UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





TANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For
the fiscal year ended December 31, 2008





or





£TRANSITIONAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For
transition period from _______ to  _______





Commission
file number: 000-27582





SPEEDUS
CORP.


(Name of
small business issuer in its charter)





Delaware
            13-3853788(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification Number)1
      Dag Hammarskjold Blvd., Freehold, New Jersey
            07728(Address
      of Principal Executive Offices)
            (Zip
      code)





(888)
773-3669


(Registrant’s
telephone number)





Securities
      registered pursuant to Section 12(b) of the Act:Common
      Stock, par value $.01 per share
            The
      NASDAQ Stock Market LLC(Title
      of each class)
            (Name
      of each exchange on which registered)





Securities
registered pursuant to Section 12 (g) of the Act:


None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes £ No T





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes £ No T





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 T No £





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. £





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 T





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes £ No T





The
aggregate market value of the Registrant’s Common Stock held by non-affiliates
of the Registrant was $6,598,000 on August 31, 2008, based on the closing trade
price of the Common Stock on the NASDAQ Stock Market on that date.





The
number of shares of Common Stock outstanding as of October 12, 2009 was
3,935,596.





DOCUMENTS
INCORPORATED BY REFERENCE





None










SPEEDUS CORP.


INDEX
TO FORM 10-K


PagePART
      IItem
      1.
            Business
            4Item
      1A.
            Risk Factors
            7Item
      1B.
            Unresolved Staff Comments
            11Item
      2.
            Properties
            11Item
      3.
            Legal Proceedings
            11Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            12PART
      IIItem
      5.
            Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            13Item
      6.
            Selected Financial Data
            14Item
      7.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            14Item
      7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            20Item
      8.
            Financial Statements and Supplementary Data
            20Item
      9.
            Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure
            21Item
      9A(T).
            Controls and Procedures
            22Item
      9B.
            Other Information
            23PART
      IIIItem
      10.
            Directors, Executive Officers and Corporate
      Governance
            24Item
      11.
            Executive Compensation
            26Item
      12.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            30Item
      13.
            Certain Relationships and Related Transactions, and Director
      Independence
            31Item
      14.
            Principal Accountant Fees and Services
            31PART
      IVItem
      15.
            Exhibits, Financial Statement Schedules
            32


2
 Index


Disclosure
Regarding Forward Looking Statements





This Form
10-K contains “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-K 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
debt, to service and repay such debt, as well as other factors that may affect
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 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-K
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.


3
 Index


PART
I





ITEM
      1.
            BUSINESS





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 environmentally friendly solid-state storage
and 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 11, 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 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 December 31, 2008, as a result of continued investment,
our primary equity ownership was approximately 93%.





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) 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.


4
 Index


Density
Dynamics


In March
2008, we obtained approximately a 75% primary equity ownership 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 environmentally friendly
solid-state storage and I/O acceleration technology. The Density Dynamics Jet.io
RamFlash solid state drive product line provides innovative solutions for high
performance storage requirements that greatly reduce the complexity, space
requirements, and power requirements compared to traditional storage solutions.
The Jet.io products are unique because they provide a scalable industry standard
3.5” drive format and also use patented low power DRAM technology which provides
low latency, high IOPS and long durability.


5
 Index


Other
Business Activities





F&B
Gudtfood


As a
result of continued losses at the two F&B restaurant locations we closed one
F&B restaurant store in 2007 and in October 2008 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 period ending December 31, 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.”





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.





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 December 31,
2008 and 2007, we had not sold any securities that we did not own.





We have
also invested a portion of our assets in equity and debt instruments of
non-publicly held companies. The Company monitors these investments for other
than temporary impairment by considering current factors including economic
environment, market conditions, operational performance and other specific
factors relating to the business underlying the investment(s).  The
Company determined that based on the current general negative economic and
liquidity environment affecting the ability of businesses to obtain credit and
to raise money in the capital markets, and based on specific unobserved data
received from the underlying entities indicating severe operational and
liquidity problems, there is significant doubt as to whether these entities will
be able to continue to operate as going concerns. Therefore, during the fourth
quarter of 2008 the Company recorded an impairment charge of $800,000 against
these assets reducing the fair value of these non-public investments to zero as
of December 31, 2008.





Competition





Many of
our present and potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do and therefore may be able to respond more quickly than we can to new or
changing opportunities, technologies, standards and customer
requirements.





Intellectual
Property





To
protect our proprietary rights, we rely on a combination of copyright and
trademark laws, trade secrets, confidentiality agreements with employees and
third parties and protective contractual provisions. All of our employees have
executed confidentiality and nonuse agreements that transfer any rights they may
have in copyrightable works or patentable technologies to us.





We have
applied for registration of our service marks and trademarks in the United
States and in other countries.  We may not be successful in obtaining
the service marks and trademarks for which we have applied. To the extent we
consider it necessary, we may file patents to protect our technology. Patents
with respect to our technology may not be granted, and, if granted, patents may
be challenged or invalidated. In addition, issued patents may not provide us
with any competitive advantages and may be challenged by third
parties.





Despite
our efforts to protect our proprietary rights, unauthorized parties may copy
aspects of our products or services or obtain and use information that we regard
as proprietary. The laws of some foreign countries do not protect proprietary
rights to as great an extent as do the laws of the United States. In addition,
others could possibly independently develop substantially equivalent
intellectual property. If we do not effectively protect our intellectual
property, our business could suffer. Companies have frequently resorted to
litigation regarding intellectual property rights. We may have to litigate to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of other parties' proprietary
rights.





Government
Regulation





In
general, we are not currently subject to direct federal, state or local
government regulation, other than regulations that apply to businesses
generally. However, the grant, renewal and administration of spectrum licenses
is regulated by the Federal Communications Commission.  See ‘Business
Activities, Local Multipoint
Distribution Service (LMDS) license’for additional information on our
“substantial service” demonstration and our contingent request for waiver or
extension of the “substantial service” deadline. A failure by the FCC to
conclude that we have demonstrated “substantial service” or to extend the
deadline for demonstrating “substantial service” could have an adverse effect on
the Company.


6
 Index


In
addition, medical devices such as ours are subject to strict regulation by state
and federal authorities, including the Food and Drug Administration and
comparable authorities in certain states.





Employees





As of
August 31, 2009, we had approximately 20 full time employees. We also rely on a
number of consultants. None of our employees are represented by a collective
bargaining agreement. We believe that we have a good relationship with our
employees.





Where
You Can Find More Information





We file
annual and quarterly reports, proxy statements and other information with the
Securities and Exchange Commission, and we have an Internet website address at
www.speedus.com. We make available free of charge on our internet website
address our annual and quarterly reports and proxy statements filed pursuant to
Sections 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after we electronically file such material with the SEC. You may also read and
copy any document we file at the Securities and Exchange Commission's public
reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please
call the Securities and Exchange Commission at 1-800-732-0330 for further
information on the operation of such public reference room. You also can request
copies of such documents, upon payment of a duplicating fee, by writing to the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 or obtain copies of such documents from the Securities and Exchange
Commission's website at www.sec.gov.






ITEM
      1A.
            RISK
      FACTORS





Risks
related to our business generally





Although
we have been a public company since February 1996, we have reoriented our
business several times and our current business has not generated any
significant revenues to date.





At the
time of our initial public offering, our business was primarily a subscription
television service.  In November 1998, we terminated the subscription
television business and began a limited pilot program for the delivery of
high-speed Internet access.  We encountered technical difficulties in
this pilot program and reoriented our business on wireless data and other
services. We have not yet generated any significant revenue from these
businesses.





We
have recorded operating losses in each reporting period since our inception and
may never be profitable.





We have
recorded operating losses and negative operating cash flows since our inception
and have limited revenues. At December 31, 2008, we had an accumulated deficit
of approximately $83.1 million. 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 be able to fund our operations and continue as a going
concern.





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 independent 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.


7
 Index


If
the recent volatility in the United States and global markets continue for an
extended period of time, it may become more difficult to raise money in the
public and private markets and harm our financial condition and results of
operations.





The
United States and global equity markets have recently been extremely volatile
and unpredictable, reflecting in part a general concern regarding the global
economy. This volatility has also affected the ability of businesses to obtain
credit and to raise money in the capital markets. If we are unable to obtain
credit or raise money in the capital markets, we may not be able to continue to
fund our current products or otherwise continue to maintain our
business.  Our existing operations and infrastructure may not be
adequate to manage the growth necessary for successful implementation of our
business plan.





Successful
implementation of our business plan will require the management of
growth.  Our existing operations and infrastructure may not be
adequate to manage such growth, and any steps taken to improve such systems and
controls may not be sufficient. Our future success will depend in part upon
attracting and retaining the services of current management and technical
personnel.  We also may not be successful in attracting, assimilating
and retaining new personnel in the future as future growth takes
place.  We do not maintain "key person" life insurance policies on any
of our key personnel.





Shant
S. Hovnanian, Vahak S. Hovnanian and trusts controlled by members of the
Hovnanian family together to control the direction and future operations of our
company.





Shant S.
Hovnanian, Vahak S. Hovnanian and trusts controlled by members of the Hovnanian
family in the aggregate own approximately 41%of
our outstanding Common Stock at December 31, 2008. As a result, acting together
they may have the power to elect all of the members of our Board of Directors,
amend our certificate of incorporation and by-laws and control the direction and
future operations of our Company, in each case without the approval of any of
our other stockholders.





Our
stock price has historically been volatile, which may make it more difficult for
you to resell shares when you want at prices you find attractive.





The
trading price of our Common Stock has been and may continue to be subject to
wide fluctuations.  During 2008 and 2007, the high and low sale prices
of our Common Stock on the Nasdaq Stock Market ranged from $3.25 to $0.25, and
$5.96 to $1.40, respectively.  The closing sale price of our Common
Stock was $2.87 on August 31, 2009. Our stock price may fluctuate in response to
a number of events and factors, such as quarterly variations in operating
results, announcements of technological innovations or new products and media
properties by us or our competitors, the operating and stock price performance
of other companies that investors may deem comparable, and news reports relating
to trends in our markets.





We
may not be able to maintain our listing with the Nasdaq Stock Market which may
make it more difficult for you to resell shares when you want.





On
several occasions in the past, we were not in compliance with the Marketplace
Rules of the Nasdaq Stock Market (“Nasdaq”), which require listed companies to
maintain a closing bid price equal to or greater than $1.00.





In
December 2008, the Company received written notification from Nasdaq that it no
longer complied with Nasdaq’s audit committee and independent director
requirements under Marketplace Rules. The Company has until the earlier of the
Company’s next annual shareholders’ meeting or December 2, 2009 to regain
compliance with both the independent director and audit committee
requirements.





In
addition, the Company failed to timely file its Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, as well as its Quarterly Reports on
Form 10-Q for the quarters ended March 31, 2009 and June 30,
2009.  Nasdaq advised the Company that it does not currently comply
with Nasdaq’s Marketplace Rule 5250(c)(1) since it has not yet filed its Form
10-Q for the period ended June 30, 2009.  On August 12th, 2009, the
Company announced that it received approval from Nasdaq for the plan the Company
submitted to Nasdaq on June 15, 2009 for regaining compliance with Nasdaq filing
requirements set forth in Marketplace Rule 5250(c)(1) (the
“Rule”).  As a result, Nasdaq has granted the Company a time extension
to comply with the filing requirements set forth in the Rule.  The
extension will allow the Company to regain full compliance with the applicable
Nasdaq filing requirements, and for the Company to maintain its securities
listing, provided that the Company files its Form 10-K for the year ended
December 31, 2008, its Form 10-Q for the period ended March 31, 2009, and its
Form 10-Q for the period ended June 30, 2009, as required by the Rule, no later
than October 13th, 2009.





The
Company expects that it will file its Form 10-K for the year ended December 31,
2008, and its 10-Q for the periods ending March 31, 2009 and June 30, 2009, on
or before October 13, 2009, at which time the Company will be in compliance with
Marketplace Rule 5250(c)(1).





While the
Company will demonstrate best efforts to regain compliance, and thus maintain
its securities listing, there can be no assurance that the Company will be able
to meet the above mentioned deadlines and otherwise regain
compliance.  Should the Company be unable to meet the requirements,
Nasdaq will issue a determination to delist the Company's
securities.


8
 Index


If our
Common Stock were delisted from Nasdaq, trading in our Common Stock would have
to be conducted on the OTC Bulletin Board or in the “pink sheets”. If that were
to occur, liquidity for our Common Stock could be significantly decreased which
could reduce the trading price and increase the transaction costs of trading
shares of our Common Stock.





Sales
of shares of Common Stock by major holders could adversely affect the market
price of the Common Stock.





Future
sales of shares of Common Stock, or the availability of shares of Common Stock
for future sale, may adversely impact the market price of the Common Stock
prevailing from time to time.  Sales of substantial amounts of our
Common Stock, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock. Sales of shares of
Common Stock by major holders could adversely affect the market price of the
Common Stock.





The
Company has identified material weaknesses in its internal controls over
financial reporting





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, and as reported in this Annual
Report on Form 10-K for the fiscal year then ended, management identified such
material weaknesses as evidenced by the fact that the Company was unable to
timely close its books and file required reports as required by securities
regulations and has not filed its income tax returns on a timely
basis.   There is a reasonable possibility that material
misstatements in the Company’s annual or interim consolidated financial
statements will not be prevented or detected on a timely basis unless management
is successful in remediating such material weaknesses.








Risks
related to certain short-term investments





Securities
that we invest in are subject to market price risks.





As part of our overall
investment strategy, we invest in publicly traded equity securities. We
purchase these securities in anticipation of increases in the fair market values
of the securities.





We have
also 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.  Based on non-observable
data received from these non-publicly held companies, we have determined that
the fair value of these investments is $0 as of December 31, 2008. The Company
therefore recorded an impairment charge of $800,000 in the fourth quarter of
2008.





We have
in the past and may in the future sell publicly traded equity securities that we
do not own in anticipation of declines in the fair market values of the
securities. When we sell securities that we do not own, we must borrow the
securities we sold in order to deliver them and settle the trades. Thereafter,
we must buy the securities and deliver them to the lender of the securities. Our
potential for loss on these transactions is unlimited since the value of the
underlying security can keep increasing which could have a material adverse
effect on the Company’s consolidated financial statements. At December 31, 2008
and 2007, we had not sold any securities that we did not own.





Although
a portion of the Company's cash is typically invested in securities, the Company
has pursued an acquisition strategy that would, if successfully executed,
eliminate any risk of it being deemed to be an investment
company.


9
 Index


Risks
related to investments in other companies





The
value of our business may fluctuate because of companies that we may invest
in.





The value
of our business may fluctuate because of companies that we may invest in. These
companies may be development stage or privately held companies for which no
public market exists for their stock. The valuations of our investments in
privately held companies that we may invest in are indeterminate prior to their
public offerings, and there can be no assurance that these offerings will occur
since they will be dependent upon the development of these businesses, market
conditions and other conditions over which we may have no control.





Capital
and management resources





There
will be a number of special issues that we will have to address for investment
in start-up companies, including: the diversion of management attention in
connection with both negotiating and overseeing these transactions; the
potential issuance of additional shares of our Common Stock in connection with
these transactions, which could dilute the rights of existing shareholders, and
the need to incur additional debt in connection with these transactions. In
addition, many, if not all, of these start-up companies will face the same, or
similar, risks as we face in our own business.





Managing
growth





Successful
implementation of our business plan will require the management of growth. We
cannot assure you that our existing operations and infrastructure will be
adequate to manage such growth, or that any steps taken to improve such systems
and controls will be sufficient. Our future success will depend in part upon
attracting and retaining the services of current management and technical
personnel. We cannot assure you that we will be successful in attracting,
assimilating and retaining new personnel in the future as future growth takes
place.





Risks
related to medical device companies





Risks
related to government regulation and future regulatory requirements





Medical
devices such as ours are subject to strict regulation by state and federal
authorities, including the Food and Drug Administration and comparable
authorities in certain states.





Manufacturers
of medical devices are required to comply with very specific rules and
regulations concerning the testing, manufacturing, packaging, labeling and
marketing of medical devices. Failure to comply with applicable regulatory
requirements could result in, among other things, civil and criminal fines,
product recalls, detentions, seizures, injunctions and criminal
prosecutions.





In
addition, these regulations are subject to future change. We cannot predict what
material impact, if any, these changes might have on our business. Future
changes in regulations or enforcement policies could impose more stringent
requirements on us, compliance with which could adversely affect our
business.





Potential
product recalls





In the
event that any of our products prove to be defective, we could voluntarily
recall, or the FDA could require us to redesign or implement a recall of, any
defective product. There is a possibility that we may recall products in the
future and that future recalls could result in significant costs to us and in
significant negative publicity which could harm our ability to market our
products in the future.





We
could be exposed to significant liability claims.





We could
be exposed to significant liability claims if we are unable to obtain adequate
insurance at acceptable costs and adequate levels or otherwise protect ourselves
against potential product liability claims.





The
testing, manufacture, marketing and sale of medical devices involve the inherent
risk of liability claims. A successful product liability claim could affect or
prevent commercialization of our medical devices, or cause a significant
financial burden on us, or both, and could have a material adverse effect on our
business, financial condition, and ability to market our medical
devices.





Health
care providers may not be able to obtain adequate levels of third-party
reimbursement.





The
success of our product may depend on the ability of health care providers to
obtain adequate levels of third-party reimbursement. The amount of reimbursement
available may vary. The cost of medical care is funded, in substantial part, by
government insurance programs, such as Medicare and Medicaid, and private and
corporate health insurance plans. Third-party payers may deny reimbursement at
adequate levels if they determine that a prescribed device or diagnostic
procedure is not used in accordance with cost-effective treatment methods as
determined by the payer, or is experimental, unnecessary or inappropriate. The
inadequacy of the reimbursement may have a material adverse effect on our
business.


10
 Index


The
medical device industry is characterized by rapid technological changes and
advances.





Although
the Company believes that its products are technologically current, the
development of new technologies or refinements of existing ones by the Company's
competitors could at any time make the Company's existing products
technologically or economically obsolete. Although the Company is not aware of
any pending technological developments that would be likely to materially and
adversely affect its business or financial position, there can be no assurance
that such developments will not occur at any time.





We
may rely on third parties to support the manufacture or commercialization of our
products.





We may
rely on third parties, and possibly single third parties, to manufacture or
commercialize our products. Third parties may not perform their obligations as
expected. The amount and timing of resources that third parties devote to
manufacturing or commercializing our product may not be within our control. The
third party on which we rely to commercialize our products may not be able to
recruit and retain skilled sales representatives.





Furthermore,
our interests may differ from those of the third party that manufacture or
commercializes our products. Disagreements that may arise with the third party
could limit the manufacture or commercialization of our products, or result in
litigation or arbitration, which would be time-consuming, distracting and
expensive. If the third party that supports the manufacture or commercialization
of our products breaches or terminates its agreement with us, or fails to
conduct its activities in a timely manner, such breach, termination or failure
could result in the disruption of our business and could have a material adverse
effect on our results of operations.






ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS





None.






ITEM
      2.
            PROPERTIES





Information
on our major locations at December 31, 2008 is presented below:





Location
            
            Use
            
            Square
              footage
            
            
            Lease
              expiration
            
            Renewal
              optionsPrinceton,
      NJ
            
            Administrative and research(1)
            
            
            2,500
            
            
            2010
            
            NoneStamford,
      CT
            
            Administrative
      (1)
            
            
            850
            
            
            2009
            
            NoneGermantown,
      MD
            
            Administrative and research(2)
            
            
            1,500
            
            
            2010
            
            NoneWashington,
      DC
            
            Administrative(2)
            
            
            900
            
            
            2009
      (expired)
            
            None


______________





(1)
Zargis Medical


(2)
Density Dynamics





ITEM 3.
            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 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 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 the end of October
of 2009, there can be no assurance that a settlement will be reached or that the
ultimate payment will be below the amount levied.


11
 Index


ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





At our
Annual Meeting of shareholders held on November 20, 2008, we submitted the
following matters to a vote of its shareholders, all of which were
approved:





1.
Election of Directors:





Name of Director
            Votes For
            Votes WithheldShant
      S. Hovnanian
            3,133,558
            135,172Vahak
      S. Hovnanian
            3,073,315
            195,415William
      F. Leimkuhler
            3,112,390
            156,340Jeffrey
      Najarian
            3,114,709
            154,021Christopher
      Vizas
            3,114,709
            154,021








2.
Ratification of Amper, Politziner & Mattia, LLP as the
Company’s  registered public accounting firm:





Votes For
            Votes Against
            Abstentions3,190,190
            60,967
            17,573


12
 Index


PART
II





ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





Our
Common Stock is listed for quotation on the Nasdaq Stock Market and trades under
the symbol “SPDE.” The following table sets forth high and low trade prices for
the Common Stock for the fiscal quarters indicated.





High Sale
            
            
            Low Sale2008First
      quarter
            
            $
            2.00
            
            
            $
            1.22Second
      quarter
            
            
            3.25
            
            
            
            1.01Third
      quarter
            
            
            1.40
            
            
            
            0.25Fourth
      quarter
            
            
            1.17
            
            
            
            0.282007First
      quarter
            
            $
            5.96
            
            
            $
            4.60Second
      quarter
            
            
            5.04
            
            
            
            2.40Third
      quarter
            
            
            3.52
            
            
            
            1.92Fourth
      quarter
            
            
            3.92
            
            
            
            1.40





At our
annual meeting of stockholders held on November 20, 2007, we received
stockholder approval of a proposal authorizing our Board of Directors, in its
discretion, to implement a reverse split of our issued and outstanding shares,
as well as treasury shares, at a ratio not to exceed one-for-six. Thereafter,
the Board of Directors approved the one-for-four ratio. The one-for-four reverse
split took effect with the open of trading on December 3, 2007. The exercise
price and the number of shares of common stock issuable under the Company's
outstanding stock options have been proportionately adjusted to reflect the
reverse stock split.  We have retroactively adjusted all share and per
share information to reflect the reverse stock split in the consolidated
financial statements and notes thereto, as well as throughout the rest of this
Form 10-K for all periods presented.





On
several occasions in the past, we were not in compliance with the Marketplace
Rules of the Nasdaq Stock Market (“Nasdaq”), which require listed companies to
maintain a closing bid price equal to or greater than $1.00.





In
December 2008, the Company received written notification from Nasdaq that it no
longer complied with Nasdaq’s audit committee and independent director
requirements under Marketplace Rules. The Company has until the earlier of the
Company’s next annual shareholders’ meeting or December 2, 2009 to regain
compliance with both the independent director and audit committee
requirements.





In
addition, the Company failed to timely file its Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, as well as its Quarterly Reports on
Form 10-Q for the quarters ended March 31, 2009 and June 30,
2009.  Nasdaq advised the Company that it does not currently comply
with Nasdaq’s Marketplace Rule 5250(c)(1) since it has not yet filed its Form
10-Q for the period ended June 30, 2009.  On August 12th, 2009, the
Company announced that it received approval from Nasdaq for the plan the Company
submitted to Nasdaq on June 15, 2009 for regaining compliance with Nasdaq filing
requirements set forth in Marketplace Rule 5250(c)(1) (the
“Rule”).  As a result, Nasdaq has granted the Company a time extension
to comply with the filing requirements set forth in the Rule.  The
extension will allow the Company to regain full compliance with the applicable
Nasdaq filing requirements, and for the Company to maintain its securities
listing, provided that the Company files its Form 10-K for the year ended
December 31, 2008, its Form 10-Q for the period ended March 31, 2009, and its
10Q for the period ended June 30, 2009, as required by the Rule, no later than
October 13th, 2009.





The
Company expects that it will file its Form 10-K for the year ended December 31,
2008, and its 10-Q for the periods ending March 31, 2009 and June 30, 2009, on
or before October 13, 2009, at which time the Company will be in compliance with
Marketplace Rule 5250(c)(1).





On August
31, 2009, the closing trade price of our Common Stock was $2.87 per share. As of
December 31, 2008, there were approximately 200 shareholders and, to the best of
our belief, approximately 2,500 beneficial owners of our Common Stock. During
the year ended December 31, 2008, we did not make any sales of securities that
were not registered under the Securities Act of 1933, as amended.





We have
never declared or paid any cash dividends on our Common Stock and do not intend
to declare or pay cash dividends on the Common Stock at any time in the
foreseeable future. Future earnings, if any, will be used for the expansion of
our business.


13
 Index


Issuer
Purchases of Equity Securities





The
following table sets forth certain information regarding repurchases by the
Company of its own equity securities during the fourth quarter of
2008:





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)October
      1, 2008 -October
      31, 2008
            
            
            40,409
            
            
            $
            0.85
            
            
            
            40,409
            
            
            $
            363,389November
      1, 2008 -November
      30, 2008
            
            
            0
            
            
            $
            -
            
            
            
            0
            
            
            $
            363,389December
      1, 2008 -December
      31, 2008
            
            
            0
            
            
            $
            -
            
            
            
            0
            
            
            $
            363,389Total
            
            
            40,409
            
            
            $
            0.85
            
            
            
            40,409
            
            
            $
            363,389(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.




Equity
Compensation Plans





Information
regarding our Common Stock authorized for issuance under equity compensation
plans is included in Item 11 of this Form 10-K.








ITEM
      6.
            SELECTED
      CONSOLIDATED FINANCIAL DATA





A smaller
reporting company is not required to provide the information required by this
Item.








ITEM7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





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 pioneer in
environmentally friendly solid-state storage and 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 10, 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.


14
 Index


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 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 December 31, 2008, as a result of continued investment,
our primary equity ownership interest was approximately 93%.





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) 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.





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 environmentally friendly
solid-state storage and I/O acceleration technology. The Density Dynamics Jet.io
Solid RamFlash Solid State Drive product line provides innovative solutions for
high performance storage requirements that greatly reduce the complexity, space
requirements, and power requirements compared to traditional storage solutions.
The Jet.io products are unique because they provide a scalable industry standard
3.5” drive format and also use patented low power DRAM technology which provides
low latency, high IOPS and long durability.





Other
Business Activities


F&B
Gudtfood


As a
result of continued losses at the two F&B restaurant locations we closed one
F&B restaurant store in 2007 and in October 2008 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 period ending December 31, 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.”





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.





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 December 31,
2008, we had not sold any securities that we did not own.





We have
also invested a portion of our assets in equity and debt instruments of
non-publicly held companies. The Company monitors these investments for other
than temporary impairment by considering current factors including economic
environment, market conditions, operational performance and other specific
factors relating to the business underlying the investment(s).  The
Company determined that based on the current general negative economic and
liquidity environment affecting the ability of businesses to obtain credit and
to raise money in the capital markets, and based on specific unobserved data
received from the underlying entities indicating severe operational and
liquidity problems, there is significant doubt as to whether these entities will
be able to continue to operate as going concerns. Therefore, during the fourth
quarter of 2008 the Company made an impairment charge of $800,000 against these
assets reducing the fair value of these non-public investments to zero as of
December 31, 2008.


15
 Index


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 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.





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 123R, “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
123R in future periods, the compensation expense that we record under FASB 123R
may differ significantly from what we have recorded in the current period. There
is a high degree of subjectivity involved when using option pricing models to
estimate share-based compensation under FASB 123R. Consequently, there is a risk
that our estimates of the fair values of these awards on the grant dates may
bear little resemblance to the actual values realized upon the exercise,
expiration, early termination or forfeiture of those share-based payments in the
future. Employee stock options may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally estimated on the grant
date and reported in our consolidated financial statements. Alternatively, value
may be realized from these instruments that are significantly in excess of the
fair values originally estimated on the grant date and reported in our
consolidated financial statements.  During the years December 31, 2008
and 2007, 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 Statement of Financial Accounting
Standards No. 5, “Accounting for Contingencies”. SFAS No. 5 requires that we
record an estimated loss when information available prior to issuance of our
financial statements indicates that it is probable that an asset has been
impaired or a liability has been incurred at the date of the financial
statements and the amount of the loss can be reasonably estimated. Accounting
for contingencies such as environmental, legal and income tax matters requires
us to use our judgment. 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.


16
 Index


Results
of Operations





Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007


Revenues
increased approximately $145,000 from $11,000 for the year ended December 31,
2007 to approximately $156,000 for the year ended December 31, 2008. Revenues
consisted primarily of a service contract completed by Zargis.





Selling,
general and administrative expenses increased approximately $2,212,000 from
approximately $2,819,000 for the year ended December 31, 2007 to approximately
$5,031,000 for the year ended December 31, 2008. This increase is primarily a
result of the inclusion of Density Dynamics in the amount of approximately
$1,287,000, and an increase of approximately $1,300,000 in withholding tax
related expenses (see below) in the corporate segment, and legal expenses in
connection with litigating patent infringement claims in the amount of
approximately $125,000 in the corporate segment. Density Dynamics is included in
the consolidated financial statements of the Company since March 5, 2008, the
date of acquisition.





Research
and development expenses increased approximately $1,313,000 from approximately
$1,613,000 for the year ended December 31, 2007 to approximately $2,926,000 for
the year ended December 31, 2008. This increase is primarily a result of an
increase in the amount of approximately $941,000 from the inclusion of Density
Dynamics, included in the consolidated financial statements of the Company since
March 5, 2008, the date of acquisition, and an increase in the amount of
approximately $582,000 as a result of continuing development of Zargis’ medical
device technology.  The increase for the year ended December 31, 2008
is net of a decrease in the amount of approximately $210,000 in connection with
the Company’s Internet initiatives as a result of less development work being
done in 2008.





Depreciation
and amortization increased approximately $21,000 from approximately $63,000 for
the year ended December 31, 2007 to approximately $84,000 for the year ended
December 31, 2008. This increase is primarily a result of an increase from
Density Dynamics in the amount of approximately $72,000, net of a decrease in
the amount of approximately $34,000 as a result of the completion of
amortization of Zargis medical technology in 2007 and a decrease in the amount
of approximately $17,000 as a result of assets becoming fully depreciated in the
corporate segment. Density Dynamics is included in the consolidated financial
statements of the Company since March 5, 2008, the date of
acquisition.





Investment
income decreased approximately $311,000 from a net gain in the amount of
approximately $851,000 for the year ended December 31, 2007 to a net gain in the
amount of approximately $540,000 for the year ended December 31, 2008. Net
interest expense increased approximately $51,000 from $0 for the year ended
December 31, 2007 to approximately $51,000 for the year ended December 31, 2008.
This net increase in interest expense is due to interest and dividends of
approximately $51,000 relating to a convertible note issued to a minority owner
in 2008.  These investment income amounts will fluctuate based upon
changes in the market value of the underlying investments, overall market
conditions and the amount of funds available for short-term investment and are
not necessarily indicative of the results that may be expected for any future
periods.





Non
Recurring Charges


Withholding Tax
Provision





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 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 the end of October
of 2009, there can be no assurance that a settlement will be reached or that the
ultimate payment will be below the amount levied.





Non-public Company
Investment Impairment.





We have
invested a portion of our assets in equity and debt instruments of non-publicly
held companies. The Company monitors these investments for other than temporary
impairment by considering current factors including economic environment, market
conditions, operational performance and other specific factors relating to the
business underlying the investment(s).  The Company determined that
based on the current general negative economic and liquidity environment
affecting the ability of businesses to obtain credit and to raise money in the
capital markets, and based on specific unobserved data received from the
underlying entities indicating severe operational and liquidity problems, there
is significant doubt as to whether these entities will be able to continue to
operate as going concerns. Therefore, during the fourth quarter of 2008 the
Company recorded an impairment charge of $800,000 against these assets reducing
the fair value of these non-public investments to zero as of December 31,
2008.


17
 Index


Intellectual Property
Impairment.





The
Company’s acquisition of Density Dynamics included certain intangible assets
which had a carrying value of $0.5 million at December 31, 2008, before
adjustment. However, during the fourth quarter of 2008, in light of market
conditions affecting the ability of this business to obtain credit and to raise
money in the capital markets and, our ability to fund this operation and
generate sufficient cash to fully realize these assets, the realization of these
assets became uncertain. As a result, during the fourth quarter of 2008, we
recognized an impairment loss in the amount of approximately $0.5
million.





Liquidity
and Capital Resources





We have
recorded operating losses and negative operating cash flows since our inception
and have limited revenues. At December 31, 2008, we had an accumulated deficit
of approximately $83,116,000. 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 independent 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.





Net cash
used in operating activities was approximately $6,070,000 for the year ended
December 31, 2008 compared to approximately $3,310,000 for the year ended
December 31, 2007. This net increase in cash used in operating activities is
primarily the result of an increase in operating expenses.





Net cash provided by investing
activities wasapproximately $2,984,000 for the year
ended December 31, 2008 compared to approximately $1,953,000 for the year ended
December 31, 2007. This net increase in cash provided by investing activities is
primarily the result of an approximately $2,997,000 maturation in 2008 of United
States Treasury bills purchased in 2007.





Net cash
provided from financing activities was approximately $248,000 for the year ended
December 31, 2008 compared to net cash used in financing activities of
approximately $1,700 for the year ended December 31, 2007. This net increase in
cash provided by financing activities is a result of proceeds received from note
financing by a minority investor.





At
December 31, 2008, the Company’s future minimum lease payments due under
non-cancelable leases aggregated approximately $146,000. Minimum lease payments
of approximately $131,000 and approximately $15,000 are due during the years
ending December 31, 2009 and 2010, respectively. 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.





On March
5, 2008, the Company acquired a 75% interest in Density Dynamics Corporation
(“DDC”), 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.


18
 Index


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 fair value of the net assets
acquired as of the acquisition date has been allocated: $195,000 to current
assets, $34,000 to non current assets, $580,000 to other intangible assets and
$(809,000) to liabilities. The $580,000 allocated as an intangible asset
(reflecting intellectual property assets of DDC) was being amortized over a
period of seven years until written off  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
consolidated balance sheet. For the year ended December 31, 2008, the Company
has recorded accrued dividends on this redeemable preferred stock in the amount
of $47,000 and has included it as a liability on its December 31, 2008
consolidated balance sheet.





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. In
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 year
ended December 31, 2008, accrued interest on the convertible note to the
minority owner in the amount of $4,000 has been recorded as interest expense and
accrued interest on the convertible note to the Company in the amount of $4,000
has been eliminated in consolidation.





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 December 31, 2008 and 2007, 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





In
December 2007, the Financial Accounting Standards Board issued FASB No. 141R,
“Business Combinations”. FASB 141R establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. FASB 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. FASB 141R will become effective as of the beginning of the
Company’s fiscal year beginning after December 15, 2008. The impact that
adoption of FASB No. 141R will have on the Company’s consolidated financial
statements will depend on the nature, terms and size of business combinations
that occur after the effective date.





In
December 2007, the Financial Accounting Standards Board issued FASB No. 160,
“Noncontrolling Interests in Consolidated Financial Statements-an amendment of
ARB No. 51”. FASB 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. FASB 160 will become effective as of the beginning of the Company’s
fiscal year beginning after December 15, 2008. The Company is currently
evaluating the impact that the adoption of FASB No. 160 will have on its
consolidated financial condition or results of operations.


19
 Index


In April
2008, the FASB issued Staff Position FSP 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”).  FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, “Goodwill and Other Intangible Assets.”  FSP 142-3
is effective for financial statements issued after December 15
2008.  The adoption of FSP 142-3 is not expected to have a material
impact on the consolidated results of operations and financial
condition.





In May
2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”).  The statement is intended to
improve financial reporting by identifying a consistent hierarchy for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with GAAP.  Prior to the issuance of SFAS 162,
GAAP hierarchy was defined in the American Institute of Certified Public
Accountants (“AICPA”) Statement on Auditing Standards (SAS) no. 69, “The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles”.  Unlike SAS 69, SFAS 162 is directed to the entity rather
than the auditor.  SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board Auditing amendments to
AU Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles”, SFAS 162 is effective November 15, 2008 and did
not have any material impact on the Company’s results of operations, financial
condition or liquidity.





In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock “ (“EITF
07-5”).  EITF 07-5 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.  EITF 07-5 is
effective for fiscal years beginning after December 15, 2008.  The
implementation of this standard is not expected to have a material impact on the
Company’s consolidated financial position and results of
operations.





In
October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active” (“FSP
157-3”).  FSP 157-3 clarifies the application of SFAS No. 157 in a
market that is not active and addresses application issues such as the use of
internal assumptions when relevant observable data does not exist, the use of
observable market information when the market is not active, and the use of
market quotes when assessing the relevance of observable and unobservable
data.  FSP 157-3 is effective for all periods presented in accordance
with SFAS No. 157.  The adoption of FSP 157-3 did not have a
significant impact on the Company’s consolidated financial statements or the
fair values of its financial assets and liabilities.





In June
2009, the FASB issued Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
(“SFAS 168”). SFAS 168 will become the single source of authoritative
nongovernmental U.S. generally accepted accounting principles (“GAAP”),
superseding existing FASB, American Institute of Certified Public Accountants
(“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting
literature. SFAS 168 reorganizes the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent structure.
Also included is relevant Securities and Exchange Commission guidance organized
using the same topical structure in separate sections. SFAS 168 will be
effective for financial statements issued for reporting periods that end after
September 15, 2009.








ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





A smaller
reporting company is not required to provide the information required by this
item.








ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





The
Consolidated Financial Statements of the Company and related Notes thereto and
the financial information required to be filed herewith are included under Item
15 of this Form 10-K.


20
 Index


ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





On April
30, 2008 we dismissed PricewaterhouseCoopers LLC as our registered public
accounting firm.  PricewaterhouseCoopers had previously been engaged
as the principal accountant to audit our financial statements and reported on
the consolidated financial statements of the Company as of December 31, 2007 and
for the year then ended.  The decision to change accountants was
approved by our board of directors on April 30, 2008.  In connection
with our change in accountants, there were no disagreements or reportable events
required to disclosed pursuant to Regulation S-K, Item
304(a)(l)(v).  The Company engaged Amper, Politziner & Mattia LLP
(formerly Amper, Politziner & Mattia, P.C.) as its new registered public
accounting firm as of April 30, 2008.  The Company’s Audit Committee
of the Board of Directors participated in and approved the decision to engage
the Company’s new registered public accounting firm.


21
 Index


ITEM
      9A(T).
            CONTROLS
      AND 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
Annual Report on Form 10-K. This conclusion was based on the material weakness
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
Annual Report on Internal Control over Financial Reporting





The
Company's management is responsible for establishing and maintaining adequate
internal control over financial reporting (as such term is defined in Rules
13a-I5(f) and I5d-15(f) of the Securities Exchange Act of 1934, as amended). The
Company's internal control over financial reporting is designed to provide
reasonable assurance to the Company's management and Board of Directors
regarding the reliability of financial reporting and the preparation and fair
presentation of published financial statements for external purposes in
accordance with generally accepted accounting principles in the United States
("GAAP").





The
Company's internal control over financial reporting includes those policies and
procedures that:





·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the Company's transactions and dispositions of the
      Company's assets;





·
            provide
      reasonable assurance that the Company's transactions are recorded as
      necessary to permit preparation of the Company's financial statements in
      accordance with GAAP, and that the Company's receipts and expenditures are
      being made only in accordance with authorizations of the Company's
      management and the Company's directors;
and





·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the Company's assets that
      could have a material effect on its financial
  statements.





Because
of its inherent limitations, internal control over financial reporting cannot
prevent or detect every potential misstatement. Therefore, even those systems
determined to be effective can provide only reasonable assurances with respect
to financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may decline.





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 year ended December 31, 2008
and concluded that such internal control over financial reporting was not
effective with respect to the material weakness described below.  This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting.  We were not required to have, nor have we engaged our
independent 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.


22
 Index


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 December 31, 2008 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.





ITEM
      9B.
            OTHER
      INFORMATION





None.


23
 Index


PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





Directors
and Executive Officers





The table
below sets forth the names, ages and titles of the persons who were Directors
and/or executive officers of the Company as of December 31, 2008.





Name
            Age
            PositionShant
      S. Hovnanian
            49
            Chairman
      of the Board of Directors, President and Chief Executive
      OfficerVahak
      S. Hovnanian
            77
            DirectorWilliam
      F. Leimkuhler
            57
            DirectorJeffrey
      Najarian
            50
            DirectorThomas
      M. Finn (1)
            61
            Secretary,
      Treasurer and Chief Financial OfficerJohn
      A. Kallassy (1)
            44
            Executive
      Vice President, Chief Executive Officer – Zargis Medical
    Corp.





Shant S.
Hovnanian has served as our Chairman of the Board of Directors, President and
Chief Executive Officer since October 1995. From June 1980 until January 1991,
Mr. Hovnanian served as Executive Vice President of the V. S. Hovnanian Group
(the “Hovnanian Group”), consisting of home building operations, real estate
development and utility companies.  In 1995, Mr. Hovnanian served as a
U.S. Delegate to the World Radio Conference of the International
Telecommunications Union in Geneva, Switzerland.  Mr. Hovnanian is the
son of Mr. Vahak S. Hovnanian.





Vahak S.
Hovnanian has served as a Director since October 1995. Mr. Hovnanian has been
Chairman of the Board and President of the Hovnanian Group since 1968. Mr.
Hovnanian is the father of Mr. Shant S. Hovnanian.





William
F. Leimkuhler has served as a Director since September 2000. Mr. Leimkuhler is
the General Counsel and Director of Business Development of Paice Corporation, a
privately held developer of advanced vehicle powertrains.  Mr.
Leimkuhler is also a director of Integral Systems, Inc. and U.S. Neurosurgical,
Inc. From 1994 through 1999, he held various positions with Allen & Company,
a New York investment banking firm, initially serving as the firm’s General
Counsel.  Prior to that, Mr. Leimkuhler was a corporate partner with
the New York law firm of Werbel & Carnelutti (now Heller Ehrman White &
McAuliffe).





Jeffrey
Najarian has served as a Director since October 2000. Mr. Najarian has been
Chief Executive Officer of Starpoint Solutions, Inc., formerly TIS Worldwide,
Inc., since its inception in 1992. A creator and founder of Starpoint, he has
been instrumental in building one of the country’s fastest growing,
privately-held companies, as cited by Inc. magazine. From 1984-1992, Mr.
Najarian worked at Setford-Shaw-Najarian, a recruiting/placement firm for
technology specialists, becoming a partner after only three years. He led the
staff in billing, propelling SSN to become a leading search firm for Wall Street
banks.





Thomas M.
Finn has served as Secretary, Treasurer and Chief Financial Officer since March
2003. Mr. Finn has been a consultant since 1994. Prior to that time, Mr. Finn
was a Senior Vice President of Integrated Resources, Inc., a diversified
financial services firm, and was the Chief Financial Officer of Integrated’s
publicly-traded investment programs, including American Real Estate Partners,
L.P., a New York Stock Exchange master limited partnership. Previously, Mr. Finn
was an Audit Manager for Deloitte & Touche LLP. Mr. Finn is a graduate of
Long Island University.





John A.
Kallassy has served as Executive Vice President since September 2000 and Chief
Executive Officer of Zargis Medical Corp. since November 2004. In addition to
developing and executing Zargis’ business strategy, Mr. Kallassy is also
responsible for evaluating new business investment opportunities at Speedus
within several business sectors. Prior to his leadership roles at Speedus and
Zargis, Mr. Kallassy was a founder and Chief Executive Officer of American Data
Consultants, Inc. (ADC), a firm specializing in information services, direct
marketing and marketing research. Mr. Kallassy sold ADC to R.L. Polk in 1997 and
continued his employment for three years at R.L. Polk as the ADC division
president and later as a corporate vice president where he led the product
management and analytical consulting groups for a $100 million business unit
that was ultimately sold to Equifax Inc. Mr. Kallassy holds a Bachelor of
Science Degree in Biochemistry from the State University of New York which was
completed at Leeds University in Leeds, England and earned his MBA from the
Johnson School of Management at Cornell University.





(1)
Effective on August 17, 2009, John Kallassy replaced Thomas Finn as treasurer
and chief financial Officer.  Mr. Kallassy will also remain chief
executive officer of Speedus Corp.’s subsidiary Zargis Medical
Corp.


24
 Index


Board
of Directors and Audit Committee Composition





In
December 2008, the Company received written notification from The Nasdaq Stock
Market that it no longer complied with Nasdaq’s audit committee and independent
director requirements under Marketplace Rules. The Company has until the earlier
of the Company’s next annual shareholders’ meeting or December 2, 2009 to regain
compliance with both the independent director and audit committee requirements.
If the Company does not comply with the rules by that date, the Company will
receive notification that its common stock will be delisted from The Nasdaq
Stock Market. At that time, the Company may appeal the delisting determination
to a Listing Qualifications Panel.





Audit
Committee





The Audit
Committee of the Board currently consists of William F. Leimkuhler (Chairman)
and Jeffrey Najarian, all independent non-employee directors. The Audit
Committee has the duties and responsibilities set out in the Audit Committee
Charter. Those include: selection and appointment of the independent auditor,
review of its independence and of other services provided by it, and of the fees
and other arrangements regarding its services; review with the independent
auditor and management of the scope of the audit, and of significant financial
reporting issues and judgments; review with the independent auditor and
management of the annual audited financial statements and of the quarterly
financial statements; and review with the independent auditor and management of
the quality and adequacy of internal controls. The Board has determined that Mr.
Leimkuhler is an "audit committee financial expert" within the meaning of the
rules of the Securities and Exchange Commission.





The Audit
Committee has adopted a charter which is available in the Investor Relations
section of the Company's website at www.speedus.com.





Audit
Committee Report





Management
is responsible for the Company's internal control, consolidated financial
statements and the financial reporting process. Amper, Politziner & Mattia,
LLP (“Amper”) served as the Company's independent public accountants in 2008 and
is responsible for expressing an opinion on those consolidated financial
statements based upon an audit in accordance with auditing standards generally
accepted in the United States of America. The Committee's responsibilities
include the monitoring and oversight of these processes.





The
Committee has met and held discussions with management and Amper. The Committee
has also reviewed and discussed the 2008 quarterly and annual consolidated
financial statements with management and Amper. The Committee has also discussed
with Amper matters required to be discussed by Statement on Auditing Standards
No. 61, “Communication with Audit Committees”, issued by the Auditing Standards
Board of the American Institute of Certified Public Accountants.





Amper has
also provided to the Committee the written disclosures required by Independence
Standards Board Standard No. 1, “Independence Discussions with Audit Committees”
and the Committee discussed with Amper that firm's independence.





Based
upon the Committee's review and discussion of the 2008 annual consolidated
financial statements with management and Amper, the Committee recommended to the
Board of Directors that the Company’s audited 2008 consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2008 filed with the Securities and Exchange
Commission.





By
      the Audit Committeeof
      the Board of Directors:William
      F. Leimkuhler (Chairman)Jeffrey
      Najarian








Code
of Ethics





The
Company is committed to conducting its business in accordance with applicable
laws, rules and regulations and to full and accurate financial disclosure in
compliance with applicable law. In order to promote honest and ethical conduct,
the Board of Directors has adopted a Code of Business Conduct and Ethics
applicable to all Directors, officers, employees and agents of the Company and a
Code of Ethics for the Chief Executive Officer and Senior Financial
Officers.





The Code
of Business Conduct and Ethics and the Code of Ethics for the Chief Executive
Officer and Senior Financial Officers are available in the Investor Relations
section of the Company's website at www.speedus.com. A copy of either Code may
also be obtained without charge by any person upon written request to Speedus
Corp., 1 Dag Hammarskjold Blvd, Freehold, New Jersey 07728, Attention: Chief
Financial Officer.


25
 Index


Section
16(a) Beneficial Ownership Reporting Compliance





The
Company's Directors, executive officers and holders of more than 10% of the
outstanding Common Stock are required to report their initial ownership of
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established
by the Commission and the Company is required to disclose any failure by such
persons to file these reports in a timely manner for the 2008 fiscal
year.  Based solely upon the Company's review of copies of such
reports furnished to it, the Company believes that for the 2008 fiscal year its
Directors, executive officers and holders of more than 10% of the outstanding
Common Stock complied with all reporting requirements of Section 16(a) under the
Exchange Act.








ITEM
      11.
            EXECUTIVE
      COMPENSATION





Summary
Compensation Table





The
following table sets forth the salary and bonus, as well as certain other
compensation, paid or accrued to each of the three most highly compensated
executive officers of the Company (the "Named Executive
Officers")  for the years ended December 31, 2008, 2007 and 2006 in
all capacities in which they served. See “Employment Agreements”.








Name and Principal Position
            
            Year
            
            Salary
            
            
            Bonus
            
            
            Stock Awards
            
            
            Option Awards (1)
            
            
            Non-Equity Incentive Plan Compen-
      sation
            
            
            Non- qualified Deferred Compen- sation
      Earnings
            
            
            All Other Compen- sation
(2)
            
            
            TotalShant
      S. Hovnanian
            
            2008
            
            $
            275,000
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            75,162
            
            
            $
            350,162Chief
      Executive Officer
            
            2007
            
            
            275,000
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            171,526
            
            
            
            446,5262006
            
            
            268,750
            
            
            
            ---
            
            
            
            ---
            
            
            
            484,000
            
            
            
            ---
            
            
            
            ---
            
            
            
            164,780
            
            
            
            917,530Thomas
      M. Finn
            
            2008
            
            $
            232,000
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            232,000Chief
      Financial Officer
            
            2007
            
            
            230,625
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            230,6252006
            
            
            220,325
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            220,325John
      A. Kallassy
            
            2008
            
            $
            225,000
            
            
            $
            7,000
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            232,000Executive
      Vice President
            
            2007
            
            
            225,000
            
            
            
            53,000
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            278,0002006
            
            
            225,000
            
            
            
            24,000
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            249,000




(1) In
determining the aggregate grant date fair value, the stock options were valued
using the Black-Scholes option pricing model. For information on the key
assumptions used in valuing the options, see “Notes to Consolidated Financial
Statements - Note 2, Summary of Significant Accounting Policies - Stock
options.”





(2) Under
the terms of his employment contract, Mr. Hovnanian is entitled to certain
benefits. See ’Employment Agreements’. The amount shown in the table above
represents the total cost of these items to the Company without adjustment for
the portion of these costs allocable to business use by the
Company.





Grants
of Plan-Based Awards





There
were no grants of options to purchase Common Stock made to Named Executive
Officers during 2008.


26
 Index


Outstanding
Equity Awards at Fiscal Year-End





The
following table sets forth information regarding the outstanding stock option
awards held by the Named Executive Officers as of December 31, 2008. None of the
Named Executive Officers have ever received any stock awards.





Number of Securities Underlying Unexercised
      Options
            
            
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned
            
            
            Option
      Exercise
            
            Option
      ExpirationName
            
            Exercisable
            
            
            Unexercisable
            
            
            Options
            
            
            Price
            
            DateShant
      S. Hovnanian
            
            
            62,500
            
            
            
            ---
            
            
            
            ---
            
            
            $
            19.360
            
            6/11/200931,925
            
            
            
            ---
            
            
            
            ---
            
            
            
            4.000
            
            4/3/201162,500
            
            
            
            ---
            
            
            
            ---
            
            
            
            4.400
            
            4/25/2012100,000
            
            
            
            ---
            
            
            
            ---
            
            
            
            5.080
            
            8/10/2016Thomas
      M. Finn
            
            
            5,000
            
            
            
            ---
            
            
            
            ---
            
            
            $
            19.360
            
            6/11/200933
            
            
            
            ---
            
            
            
            ---
            
            
            
            21.360
            
            4/30/200935
            
            
            
            ---
            
            
            
            ---
            
            
            
            20.800
            
            5/31/20092,784
            
            
            
            ---
            
            
            
            ---
            
            
            
            4.000
            
            4/3/201125,000
            
            
            
            ---
            
            
            
            ---
            
            
            
            4.700
            
            6/10/2013John
      Kallassy
            
            
            56,250
            
            
            
            ---
            
            
            
            ---
            
            
            $
            12.000
            
            9/5/201028,125
            
            
            
            ---
            
            
            
            ---
            
            
            
            4.000
            
            4/3/201125,000
            
            
            
            ---
            
            
            
            ---
            
            
            
            6.000
            
            7/15/2015





For
additional information regarding stock options, see “Notes to Consolidated
Financial Statements - Note [5], Stockholders’ Equity.”





Option
Exercises and Stock Vested





None of
the Named Executive Officers exercised any stock options during 2008 and none of
the Named Executive Officers have ever received any stock awards.





Compensation
Committee





The
Compensation Committee of the Board currently consists of Jeffrey Najarian
(Chairman) and William F. Leimkuhler, all independent non-employee directors.
The Compensation Committee establishes and administers the Company's policies
regarding compensation. In addition, the Compensation Committee, as well as the
Board of Directors, administers the Company's Stock Incentive Plan and
determines which eligible employees and consultants of the Company may
participate in the Plan and the type, extent and terms of the awards to be
granted to them.





Compensation
Discussion and Analysis





The
Company's compensation policy for all of its executive officers is formulated
and administered by the Compensation Committee of the Board. Compensation of the
Company’s executive officers, exclusive of the Chief Executive Officer, is
developed and approved by the Chief Executive Officer, subject to oversight by
the Compensation Committee. Compensation of the Chief Executive Officer is
developed and approved by the Compensation Committee. The Compensation
Committee, as well as the Board of Directors, also administers the Company's
Stock Incentive Plan, under which grants of various stock-based incentives may
be made to employees (including executive officers), directors and
consultants.





The
primary goals of the Company's compensation policy are to attract, retain and
motivate skilled executive officers and to provide incentives for them to act in
the best interests of the Company's stockholders.  In determining the
level of executive compensation, certain quantitative and qualitative factors,
including, but not limited to, the Company's operating and financial
performance, the individual's level of responsibilities, experience, commitment,
leadership and accomplishments relative to stated objectives, and marketplace
conditions are taken into consideration.





The
Company's compensation program for executives consists of four key elements,
discussed in greater detail below: (1) base salary, (2) consideration for a
performance-basedbonus, (3) periodic
grants of stock-based incentives, and (4) other benefits and
perquisites.


27
 Index


Base Salary. Base salary
amounts for executive officers take into account such factors as competitive
industry salaries, an executive's scope of responsibilities, and individual
performance and contribution to the organization.





Performance-based Bonus.Executive officers have
an opportunity to receive performance-based bonus awards based on the overall
performance of the Company and on specific individual performance
targets.





Stock-based Incentives.Executive officers have an opportunity to receive stock-based incentives,
generally grants of options to purchase the Company’s common Stock. These awards
provide employees with the incentive to stay with the Company for longer periods
of time, which in turn, provides the Company with greater stability. Equity
awards also are less costly to the Company than cash compensation.





Other Benefits and Perquisites.Executive officers receive the same general health and welfare benefits
offered to all employees. Except as provided in employment contracts, the
Company provides no other perquisites to executive officers. See Employment
Contracts.





Section 162(m) of the
Code.  Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), generally limits the deductibility by the Company of
compensation paid in any one year to any executive officer named in the Summary
Compensation Table to $1,000,000. Option awards under the Stock Incentive Plan
made in conformity with the “performance-based” exemption from Section 162(m)
will be exempt from the limits of Section 162(m). While the Company’s policy has
always been to pursue a strategy of maximizing deductibility of compensation for
all of its employees, the Compensation Committee believes it is important to
maintain the flexibility to take actions it considers to be in the best interest
of the Company and its stockholders, which may be based on considerations in
addition to Section 162(m). In 2008, none of the executive officers were paid
cash compensation in excess of $1,000,000.





Compensation
Committee Report





The
Compensation Committee has reviewed and discussed the discussion and analysis of
the Company’s compensation which appears above with management and, based on
such review and discussion, the Compensation Committee recommended to the
Company’s Board of Directors that the above disclosure be included in this
Annual Report on Form 10-K.





By
      the Compensation Committeeof
      the Board of Directors:Jeffrey
      Najarian (Chairman)William
      F. Leimkuhler


28
 Index


Compensation
of Directors





The
following table sets forth information regarding the cash fees, as well as
certain other compensation, paid or accrued to our Directors for the year ended
December 31, 2008.





Name
            
            Fees Earned or Paid in Cash
            
            
            Stock Awards
            
            
            Option Awards (1) (2)
            
            
            Non-Equity Incentive Plan Compen-
      sation
            
            
            Change in Pension Value and Nonqualified Deferred
      Compen- sation Earnings
            
            
            All Other Compen- sation
            
            
            TotalVahak
      S. Hovnanian
            
            $
            24,000
            
            
            $
            ---
            
            
            $
            825
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            24,825William
      F. Leimkuhler
            
            
            72,000
            
            
            
            ---
            
            
            
            825
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            72,825Jeffrey
      Najarian
            
            
            24,000
            
            
            
            ---
            
            
            
            825
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            24,825Christopher
      Vizas
            
            
            66,000
            
            
            
            ---
            
            
            
            825
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            66,825





(1) In
determining the aggregate grant date fair value, the stock options were valued
using the Black-Scholes option pricing model. For information on the key
assumptions used in valuing the options, see “Notes to Consolidated Financial
Statements - Note 2, Summary of Significant Accounting Policies - Stock
options.”





(2) At
December 31, 2008, Messrs. Hovnanian, Leimkuhler, Najarian and Vizas held stock
options in the aggregate amounts of 29,625, 32,563, 27,500 and 25,000,
respectively.





During
2008, our Directors who are not officers or employees ("Non-Employee Directors")
received an annual retainer of $24,000, except for Mr. Vizas who received
$22,000 reflecting a pro-ration as a result of Mr. Vizas’ becoming Executive
Chairman and employee of one of the Company’s subsidiaries effective December 2,
2008. Mr. Leimkuhler received an additional retainer for services as a Director
of two of the Company’s majority-owned subsidiaries, as lead outside director of
the Company and as the Chairman of the Company’s Audit Committee in the
aggregate amount of $48,000. Mr. Vizas received an additional retainer for
services as a Director of two of the Company’s subsidiaries and as the Chairman
of the Company’s Governance and Nominating Committee in the aggregate amount of
$44,000, reflecting a pro-ration as discussed above. Thereafter, Mr. Vizas
resigned from the Board of Directors effective December 29, 2008. In addition,
upon their initial election to the Board, new Non-Employee Directors are granted
options to purchase 1,250 shares of Common Stock that are fully vested and
immediately exercisable. Upon the date of each annual meeting, Non-Employee
Directors are granted options at fair market value to purchase an additional
2,500 shares of Common Stock that are fully vested and immediately exercisable.
Our Directors of the Company who are officers or employees do not receive any
additional compensation for serving on the Board or on any Board
committee.





Employment
Agreements





We
entered into an agreement effective April 1, 2006 with Mr. Shant S. Hovnanian,
Chairman and Chief Executive Officer of the Company. The agreement has a
three-year term and provides for an initial annual salary of $275,000. Under the
agreement, Mr. Hovnanian is entitled to be considered for an annual performance
based bonus targeted at 50% or greater of his base salary, use of a Company
apartment and car, a country club membership (which Mr. Hovnanian has not taken)
and a $2,000,000 term life insurance policy with the beneficiary designated by
Mr. Hovnanian. Under the new agreement, Mr. Hovnanian was also granted 100,000
options in August 2006 to purchase shares of our Common Stock at the market
value as of the effective date of the agreement. The options are fully vested
and immediately exercisable.





We
entered into an employment agreement effective September 5, 2000, and revised in
2006 with Mr. John A. Kallassy. The agreement provides that Mr. Kallassy will
act as our Executive Vice President. The agreement, which has no term, provides
for an annual salary of $225,000, subject to periodic review, and annual bonuses
based on the executive’s attainment of certain performance goals. Under this
agreement, Mr. Kallassy was granted 56,250 options to purchase shares of our
Common Stock at the market value as of the effective date of the agreement.
4,688 of these options were fully vested and immediately exercisable at the date
of grant. Of the balance, 4,688 options become exercisable each three months
after September 5, 2000 and all options are now fully vested and exercisable. In
2005, Mr. Kallassy’s bonus and salary were combined and the aggregate total paid
as salary. Thereafter, Mr. Kallassy became entitled to bonuses based upon the
achievement of certain agreed upon milestones.


29
 Index


Compensation
Committee Interlocks and Insider Participation





No
interlocking relationship exists between the Board of Directors or the
Compensation Committee and the Board of Directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





The
following table sets forth information as of August 31, 2009 with respect to the
beneficial ownership of our stock by (i) each person known by us to be the
beneficial owner of more than 5% of the Common Stock; (ii) each person serving
as a Director or Director nominee of the Company; (iii) each of our executive
officers, and (iv) all of our Directors and executive officers as a group.
Unless otherwise indicated, all shares are owned directly and the indicated
owner has sole voting and dispositive power with respect thereto.








Common Stock Beneficially Owned
      (1)Beneficial Owner
            
            Number
            
            
            PercentShant
      S. Hovnanian (2)(3)
            
            
            818,379
            
            
            
            18.5Vahak
      W. Hovnanian Asset Trust, the Paris J. Hovnanian Asset Trust and the
      Charentz J. Hovnanian Asset Trust (4)
            
            
            390,000
            
            
            
            8.8Vahak
      S. Hovnanian (5)
            
            
            726,915
            
            
            
            16.4William
      F. Leimkuhler (6)
            
            
            32,563
            
            
            
            *Jeffrey
      Najarian (7)
            
            
            27,500
            
            
            
            *Thomas
      M. Finn (8)
            
            
            32,852
            
            
            
            *John
      Kallassy (9)
            
            
            181,700
            
            
            
            3.0XO
      Holdings, Inc. (10)
            
            
            500,000
            
            
            
            11.3All
      Directors and Executive Officers as a group (total 6
    persons)
            
            
            2,209,909
            
            
            
            48.8


* Less
than 1% of the outstanding Common Stock





(1)           Pursuant
to the regulations of the Securities and Exchange Commission, shares are deemed
to be "beneficially owned" by a person if such person directly or indirectly has
or shares (i) the power to vote or dispose of such shares, whether or not such
person has any pecuniary interest in such shares, or (ii) the right to acquire
the power to vote or dispose of such shares within 60 days, including any right
to acquire through the exercise of any option, warrant or right.





(2)           Includes
options to purchase 256,925 shares of Common Stock pursuant to the Stock
Incentive Plan, which are fully vested and exercisable.





(3)           Includes
34,375 shares of Common Stock owned by Mr. Shant S. Hovnanian’s minor children
for which Mr. Hovnanian, as custodian, has sole voting power.





(4)           These
shares were donated by Shant S. Hovnanian as gifts to and held in equal portions
by (i) the Vahak W. Hovnanian Asset Trust, (ii) the Paris J. Hovnanian Asset
Trust and (iii) the Charentz J. Hovnanian Asset Trust (collectively, the
"Trusts"), which were established for the benefit of Mr. Hovnanian’s minor
children. Mr. Hovnanian’s wife is the trustee of the Trusts.





(5)           Includes
options to purchase 29,625 shares of Common Stock pursuant to the Stock
Incentive Plan, which are fully vested and exercisable.





(6)           Includes
options to purchase 32,563 shares of Common Stock pursuant to the Stock
Incentive Plan, which are fully vested and exercisable.





(7)           Includes
options to purchase 27,500 shares of Common Stock pursuant to the Stock
Incentive Plan, which are fully vested and exercisable.





(8)           Includes
options to purchase 32,852 shares of Common Stock pursuant to the Stock
Incentive Plan, which are fully vested and exercisable.





(9)           Includes
options to purchase 159,375 shares of Common Stock pursuant to the Stock
Incentive Plan, which are fully vested and exercisable.


30
 Index


(10)         Pursuant
to a Stock Purchase Agreement dated as of June 13, 1999, the Company is required
to use all reasonable efforts, subject to fiduciary duties under applicable law,
to cause an XO Communications, Inc. representative to be elected to the
Company’s Board.





In
addition, Verizon Communications Inc., formerly Bell Atlantic Corporation, has
the right to appoint one director to the Board, so long as Verizon shall hold at
least 1% of the shares of Common Stock outstanding on a fully diluted
basis.





Equity
Compensation Plans





The
following table sets forth certain information as of December 31, 2008 for all
compensation plans, including individual compensation arrangements, under which
equity securities of the Company are authorized for issuance:





Plan category
            
            Number of securities to be issued upon exercise of
      outstanding options, warrants and rights
            
            
            Weighted average exercise price of outstanding
      options, warrants and rights
            
            
            Number of securities remaining available for
      further issuanceEquity
      compensation plans approved by security holders
            
            
            617,088
            
            
            $
            6.98
            
            
            
            106,869Equity
      compensation plans not approved by security holders
            
            
            ---
            
            
            $
            ---
            
            
            
            ---Total
            
            
            617,088
            
            
            $
            6.98
            
            
            
            106,869





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





The
information under ‘Director Compensation’ included in Item 11. of this Form 10-K
is incorporated by reference.





ITEM14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





Audit
Fees represent fees for services rendered in connection with the annual audit
and quarterly reviews of the Company’s financial statements. For the years ended
December 31, 2008 and 2007, the Company paid or accrued $140,000 and $207,000
for audit fees to Amper, Politziner & Mattia, LLP and PricewaterhouseCoopers
LLP, respectively.





Audit-Related
Fees represent fees for services rendered in connection with assurance and
related services that are reasonably related to the performance of the audit or
review of the financial statements and are not reported as Audit Fees. For the
years ended December 31, 2008 and 2007, the Company did not pay or accrue any
amounts for audit-related fees.





Tax Fees
represent fees for services rendered in connection with tax compliance, tax
advice and tax planning. For the years ended December 31, 2008 and 2007, the
Company paid or accrued $60,000 and $56,000 for tax fees to Amper, Politziner
& Mattia, LLP and PricewaterhouseCoopers LLP, respectively.





All Other
Fees represent fees for services rendered other than those described above. For
the year ended December 31, 2008, the Company paid PricewaterhouseCoopers LLP
$5,000 in fees in connection with the Company’s change in its principal
accountant. For the year ended December 31, 2007, the Company did not pay or
accrue any amounts for all other fees.





The Audit
Committee of the Company's Board of Directors has established a policy requiring
its pre-approval of all audit and non-audit services provided by its independent
registered public accounting firm. The policy requires the general pre-approval
of annual audit services and all other permitted services.





All of
the audit and non-audit services described above were approved by the Audit
Committee and not pursuant to the waiver of pre-approval provisions set forth in
applicable rules of the SEC.


31
 Index


PART
IV





ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES





(a) Financial Statements and Financial
Statement Schedules





(1)
            Consolidated
      Financial Statements
            Page(s)Reports
      of Independent Registered Public Accounting Firms
            
            35-36Consolidated
      Balance Sheets as of December 31, 2008 and 2007
            
            37Consolidated
      Statements of Operations for the years ended December 31, 2008 and
      2007
            
            38Consolidated
      Statements of Changes in Stockholders’ Equity for the years ended December
      31, 2008 and 2007
            
            39Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007
            
            40Notes
      to Consolidated Financial Statements
            
            41-55





(b) Exhibits





3.1a
            Certificate
      of Incorporation. (1)3.1b
            Certificate
      of Amendment to Certificate of Incorporation dated November 28, 2007
      (2)3.2
            By-laws.
      (1)4.1
            Form
      of Common Stock Certificate. (1)4.3
            Form
      of Rights Agreement between SPEEDUS.COM, Inc. and Equiserve Trust Company,
      N.A., as Rights Agent. The Rights Agreement includes as Exhibit A the
      Certificate of Designation, Preferences and Rights of Series A Junior
      Participating Preferred Stock of SPEEDUS.COM, Inc., as Exhibit B the form
      of Rights Certificate and as Exhibit C the form of Summary of Rights to
      Purchase Shares of Series A Junior Participating Preferred Stock.
      (3)10.1
            Speedus
      Corp. 2005 Stock Incentive Plan. (4)10.2
            Employment
      Agreement, dated as of April 1, 2006, between Speedus Corp. and Shant S.
      Hovnanian. (5)10.3
            Amended
      and Restated Agreement of Limited Partnership  of CellularVision
      of New York, L.P.,
      dated  as  of  July  7,
      1993,  by  and between Hye Crest
      Management,  Inc.,  Bell Atlantic  Ventures,
      XXIII, Inc. and the limited  partners set forth on the signature
      page thereto. (1)10.4
            Agreement,
      dated as of January 12, 1996, by  and  among
      CellularVision  USA, Inc.,
      CellularVision  of  New  York,
      L.P.,  Hye  Crest Management, Inc.,
      Shant  S.  Hovnanian, Vahak S. Hovnanian, Bernard B.
      Bossard and Bell Atlantic Ventures XXIII, Inc. (1)14
            Code
      of Ethics for Chief Executive Officer and Senior Finance Officers
      (6)21
            Subsidiaries
      of Speedus Corp. (1)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 (7)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 (7)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
    (7)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
    (7)





---------------------------------------------------


32
 Index


(1)
            Incorporated
      by reference to the Company's Registration Statement in Form S-1 (File No.
      33-98340) which was declared effective by the Commission on February 7,
      1996.





(2)
            Incorporated
      by reference to the Company's Form 8-K filed on December 4,
      2007.





(3)
            Incorporated
      by reference to the Company's Form 8-K filed on January 16,
      2001.





(4)
            Incorporated
      by reference to the Company's Definitive Proxy Statement filed on October
      13, 2005.





(5)
            Incorporated
      by reference to the Company's Form 10-Q filed on August 14,
      2006.





(6)
            Incorporated
      by reference to the Company's Form 10-K filed on April 2,
      2007.





(7)
            Filed
      herewith.





(c) Financial Statement
Schedules





None.


33
 Index


REPORT
OF REGISTERED PUBLIC ACCOUNTING FIRM








To the
Board of Directors


Speedus
Corp. and Subsidiaries





We have
audited the accompanying consolidated balance sheet of Speedus Corp. and
subsidiaries as of December 31, 2008, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for the year then
ended.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these financial statements based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Speedus Corp.
and its Subsidiaries as of December 31, 2008 and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  As more fully described in
Note 1 to the consolidated financial statements, the Company has incurred
significant recurring losses and net cash outflows from operations since
inception.  These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.  Management’s plans
in regard to these matters are also described in Note 1 to the consolidated
financial statements.  The consolidated financial statements do not
include any adjustments that may result from the outcome of this
uncertainty.





We have
also audited the adjustments to the 2007 consolidated financial statements to
retrospectively apply the change in accounting for discontinued operations, as
described in Note 8. In our opinion, such adjustments are appropriate and have
been properly applied. We were not engaged to audit, review, or apply any
procedures to the 2007 consolidated financial statements of the Company other
than with respect to the adjustments and, accordingly, we do not express an
opinion or any form of assurance on the 2007 consolidated financial statements
taken as a whole.








S/Amper,
Politziner, & Mattia, LLP


October
12, 2009


New York,
New York


34
 Index


Report
of Independent Registered Public Accounting Firm








To the
Board of Directors and Stockholders of


Speedus
Corp.:





In our
opinion, the consolidated balance sheet as of December 31, 2007 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the period ended December 31, 2007, before the effects of the
adjustments to retrospectively reflect the discontinued operations described in
Note 8, present fairly, in all material respects, the financial position of
Speedus Corp. and its subsidiaries at December 31, 2007, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America (the
2007 financial statements before the effects of the adjustments discussed in
Note 8 are not presented herein).  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audit.  We conducted our audit, before the effects of the adjustments
described above, of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.





We were
not engaged to audit, review, or apply any procedures to the adjustments to
retrospectively reflect the discontinued operations described in Note 8 and
accordingly, we do not express an opinion or any other form of assurance about
whether such adjustments are appropriate and have been properly
applied.  Those adjustments were audited by other
auditors.








PricewaterhouseCoopers
LLP


New York,
New York


March 27,
2008


35
 Index


SPEEDUS
CORP.


CONSOLIDATED
BALANCE SHEETS





December 31,2008
            
            
            2007ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            6,007,757
            
            
            $
            8,859,802United
      States Treasury bills
            
            
            ---
            
            
            
            2,996,700Marketable
      securities
            
            
            2,633
            
            
            
            92,190Other
      current assets
            
            
            58,068
            
            
            
            18,430Total
      current assets
            
            
            6,068,458
            
            
            
            11,967,122Property
      and equipment, net of accumulated depreciation of $39,150 and
      $26,784
            
            
            47,011
            
            
            
            21,920Other
      investments
            
            
            ---
            
            
            
            800,000Other
      assets
            
            
            22,447
            
            
            
            33,447Net
      assets of discontinued operations
            
            
            ---
            
            
            
            467,078Total
      assets
            
            $
            6,137,916
            
            
            $
            13,289,567LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            174,293
            
            
            $
            6,629Accrued
      liabilities
            
            
            1,898,167
            
            
            
            1,140,720Convertible
      note to minority shareholder
            
            
            328,883
            
            
            
            ---Current
      portion of redeemable preferred stock
            
            
            378,110
            
            
            
            ---Total
      current liabilities
            
            
            2,779,453
            
            
            
            1,147,349Redeemable
      preferred stock ($.0001 par value;100,000 shares authorized; 70,940 shares
      issued and outstanding), net of current portion
            
            
            378,110
            
            
            
            ---Net
      liabilities of discontinued operations
            
            
            ---
            
            
            
            289,867Total
      liabilities
            
            
            3,157,563
            
            
            
            1,437,216Commitments
      and ContingenciesStockholders'
      equity: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; 50,000,000shares authorized; 5,438,006 shares
      issued)
            
            
            54,380
            
            
            
            54,380Additional
      paid-in-capital
            
            
            92,178,868
            
            
            
            91,797,457Treasury
      stock (at cost; 1,502,410 and 1,445,634 shares)
            
            
            (6,136,611
            )
            
            
            (6,085,078
            )Accumulated
      deficit
            
            
            (83,116,284
            )
            
            
            (73,914,408
            )Stockholders'
      equity
            
            
            2,980,353
            
            
            
            11,852,351Total
      liabilities and stockholders' equity
            
            $
            6,137,916
            
            
            $
            13,289,567





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


36
 Index


SPEEDUS
CORP.


CONSOLIDATED
STATEMENTS OF OPERATIONS





For the years ended
      December 31,2008
            
            
            2007Revenues
            
            $
            155,870
            
            
            $
            11,000Expenses:Selling,
      general and administrative
            
            
            5,031,428
            
            
            
            2,819,022Research
      and development
            
            
            2,926,068
            
            
            
            1,612,872Impairment
      loss on intangible assets
            
            
            518,210
            
            
            
            ---Impairment
      loss on other investments
            
            
            800,000
            
            
            
            ---Depreciation
      and amortization
            
            
            84,114
            
            
            
            62,527Cost
      of sales
            
            
            30,352
            
            
            
            17,913Total
      operating expenses
            
            
            9,390,172
            
            
            
            4,512,334Operating
      loss
            
            
            (9,234,302
            )
            
            
            (4,501,334
            )Investment
      income
            
            
            540,432
            
            
            
            851,001Interest
      expense
            
            
            (50,703
            )
            
            
            ---Loss
      from continuing operations
            
            
            (8,744,573
            )
            
            
            (3,650,333
            )Loss
      from discontinued operations
            
            
            (351,938
            )
            
            
            (767,717
            )Loss
      from disposal of discontinued operations
            
            
            (105,365
            )
            
            
            ---Loss
      from discontinued operations
            
            
            (457,303
            )
            
            
            (767,717
            )Net
      loss
            
            $
            (9,201,876
            )
            
            $
            (4,418,050
            )Per
      share:Loss
      per common share - basic and diluted:Continuing
      operations
            
            $
            (2.19
            )
            
            $
            (0.92
            )Discontinued
      operations
            
            
            (0.12
            )
            
            
            (0.19
            )Loss
      per common share - basic and diluted
            
            $
            (2.31
            )
            
            $
            (1.11
            )Weighted
      average common shares outstanding - basic and diluted
            
            
            3,976,107
            
            
            
            3,992,044





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


37
 Index


SPEEDUS
CORP.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY





For
the years ended December 31, 2007 and 2008





TotalCommon Stock
            
            
            Additional
            
            
            Treasury Stock
            
            
            Accumulated
            
            
            Stockholders'Amount
            
            
            Shares
            
            
            Paid-in-capital
            
            
            Amount
            
            
            Shares
            
            
            Deficit
            
            
            EquityBalance,
      January 1, 2007
            
            $
            54,380
            
            
            
            5,438,006
            
            
            $
            91,627,241
            
            
            $
            (6,083,360
            )
            
            
            1,445,221
            
            
            $
            (69,496,358
            )
            
            $
            16,101,903Stock
      based compensation
            
            
            
            
            
            
            
            
            
            
            170,216
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            170,216Repurchase
      of common stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,718
            )
            
            
            413
            
            
            
            
            
            
            
            (1,718
            )Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,418,050
            )
            
            
            (4,418,050
            )Balance,
      December 31, 2007
            
            
            54,380
            
            
            
            5,438,006
            
            
            
            91,797,457
            
            
            
            (6,085,078
            )
            
            
            1,445,634
            
            
            
            (73,914,408
            )
            
            
            11,852,351Stock
      based compensation
            
            
            
            
            
            
            
            
            
            
            306,411
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            306,411Repurchase
      of common stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (51,533
            )
            
            
            56,776
            
            
            
            
            
            
            
            (51,533
            )Capital
      contribution in subsidiary by minority investor
            
            
            
            
            
            
            
            
            
            
            75,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            75,000Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9,201,876
            )
            
            
            (9,201,876
            )Balance,
      December 31, 2008
            
            $
            54,380
            
            
            
            5,438,006
            
            
            $
            92,178,868
            
            
            $
            (6,136,611
            )
            
            
            1,502,410
            
            
            $
            (83,116,284
            )
            
            $
            2,980,353





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


38
 Index


SPEEDUS
CORP.


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For the years ended
      December 31,2008
            
            
            2007Cash
      flows from operating activities:Net
      loss
            
            $
            (9,201,876
            )
            
            $
            (4,418,050
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            112,763
            
            
            
            265,634Unrealized
      investment (gains)/losses
            
            
            15,901
            
            
            
            (136,963
            )Stock
      based compensation
            
            
            306,411
            
            
            
            170,216Impairment
      loss on intangible assets
            
            
            518,210
            
            
            
            ---Impairment
      loss on other assets
            
            
            800,000
            
            
            
            ---Accrued
      dividends on preferred stock
            
            
            46,820
            
            
            
            ---Accrued
      interest on convertible note
            
            
            3,883
            
            
            
            ---Changes
      in operating assets and liabilities, net of acquisition:Marketable
      securities
            
            
            73,656
            
            
            
            398,784Other
      current assets
            
            
            216,555
            
            
            
            64,031Other
      assets
            
            
            402,680
            
            
            
            (57,388
            )Accounts
      payable
            
            
            127,880
            
            
            
            (16,392
            )Accrued
      liabilities
            
            
            507,364
            
            
            
            419,748Net
      cash used in operating activities
            
            
            (6,069,753
            )
            
            
            (3,310,380
            )Cash
      flows from investing activities:Property
      and equipment additions
            
            
            (13,015
            )
            
            
            (40,261
            )United
      States Treasury bills:Purchases
            
            
            0
            
            
            
            (19,006,450
            )Maturities
            
            
            2,996,700
            
            
            
            21,000,000Net
      cash provided by investing activities
            
            
            2,983,685
            
            
            
            1,953,289Cash
      flows from financing activities:Convertible
      note financing in subsidiary by minority investor
            
            
            325,000
            
            
            
            ---Capital
      contribution in subsidiary by minority investor
            
            
            75,000
            
            
            
            ---Redemption
      of preferred stock
            
            
            (100,000
            )
            
            
            ---Repurchase
      of stock
            
            
            (51,533
            )
            
            
            (1,718
            )Net
      cash provided by (used in) financing activities
            
            
            248,467
            
            
            
            (1,718
            )Net
      decrease in cash and cash equivalents
            
            
            (2,837,601
            )
            
            
            (1,358,809
            )Cash
      and cash equivalents, beginning of year
            
            
            8,845,358
            
            
            
            10,204,167Cash
      and cash equivalents, end of year
            
            $
            6,007,757
            
            
            $
            8,845,358Supplemental
      information of business acquired:Fair
      value of assets acquired:Other
      current assets
            
            $
            195,000Non
      current assets
            
            
            34,000Other
      intangible assets
            
            
            580,400Less-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.


39
 Index


SPEEDUS
CORP.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.
Organization and Business





Organization


Speedus
Corp. (“Speedus” or the “Company”), a Delaware corporation, was formed in
October 1995 as CellularVision USA, Inc. (“CVUS”) to combine the ownership of
predecessor companies that were under common control. In January 1999, through a
‘short form merger’ as allowed under Delaware law, CVUS changed its name to
SPEEDUS.COM, Inc. In June 2002, in the same manner, SPEEDUS.COM, Inc. changed
its name to Speedus Corp. Unless the context requires otherwise, the term
Company includes Speedus and its wholly- and majority-owned
subsidiaries.





Business
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 pioneer in
environmentally friendly solid-state storage and 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 11, 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 December 31, 2008, as a result of continued investment,
our primary equity ownership was approximately 93%.





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) 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.





Density
Dynamics


In March
2008, we obtained approximate a 75% primary equity ownership 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.





Other
Business Activities


F&B
Gudtfood.


As a
result of continued losses at the two F&B restaurant locations we closed one
F&B restaurant store in 2007 and in October 2008 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 years ending December 31, 2008 and 2007.





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 2008 and 2007.


40
 Index


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 2008 and 2007.





Liquidity


We have
recorded operating losses and negative operating cash flows since our inception
and have limited revenues. At December 31, 2008, we had an accumulated deficit
of approximately $83,116,000. 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.





2.
Summary of Significant Accounting Policies





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 the year ended December 31, 2008,  Zargis Medical and Density
Dynamics continued to generate losses which 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 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. Significant estimates and assumptions include the adequacy of the
calculations related to stock based compensation, other than temporary
impairment of investments and the realizable value of assets held for sale.
Actual results could differ from those estimates.





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 December 31, 2008
and 2007, 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 of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." At December 31, 2008 and 2007,
marketable securities consisted of publicly traded equity securities which were
recorded at the fair market value of approximately $3,000 and approximately
$92,000 as of December 31, 2008 and 2007, respectively.


41
 Index


Other
investments


We have
also invested a portion of our assets in equity and debt instruments of
non-publicly held companies. The Company monitors these investments for other
than temporary impairment by considering current factors including economic
environment, market conditions, operational performance and other specific
factors relating to the business underlying the investment(s).  The
Company determined that based on the current general negative economic and
liquidity environment affecting the ability of businesses to obtain credit and
to raise money in the capital markets, and based on specific unobserved data
received from the underlying entities indicating severe operational and
liquidity problems, there is significant doubt as to whether these entities will
be able to continue to operate as going concerns. Therefore, during the fourth
quarter of 2008 the Company recorded an impairment charge against these assets
reducing the fair value of these non-public investments to zero as of December
31, 2008.





Other
investments consist of:





December 31,2008
            
            
            2007(a)
      791,667 shares of preferred stock of a non-publicly held cardiovascular
      technology company, recorded at cost in the amount of $300,000. In
      connection with this investment, the Company also received warrants to
      purchase 150,000 shares of  common stock at $.40 per share. This
      investment was acquired in 2004.  An impairment charge of
      $300,000 was recorded in the fourth quarter of 2008.
            
            $
            -
            
            
            $
            300,000(b)
      an investment in an entity specifically formed to invest in convertible
      preferred stock in a non-publicly held online and directory assistance
      company, recorded at cost in the amount of $250,000. The preferred stock
      is convertible into shares of common stock at a conversion price equal to
      50% of the price of the common stock in an initial public offering. This
      investment was acquired in 2005. An impairment charge of $250,000 was
      recorded in the fourth quarter of 2008.
            
            $
            -
            
            
            
            250,000(c)
      an investment in an entity specifically formed to invest in a senior
      third-party note of a non-publicly held online and directory assistance
      company, recorded at cost in the amount of $250,000. The note is
      convertible into shares of common stock at a conversion price equal to the
      price of the common stock in an initial public offering. This investment
      was acquired in 2005.  An impairment charge of $250,000 was
      recorded in the fourth quarter of 2008
            
            $
            -
            
            
            
            250,000$
            -
            
            
            $
            800,000








Intellectual
Property Impairment.


The
Company’s acquisition of Density Dynamics included certain intangible assets
which had a carrying value of $0.5 million at December 31, 2008, before
adjustment. However, during the fourth quarter of 2008, in light of market
conditions affecting the ability of this business to obtain credit and to raise
money in the capital markets, and our ability to fund this operation and
generate sufficient cash to fully realize these assets, the realization of these
assets became uncertain. As a result, during the fourth quarter of 2008, we
recognized an impairment loss in the amount of $0.5 million.





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
December 31, 2008 and 2007, there were no securities sold and not
purchased.


42
 Index


Fair
Value of Financial Instruments


Cash and
cash equivalents, 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
Statement of Financial Statements (“SFAS”) No. 157 “Fair Value Measurements”,
the fair value of our cash equivalents is determined based on “Level 1” inputs,
which consist of quoted prices in active markets for identical
assets.





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 SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, relying on
anticipated future cash flows. The Company’s evaluation of anticipated future
cash flows considers operating results, business plans and economic projections,
as well as, non-financial data such as market trends, product and development
cycles, and changes in management’s market emphasis. An impairment in the
carrying value of an asset is recognized when the expected future operating cash
flows derived from the asset are less than its carrying value.





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".





Income
Taxes


As
required by Statement SFAS No. 109, “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.





Earnings
Per Share


Basic and
diluted earnings/(loss) per common share are determined in accordance with SFAS
No. 128, “Earnings Per Share”.





For the
years ended December 31, 2008 and 2007, outstanding stock options and warrants
in the weighted average amounts of 558,000 and 544,000, 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 SFAS 123R, “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 recognized during the years ended December 31, 2008 and
2007 was $306,000 and $170,000, respectively. For the years ended December 31,
2008 and 2007, as a result of SFAS 123R, the net loss increased by these amounts
and both basic and diluted loss per share increased $0.08 and $0.04,
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. Expected volatility has been calculated based on the historical
volatility of the Company’s stock over the period commensurate with the expected
term of the option. The expected term represents the period of time that options
granted are expected to be outstanding and is estimated based on historical
option exercise experience. The risk-free interest rates are equivalent to the
U.S. Treasury yield in effect at the time of grant for the estimated life of the
option grant. Estimated forfeiture rates are based on historical experience.
These assumptions were:


43
 Index




Year ended
  December 31,2008
            
            2007Risk-free
      interest rates
            2 -
      4%
            
            5%Expected
      lives
            3 -
      6 years
            
            6
      yearsExpected
      forfeiture rates
            11
      - 30%
            
            11
      - 30%Expected
      volatility
            106
      - 124%
            
            60
      - 145%Expected
      dividend yield rates
            0%
            
            0%





Under the
provisions of Emerging Issues Task Force No. 96-18, “Accounting for equity
instruments that are issued to other than employees for acquiring or in
conjunction with selling, goods and services”, the fair value of the equity
interests will be recognized as an expense over a period of time when the
requisite conditions are met.





Recent
Accounting Pronouncements


In
December 2007, the Financial Accounting Standards Board issued FASB No. 141R,
“Business Combinations”. FASB 141R establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. FASB 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. FASB 141R will become effective as of the beginning of the
Company’s fiscal year beginning after December 15, 2008. The impact that
adoption of FASB No. 141R will have on the Company’s consolidated financial
statements will depend on the nature, terms and size of business combinations
that occur after the effective date.





In
December 2007, the Financial Accounting Standards Board issued FASB No. 160,
“Noncontrolling Interests in Consolidated Financial Statements-an amendment of
ARB No. 51”. FASB 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. FASB 160 will become effective as of the beginning of the Company’s
fiscal year beginning after December 15, 2008. The adoption of FASB No. 160 is
not expected to have a material impact on the consolidated results of operations
and financial condition.





In April
2008, the FASB issued Staff Position FSP 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”).  FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, “Goodwill and Other Intangible Assets.”  FSP 142-3
is effective for financial statements issued after December 15
2008.  The adoption of FSP 142-3 is not expected to have a material
impact on the consolidated results of operations and financial
condition.





In May
2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”).  The statement is intended to
improve financial reporting by identifying a consistent hierarchy for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with GAAP.  Prior to the issuance of SFAS 162,
GAAP hierarchy was defined in the American Institute of Certified Public
Accountants (“AICPA”) Statement on Auditing Standards (SAS) no. 69, “The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles”.  Unlike SAS 69, SFAS 162 is directed to the entity rather
than the auditor.  SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board Auditing amendments to
AU Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles”, SFAS 162 is effective November 15, 2008 and did
not have any material impact on the Company’s results of operations, financial
condition or liquidity.





In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock “ (“EITF
07-5”).  EITF 07-5 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.  EITF 07-5 is
effective for fiscal years beginning after December 15, 2008.  The
implementation of this standard is not expected to have a material impact on the
Company’s consolidated financial position and results of
operations.





In
October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active” (“FSP
157-3”).  FSP 157-3 clarifies the application of SFAS No. 157 in a
market that is not active and addresses application issues such as the use of
internal assumptions when relevant observable data does not exist, the use of
observable market information when the market is not active, and the use of
market quotes when assessing the relevance of observable and unobservable
data.  FSP 157-3 is effective for all periods presented in accordance
with SFAS No. 157.  The adoption of FSP 157-3 did not have a
significant impact on the Company’s consolidated financial statements or the
fair values of its financial assets and liabilities.


44
 Index


In June
2009, the FASB issued Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
(“SFAS 168”). SFAS 168 will become the single source of authoritative
nongovernmental U.S. generally accepted accounting principles (“GAAP”),
superseding existing FASB, American Institute of Certified Public Accountants
(“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting
literature. SFAS 168 reorganizes the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent structure.
Also included is relevant Securities and Exchange Commission guidance organized
using the same topical structure in separate sections. SFAS 168 will be
effective for financial statements issued for reporting periods that end after
September 15, 2009.





Reclassifications


Certain
reclassifications have been made to the prior years’ financial statements to
conform to the current year’s presentation.





3.
Acquisition





On March
5, 2008, the Company acquired a 75% interest 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 fair value of the net assets
acquired as of the acquisition date has been allocated: $195,000 to current
assets, $34,000 to non current assets, $580,000 to other intangible assets and
$(809,000) to liabilities. The $580,000 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.





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
consolidated balance sheet. For the year ended December 31, 2008, accrued
dividends on the redeemable preferred stock in the amount of $47,000 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. In
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 year
ended December 31, 2008, accrued interest on the convertible note to the
minority owner in the amount of $4,000 has been recorded as interest expense and
accrued interest on the convertible note to the Company in the amount of $4,000
has been eliminated in consolidation.


45
 Index


4.
Property and Equipment





Property
and equipment consists of the following:





December 31,2008
            
            
            2007Office
      equipment
            
            
            86,161
            
            
            
            48,704Less
      accumulated depreciation
            
            
            (39,150
            )
            
            
            (26,784
            )Property
      and equipment
            
            $
            47,011
            
            
            $
            21,920








Depreciation
expense was approximately $38,000 and approximately $63,000 for the years ended
December 31, 2008 and 2007, respectively. Depreciation expense is included in
‘Depreciation and amortization’ on the accompanying Consolidated Statement of
Operations and not allocated to ‘Selling, general and administrative’, ‘Research
and development’ or ‘Cost of sales’.


46
 Index


5.
Accrued liabilities





Accrued
liabilities approximately consist of the following:





December 31,2008
            
            
            2007Professional
      fees
            
            
            182,000
            
            
            
            950,000Withholding
      tax provision (see Note 10)
            
            
            1,300,000
            
            
            
            -Income
      taxes
            
            
            171,000
            
            
            
            190,000Other
      accrued expenses
            
            
            245,000
            
            
            
            -Total
      accrued liabilities
            
            $
            1,898,000
            
            
            $
            1,140,000








6.
Stockholders’ Equity





Stock
Options





(a) In
November 2005, stockholders approved the Company’s 2005 Stock Incentive Plan to
replace the 1995 Stock Incentive Plan which expired in October 2005. While no
new grants can be made under the 1995 Plan, options outstanding at the
expiration of the 1995 Plan will remain outstanding until exercise, cancellation
or expiration. Options available for grant at the expiration of the 1995 Plan
have been made available for grant under the 2005 Plan.  To the extent
that options granted under the 1995 Plan are cancelled or expire, those options
would be available for issuance under the 2005 plan. Similar to the 1995 Plan,
the 2005 Plan provides for the grant of various stock–based incentives,
including non-qualified and incentive stock options, to employees, directors and
consultants. The Company has issued new shares for the exercise of stock options
and expects to continue to do so in the future.





See Note
2 for information on the Company’s accounting policy for stock
options.





Aggregate
stock option activity and weighted average prices under both Plans for the two
years ended December 31, 2008 is summarized as follows:





2008
            
            
            2007Options
            
            
            Price
            
            
            Options
            
            
            PriceOutstanding
      at January 1
            
            
            550,938
            
            
            $
            7.84
            
            
            
            540,365
            
            
            $
            8.28Granted
            
            
            85,000
            
            
            
            0.93
            
            
            
            19,550
            
            
            
            3.63Exercised
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---Expired
            
            
            (3,850
            )
            
            
            4.14
            
            
            
            (7,750
            )
            
            
            28.13Forfeited
            
            
            (15,000
            )
            
            
            5.05
            
            
            
            (1,227
            )
            
            
            14.33Outstanding
      at December 31
            
            
            617,088
            
            
            $
            6.98
            
            
            
            550,938
            
            
            $
            7.84Exercisable
      at December 31
            
            
            617,088
            
            
            $
            6.98
            
            
            
            536,028
            
            
            $
            7.91Available
      for grant at December 31
            
            
            106,869
            
            
            
            
            
            
            
            173,019Weighted
      average fair value per share of grants during year
            
            
            
            
            
            $
            0.28
            
            
            
            
            
            
            $
            2.71





Stock
options generally have ten year terms; however, 25,000 and 50,000 options
granted in 2008 have three and five year terms, respectively. All options
granted in 2008 are immediately exercisable.





During
the year ended December 31, 2008 the Company recorded $41,400 in stock
compensation expense and at December 31, 2008, there was no unrecognized
compensation cost.


47
 Index


The
following table aggregates certain information concerning currently outstanding
and exercisable stock options under both Plans at December 31,
2008:





Stock options outstanding
            
            
            Stock options exercisableRange
      of exercise prices
            
            
            Options
            
            
            Weighted
      average remaining life
      (years)
            
            
            Weighted
      average exercise price
            
            
            Aggregate
      intrinsic value
            
            
            Options
            
            
            Weighted
      average exercise price
            
            
            Aggregate
      intrinsic value$
            0.38
      - 1.00
            
            
            
            85,000
            
            
            
            4.9
            
            
            $
            0.93
            
            
            $
            ---
            
            
            
            85,000
            
            
            $
            0.93
            
            
            $
            ---2.62
      - 4.00
            
            
            
            104,296
            
            
            
            3.0
            
            
            
            3.77
            
            
            
            ---
            
            
            
            104,296
            
            
            
            3.77
            
            
            
            ---4.28
      - 8.32
            
            
            
            284,550
            
            
            
            5.7
            
            
            
            5.25
            
            
            
            ---
            
            
            
            284,550
            
            
            
            5.25
            
            
            
            ---9.08
      - 19.36
            
            
            
            140,625
            
            
            
            0.9
            
            
            
            15.66
            
            
            
            ---
            
            
            
            140,625
            
            
            
            15.66
            
            
            
            ---20.80
      - 21.36
            
            
            
            117
            
            
            
            0.4
            
            
            
            21.07
            
            
            
            ---
            
            
            
            117
            
            
            
            21.07
            
            
            
            ---55.00
            
            
            
            2,500
            
            
            
            1.2
            
            
            
            55.00
            
            
            
            ---
            
            
            
            2,500
            
            
            
            55.00
            
            
            
            ---617,088
            
            
            
            4.1
            
            
            $
            6.98
            
            
            $
            ---
            
            
            
            617,088
            
            
            $
            6.98
            
            
            $
            ---








Intrinsic
value represents the excess of market value at December 31, 2008 over the
exercise price of stock options. There was no aggregate intrinsic value for
stock options outstanding and exercisable either at December 31, 2008 or at
December 31, 2007.





(b) In
February 2002, the Board of Directors of Zargis Medical Corp. approved the
Zargis 2002 Stock Option Plan and reserved 280,000 shares of Zargis common stock
for issuance under the plan. In May 2007, the Board of Directors reserved an
additional 120,000 shares for issuance under the plan. The Zargis 2002 Plan
provides for the grant of various stock–based incentives, including
non-qualified and incentive stock options, to employees, directors, advisors and
consultants. Through December 31, 2008, there have been no options exercised
under the Zargis 2002 Plan.





Zargis’
accounting policy for stock options is the same as the Company’s. See Note
2.





Aggregate
stock option activity and weighted average prices under the Zargis 2002 Plan for
the two years ended December 31, 2008 is summarized as follows:





2008
            
            
            2007Options
            
            
            Price
            
            
            Options
            
            
            PriceOutstanding
      at January 1
            
            
            310,158
            
            
            $
            2.97
            
            
            
            185,134
            
            
            $
            2.54Granted
            
            
            42,000
            
            
            
            3.50
            
            
            
            142,024
            
            
            
            3.50Exercised
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---Expired
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---Forfeited
            
            
            ---
            
            
            
            ---
            
            
            
            (17,000
            )
            
            
            2.71Outstanding
      at December 31
            
            
            352,158
            
            
            $
            3.03
            
            
            
            310,158
            
            
            $
            2.97Exercisable
      at December 31
            
            
            218,142
            
            
            $
            2.75
            
            
            
            148,134
            
            
            $
            2.39Available
      for grant at December 31
            
            
            47,842
            
            
            
            
            
            
            
            89,842Weighted
      average fair value per share of grants during year
            
            
            
            
            
            $
            2.89
            
            
            
            
            
            
            $
            2.12








Stock
options have ten year terms. 42,000 options granted in 2008 vest over two years.
Stock options granted in 2007 in the amount of 16,000 and 126,024 vest over two
and three years, respectively.





During
the year ended December 31, 2008 the Company recorded $121,300 in stock
compensation expense.  At December 31, 2008, there was $190,000 of
unrecognized compensation cost related to outstanding stock options that is
expected to be recognized over a weighted average period of 1.3
years.





The
following table aggregates certain information concerning currently outstanding
and exercisable stock options under the Zargis 2002 Plan at December 31,
2008:





Stock options outstanding
            
            
            Stock options exercisableRange of exercise prices
            
            
            Options
            
            
            Weighted average remaining life
      (years)
            
            
            Weighted average exercise
    price
            
            
            Aggregate intrinsic value
            
            
            Options
            
            
            Weighted average exercise
    price
            
            
            Aggregate intrinsic value$
            0.50
            
            
            
            30,000
            
            
            
            4.0
            
            
            $
            0.50
            
            
            $
            90,000
            
            
            
            30,000
            
            
            $
            0.50
            
            
            $
            90,0001.75
            
            
            
            8,500
            
            
            
            3.8
            
            
            
            1.75
            
            
            
            15,000
            
            
            
            8,500
            
            
            
            1.75
            
            
            
            15,0002.50
            
            
            
            59,634
            
            
            
            5.4
            
            
            
            2.50
            
            
            
            60,000
            
            
            
            59,634
            
            
            
            2.50
            
            
            
            60,0003.50
            
            
            
            254,024
            
            
            
            7.9
            
            
            
            3.50
            
            
            
            ---
            
            
            
            120,008
            
            
            
            3.50
            
            
            
            ---352,158
            
            
            
            7.0
            
            
            $
            3.03
            
            
            $
            165,000
            
            
            
            218,142
            
            
            $
            2.75
            
            
            $
            165,000


48
 Index


Intrinsic
value represents the excess of market value at December 31, 2008 over the
exercise price of stock options. The aggregate intrinsic value for stock options
outstanding and exercisable at December 31, 2008 and December 31, 2007 was
$165,000 based on an estimated fair market value as determined by the Board of
Directors.





(c) In
March 2008, the Board of Directors of Density Dynamics Corporation approved the
Density Dynamics Corporation 2008 Long term Incentive Plan and reserved 450,000
shares of DDC common stock for issuance under the plan. The DDC 2008 Plan
provides for the grant of various stock–based incentives, including
non-qualified and incentive stock options, to employees, directors, advisors and
consultants. Through December 31, 2008, there have been no options exercised
under the DDC 2008 Plan.





DDC’s
accounting policy for stock options is the same as the Company’s. See Note
2.





Aggregate
stock option activity and weighted average prices under the DDC 2008 Plan for
the year ended December 31, 2008 is summarized as follows:





2008Options
            
            
            PriceOutstanding
      at January 1
            
            
            ---
            
            
            $
            ---Granted
            
            
            378,000
            
            
            
            1.08Exercised
            
            
            ---
            
            
            
            ---Expired
            
            
            ---
            
            
            
            ---Forfeited
            
            
            ---
            
            
            
            ---Outstanding
      at December 31
            
            
            378,000
            
            
            $
            1.08Exercisable
      at December 31
            
            
            75,000
            
            
            $
            1.00Available
      for grant at December 31
            
            
            72,000Weighted
      average fair value per share of grants during year
            
            
            
            
            
            $
            0.90





Stock
options have ten year terms. Of the 378,000 options granted in 2008, 20,000
vested immediately and 110,000, 148,000 and 100,000 vest over one, five and
eight years, respectively.





During
the year ended December 31, 2008 the Company recorded $143,700 in stock
compensation expense and at December 31, 2008, there was $220,000 of
unrecognized compensation cost related to outstanding stock options that is
expected to be recognized over a weighted average period of 4.9
years.





The
following table aggregates certain information concerning currently outstanding
and exercisable stock options under the DDC 2008 Plan at December 31,
2008:





Stock options outstanding
            
            
            Stock options exercisableRange
      of exercise prices
            
            
            Options
            
            
            Weighted
      average remaining life
      (years)
            
            Weighted
      average exercise price
            
            Aggregate
      intrinsic value
            
            
            Options
            
            Weighted
      average exercise price
            
            Aggregate
      intrinsic value$
            1.00
            
            
            
            358,000
            
            
            
            9.3
            
            
            $
            1.00
            
            
            $
            537,000
            
            
            
            75,000
            
            
            $
            1.00
            
            
            $
            113,0002.50
            
            
            
            20,000
            
            
            
            9.8
            
            
            
            2.50
            
            
            
            0
            
            
            
            0
            
            
            
            0.00
            
            
            
            0378,000
            
            
            
            9.3
            
            
            $
            1.08
            
            
            $
            537,000
            
            
            
            75,000
            
            
            $
            1.00
            
            
            $
            113,000





During
the year ended December 31, 2008, DDC issued 100,000 warrants to an employee.
The warrants have a ten year term and an exercise price of $2.50 per share.
25,000 were immediately exercisable and 75,000 warrants vest upon the
achievement of specified goals. The fair value of the immediately exercisable
warrants at the time of issuance was determined using the Black-Scholes
option-pricing model and $60,000 was included in the $143,700 stock compensation
expense related to DDC and is included in selling, general and administrative
expenses in the consolidated statements of operations for the year ended
December 31, 2008.





See Note
3 for information on additional warrants issued by DDC during the year ended
December 31, 2008.





Treasury
Stock


During
the years ended December 31, 2008 and 2007, the Company repurchased 56,776
shares and 413 shares, respectively, of its own Common Stock.





Stockholder
Rights Plan


On
January 11, 2001, the Company’s Board of Directors adopted a stockholder rights
plan in which preferred stock purchase rights will be distributed as a dividend
at the rate of four rights for each share of the Company's Common
Stock.


49
 Index


Each
right generally will entitle stockholders, in certain circumstances, to buy one
one-ten thousandth of a newly issued share of Series A Junior Participating
Preferred Stock of the Company at an exercise price of $50.00.  The
rights generally will be exercisable and transferable apart from the Common
Stock only if a person or group acquires beneficial ownership of 17% or more of
the Common Stock or commences a tender or exchange offer upon consummation of
which such person or group would beneficially own 17% or more of the Common
Stock.





If any
person becomes the beneficial owner of 17% or more of the Company's Common
Stock, then each right not owned by a 17% or more stockholder or certain related
parties will entitle its holder to purchase, at the right's then-current
exercise price, shares of Common Stock (or, in certain circumstances as
determined by the Board, cash, other property, or other securities) having a
value of twice the right's exercise price. In addition, if, after any person has
become a 17% or more stockholder, the Company is involved in a merger or other
business combination transaction with another person in which its Common Stock
is changed or converted, or sells 50% or more of its assets or earning power to
another person, each right will entitle its holder to purchase, at the right's
then-current exercise price, shares of common stock of such other person having
a value of twice the right's exercise price.





The
Company will generally be entitled to redeem the rights at $.01 per right at any
time until the tenth day following public disclosure that a person or group has
become the beneficial owner of 17% or more of the Company's common stock. The
rights will expire on January 26, 2011.





7.
One-for-Four Reverse Stock Split





At its
annual meeting of stockholders held on November 20, 2007, the Company received
stockholder approval of a proposal authorizing the Company’s Board of Directors,
in its discretion, to implement a reverse split of the Company’s issued and
outstanding shares, as well as treasury shares, at a ratio not to exceed
one-for-six. Thereafter, the Board of Directors approved the one-for-four ratio.
The one-for-four reverse split took effect with the open of trading on December
3, 2007. The exercise price and the number of shares of common stock issuable
under the Company's outstanding stock options have been proportionately adjusted
to reflect the reverse stock split.





The
Company has retroactively adjusted all share and per share information to
reflect the reverse stock split in the consolidated financial statements and
notes thereto, as well as throughout the rest of this Form 10-K, for all periods
presented.


50
 Index


8.
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 as shown below.





The net
asset and liabilities of discontinued operations at December 31, 2007 consists
of:





Net
      assetsCash
      overdraft
            
            $
            (14,444
            )Assets
      held for sale
            
            
            342,000Other
      current assets
            
            
            61,193Property
      and equipment, net
            
            
            28,649Other
      assets
            
            
            49,680Total
      assets
            
            $
            467,078Net
      liabilitiesAccounts
      payable
            
            $
            39,784Accrued
      liabilities
            
            
            250,083Total
      liablities
            
            $
            289,867





The loss
from discontinued operations of F&B for the years ended December 31, 2008
and 2007 consists of:


2008
            
            
            2007Revenues
            
            $
            409,628
            
            
            $
            722,213Cost
      of sales
            
            
            142,297
            
            
            
            279,526Selling,
      general and administrative
            
            
            603,597
            
            
            
            1,008,987Depreciation
            
            
            15,672
            
            
            
            203,107Total
      operating expenses
            
            
            761,566
            
            
            
            1,491,620Operating
      loss
            
            
            (351,938
            )
            
            
            (769,407
            )Investment
      income
            
            
            ---
            
            
            
            1,690Net
      loss from discontinued operations
            
            $
            (351,938
            )
            
            $
            (767,717
            )











9.  Income
taxes





As of
December 31, 2008, the Company has a deferred tax asset of approximately $50
million, relating primarily to operating losses. An offsetting valuation
allowance of $50 million has been established as the Company had no ability to
carryback its losses and a limited earnings history.





A
reconciliation of the Company's effective income tax rate and the federal tax
rate is as follows:





Year ended December 31,2008
            
            
            2007Statutory
      rate
            
            
            (34
            )
      %
            
            
            (34
            )
      %Benefit
      from tax refund
            
            
            --
            %
            
            
            --
            %Permanent
      difference: goodwill impairment
            
            
            --
            %
            
            
            --
            %State
      and local income taxes, net of federal benefit
            
            
            (11
            )
      %
            
            
            (11
            )
      %Change
      in valuation allowance
            
            
            45
            %
            
            
            45
            %Effective
      rate
            
            
            0
            %
            
            
            0
            %


51
 Index


At
December 31, 2008, the Company had net operating loss carryforwards of
approximately $106 million which expire between 2015 and 2028. 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.





Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an
Interpretation of FASB Statement 109”. FIN 48 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 the date of
adoption, there were no tax positions for which it is reasonably possible that
the total amounts of unrecognized tax benefits will significantly increase or
decrease within twelve months from the date of adoption of FIN 48 or from
December 31, 2008. As of December 31, 2008, 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, upon adoption of FIN 48, 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 year
ended December 31, 2008 or upon adoption of FIN 48.





10.  Commitments
and Contingencies





Withholding
Tax Dispute Description


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 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 the end of October
of 2009, there can be no assurance that a settlement will be reached or that the
ultimate payment will be below the amount levied.


52
 Index


Noncancelable
Leases


At
December 31, 2008, future minimum lease payments due under noncancelable leases
are as follows:





2009
            
            $
            131,0002010
            
            
            15,000$
            146,000





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.





Rent
expense was approximately $230,000 and $513,000 for the years ended December 31,
2008 and 2007, respectively.





Indemnification


As
permitted under Delaware law, the Company’s Certificate of Incorporation and
By-Laws provide circumstances by which the Company shall indemnify each
director, officer, employee or agent of the Company. The maximum potential
exposure under these provisions is unlimited; however, the Company has an
Officers and Directors insurance policy that limits its exposure and enables it
to recover a portion of any amounts paid. The Company has not provided for any
potential exposure under these provisions at December 31, 2008.




11.
Business Segment Information





The
following table sets forth the Company's financial performance by reportable
operating segment for the years ended December 31, 2008 and 2007.





Year ended December 31,
2008Zargis
            
            
            DDC
            
            
            Corporateand other
            
            
            TotalsRevenues
      from external customers
            
            $
            155,870
            
            
            $
            -
            
            
            $
            -
            
            
            $
            155,870Depreciation
      and amortization
            
            
            11,945
            
            
            
            72,169
            
            
            
            -
            
            
            
            84,114Operating
      loss
            
            
            (1,587,619
            )
            
            
            (2,818,289
            )
            
            
            (4,828,394
            )
            
            
            (9,234,302
            )Fixed
      assets
            
            
            9,976
            
            
            
            37,035
            
            
            
            -
            
            
            
            47,011Total
      assets
            
            
            148,725
            
            
            
            90,884
            
            
            
            5,898,307
            
            
            
            6,137,916











Year ended December 31,
2007Zargis
            
            
            DDC
            
            
            Corporateand other
            
            
            TotalsRevenues
      from external customers
            
            $
            11,000
            
            
            $
            -
            
            
            $
            ---
            
            
            $
            11,000Depreciation
      and amortization
            
            
            11,786
            
            
            
            ---
            
            
            
            50,741
            
            
            
            62,527Operating
      loss
            
            
            (1,909,911
            )
            
            
            ---
            
            
            
            (2,591,423
            )
            
            
            (4,501,334
            )Fixed
      assets
            
            
            21,920
            
            
            
            ---
            
            
            
            ---
            
            
            
            21,920Total
      assets
            
            
            125,095
            
            
            
            ---
            
            
            
            13,164,472
            
            
            
            13,289,567








The
Company has no foreign operations. During the years ended December 31, 2008 and
2007, the Company had sales with the U.S. Army that were greater than 10% of
total Company revenues. The Company's accounting policies for segments are the
same as those described in Note 2.


53
 Index


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in New York, New York on October 12,
2009.





SPEEDUS
      CORP./s/ Shant S. HovnanianShant
      S. HovnanianPresident,
      Chief Executive Officer andChairman
      of the Board of Directors








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.








Signature
            
            Title
            Date/s/ Shant S. Hovnanian
            
            Chairman
      of the Board of Directors,
            October
      __, 2009Shant
      S. Hovnanian
            
            President
      and Chief Executive Officer/s/ John A. Kallassy
            
            Treasurer
      and Chief Financial and
            October
      __, 2009John
      A. Kallassy
            
            Accounting
      Officer/s/ Vahak S. Hovnanian
            
            Director
            October
      __, 2009Vahak
      S. Hovnanian/s/ William F. Leimkuhler
            
            Director
            October
      __, 2009William
      F. Leimkuhler/s/ Jeffrey Najarian
            
            Director
            October
      __, 2009Jeffrey
      Najarian






54