funds.  At times the Company has cash and cash equivalents balances in
excess of the FDIC and SPIC insured limits.




Marketable
Securities


All
marketable securities are defined as trading securities under the provisions of
Statement FASB ASC 320-10-05, "Accounting for Certain Investments in Debt and
Equity Securities." At September 30, 2009 and December 31, 2008, marketable
securities consisted of publicly traded equity securities which were recorded at
the fair market value of approximately $4,200 and approximately $2,600 as of
September 30, 2009 and December 31, 2008, respectively.




Securities
sold and not purchased


The
Company has in the past and may in the future 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. These
amounts are shown on the balance sheet as ‘Securities sold and not purchased’
and represent the value of these securities at fair market value. 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.  At
September 30, 2009 and December 31, 2008, there were no securities sold and not
purchased.




Fair
Value of Financial Instruments


Cash and
cash equivalents, U.S. Treasury bills, accounts payable and accrued expenses are
reflected in the consolidated balance sheets at their carrying value, which
approximates fair value due to the short-term nature of these instruments and
the variability of the respective interest rates, where
applicable.  Pursuant to FASB ASC 820-10-05 “Fair Value Measurements”,
the fair value of our cash equivalents and U.S. Treasury bills are determined
based on “Level 1” inputs, which consist of quoted prices in active markets for
identical assets.




Accounts
receivable


Accounts
receivable are recorded at the invoice amount and are not interest
bearing.




Inventory


Inventories
are stated at the lower of cost or market with cost being determined on a
first-in, first-out basis.




Property
and Equipment


Office
equipment and leasehold improvements are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets, ranging from
three to seven years, but not longer than initial lease terms in the case of
leasehold improvements.  When assets are fully depreciated, it is the
Company’s policy to remove the costs and related accumulated depreciation from
its books and records.




Long-lived
assets


The
Company periodically evaluates the net realizable value of long-lived assets,
including fixed and intangible assets, in accordance with FASB ASC 360-10-05
“Accounting for the Impairment 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.




Revenue
Recognition


Zargis
Medical recognizes revenue upon completion of services performed under
contracts, in accordance with the provisions of the Securities and Exchange
Commission Staff Accounting Bulletin No. 104, "Revenue
Recognition".  Density Dynamics recognizes revenue upon shipment of
product to customers.




Income
Taxes


The
Company follows the provisions of FASB ASC 740-10-50 “Income
Taxes-Overall-Disclosure.”  FASB ASC 740-10-50 sets forth a
recognition threshold and measurement attribute for financial statement
recognition of positions taken or expected to be taken in income tax returns.
FASB ASC 740-10-50 had no material impact on the Company's consolidated
financial statements.  The tax years 2004-2008 remain open to
examination by the major taxing  jurisdictions to which we are
subject.




As
required by FASB ASC 740-10-05  “Accounting for Income Taxes,” the
Company is required to provide for deferred tax assets or liabilities arising
due to temporary differences between the book and tax basis of the Company’s
assets and liabilities. As required by FASB ASC 740-10-05, the Company is
required to provide for deferred tax assets or liabilities arising due to
temporary differences between the book and tax basis of the Company’s assets and
liabilities.




As of
September 30, 2009, the Company has a deferred tax asset of approximately $51.7
million, relating primarily to operating losses. An offsetting valuation
allowance of $51.7 million has been established as the Company had no ability to
carryback its losses and a limited earnings history.


8
 Index


At
September 30, 2009, the Company had net operating loss carryforwards of
approximately $110 million which expire between 2015 and 2029. Under the
provisions of the Internal Revenue Code, certain substantial changes in the
Company’s stock ownership may result in a limitation on the amounts of net
operating loss carryforwards which can be utilized in future years.




FASB ASC
740-10-05 prescribes a comprehensive model for the manner in which a company
should recognize, measure, present and disclose in its financial statements all
material uncertain tax positions that the Company has taken or expects to take
on a tax return.  As of September 30, 2009, the only tax jurisdictions
to which the Company is subject are the United States and several states where
the Company operates. Open tax years relate to years in which unused net
operating losses were generated. Thus, the Company’s open tax years extend back
to 1996. In the event that the Company concludes that it is subject to interest
and/or penalties arising from uncertain tax positions, the Company will present
interest and penalties as a component of income taxes.  No amounts of
interest or penalties were recognized in the Company’s Consolidated Balance
Sheet or Consolidated Statement of Operations as of and for the three and nine
months ended September 30, 2009 and 2008.




Earnings
Per Share


Basic and
diluted earnings (loss) per common share are determined in accordance with FASB
ASC 260-10-05.   For the three months ended September 30, 2009
and 2008 outstanding stock options and warrants in the weighted average amounts
of 683,000 and 551,000, respectively have been excluded from the diluted loss
per share since their effect would be antidilutive. For the nine months ended
September 30, 2009 and 2008 outstanding stock options and warrants in the
weighted average amounts of 660,000 and 551,000, respectively have been excluded
from the diluted loss per share since their effect would be
antidilutive.




Stock
Options


The
Company accounts for stock options under FASB ASC 718-10-10, “Share-Based
Payment”.  Under this method, 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. Stock based compensation expense
was approximately $131,000 and approximately $48,000 for the three months ended
September 30, 2009 and 2008, respectively, and approximately $216,000 and
approximately $185,000 for the nine months ended September 30, 2009 and
2008,  respectively.




The fair
value of the awards on the grant date was estimated using a Black-Scholes option
pricing model. Assumptions utilized in the model for Speedus, Zargis, and DDC
are evaluated and revised, as necessary, to reflect market conditions and
experience. For the three and nine months ended September 30, 2009, key
assumptions used in valuing these options included a risk-free interest rate
of  approximately 2.3% to 3.2%,  an
expected life of seven years ,and a volatility factor of approximately124% to
131%. For the three and nine months ended September 30, 2008, key assumptions
used in valuing these options included a risk-free interest rate of
approximately 3%, an expected life of six years and a volatility factor of
approximately 106% to 112%.





The
Company accounts for stock and stock options granted to non-employees on a fair
value basis in accordance with FASB ASC 505-50-30, “Equity Based Payments to
Non-Employees.”  Any stock or stock options issued to non-employees
are recorded in the consolidated financial statements using the fair value
method and then amortized to expense over the applicable service periods. As a
result, the non-cash charge to operations for non-employee options with vesting
or other performance criteria is valued each reporting period based upon changes
in the fair value of Common Stock.




Recent
Accounting Pronouncements


In June
2009, the Financial Accounting Standards Board (“FASB”) issued its final
Statement of Financial Accounting Standards (“SFAS”) No. 168 – “The FASB
Accounting Standards ASC Topic and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No.
162”.  (“SFAS No. 168”).  SFAS No. 168 made the FASB
Accounting Standards Codification (the “ASC”) the single source of U.S.
Generally Accepted Accounting Policies (“U.S. GAAP”) used by nongovernmental
entities in the preparation of financial statements, except for rules and
interpretive releases of the SEC under authority of federal securities laws,
which are sources of authoritative accounting guidance for SEC
registrants.  The ASC is meant to simplify user access to all
authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into
roughly 90 accounting topics within a consistent structure; its purpose is not
to create new accounting and reporting guidance.  The ASC supersedes
all existing non-SEC accounting and reporting standards and was effective for
the Company beginning July 1, 2009.  Following SFAS No. 168, the Board
will not issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts; instead, it will issue Accounting
Standards Updates.  The FASB will not consider Accounting Standards
Updates as authoritative in their own right; these updates will serve only to
update the ASC topic, provide background information about the guidance, and
provide the bases for conclusions on the change(s) in the ASC.




In
December 2007, the Financial Accounting Standards Board issued FASB ASC
810-10-65, “Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB ASC 860-10-60.  FASB ASC 810-10-65 establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. FASB ASC 810-10-65 will
become effective as of the beginning of the Company’s fiscal year beginning
after December 15, 2008. The adoption of FASB ASC 810-10-65 did not have a
material impact on the consolidated results of operations and financial
condition.


9
 Index


In May
2009, the FASB issued FASB ASC 855-10-05, “Subsequent Events”, which is
effective for reporting periods ending after June 15, 2009. FASB ASC 855-10-05
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date, but before financial statements are issued,
or are available to be issued.   The Company’s adoption of FASB
ASC 855-10-05 did not have an impact on the Company’s consolidated financial
statements.  The Company evaluated all events or transactions that
occurred after September 30, 2009 up through November 16,
2009.  During this period no material subsequent events came to our
attention.




In June
2008, the FASB ratified FASB ASC 815-40-15, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock).  FASB
ASC 815-40-15 provides that an entity should use a two step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
settlement provisions.  It also clarifies the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation.  FASB ASC 815-40-15 is
effective for fiscal years beginning after December 15, 2008.  The
implementation of this standard did not have a material impact on the Company’s
consolidated financial position and results of operations.






2.
            Acquisition




On March
5, 2008, the Company acquired approximately a 75% primary equity ownership in
Density Dynamics Corporation, a newly formed company that was created to acquire
the technology, assets and some of the operations of a developer and marketer of
ultra-high speed storage systems for server networks and other applications. The
acquisition price was $1,000,000. In exchange, the Company received $1,000,000
of redeemable preferred stock from DDC, which has been eliminated in
consolidation.




This
acquisition was accounted for using the purchase method of accounting. The
results of operations of DDC have been included in the consolidated statements
of operations from the date of acquisition. The acquisition has been allocated
as follows as of the acquisition date: $191,000 to current assets, $34,000 to
non current assets, $584,000 to other intangible assets and $809,000 to
liabilities. The $584,000 allocated as an intangible asset (reflecting
intellectual property assets of DDC) was being amortized over a period of seven
years until written off as impaired in the fourth quarter of 2008.




In
connection with the acquisition, DDC issued $809,400 of redeemable preferred
stock to the 25% owner, $100,000 of which was redeemed at the time of closing.
The redeemable preferred stock accrues dividends equal to 8% of the original
purchase price of $10 per share (the “Original Purchase Price”). The redeemable
preferred stock will be redeemed for the Original Purchase Price plus accrued
and unpaid dividends as follows: $70,000 during the year ended December 31,
2009, $50,000 out of a future financing by the Company, 50% out of the cash flow
of DDC as defined, and to the extent that any redeemable preferred shares remain
outstanding, the balance will be redeemed in 2013. The Company has reflected
this redeemable preferred stock as a liability on its December 31, 2008 and
September 30, 2009 consolidated balance sheets.  For the three months
ended September 30, 2009 and 2008 accrued dividends on the redeemable preferred
stock to the minority owner in the amount of approximately $15,000 and $14,000
respectively, has been recorded as interest expense.  During the nine
months ended September 30, 2009 and 2008 approximately $42,000 and approximately
$33,000 has been recorded as interest expense.




In July
2008, DDC sold 300,000 shares of its common stock for a price of $1 per share.
225,000 shares were sold to Speedus and 75,000 shares were sold to the minority
owner of DDC. The investment by Speedus has been eliminated in consolidation.
The investment by the minority owner has been reflected in additional
paid-in-capital during the year ended December 31, 2008. In connection with this
sale of stock, DDC issued seven year warrants to purchase 56,250 and 18,750
shares of DDC common stock to Speedus and the minority owner, respectively, for
a purchase price of $1 per share.




In
October 2008, DDC sold $500,000 in 8% convertible notes, in the amounts of
$250,000 to each of the Company and the minority owner. In December 2008, DDC
agreed to sell an additional $500,000 in 8% convertible notes, in the amounts of
$250,000 to each of the Company and the minority owner. At December 31, 2008,
$75,000 had been advanced by each of the Company and the minority
owner.  During the first three months of 2009, the remaining balance
of $175,000 was advanced by each of the Company and the minority owner. The
aggregate amount under the notes is due December 31, 2009 unless otherwise
converted in connection with any financings completed by DDC. The loan by the
Company has been eliminated in consolidation. For the three months ended
September 30, 2009 and 2008, accrued interest on the convertible note to the
minority owner in the amount of approximately $10,000 and $0 has been recorded
as interest expense, respectively. For the nine months ended September 30, 2009
and 2008 accrued interest on the convertible note to the minority owner in the
amount of approximately $30,000 and $0 has been recorded as interest expense,
respectively.


10
 Index


3.
            Discontinued
      operations




During
December 2007, the Company closed one of its F&B restaurant stores as a
result of continued losses. At December 31, 2007, based upon an offer to
purchase the leasehold estate, the Company recorded a loss in the amount of
$71,000 representing the difference between the carrying value of the leasehold
estate and the estimated net proceeds to be received by the Company in the
amount of $342,000 which had been recorded as assets held for sale. In April
2008, the landlord did not agree to the proposed sale and terminated the lease
effective May 2008. As a result, the Company recorded an additional loss in the
amount of $342,000 during the year ended December 31, 2008. As a result of
continued losses, in October 2008 the Company transferred the operations and
right to use the assets of its remaining F&B restaurant store to an
unrelated third party for no consideration. The net assets and liabilities and
results of operations of F&B are presented as discontinued operations for
all periods presented in these financial statements.




The loss
from discontinued operations of F&B for the three months and nine months
ended September 30, 2008 consists of:





Period
      ended September 30, 2008Three
            
            
            NineMonths
            
            
            MonthsRevenues
            
            $
            113,710
            
            
            $
            366,812Cost
      of sales
            
            
            44,037
            
            
            
            125,217Selling,
      general and administrative
            
            
            70,573
            
            
            
            694,673Depreciation
            
            
            4,274
            
            
            
            12,823Total
      operating expenses
            
            
            118,884
            
            
            
            832,713Operating
      loss
            
            
            (5,174
            )
            
            
            (465,901
            )Investment
      income
            
            
            -
            
            
            
            -Net
      loss from discontinued operations
            
            $
            (5,174
            )
            
            $
            (465,901
            )


11
 Index




4.
            Business
      Segment Information




The
following table sets forth the Company's financial performance by reportable
operating segment for the three months and nine months ended September 30, 2009
and 2008.






Three
      months ended September 30, 2009CorporateZargis
            
            
            DDC
            
            
            and other
            
            
            TotalsRevenues
      from external customers
            
            $
            196,311
            
            
            $
            50,925
            
            
            $
            -
            
            
            $
            247,236Depreciation
      and amortization
            
            
            1,315
            
            
            
            3,915
            
            
            
            -
            
            
            
            5,230Operating
      loss
            
            
            (291,006
            )
            
            
            (296,666
            )
            
            
            (337,760
            )
            
            
            (925,432
            )Fixed
      assets
            
            
            3,842
            
            
            
            25,290
            
            
            
            -
            
            
            
            29,132Total
      assets
            
            
            318,991
            
            
            
            126,925
            
            
            
            2,718,843
            
            
            
            3,164,759Three
      months ended September 30, 2008CorporateZargis
            
            
            DDC
            
            
            and other
            
            
            TotalsRevenues
      from external customers
            
            $
            4,735
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,735Depreciation
      and amortization
            
            
            2,967
            
            
            
            23,299
            
            
            
            -
            
            
            
            26,266Operating
      loss
            
            
            (675,414
            )
            
            
            (849,122
            )
            
            
            (573,200
            )
            
            
            (2,097,736
            )Fixed
      assets
            
            
            15,626
            
            
            
            37,354
            
            
            
            -
            
            
            
            52,980Total
      assets
            
            
            156,502
            
            
            
            753,143
            
            
            
            8,586,190
            
            
            
            9,495,835Nine
      months ended September 30, 2009CorporateZargis
            
            
            DDC
            
            
            and other
            
            
            TotalsRevenues
      from external customers
            
            $
            271,011
            
            
            $
            50,925
            
            
            $
            -
            
            
            $
            321,936Depreciation
      and amortization
            
            
            6,134
            
            
            
            11,745
            
            
            
            -
            
            
            
            17,879Operating
      loss
            
            
            (1,035,862
            )
            
            
            (1,360,218
            )
            
            
            (1,243,237
            )
            
            
            (3,639,317
            )Fixed
      assets
            
            
            3,842
            
            
            
            25,290
            
            
            
            -
            
            
            
            29,132Total
      assets
            
            
            318,991
            
            
            
            126,925
            
            
            
            2,718,843
            
            
            
            3,164,759Nine
      months ended September 30, 2008CorporateZargis
            
            
            DDC
            
            
            and other
            
            
            TotalsRevenues
      from external customers
            
            $
            129,080
            
            
            $
            -
            
            
            $
            -
            
            
            $
            129,080Depreciation
      and amortization
            
            
            9,478
            
            
            
            45,918
            
            
            
            -
            
            
            
            55,396Operating
      loss
            
            
            (1,730,364
            )
            
            
            (1,427,310
            )
            
            
            (1,901,083
            )
            
            
            (5,058,757
            )Fixed
      assets
            
            
            15,626
            
            
            
            37,354
            
            
            
            -
            
            
            
            52,980Total
      assets
            
            
            156,502
            
            
            
            753,143
            
            
            
            8,586,190
            
            
            
            9,495,835







TheCompany has no
foreign operations. During the three and nine months ended September 30, 2009
the Company had sales to the U.S. Army of approximately 72% and 79% of total
Company revenues, respectively. During the three and nine months ended September
30, 2008 the Company had sales to the U.S. Army of approximately 100% of total
Company revenues. The Company's accounting policies for segments are the same as
those described in Note 1.




DDC was
acquired in March 2008 and had no significant operations during the three months
ended March 31, 2008.


12
 Index


5.
            Commitments
      and Contingencies




Withholding
Tax Dispute


On March
30, 2004, the Company entered into an Employment Agreement with Mr. Shant S.
Hovnanian, effective as of April 25, 2002 (the “Employment Agreement”),
providing for Mr. Hovnanian’s employment as President and Chief Executive
Officer of the Company.  The Employment Agreement provided that Mr.
Hovnanian was to be paid an annual salary.  The Employment Agreement
separately provided for Mr. Hovnanian to receive a contingent payment equal to
20% of the net proceeds (after legal and other expenses) realized by the Company
from a Technology Rights Agreement dispute against Western International
Communications and certain related claims.  The Company reached a $15
million settlement of this claim in February 2004, resulting in a contingent
payment of approximately $2.8 million, which was paid to an entity that Mr.
Hovnanian controlled.




On
January 22, 2009, the Internal Revenue Service (the “IRS”) issued a “30-day
letter” to the Company asserting that withholding income tax was due to the IRS
in connection with this payment, plus interest and penalties, which totaled
approximately $1.3 million (“Claim”).  Thereafter, on February 23,
2009, the IRS issued notice of its intention to levy in respect of these
claims.  The Company appealed the IRS proposed tax adjustment and
while the appeal process is underway, any related IRS levy has been
stayed.  The Company took the step to set aside sufficient cash to
satisfy the Claim and other potential obligations that may arise with respect to
this issue. The Company has established a reserve of $1.3 million in accrued
expenses at September 30, 2009 and December 31, 2008 and recorded a charge to
selling, general and administrative expenses for this claim at December 31,
2008.





Recently,
the Company met with officials of the IRS and proposed a settlement that would
relieve the Company of responsibility for payment of the Federal income tax
withholding with respect to the $2.8 million payment in exchange for the payment
by the Company of Social Security and Medicare taxes (including associated
interest) on such amount.  While the Company reasonably believes that
a settlement will be achieved and expects a decision before December 31, 2009,
there can be no assurance that a settlement will be reached or that the ultimate
payment will be below the amount levied.


13
 Index


ITEM 2.  MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS




The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with the corresponding discussion and
analysis included in the Company's Report on Form 10-K for the year ended
December 31, 2008.




Cautionary
Statement Regarding Forward-Looking Information




This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contain “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
These statements appear in a number of places in this Form 10-Q and include
statements regarding the intent, belief or current expectations of the Company
or its officers with respect to, among other things, the ability of the Company
to make capital expenditures, the ability to incur additional debt, as
necessary, to service and repay such debt, if any, as well as other factors that
may effect the Company’s financial condition or results of operations.
Forward-looking statements may include, but are not limited to, projections of
revenues, income or losses, capital expenditures, plans for future operations,
financing needs or plans, compliance with covenants in loan agreements, plans
for liquidation or sale of assets or businesses, plans relating to products or
services of the Company, assessments of materiality, predictions of future
events, and the ability to obtain additional financing, including the Company’s
ability to meet obligations as they become due, and other pending and possible
litigation, as well as assumptions relating to the foregoing. All statements in
this Form 10-Q regarding industry prospects and the Company’s financial position
are forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.




Business
Activities




Overview


Speedus
Corp. operates primarily through its two majority-owned subsidiaries Zargis
Medical Corp. and Density Dynamics Corporation.




In 2001
we co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens
Corporation, in Zargis Medical Corp. to develop advanced diagnostic decision
support products and services for primary care physicians, pediatricians,
cardiologists and other healthcare professionals.  In March of 2008 we
acquired a majority interest in Density Dynamics Corporation, a company breaking
new ground  in the development of DRAM based ,energy efficient,
solid-state drives (SSD), with I/O acceleration technology.




For
additional information on each of these business segments and our other assets
and operations, see the discussions below and “Notes to Consolidated Financial
Statements — Note 4, Business Segment Information.”




Zargis
Medical Corp.


Zargis is
a medical device company focused on improving health outcomes and cost
effectiveness through the development of computer-aided medical devices and
telemedicine based delivery systems.   Zargis was formed in 2001
when we co-invested with Siemens Corporate Research, Inc., a subsidiary of
Siemens Corporation.  As part of this transaction, Siemens contributed
certain intellectual property including a core technology used in the Zargis
CardioscanTM device (Cardioscan).




Cardioscan
is a non-invasive, diagnostic support solution that automatically analyzes
acoustical data from a patient to determine whether or not the patient possesses
a suspected diastolic or systolic murmur and whether or not they present a Class
I indication for echocardiography referral.  Heart murmurs can be a
sign of serious types of valvular or other heart disease.  Zargis’
patented technology utilizes advanced signal processing algorithms deployed on a
standard pc computer platform.  Cardioscan received its initial FDA
clearance in May 2004 and additional clearances in September 2005 and March
2006.




In
addition to the development of Cardioscan, Zargis has been awarded several
contracts by the U.S. Army, most recently in October of 2008, to develop
prototype versions of telemedicine systems for use in cardiology. These systems
record, synchronize and analyze heart sounds, lung sounds and ECG signals in
pediatric patients who are being cared for by remote military treatment
facilities. The systems have been fully integrated with an existing Army
telehealth platform.




Demand
for medical systems designed to remotely project the expertise of cardiologists
and other medical specialists is growing very rapidly within both military and
civilian environments worldwide and it is for this reason that Zargis has
identified the field of telemedicine as a key focus area for product
commercialization.




In
February 2003, we acquired a controlling interest in Zargis Medical of
approximately 63%. At September 30, 2009, as a result of continued investment,
our equity ownership interest was approximately 90%.




In
October 2007, Zargis and the 3M Company entered into an exclusive multi-year
marketing alliance involving Zargis’ heart sound analysis software and 3M
Littmann’s next-generation electronic stethoscope. Under the agreement, Zargis
will support 3M in its efforts to develop a next-generation stethoscope that
will be compatible with Zargis’ heart sound analysis software. In addition, the
alliance provides Zargis with a wide-range of marketing and promotional
opportunities along with exclusive rights to sell its heart sound analysis
software through the global distribution network of the Littmann
brand.  The agreement with 3M, based on the total number of Zargis
fully diluted shares as of the agreement date, grants 3M a 5% equity position in
Zargis following the first sale of Zargis’ software through the 3M distribution
channel (which occurred in August of 2009) as an access and exclusivity fee and
an additional 5% equity in Zargis in the event that other conditions are
met.  The agreement also entitles 3M to a royalty payment based on
sales of certain Zargis products and a seat on the Zargis Board of Directors. In
the three and nine months ended September 30, 2009 the Company recorded a charge
to cost of sales of approximately $85,000 on the Consolidated Statements of
Operations reflecting the fair value of the 5% equity position vested by 3M in
August 2009.


14
 Index


Density
Dynamics


In March
2008, we obtained approximately a 75% equity interest in Density Dynamics
Corporation. Density Dynamics is a newly formed company that was created to
acquire the technology, assets and some of the operations of a developer and
marketer of ultra-high speed storage systems for server networks and other
applications.




Density
Dynamics is continuing development of its line of DRAM based energy efficient
solid-state technology.  The Density Dynamics RamFlash (RF-SSD) and
pure DRAM solid-state drive (DR-SSD) Jet.io products are unique because they
provide a scalable industry standard 3.5” drive format and also use a
proprietary design with DRAM memory for core storage functions in a uniquely
compact 3.5-inch form factor alleviating I/O bottlenecks using dramatically
lower power than other storage solutions.




Other
Business Activities




F&B
Gudtfood.


As a
result of continued losses, in October 2008 we transferred the operations and
liabilities of the remaining F&B restaurant store in to an unrelated third
party for no consideration.  We have reflected the accounts of F&B
as a discontinued operation in our consolidated financial statements for the
three and nine months ended September 30, 2008.




Local
Multipoint Distribution Service (LMDS) License


We have
an FCC commercial operating license which covers between 150 – 300 MHz of
spectrum in the New York City area. The license has been renewed through
February 1, 2016 conditioned upon demonstrating to the FCC by June 1, 2012 that
we are providing “substantial service.” This entity had limited operations
during the three and nine months ended September 30, 2009 and 2008.




Internet
initiatives


In the
fourth quarter of 2008, we ceased allocation of any material resources to our
portfolio of Internet initiatives, which included NetfreeUs, Wibiki, Adchooser
and iMarklet.    These entities had limited operations
during the three and nine months ended September 30, 2009 and 2008.




Investments


We have
invested a portion of our assets in a portfolio of marketable securities
consisting of publicly traded equity securities. We have in the past and may in
the future sell publicly traded equity securities we do not own in anticipation
of declines in the fair market values of these securities. As of September 30,
2009 and December 31, 2008, we had not sold any securities that we did not
own.







Critical
Accounting Policies




General


Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements. The preparation of those
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
operating revenues and expenses during the reporting periods. Actual results
could differ from those estimates. For a description of all of our accounting
policies, see Note 2 to our consolidated financial statements included in this
Form 10-K. However, we believe the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of our
consolidated financial statements.




Financial
instruments


Our
financial instruments consist primarily of cash equivalents, U.S. Treasury bills
and marketable securities. The carrying value of cash equivalents approximates
market value since these highly liquid, interest earning investments are
invested in money market funds. Marketable securities consist of publicly traded
equity securities classified as trading securities and are recorded at fair
market value, i.e., closing prices quoted on established securities markets.
Significant changes in the market value of securities that we invest in could
have a material impact on our financial position and results of
operations.


15
 Index


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.




Share-Based
Payments


We
account for share-based payments under FASB ASC 718-10-10, “Share-Based
Payment.” Under this method, we record compensation cost based upon the fair
value of those awards on the grant date over the remaining service period of
each award on a straight line basis.




We
estimate the value of these awards on the date of grant using a Black-Scholes
option pricing model. The determination of the fair value of these awards on the
date of grant is affected by our stock price as well as assumptions regarding a
number of complex and subjective variables. These variables include our expected
stock price volatility over the term of the awards, expected term, risk-free
interest rate, expected dividends and expected forfeiture rates.




If
factors change and we employ different assumptions in the application of FASB
ASC 718-10-10 in future periods, the compensation expense that we record under
FASB ASC 718-10-10 may differ significantly from what we have recorded in the
current period. There is a high degree of subjectivity involved when using
option pricing models to estimate share-based compensation under FASB ASC
718-10-10. Consequently, there is a risk that our estimates of the fair values
of these awards on the grant dates may bear little resemblance to the actual
values realized upon the exercise, expiration, early termination or forfeiture
of those share-based payments in the future. Employee stock options may expire
worthless or otherwise result in zero intrinsic value as compared to the fair
values originally estimated on the grant date and reported in our consolidated
financial statements. Alternatively, value may be realized from these
instruments that are significantly in excess of the fair values originally
estimated on the grant date and reported in our consolidated financial
statements.  During the nine months ended September 30, 2009 and 2008,
we do not believe that reasonable changes in the projections would have had a
material effect on share-based compensation expense.




Contingencies


We
account for contingencies in accordance with FASB ASC 450-10-05, “Accounting for
Contingencies”.  FASB ASC 450-10-05 requires that we record an
estimated loss when information available prior to issuance of our financial
statements indicates that it is probable that an asset has been impaired or a
liability has been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated. Accounting for contingencies
such as environmental, legal and income tax matters requires us to use our
judgment. While we believe that our accruals for these matters are
adequate,  if the actual loss is significantly different than the
estimated loss, our results of operations will be affected in the period that
the difference is known.




Three
and Nine Months Ended September 30, 2009 Compared to Three and Nine Months Ended
September 30, 2008




Revenues
increased from approximately $5,000 for the three months ended September 30,
2008 to approximately $247,000 for the three months ended September 30, 2009.
Revenues increased from approximately $129,000 for the nine months ended
September 30, 2008 to approximately $322,000 for the nine months ended September
30, 2009. These increases in revenue are primarily the result of an increase in
contracted service revenue earned by Zargis. In addition, Density Dynamics
recognized revenue of approximately $51,000 during the three and nine months
ended September 30, 2009.




Selling,
general and administrative expenses decreased 59% from approximately $1,522,000
for the three months ended September 30, 2008 to approximately $630,000 for the
three months ended September 30, 2009. This decrease was the result of
reductions of approximately $180,000 in patent litigation
expenses,  reductions in staff and related expenses of approximately
$560,000 at Density Dynamics and  reductions in staff and related
expenses of approximately $150,000 in  the corporate
segment.  Selling, general and administrative expenses decreased 30%
from approximately $3,477,000 for the nine months ended September 30, 2008 to
approximately $2,437,000 for the nine months ended September 30, 2009. This
decrease was the result of reductions of approximately $625,000 in patent
litigation expenses, reductions in staff and related expenses of approximately
$210,000 at Density Dynamics, reductions in staff and related expenses of
approximately $110,000 in the corporate segment, and a reduction of
approximately $95,000 in rent expenses in the corporate segment. Density
Dynamics was acquired in March of 2008.




Research
and development expenses decreased 27% from approximately $544,000 for the three
months ended September 30, 2008 to approximately $397,000 for the three months
ended September 30, 2009.  This reduction of approximately $147,000
was primarily related to the elimination of approximately $90,000 in Internet
Initiative projects, a reduction in Zargis Development spending of approximately
$120,000, and an increase development spending at Density Dynamics of
approximately $63,000.  Research and development expenses decreased
17% from approximately $1,644,000 for the nine months ended September 30, 2008
to approximately $1,362,000 for the nine months ended September 30,
2009.  This reduction of approximately $282,000 was primarily related
to the elimination of Internet Initiative projects of approximately $360,000, a
reduction in Zargis development expenses of approximately $145,000, and an
increase in development spending at Density Dynamics of approximately
$230,000.


16
 Index


Depreciation
and amortization decreased 81% from approximately $26,000 for the three months
ended September 30, 2008 to approximately $5,000 for the three months ended
September 30, 2009. Depreciation and amortization decreased 67% from
approximately $55,000 for the nine months ended September 30, 2008 to
approximately $18,000 for the nine months ended September 30, 2009. These
reductions are a result of assets having become fully depreciated during the
three and nine months ended September 2008.




Cost of
sales increased from approximately $11,000 for the three months ended September
30, 2008 to approximately $141,000 for the three months ended September 30,
2009. Cost of sales increased from approximately $11,000 for the nine months
ended September 30, 2008 to approximately $144,000 for the nine months ended
September 30, 2009.  These costs are directly attributable to
increases in revenue of approximately $242,000 during the three months ended
September 30, 2009 compared to the three months ended September 30, 2008 and
attributable to increases in revenue of approximately $193,000 during the nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008.   In addition, the Company recorded an access and
exclusivity  fee of approximately $85,000 in the three and nine months
ended September 30, 2009 reflecting the fair value of the 5% equity position
vested by 3M in August 2009.




Investment
income increased to approximately $1,000 during the three months ended September
30, 2009 compared to an investment loss of approximately $182,000 during the
three months ended September 30, 2008.  This increase was primarily
the result of an improvement in trading performance and a reduction in trading
activity during the three months ended September 30, 2009.  Investment
income increased from a loss of approximately $165,000 in the nine months ended
September 30, 2008 to a gain of approximately $161,000 in the nine months ended
September 30, 2009. This increase was primarily related to more favorable
trading results during the nine months ended September 30, 2009, compared with
unfavorable trading results during the nine months ended
September  30, 2008.  Interest income decreased from
approximately $32,000 in three months ended September 30, 2008 to approximately
$1,000 during the three months ended September 30, 2009.  Interest
income decreased from approximately $167,000 in the nine months ended September
30, 2008 to approximately $11,000 during the nine months ended September 30,
2009. These reductions in interest income were primarily due to a reduction in
the amount  of capital available for investment purposes during the
three and nine months ended September 30, 2009.  Other income was $0
during the three months ended September 30, 2008 and 2009.  Other
income increased from $0 in the nine months ended September 30, 2008 to
approximately $3,000 during the nine months ended September 30,
2009.  This increase was related to the sale of a domain name during
the nine months ended September 30, 2009.  Interest expense increased
from approximately $14,000 in the three months ended September 30, 2008 to
approximately $24,000 during the three months ended September 30,
2009.  Interest expense increased from approximately $33,000 for the
nine months ended September 30, 2008 to approximately $72,000 for the nine
months ended September 30, 2009.  These increases in interest expense
are primarily due to dividends payable on redeemable preferred stock and
interest payable on a convertible note to a minority owner of Density Dynamics.
Investment and interest income amounts will fluctuate based upon changes in the
market value of the underlying investments, overall market conditions and the
amount of funds available for short-term investment and are not necessarily
indicative of the results that may be expected for any future
periods.




Liquidity
and Capital Resources




We have
recorded operating losses and negative operating cash flows since our inception
and have limited revenues. At September 30, 2009, we had an accumulated deficit
of approximately $86,653,000. We do not expect to have earnings from operations
or positive operating cash flow until such time as our strategic investments
achieve successful implementation of their business plans and/or form alliances
for the use of our capabilities in the future.




We may
not have funds sufficient to finance our operations and enable us to meet our
financial obligations for the next twelve months. There can be no assurances
that we will be able to consummate any capital raising transactions,
particularly in view of current economic conditions. The inability to generate
future cash flow or raise funds to finance our strategic investments could have
a material adverse effect on our ability to achieve our business
objectives.




The
report of our registered public accounting firm for the fiscal year ended
December 31, 2008 contains an explanatory paragraph which states that there is
substantial doubt about our ability to continue as a going concern.




If we are
not able to reduce or defer our expenditures, secure additional sources of
revenue or otherwise secure additional funding, we may be unable to continue as
a going concern, and we may be forced to restructure or significantly curtail
our operations, file for bankruptcy or cease operations. In addition, a
bankruptcy filing by one or more of our strategic investments could cause us to
lose our investment and/or control and could prevent us from sharing in any
future success of those strategic investments. The accompanying financial
statements do not include any adjustments relating to the recoverability of the
carrying amount of recorded assets or the amount of liabilities that might
result should the Company be unable to continue as a going
concern.  Should we be successful in securing the necessary capital to
continue operations, it is likely that such arrangements would result in
significant dilution to each shareholder’s ownership interest in the
Company.


17
 Index


Net cash
used in operating activities was approximately $3,384,000 for the nine months
ended September 30, 2009 compared to approximately $4,648,000 for the nine
months ended September 30, 2008. This reduction in the net cash used in
operating activities is primarily related to corporate cost cutting initiatives
of approximately $625,000 in patent litigation expenses, approximately $400,000
in staff and related expenses, approximately $360,000 in internet initiative
expenses, approximately $145,000 in development expenses at Zargis, offset
somewhat by an increase in development spending at Density Dynamics of
approximately $230,000, and other changes in operating assets and
liabilities.




Net cash
used in investing activities was approximately $1,750,000 for the nine months
ended September 30, 2009 compared  to net cash provided by investing
activities of approximately $2,986,000 for the nine months ended September 30,
2008. This net increase in net cash used in investing activities was primarily
due to the maturation of a U.S. Treasury bill of approximately $2,997,000 in the
nine months ended September 30, 2008, and the purchase of a U.S. Treasury Bill
in the amount of approximately $1,750,000 during the nine months ended September
30, 2009.




Net
cash provided from financing activities was approximately $175,000 for the nine
months ended September 30, 2009 compared to net cash used in financing
activities of approximately $42,000 for the nine months ended September 30,
2008. This net increase in cash provided by financing activities is a result of
proceeds received from convertible note financing by a minority investor in the
nine months ended September 30, 2009 and the redemption of preferred stock and
the repurchase of company stock that occurred in the nine months ended September
30, 2008.




At
September 30, 2009, the Company’s future minimum lease payments due under
non-cancelable leases aggregated approximately $42,000. Approximately $27,000 of
this amount is due during the year ending December 31, 2009, and the balance
of  approximately $15,000  is due during the year ending
December 31, 2010.  In addition, in connection with a license
agreement to which the Company is a party, a termination payment will be payable
by the Company in the amount of $200,000 if the license agreement is terminated
by the Company before September 1, 2011.




We have
invested a portion of our assets in a portfolio of marketable securities
consisting of publicly traded equity securities. We purchase these securities in
anticipation of increases in the fair market values of the securities. We have
in the past and may in the future sell publicly traded equity securities we do
not own in anticipation of declines in the fair market values of these
securities. When we sell securities that we do not own, we must borrow the
securities we sold in order to deliver them and settle the trades. Thereafter,
we must buy the securities and deliver them to the lender of the securities. Our
potential for loss on these transactions is unlimited since the value of the
underlying security can keep increasing. At September 30, 2009 and December 31,
2008 we had not sold any securities that we did not own.




Off-Balance
Sheet Arrangements


The
Company does not have any off-balance sheet arrangements.




Recent
Accounting Pronouncements


See Note
1 to the consolidated financial statements for a full description of recent
accounting pronouncements including the impact the future adoption would have on
the Company’s results of operations or financial position.


18
 Index


ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK




The
Company’s financial instruments at September 30, 2009 consist primarily of cash
equivalents which are invested primarily in money market accounts, and
marketable securities.




The
Company has in the past and may in the future 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. These
amounts are shown on the balance sheet as ‘Securities sold and not purchased’
and represent the value of these securities at fair market value. 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.  At
September 30, 2009 and December 31, 2008 we had not sold any securities that we
did not own.




ITEM 4T.  CONTROLSAND PROCEDURES




Evaluation
of Disclosure Controls And Procedures




The
Company, under the supervision and with the participation of its management,
including the Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the design and operation of the Company's "disclosure
controls and procedures," as such term is defined in Rules l3a-15e and l5d-I5e
promulgated under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act"). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, the Company's disclosure controls
and procedures were ineffective as of the end of the period covered by this
report. This conclusion was based on the material weaknesses indentified in the
Company's internal control over financial reporting as noted below. Such
controls and procedures are designed to ensure that all material information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is accumulated and communicated as appropriate to allow
timely decisions regarding required disclosure and that all such information is
recorded, processed, summarized and reported as specified in the rules and forms
of the SEC.




Management's
Quarterly Report on Internal Control over Financial Reporting




The
Company's management conducted an evaluation of the effectiveness of the
Company's internal control over financial reporting, based on the framework and
criteria established in Internal Control ─ Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, the Company's management assessed the effectiveness of the Company's
internal control over financial reporting for the period ended September 30,
2009 and concluded that such internal control over financial reporting was not
effective with respect to the material weakness described below.  This
report does not include an attestation report of our  registered
public accounting firm regarding internal control over financial
reporting.  We were not required to have, nor have we engaged
our  registered public accounting firm to perform, an audit on our
internal control over financial reporting pursuant to the rules of the
Securities and Exchange Commission that permit us to provide only managements’
report in this annual report.




A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim consolidated
financial statements will not be prevented or detected on a timely basis. In its
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2008, management identified the following material
weaknesses:




·
            Timely
      closing of books and filing of
reports




·
            Failure
      to file timely tax returns.  Although we have filed extensions
      and made payments, where applicable, no income tax returns have been filed
      since 2005.




Management
commenced a number of efforts to remediate the weaknesses noted above including
the hiring of a financial consultant and the appointment of a new
CFO.






Changes
in Internal Control over Financial Reporting




There
have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter ended September 30, 2009 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.


19
 Index


PART
II.  OTHER INFORMATION






ITEM 1.  LEGAL PROCEEDINGS




Withholding
Tax Dispute




On March
30, 2004, the Company entered into an Employment Agreement with Mr. Shant S.
Hovnanian, effective as of April 25, 2002 (the “Employment Agreement”),
providing for Mr. Hovnanian’s employment as President and Chief Executive
Officer of the Company.  The Employment Agreement provided that Mr.
Hovnanian was to be paid an annual salary.  The Employment Agreement
separately provided for Mr. Hovnanian to receive a contingent payment equal to
20% of the net proceeds (after legal and other expenses) realized by the Company
from a Technology Rights Agreement dispute against Western International
Communications and certain related claims.  The Company reached a $15
million settlement of this claim in February 2004, resulting in a contingent
payment of approximately $2.8 million, which was paid to an entity that Mr.
Hovnanian controlled.




On
January 22, 2009, the Internal Revenue Service (the “IRS”) issued a “30-day
letter” to the Company asserting under two different theories that withholding
tax was due to the IRS in connection with this payment, plus interest and
penalties.  Under its primary theory, the IRS claims that the Company
owes (i) $794,161 in connection with unpaid FICA, FUTA and withholding taxes
under Sections 3101, 3111 and 3402 of the Internal Revenue Code (the “Code”),
(ii) a negligence penalty of $158,832 under Section 6662 of the Code for failure
to withhold the proper tax, (iii) a failure to deposit penalty of $4,127 under
Section 6656 of the Code and (iv) all associated interest
thereon.  Under the IRS’s alternative position, the IRS claims that
the Company owes (i) $797,078 for backup withholding taxes under Section 3406 of
the Code, and (ii) a penalty of $199,000 associated with the Company’s alleged
failure to withhold the proper backup withholding taxes and (iii) a penalty of
$579,921 for intentional disregard under Sections 6721 and 6722 of the Code for
failure to file information return 1099-MISC.  In addition, on
February 23, 2009, the IRS issued notice of its intention to levy $1,311,868.65
in respect of these claims. The Company has appealed an IRS proposed tax
adjustment to the IRS’s administrative appeal group, and its appeal has been
accepted.   As of September 16, 2009, the Company is pursuing its
appeal, cooperating with the IRS, and complying with the IRS’ internal appeal
process. While the appeal process is underway, any related IRS levy has been
stayed.  However, if the Company is not successful in its appeal with
the IRS, upon expiration of the temporary stay and the exhaustion of other
administrative and judicial procedures available to the Company, the IRS may
ultimately proceed with levying the Company’s assets.  The Company has
established a reserve of $1.3 million in accrued expenses and a charge to
selling, general and administrative expenses for this claim at December 31,
2008.




In March
of 2009, the Company set aside in a separate account a cash balance sufficient
to satisfy such claim if deemed to be necessary and other potential claims and
obligations that may arise in the future with respect to this
issue.




ITEM 1A.  RISK FACTORS




No
material changes.


20
 Index


ITEM 2.  UNREGISTEREDSALES OF EQUITY SECURITIES AND USE
OF PROCEEDS




Stock
repurchase program:




Period
            
            (a)
      Total Number
              of
      Shares (or
              Units)
      Purchased
            
            
            (b)
      Average Price
              Paid
      per Share (or
              Unit)
            
            
            (c)
      Total number
              of
      Shares (or
              Units)
      Purchased
              as
      Part of Publicly
              Announced
      Plans
              or
      Programs
            
            
            (d)
      Maximum
              number
      (or
              Approximate
              Dollar
      Value) of
              Shares
      (or Units)
              that
      May Yet Be
              Purchased
      Under
              the
      Plans or
              Programs
      (1)January 1,
      2008 - March 31, 2008
            
            
            0
            
            
            $
            -
            
            
            
            0
            
            
            $
            414,922February 1,
      2008 - February 29, 2008
            
            
            0
            
            
            $
            -
            
            
            
            0
            
            
            $
            414,922March 1,
      2008 - March 31, 2008
            
            
            3,567
            
            
            $
            1.35
            
            
            
            3,567
            
            
            $
            410,094Total
            
            
            3,567
            
            
            $
            1.35
            
            
            
            3,567
            
            
            $
            410,094





(1) On
November 21, 2000, the Company announced that its Board of Directors had
approved a stock repurchase program for the repurchase of up to $1,000,000 of
Company stock through open market as well as privately negotiated transactions.
Thereafter, the Board of Directors approved increases to the program in the
aggregate amount of $5,500,000.




ITEM 3.  DEFAULTSUPON SENIOR SECURITIES




None.




ITEM 4.  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY
HOLDERS




None.




ITEM 5.  OTHERINFORMATION




Nasdaq
Compliance




The Company
received notification on October 14, 2009 that Nasdaq Capital Market requires
that the Company comply with the Nasdaq Listing Rule 5550 which includes
requirements that Company have either a minimum $2.5 million in stockholders'
equity, a $35 million market capitalization or $500,000 of net income from
continuing operations for the most recently completed fiscal year or two of the
three most recently completed fiscal years. The Company submitted a plan to
regain compliance with this rule on October 29, 2009.  If the plan is
accepted, Nasdaq has the authority to allow up to 105 days from October 14,
2009, the date of the original notification, for the Company to regain
compliance.




ITEM 6.  EXHIBITS




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.


21
 Index


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:
      November 16, 2009
            By:
      /s/ Shant S.
      HovnanianShant
      S. HovnanianChairman
      of the Board, President and Chief Executive OfficerDate:
      November 16, 2009
            By:
      /s/ John A.
      KallassyJohn
      A. KallassyTreasurer
      and Chief Financial and Accounting
Officer





22