|
|

|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
|---------------------------------------------------------------------
|                                                                     
|FORM 10-K                                                            

|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      
|------------------------------------------------------------------------------------------
|                                                                                          
|For the fiscal year ended December 31, 2004                                               
|                                                                                          
|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.(Exact name of registrant as specified in its charter)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------

|Delaware                                     | 13-3853788            
|-------------------------------------------- | ----------------------
|(State or other jurisdiction of              | (I.R.S. Employer      
|incorporation or organization)               | Identification Number)
|                                             |                       
|9 Desbrosses Street, Suite 402, New York, NY | 10013                 
|(Address of Principal Executive Offices)     | (Zip code)            

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(888) 773-3669(Registrants telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock, par value $.01 per share
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  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 an accelerated filer (as defined in Rule 12b-2 of the Act)Yes   No
The
aggregate market value of the Registrants Common Stock held by non-affiliates of the Registrant
was $18,183,000 on June 30, 2004, based on the closing trade price of the Common Stock on the NASDAQ
SmallCap Market on that date.
The
number of shares of Common Stock outstanding as of March 23, 2005 was 16,218,725.

DOCUMENTS INCORPORATED BY REFERENCE
None
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|
|



|SPEEDUS CORP.TABLE OF CONTENTS
|------------------------------
|                              

|PART I   |  |        
|-------- |  | -------
|         |  |        
|         |  | Item 1 
|         |  | Item 2 
|         |  | Item 3 
|         |  | Item 4 
|         |  |        
|PART II  |  |        
|         |  |        
|         |  | Item 5 
|         |  |        
|         |  | Item 6 
|         |  | Item 7 
|         |  |        
|         |  | Item 7A
|         |  | Item 8 
|         |  | Item 9 
|         |  |        
|         |  | Item 9A
|         |  | Item 9B
|         |  |        
|PART III |  |        
|         |  |        
|         |  | Item 10
|         |  | Item 11
|         |  | Item 12
|         |  | Item 13
|         |  | Item 14
|         |  |        
|PART IV  |  |        
|         |  |        
|         |  | Item 15
|         |  |        

|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 additional debt, as necessary, to service and repay such debt, if any, as well as other factors that may effect the Companys financial condition or results of operations. Forward-looking statements may include, but are not limited to, projections of revenues, income or losses, capital expenditures, plans for future operations, financing needs or plans, compliance with covenants in loan agreements, plans
for liquidation or sale of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events, and the ability to obtain additional financing, including the Companys ability to meet obligations as they become due, and other pending and possible litigation, as well as assumptions relating to the foregoing. All statements in this Form 10-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.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2
|-



|PART I
ITEM 1.      BUSINESS
Business Activities
Speedus Corp. is a holding company that owns significant equity interests in diverse businesses. We

seek business opportunities across all industries for potential transactions and relationships
in
which we can apply our current resources and management strengths. The companies that we target,

either public or privately held, will be seeking growth or restructuring capital to pursue near
term
business objectives in demonstrated markets. We will continue to pursue opportunities involving
our
expertise in the medical device and wireless markets as well as those areas involving our broadband

assets as attractive opportunities present themselves.
We have co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens Corporation, in


Zargis Medical Corp. to develop medical diagnostic support service solutions that automatically

analyze
acoustical data from a patient to determine physiological significant features useful
in
medical
diagnosis. The first Zargis clinical device, the Zargis Acoustic Cardioscan, received
FDA
approval
in May 2004. Cardioscan will initially be launched to a select group of physicians,
teaching
hospitals
and other health care professionals. We own 80% of F&B Güdtfood Holding
Corp.,
the creator
and operator of the original Eurocentric chic and quick café,
which
is operating
two stores in Manhattan. We own a portfolio of patents that allow for high-speed
wireless
communications.
We also own fixed wireless spectrum in the New York City metropolitan
area that
we may commercialize
in the future to support high-speed, or broadband, Internet access service.
Zargis Medical Corp.In January 2001, we co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens Corporation,

in Zargis Medical Corp. to develop non-invasive, medical diagnostic support solutions that automatically

analyze acoustical data from a patient to determine physiologically significant features useful
in
medical diagnosis. The development of Zargis patented technology is a pioneering effort
in
medicine which uses advanced signal processing algorithms deployed on standard computer platforms.

The first Zargis device, the Zargis Acoustic Cardioscan, received FDA approval in May 2004. Cardioscan

will initially be launched to a select group of physicians, teaching hospitals and other health
care
professionals to be used as part of general medical examinations and physicals to detect murmurs

which could be a sign of valvular and congenital heart disease. General medical examinations, according

to the National Center for Health Statistics, totaled 64 million in 2000 for the US alone. Zargis

is currently researching, and conducting trials on, additional noninvasive diagnostic support tools

that process acoustical data from the body in order to provide an accurate and intelligible assessment

of a patients health. These assessments may be used by physicians and other healthcare providers

to assist in the early identification or monitoring of heart, lung, vascular and other conditions

and to provide better patient treatment.
We have signed an exclusive contract with Zargis to provide transaction processing to support Zargis
medical products. Some of the major next steps remaining for Zargis include continuing clinical trials
for new applications of the Zargis technology and the formation of strategic partnerships for industry
and market acceptance.
In February 2003, we acquired a controlling interest in Zargis Medical for an additional investment

of $1,250,000. In July 2003, we increased our ownership in Zargis Medical to 68.9% by investing
an
additional $2,000,000. As of December 31, 2003 and February 1, 2004, our ownership increased
to 70.5%
and 71.2%, respectively, as a result of certain milestones not having been met. In September
2004,
we increased our ownership in Zargis Medical to 72.7% by investing an additional $500,000.
F&B Güdtfood. We own 80% of F&B Güdtfood, the creator and operator of the original Eurocentric chic
and quick café, which is operating two stores in Manhattan. The acquisition price was
$3,500,000 in May 2002. In February 2003, we reduced our cash investment in F&B Güdtfood
and received $1,775,000 while maintaining our original 51% interest. In December 2003, as a result
of renegotiation, our interest increased to 80% without an additional investment and, under certain
circumstances, could increase to 90%. We expect that F&B Güdtfood will begin selling F&B
Güdtfood franchises through its wholly owned subsidiary, F&B Güdtfood Franchise Corp.
We have also entered into a management services contract with F&B Güdtfood.
Broadband Patents. Through our wholly owned subsidiaries, Broadband Patents, LLC and CellularVision Technology &
Telecommunications, L.P., we have accumulated a portfolio of patents that allow for high-speed wireless
communication systems with greater information content, reliability, clarity, or more efficient use
of licensed spectrum as compared to prior systems. We have six domestic patents with expiration dates
ranging from 2007 through 2017, with approximately 37 international counterparts in 21 countries.
We also have 21 patents pending in an additional 6 countries. Certain wireless communications systems
may employ a number of different combinations of our patented technology to maximize operational
and spectrum efficiency. While we believe that it would be difficult for such a wireless communications
system to be constructed without using one or more of our patented technologies, it is a lengthy
and expensive process to pursue licensing/patent infringement cases. We are evaluating a strategy
for the utilization of these patents in the future, which may include pursuit of licensing or
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3
|-



|development of other strategic opportunities with users of the underlying technology. We have licensed
technology in the past, both domestically and internationally, but are not currently receiving any
license fees.
Local Multipoint Distribution Service (LMDS) license.We have an FCC commercial operating license, awarded to us in recognition of our efforts in developing
and deploying LMDS technology and for spearheading its regulatory approval at the FCC, which covers
150 MHz of spectrum in the New York City area. The license has been renewed as a standard LMDS license
through February 1, 2006. Under FCC authorization, the license includes an additional 150 MHz of
spectrum until the first Ka band satellite is launched, an event which is not currently determinable.
The license provides that the spectrum may be used for a wide variety of fixed wireless purposes,
including wireless local loop telephony, high-speed Internet access and two-way teleconferencing.
We will not commence a full marketing effort using our LMDS technology until new LMDS equipment becomes
commercially available with cost and performance that allow implementation of an economically viable
business model. We cannot determine when this will occur and this equipment may never be available
to us on this basis.
Other.We have invested a portion of our assets in a portfolio of marketable securities consisting of publicly
traded equity securities. We have in the past and may in the future sell publicly traded equity securities
we do not own in anticipation of declines in the fair market values of these securities.
We have generated operating losses and negative operating cash flows since our inception and expect
tocontinue to do so in the near future.
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. Our local multipoint
distribution service license expires in February 2006. While the FCC has historically renewed licenses
as a matter of course, no license in the local multipoint distribution service band has yet been
up for renewal. A failure by the FCC to renew our license could have an adverse effect on the Company.
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.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4
|-



|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 in all reporting periods since
inception and, at December 31, 2004, had an accumulated deficit of approximately $58.4 million. We
believe that we have sufficient liquidity to finance our current level of operations through the
2005 fiscal year. However, we do not expect to have earnings from operations, exclusive of non-cash
charges, until such time as we substantially increase our customer base and/or form a strategic alliance
for use of our capabilities in the future.
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 and Vahak S. Hovnanian, who in the aggregate own approximately 40% of our Common
Stock, may have the power acting together to control the direction and future operations of our company.
Shant S. Hovnanian and Vahak S. Hovnanian in the aggregate own approximately 40% of our outstanding
Common Stock at March 15, 2005. 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
2004, 2003 and 2002, the high and low sale prices of our Common Stock on the Nasdaq Stock Market
ranged from $4.28 to $1.39, $1.65 to $0.71 and $1.37 to $0.68, respectively. The closing sale price
of our Common Stock was $2.13 on March 23, 2005. 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.
On several occasions through 2003, we were not in compliance with Marketplace Rule 4450(a)(5), which
requires listed companies to maintain a closing bid price equal to or greater than $1.00. Most recently,
in June 2003, we received notice from Nasdaq that we had regained compliance with Marketplace Rule
4450(a)(5) and the matter was closed.
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 non-Nasdaq over-the-counter market, also referred to as 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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5
|-



|Sales of shares of Common Stock by Shant S. Hovnanian and Vahak S. Hovnanian 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.
Shares of Common Stock held by Shant S. Hovnanian and Vahak S. Hovnanian have been held by each of
them for the requisite holding periods under Rule 144 under the Securities Act and may be sold in
accordance with volume restrictions.
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 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.
The Company is seeking to eliminate the risk that it could be deemed to be an investment company.
The
Company has substantial liquidity. Although a portion of the Companys cash is invested in securities,
the Company is pursuing an acquisition strategy that will, if successfully executed, eliminate any
risk of it being deemed to be an investment company.
Generally, a company must register under the Investment Company Act of 1940 and comply with significant
restrictions on operations and transactions with affiliates if its investment securities exceed 40%
of the companys total assets, or if it holds itself out as being primarily engaged in the business
of investing, owning or holding securities. If it is deemed to be an investment company, it might
need to dispose of or acquire investments in order to avoid investment company status.
Risks related to investments in other companies
Ability to successfully identify investment opportunities
We
will face substantial competition in identifying and closing appropriate investment opportunities
from, among others, venture capital firms, large corporate investors and other publicly traded companies.
These competitors may limit our opportunity to acquire interests in new partner companies. In addition,
we may be unable to acquire interests in appropriate companies for other reasons, including the inability
to agree on terms, such as price and ownership percentages, incompatibility between us and management
and access to sufficient funding. Our growth will be materially adversely affected if we cannot successfully
identify investments in a sufficient number of 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.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6
|-



|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 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 will depend to a significant extent 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 would have
a material adverse effect on our business.
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
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7
|-



|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.
Risks related to our high-speed Internet access service
We may be unable to solve ongoing technical difficulties in our deployment and equipment for our high-speed
Internet access service is not, and may never be, available at a cost and with performance levels
that allow for commercial implementation on an economically attractive basis.
Our
super high-speed Internet service utilizes a new technology that has a limited operating history
and that remains subject to further development and refinement.
The equipment necessary to provide our high-speed Internet access service is not currently manufactured
on a scale and at a cost suitable for the commercialization of our service. Such equipment may never
become available at a cost and with performance levels that allow for commercial implementation on
an economically attractive basis.
Many financially stronger competitors with broader market coverage are offering high-speed Internet
access.
The market for Internet access and related services is highly competitive. We expect local, regional
and national Internet service providers to be competitors for our super high-speed Internet access
service. Telephone companies with digital subscriber line technology, which increases the effective
capacity of existing copper telephone cables, are among other competitors. Also, cable operators
with high-speed cable modems are among the other communications companies also providing high-speed
Internet access. Many of the competing Internet service providers have, or can be expected to have,
greater financial, marketing and other resources than us. We may not be able to compete successfully
with these entities.
ITEM 2.   PROPERTIES
All
of our properties are leased space. Information on our major locations is presented below:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|Location      |  | Use                          |  | Square
      footage |  | Lease 
      expiration |  | Renewal
      options   |  | 
|------------- |  | ---------------------------- |  | -------------------- |  | ----------------------- |  | ----------------------- |  | 
|New York, NY  |  | Executive and administrative |  | 2,500                |  | 2005                    |  | 15 six-month extensions | 
|New York, NY  |  | F&B restaurant               |  | 1,300                |  | 2009                    |  | None                    |  | 
|New York, NY  |  | F&B restaurant               |  | 1,500                |  | 2014                    |  | None                    |  | 
|New York, NY  |  | Other                        |  | 3,000                |  | 2006                    |  | None                    |  | 
|Princeton, NJ |  | Administrative and research  |  | 2,500                |  | 2009                    |  | None                    |  | 

|                                                                                                                
|----------------------------------------------------------------------------------------------------------------
|ITEM 3.   LEGAL PROCEEDINGS
    The Company is not currently involved in any material pending legal proceedings.

|8
|-



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

|At
its Annual Meeting of shareholders held on December 21, 2004, the Company submitted the following matters to a vote of its shareholders, all of which were approved:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                       

| |                       |            |  |        
| | --------------------- | ---------- |  | -------
|
|
| | Shant S. Hovnanian    | 13,498,713 |  | 133,297
| | Vahak S. Hovnanian    | 13,079,864 |  | 552,146
| | William F. Leimkuhler | 13,128,609 |  | 503,401
| | Jeffrey Najarian      | 13,122,709 |  | 509,301
| | Christopher Vizas     | 13,123,035 |  | 508,975
| |                       |            |  |        

| | 2. Appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of
the Company:
| | -----------------------------------------------------------------------------------------------------------------
| |                                                                                                                  

| | Votes For  |  | Votes Against |  | Abstentions |  | 
| | ---------- |  | ------------- |  | ----------- |  | 
| | 13,580,867 |  | 44,601        |  | 6,542       |  | 

| |                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3. Approval of an amendment to the Companys 1995 Stock Incentive Plan, as amended, to increase
the number of shares of Common Stock available for issuance by 500,000 shares from 2,750,000
to 3,250,000, based upon 13,632,010 shares of Common Stock voted:
| |                                                                                                                                                                                                                                                               

| | Votes For |  | Votes Against |  | Abstentions |  | No Vote   | 
| | --------- |  | ------------- |  | ----------- |  | --------- | 
| | 6,925,729 |  | 930,327       |  | 24,610      |  | 5,751,344 | 

|9
|-



|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 SmallCap Market and trades under the symbol SPDE.
The following table sets forth high, low and closing trade prices for the Common Stock for the fiscal
quarters indicated.
|                                                                                                                                                                                                                                    

|               | High Sale |  | Low Sale |       | Closing Sale |  
|-------------- | --------- |  | -------- | ----- | ------------ | -
|               |           |  |          |       |              |  
|2004           |           |  |          |       |              |  
|               |           |  |          |       |              |  
|First quarter  |           |  | $        | 3.950 |              | $
|Second quarter |           |  |          | 4.280 |              |  
|Third quarter  |           |  |          | 2.630 |              |  
|Fourth quarter |           |  |          | 3.800 |              |  
|               |           |  |          |       |              |  
|2003           |           |  |          |       |              |  
|               |           |  |          |       |              |  
|First quarter  |           |  | $        | .820  |              | $
|Second quarter |           |  |          | 1.650 |              |  
|Third quarter  |           |  |          | 1.600 |              |  
|Fourth quarter |           |  |          | 1.550 |              |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|On
several occasions through 2003, we were not in compliance with Marketplace Rule 4450(a)(5), which
requires listed companies to maintain a closing bid price equal to or greater than $1.00. Most recently,
in June 2003, we received notice from Nasdaq that we had regained compliance with Marketplace Rule
4450(a)(5) and the matter was closed.
On
March 23, 2005, the closing trade price of our Common Stock was $2.13 per share. As of December 31,
2004, there were approximately 300 registered shareholders and, to the best of our belief, approximately
6,000 beneficial owners of our Common Stock. During the year ended December 31, 2004, 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.
Issuer Purchases of Equity Securities
During the fourth quarter of 2004, the Company did not purchase any of its own equity securities.
Equity Compensation Plans
The following table sets forth certain information as of December 31, 2004 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
      issuance | 
|------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------- | 
|                                      |  |  |                                                                                                                                 |           |                                                                                                     |   |                                                                                       | 
|                                      |  |  |                                                                                                                                 |           |                                                                                                     |   |                                                                                       | 
|Equity compensation plans approved by |  |  |                                                                                                                                 |           |                                                                                                     |   |                                                                                       | 
|security holders                      |  |  |                                                                                                                                 | 1,778,959 |                                                                                                     | $ | 2.37                                                                                  | 
|Equity compensation plans not         |  |  |                                                                                                                                 |           |                                                                                                     |   |                                                                                       | 
|approved by security holders          |  |  |                                                                                                                                 |           |                                                                                                     |   |                                                                                       | 
|Total                                 |  |  |                                                                                                                                 | 1,778,959 |                                                                                                     | $ | 2.37                                                                                  | 

|10
|--



|                                                                                                                                                                                                                                                                                         
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                         
|The selected consolidated financial data below should be read in conjunction withManagements Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements of the Company and Notes thereto included elsewhere in this Form 10-K.
|                                                                                                                                                                                                                                                                                         

|                                            | Year ended
      December 31, |  
|------------------------------------------- | ----------------------------- | -
|
|
|                                            |                               |  
|
|Statement
      of Operations Data          |                               |  
|Revenues                                    |                               | $
|Total operating
      expenses              |                               |  
|Operating
      loss                        |                               |  
|Net interest/investment
      income/(loss) |                               |  
|Minority
      interest                     |                               |  
|Equity
      in loss of associated company  |                               |  
|Other income                                |                               |  
|Settlement
      of litigation              |                               |  
|Provision
      for taxes                   |                               |  
|                                            |                               |  
|Net
      earnings/(loss)                   |                               | $
|                                            |                               |  
|Per Common
      Share                      |                               |  
|Basic earnings/(loss)                       |                               | $
|Weighted
      average outstanding          |                               |  
|                                            |                               |  
|Diluted earnings/(loss)                     |                               | $
|Weighted
      average outstanding          |                               |  
|                                            |                               |  

|                                   | December
      31, | 
|---------------------------------- | ------------------ | 
|
|
|                                   |                    | 
|
|Balance
      Sheet Data           |                    | 
|Cash and
      cash equivalents    |                    | 
|United
      States Treasury bills |                    | 
|Working capital                    |                    | 
|Net property
      and equipment   |                    | 
|Net other
      intangible assets  |                    | 
|Net goodwill                       |                    | 
|Total assets                       |                    | 
|Minority
      interest            |                    | 
|Total liabilities                  |                    | 
|Total equity                       |                    | 
|                                   |                    | 

|In February 2003, the Company acquired a majority interest in Zargis Medical This acquisition was accounted for using the purchase method of accounting and the results of operations of Zargis Medical have been included in the consolidated statements of operations for the periods subsequent to February 28, 2003.                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                            
|In May 2002, the Company acquired a 51% interest in F&B Güdtfood This acquisition was accounted for using the purchase method of accounting and the results of operations of F&B Güdtfood have been included in the consolidated statements of operations for the periods subsequent to May 6, 2002.                                        
|                                                                                                                                                                                                                                                                                                                                            
|In June 2000, the Company purchased the remaining 55% interest in Speedia, LLC that it did not already own. This acquisition was accounted for using the purchase method of accounting and the results of operations of Speedia have been included in the consolidated statements of operations for the periods subsequent to June 30, 2000.
|                                                                                                                                                                                                                                                                                                                                            
|For additional information on these transactions, see Managements Discussion and Analysis of Financial Condition and Results of Operations.                                                                                                                                                                                              

|11
|--



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------
|        |                                                                                      

|Operations
Speedus Corp. is a holding company that owns significant equity interests in diverse businesses. We
seek business opportunities across all industries for potential transactions and relationships in
which we can apply our current resources and management strengths. The companies that we target,
either public or privately held, will be seeking growth or restructuring capital to pursue near term
business objectives in demonstrated markets. We will continue to pursue opportunities involving our
expertise in the medical device and wireless markets as well as those areas involving our broadband
assets as attractive opportunities present themselves.
We have co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens Corporation, in


Zargis Medical Corp. to develop medical diagnostic support service solutions that automatically

analyze
acoustical data from a patient to determine physiological significant features useful
in
medical
diagnosis. The first Zargis clinical device, the Zargis Acoustic Cardioscan, received
FDA
approval
in May 2004. Cardioscan will initially be launched to a select group of physicians,
teaching
hospitals
and other health care professionals. We own 80% of F&B Güdtfood Holding
Corp.,
the creator
and operator of the original Eurocentric chic and quick café,
which
is operating
two stores in Manhattan. We own a portfolio of patents that allow for high-speed
wireless
communications.
We also own fixed wireless spectrum in the New York City metropolitan
area that
we may commercialize
in the future to support high-speed, or broadband, Internet access service.
Zargis Medical Corp.In January 2001, we co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens Corporation,

in Zargis Medical Corp. to develop non-invasive, medical diagnostic support solutions that automatically

analyze acoustical data from a patient to determine physiologically significant features useful
in
medical diagnosis. The development of Zargis patented technology is a pioneering effort
in
medicine which uses advanced signal processing algorithms deployed on standard computer platforms.

The first Zargis device, the Zargis Acoustic Cardioscan, received FDA approval in May 2004. Cardioscan

will initially be launched to a select group of physicians, teaching hospitals and other health
care
professionals to be used as part of general medical examinations and physicals to detect murmurs

which could be a sign of valvular and congenital heart disease. General medical examinations, according

to the National Center for Health Statistics, totaled 64 million in 2000 for the US alone. Zargis

is currently researching, and conducting trials on, additional noninvasive diagnostic support tools

that process acoustical data from the body in order to provide an accurate and intelligible assessment

of a patients health. These assessments may be used by physicians and other healthcare providers

to assist in the early identification or monitoring of heart, lung, vascular and other conditions

and to provide better patient treatment.
We have signed an exclusive contract with Zargis to provide transaction processing to support Zargis
medical products. Some of the major next steps remaining for Zargis include continuing clinical trials
for new applications of the Zargis technology and the formation of strategic partnerships for industry
and market acceptance.
In February 2003, we acquired a controlling interest in Zargis Medical for an additional investment

of $1,250,000. In July 2003, we increased our ownership in Zargis Medical to 68.9% by investing
an
additional $2,000,000. As of December 31, 2003 and February 1, 2004, our ownership increased
to 70.5%
and 71.2%, respectively, as a result of certain milestones not having been met. In September
2004,
we increased our ownership in Zargis Medical to 72.7% by investing an additional $500,000.
F&B Güdtfood.We own 80% of F&B Güdtfood, the creator and operator of the original Eurocentric chic
and quick café, which is operating two stores in Manhattan. The acquisition price was
$3,500,000 in May 2002. In February 2003, we reduced our cash investment in F&B Güdtfood
and received $1,775,000 while maintaining our original 51% interest. In December 2003, as a result
of renegotiation, our interest increased to 80% without an additional investment and, under certain
circumstances, could increase to 90%. We expect that F&B Güdtfood will begin selling F&B
Güdtfood franchises through its wholly owned subsidiary, F&B Güdtfood Franchise Corp.
We have also entered into a management services contract with F&B Güdtfood.
Broadband Patents.Through our wholly owned subsidiaries, Broadband Patents, LLC and CellularVision Technology & Telecommunications,
L.P., we have accumulated a portfolio of patents that allow for high-speed wireless communication
systems with greater information content, reliability, clarity, or more efficient use of licensed
spectrum as compared to prior systems. We have six domestic patents with expiration dates ranging
from 2007 through 2017, with approximately 37 international counterparts in 21 countries. We also
have 21 patents pending in an additional 6 countries. Certain wireless communications systems may
employ a number of different combinations of our patented technology to maximize operational and
spectrum efficiency. While we believe that it would be difficult for such a wireless communications
system to be constructed without using one or more of our patented technologies, it is a lengthy
and expensive process to pursue licensing/patent infringement cases. We are
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12
|--



|evaluating a strategy for the utilization of these patents in the future, which may include pursuit
of licensing or development of other strategic opportunities with users of the underlying technology.
We have licensed technology in the past, both domestically and internationally, but are not currently
receiving any license fees.
Local Multipoint Distribution Service (LMDS) license. We have an FCC commercial operating license, awarded to us in recognition of our efforts in developing
and deploying LMDS technology and for spearheading its regulatory approval at the FCC, which covers
150 MHz of spectrum in the New York City area. The license has been renewed as a standard LMDS license
through February 1, 2006. Under FCC authorization, the license includes an additional 150 MHz of
spectrum until the first Ka band satellite is launched, an event which is not currently determinable.
The license provides that the spectrum may be used for a wide variety of fixed wireless purposes,
including wireless local loop telephony, high-speed Internet access and two-way teleconferencing.
We
will not commence a full marketing effort using our LMDS technology until new LMDS equipment becomes
commercially available with cost and performance that allow implementation of an economically viable
business model. We cannot determine when this will occur and this equipment may never be available
to us on this basis.
Other.We have invested a portion of our assets in a portfolio of marketable securities consisting of publiclytraded 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.
We
have generated operating losses and negative operating cash flows since our inception and expect
tocontinue to do so in the near future.
Critical Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements. The preparation of those financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of operating revenues and expenses
during the reporting periods. Actual results could differ from those estimates. For a description
of all of our accounting policies, see Note 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, marketable securities and securities
sold and not purchased. The carrying value of cash equivalents approximates market value since these
highly liquid, interest earning investments are invested in money market funds. Marketable securities
consist of publicly traded equity securities classified as trading securities and are recorded at
fair market value, i.e., closing prices quoted on established securities markets. Securities sold
and not repurchased are also carried at the fair market value of the securities. Significant changes
in the market value of securities that we invest in could have a material impact on our financial
position and results of operations.
Long-lived assets. Long-lived assets, including fixed assets, goodwill and other intangibles, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of any such asset may
not be recoverable through estimated future cash flows from that asset. The estimate of cash flow
is based upon, among other things, certain assumptions about expected future operating performance.
Specifically, we own broadband assets, included in intangible assets, which had a carrying value
of $0.8 million at December 31, 2004 and currently do not generate significant revenues or cash flows.
However, as of December 31, 2004, we estimated that, based upon our review of recent transactions
and other factors, the fair value of our remaining FCC license and certain patents that have no carrying
value on our books would generate sufficient cash to fully realize our assets described above as
of December 31, 2004. This estimate evaluated the recovery of these broadband assets compared to
the fair value of our remaining FCC license and certain patents as a group since it represents the
lowest level for which identifiable cash flows are largely independent of the cash flows of other
groups of assets and liabilities. These estimates may differ from actual results due to, among other
things, technological changes, economic conditions, changes to our business model or changes in our
operating performance. We also reviewed the carrying value of goodwill recorded in connection with
the F&B Güdtfood acquisition and estimated based upon our review, taking into account such
factors as projected operations, that there had been impairment to this carrying value. As a result,
we recorded a charge in the amount of $621,000, the balance of our goodwill, during the fourth quarter of 2004.
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
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13
|--



|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.
Twelve Months Ended December 31, 2004 Compared to Twelve Months
Ended December 31, 2003
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|Revenues increased $206,000 from $711,000 for the twelve months ended December 31, 2003 to $917,000
for the twelve months ended December 31, 2004. This increase is primarily a result of the opening
of a second F&B Güdtfood store during the second quarter of 2004. Revenues generated by
the second store were $279,000 for 2004. This increase is net of a decrease in revenues in the amount
of $72,000, generated by the first store in 2004 as a result of unfavorable weather conditions, decreasing
store traffic.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Selling, general and administrative expenses decreased $181,000 from $4,495,000 for the twelve months
ended December 31, 2003 to $4,314,000 for the twelve months ended December 31, 2004. This decrease
is primarily a result of decreases in compensation and employee related expenses as a result of staff
reductions by Speedus. This decrease is net of an increase as a result of the opening of a second
F&B Güdtfood store during the second quarter of 2004.                                                       

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|During the twelve months ended December 31, 2004, the Company incurred $2,929,000 in expenses in connection
with a technology settlement in the amount of $15,000,000. In connection with the settlement and
as provided under the terms of his 2002 employment agreement, Shant S. Hovnanian, Chairman of the
Board and Chief Executive Officer of the Company, received a contingent participation in the proceeds
of the settlement in the amount of approximately $2.8 million during the twelve months ended December
31, 2004.
Research and development expenses decreased $189,000 from $1,705,000 for the twelve months ended December
31, 2003 to $1,516,000 for the twelve months ended December 31, 2004. These decreases are primarily
a result of decreases in compensation and employee related expenses as a result of staff reductions
by Speedus.
Depreciation and amortization decreased $42,000 from $1,159,000 for the twelve months ended December
31, 2003 to $1,117,000 for the twelve months ended December 31, 2004. This decrease, net of an increase
in the amount of $128,000 during 2004 compared to 2003 for amortization of medical technology resulting
from the Zargis acquisition, is a result of assets becoming fully depreciated.
During the twelve months ended December 31, 2004, the Company recorded an impairment charge in the
amount of $621,000 in connection with goodwill recorded in connection with the F&B Güdtfood
acquisition.
Cost of sales increased $59,000 from $223,000 for the twelve months ended December 31, 2003 to $282,000
for the twelve months ended December 31, 2004. This increase is primarily a result of the opening
of a second F&B Güdtfood store during the second quarter of 2004.
During the twelve months ended December 31, 2004, the Company recorded a gain from technology settlement
in the amount of $15,000,000.
Investment income increased $4,939,000 from a net loss in the amount of $4,520,000 for the twelve months
ended December 31, 2003 to a net gain in the amount of $419,000 for the twelve months ended December
31, 2004. This increase is primarily a result of realized and unrealized gains and losses. Realized
losses decreased $6,316,000 from net losses of $6,668,000 for the twelve months ended December 31,
2003 to net losses of $352,000 for the twelve months ended December 31, 2004. Unrealized gains increased
$394,000 from net losses of $107,000 for the twelve months ended December 31, 2003 to net gains of
$287,000 for the twelve months ended December 31, 2004. Investment gains or losses will fluctuate
based upon changes in the market value of the underlying investments and are not necessarily indicative
of the results that may be expected for any future periods.
Equity in loss of associated company amounted to $93,000 for the twelve months ended December 31, 2003.
This amount reflects the Companys share in Zargis Medicals operations, accounted for
under the equity method, through February 27, 2003. Zargis Medical is included in the consolidated
financial statements of the

|14
|--



|Company since February 28, 2003, the date of acquisition of a majority interest. As a result,
no amounts were recorded for the twelve months ended December 31, 2004.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                     

|Minority interest decreased $271,000 from $779,000 for the twelve months ended December 31, 2003 to
$508,000 for the twelve months ended December 31, 2004. These amounts represent the interest of minority
stockholders in the losses of F&B Güdtfood and Zargis Medical since the dates of acquisition
of a majority interest.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|During the twelve months
ended December 31, 2004, the Company recorded a provision for taxes in the amount of $62,000.
|----------------------------------------------------------------------------------------------------------------------

|                                                                                       
|---------------------------------------------------------------------------------------
|Twelve Months Ended December 31, 2003 Compared to Twelve Months
Ended December 31, 2002
|                                                                                       

|Revenues decreased $196,000 from $907,000 for the twelve months ended December 31, 2002 to $711,000
for the twelve months ended December 31, 2003. $428,000 of this net decrease is a result of revenues
recognized in 2002 from the sale and activation of wireless phones through the Companys online
cell phone store, 007phones. No such revenues were recognized in 2003. The decrease in revenues is
net of an increase recognized by F&B Güdtfood in the amount of $260,000 from $446,000 in
2002 to $706,000 in 2003. F&B Güdtfood is included in the consolidated financial statements
of the Company since May 6, 2002, the date of acquisition of a majority interest.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Selling, general and administrative expenses decreased $144,000 from $4,639,000 for the twelve months
ended December 31, 2002 to $4,495,000 for the twelve months ended December 31, 2003. This decrease
is net of increases in the amounts of $600,000 and $502,000 compared to 2002 as a result of increases
attributable to F&B Güdtfood and Zargis Medical, respectively, which are included in the
consolidated financial statements of the Company since May 6, 2002 and February 28, 2003, respectively,
the dates of acquisition of majority interests. The net decreases are a result of decreases in legal
expenses, and compensation and employee related expenses as a result of staff reductions by Speedus.
Research and development expenses increased $759,000 from $946,000 for the twelve months ended December
31, 2002 to $1,705,000 for the twelve months ended December 31, 2003. $839,000 of this net increase
is a result of Zargis Medicals inclusion in the consolidated financial statements of the Company
since February 28, 2003, the date of acquisition of a majority interest. These increases are net
of decreases in compensation and employee related expenses as a result of staff reductions by Speedus.
Depreciation and amortization decreased $4,119,000 from $5,278,000 for the twelve months ended December
31, 2002 to $1,159,000 for the twelve months ended December 31, 2003. Approximately $3,650,000 of
this net decrease is a result of a charge during 2002 for property and equipment taken out of service.
Depreciation and amortization also decreased as a result of assets becoming fully depreciated, as
well as depreciation no longer being taken on the property and equipment taken out of service during
2002. The decrease in depreciation and amortization is net of an increase in the amount of $220,000
for amortization of medical technology during 2003 resulting from the Zargis acquisition.
Cost of sales decreased $293,000 from $516,000 for the twelve months ended December 31, 2002 to $223,000
for the twelve months ended December 31, 2003. $381,000 of this net decrease is a result of costs
recognized in 2002 from the sale and activation of wireless phones through the Companys online
cell phone store, 007phones. No such costs were incurred in 2003. The decrease in cost of sales is
net of an increase attributable to F&B Güdtfood in the amount of $88,000 from $135,000 in
2002 to $223,000 in 2003. F&B Güdtfood is included in the consolidated financial statements
of the Company since May 6, 2002, the date of acquisition of a majority interest.
Investment loss increased $4,326,000 from a net loss in the amount of $194,000 for the twelve months
ended December 31, 2002 to a net loss in the amount of $4,520,000 for the twelve months ended December
31, 2003. This increase is primarily a result of realized and unrealized losses. Realized gains/(losses)
decreased $7,804,000 from net gains of $1,136,000 for the twelve months ended December 31, 2002 to
net losses of $6,668,000 for the twelve months ended December 31, 2003. Unrealized gains/(losses)
decreased $2,148,000 from net losses of $2,255,000 for the twelve months ended December 31, 2002
to net losses of $107,000 for the twelve months ended December 31, 2003. Investment gains or losses
will fluctuate based upon changes in the market value of the underlying investments and are not necessarily
indicative of the results that may be expected for any future periods.
Equity in loss of associated company decreased $428,000 from $521,000 for the twelve months ended December
31, 2002 to $93,000 for the twelve months ended December 31, 2003. These amounts reflect the Companys
share in Zargis Medicals operations, accounted for under the equity method prior to February
28, 2003. Zargis Medical is included in the consolidated financial statements of the Company since
February 28, 2003, the date of acquisition of a majority interest.

|15
|--



|Minority interest increased $699,000 from $80,000 for the twelve months ended December 31, 2002 to $779,000 for the twelve months ended December 31, 2003. These amounts represent the interest of minority stockholders in the losses of F&B Güdtfood and Zargis Medical since the dates of acquisition of a majority interest.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16
|--



|Liquidity and Capital Resources
The
Company has recorded operating losses and negative operating cash flows in each year of its operations
since inception.
Net cash provided by operating activities was $0.6 million for the year ended December 31,
2004 compared to net cash used in operating activities of $12.9 million for the year ended December 31,
2003. This net increase of $13.5 million in cash provided by operating activities was primarily the
result of a gain from technology settlement in the amount of $15 million recognized during the twelve
months ended December 31, 2004, reduced by $2.9 million in technology settlement expenses. In February
2004, the Companys wholly-owned subsidiary, CellularVision Technology & Telecommunications,
L.P., received $15 million from a former international licensee in settlement of litigation that
CT&T instituted in May 2001. In connection with the settlement and as provided under the terms
of his 2002 employment agreement, Shant S. Hovnanian, Chairman of the Board and Chief Executive Officer
of the Company, received a contingent participation in the proceeds of the settlement in the amount
of approximately $2.8 million during the twelve months ended December 31, 2004. This net increase
in cash provided from operating activities was also a result of a $4.9 million decrease in investment
loss from losses of $4.5 million for the twelve months ended December 31, 2003 to a gain of $0.4
million for the twelve months ended December 31, 2004. These increases are net of a decrease as a result of a $6.0 million
purchase of United States Treasury bills.
Net cash used in investing activities was $2.1 million for the year ended December 31, 2004,
primarily the result of $0.5 million in property and equipment additions as a result of the opening
of a second F&B Güdtfood store and $1.6 million in other investments.
Net cash used in financing activities was $0.2 million for the year ended December 31, 2004
compared to $0.7 million for the year ended December 31, 2003. This decrease of $0.5 million
was substantially the result of decreased repurchases of treasury stock during 2004.
At
December 31, 2004, the Companys future minimum lease payments due under noncancelable leases
aggregated $2,178,000. $458,000, $365,000, $276,000, $284,000 and $233,000 of this amount is due
during the years ending December 31, 2005, 2006, 2007, 2008 and 2009, respectively, and the balance
is payable thereafter. In addition, in connection with a license agreement to which the Company is
a party, a termination payment will be payable by the Company in the amount of $500,000, $300,000
or $200,000 if the license agreement is terminated by the Company before September 2007, September
2009 or September 2011, respectively.
The
Company believes that it has sufficient liquidity to finance its current level of operations and
expected capital requirements through the 2005 fiscal year. However, the Company does not expect
to have earnings from operations until such time as it substantially increases its customer base
and/or forms a strategic alliance for use of its capabilities in the future. We cannot predict when
this will occur. We have no material non-cancelable commitments and the amount of future capital
funding requirements will depend on a number of factors that we cannot quantify, including the success
of our business, the extent to which we expand our high-speed Internet service if suitable equipment
becomes available and the types of services we offer, as well as other factors that are not within
our control, including competitive conditions, government regulatory developments and capital costs.
The lack of additional capital in the future could have a material adverse effect on the Companys
financial condition, operating results and prospects for growth.
We have invested a portion of our assets in a portfolio of marketable securities consisting of publicly
traded equity securities. We purchase these securities in anticipation of increases in the fair market
values of the securities. We have in the past and may in the future 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
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|17
|--



|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.
      Recent Accounting Pronouncements
      In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal
periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 to have a material effect on the Companys financial statements.
      In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment which replaces SFAS No. 123 and supercedes APB Opinion No. 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS No. 123R beginning July 1, 2005. Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include modified prospective and modified retrospective adoption options, using the previously disclosed pro forma data. Under the modified retrospective option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R, while the modified retrospective methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company is evaluating the requirements of SFAS No. 123R and expects that the adoption of SFAS 123R could have a material impact on the Companys financial statements.
      ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      The Companys financial instruments at December 31, 2004 consist primarily of cash equivalents, which are subject to interest rate risk, and marketable securities, which are subject to equity price risk.
      As part of our overall investment strategy, we invest in publicly traded equity securities. We purchase these securities in anticipation of increases in the fair market values of the securities. We have in the past and may in the future sell publicly traded equity securities that we do not own in anticipation of declines in the fair market values of the securities. When we sell securities that we do not own, we must borrow the securities we sold in order to deliver them and settle the trades. Thereafter, we must buy the securities and deliver them to the lender of the securities. Our potential for loss on these transactions is unlimited since the value of the underlying security can keep increasing which could have a material adverse
effect on the Companys consolidated financial statements.
      The carrying value of cash equivalents approximates market value since these highly liquid, interest earning investments are invested in money market funds. The Companys investment in marketable securities consists of publicly traded equity securities classified as trading securities and are recorded at fair market value. Securities sold and not repurchased are carried at the fair market value of the securities.
      ITEM 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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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

|None.
ITEM 9A.   CONTROLS AND PROCEDURES
Management
of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated
the effectiveness of the design and operation of the Companys disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Companys
Chief Executive Officer and the Chief
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18
|--



|Financial Officer concluded that the Companys disclosure controls and procedures were effective
as of the end of the period covered by this report for the information required to be disclosed by
the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended,
to be recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms.
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, 2004 that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
ITEM 9B.   OTHER INFORMATION
None.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19
|--



|PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 March 15, 2005.@@
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                             

| | Name                  |  | Age |  | Position                                 | 
| | --------------------- |  | --- |  | ---------------------------------------- | 
| |                       |  |     |  |                                          | 
| |                       |  |     |  |                                          | 
| | Shant S. Hovnanian    |  | 45  |  | Chairman of the Board of Directors,      | 
| |                       |  |     |  | President and Chief Executive Officer    | 
| | Vahak S. Hovnanian    |  | 73  |  | Director                                 | 
| | William F. Leimkuhler |  | 53  |  | Director                                 | 
| | Jeffrey Najarian      |  | 46  |  | Director                                 | 
| | Christopher Vizas     |  | 55  |  | Director                                 | 
| | Thomas M. Finn        |  | 57  |  | Secretary, Treasurer and Chief Financial | 
| |                       |  |     |  | Officer                                  | 
| | Michael Bacon         |  | 39  |  | Executive Vice President                 | 
| | John A. Kallassy      |  | 40  |  | Executive Vice President                 | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. 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.
Christopher
Vizas has served as a Director since July 2001. Mr. Vizas is a principal in the strategicadvisory firm of East Wind Partners. At East Wind, he is involved in the development of telecommunications
and technology businesses in North America, Europe and Asia, particularly in the regulatory issues
and relationships with governments essential to those businesses and in their financial structuring
and restructuring; in his engagements with East Wind, he has served in interim roles as CFO and CEO
of developing companies. He serves as non-executive Chairman of the Board of i1, Inc., a privately
held, Chinese software provider, as well as a member of the Boards of a few other privately held
companies. Mr. Vizas positions during the 1990s included Chairman of eGlobe, Inc, a turn around
company reorganized under Chapter 11 of the Bankruptcy Act, CEO of Quo Vadis International,
Managing Director of Kouri Capital Group and its Telecommunications & Technology affiliate, and
founder and Vice Chairman of Orion Network Systems. Earlier in his career, he was a founder and part
of the management in Trinity Cellular and Asia Pacific Space & Communications. Mr. Vizas served
in the White House Office of Telecommunications Policy in the Ford Administration, as Special Counsel
to the U.S. Privacy Commission, and on congressional staff.
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. Previously, Mr. Finn was an Audit Manager for Deloitte &
Touche LLP.

|20
|--



|Michael Bacon has served as Executive Vice President since June 1999. Prior to joining us, Mr. Bacon was employed by Booz Allen & Hamilton, a leading international management and technology consulting firm, since 1996. From 1994 to 1996, Mr. Bacon was with Deloitte & Touche Consulting. In consulting, he led teams that recommended or implemented the establishment of and improvement in service operations in a variety of industries, including the telecommunications industry. Mr. Bacon previously worked for three years at International Business Machines in marketing and sales and for two years with General Electric Company where he developed information systems.
      John A. Kallassy has served as Executive Vice President and Chief Marketing Officer since September 2000. Mr. Kallassy was the founder and CEO of American Data Consultants, Inc., a B2B database marketing company. After the sale of ADC to R.L. Polk in 1996, Mr. Kallassy was employed for three years at R.L. Polk as a division president and later a corporate vice president where he led the product management and analytical consulting groups.
      ITEM 11.   EXECUTIVE COMPENSATION
      The following table shows, for the fiscal years ended December 31, 2004, 2003 and 2002, the cash compensation we paid, as well as certain other compensation paid or accrued for those years, to each of the most highly compensated executive officers of the Company in 2004 (the Named Executive Officers) in all capacities in which they served. See Employment Agreements.
    Summary Compensation Table
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                      |  |  |  | Annual Compensation |  |   |         |  |   |           |    
|------------------------------------- |  |  |  | ------------------- |  | - | ------- |  | - | --------- | ---
|
|
|                                      |  |  |  |                     |  |   |         |  |   |           |    
|Shant S. Hovnanian                    |  |  |  | 2004                |  | $ | 250,000 |  | $ | 2,845,186 | (1)
|Chairman of the Board of Directors,   |  |  |  | 2003                |  |   | 250,000 |  |   |          |    
|President and Chief Executive Officer |  |  |  | 2002                |  |   | 250,000 |  |   | 50,000    |    
|                                      |  |  |  |                     |  |   |         |  |   |           |    
|Thomas M. Finn                        |  |  |  | 2004                |  | $ | 198,000 |  | $ |          |    
|Secretary, Treasurer and Chief        |  |  |  | 2003                |  |   | 152,000 |  |   |          |    
|Financial officer                     |  |  |  | 2002                |  |   |        |  |   |          |    
|                                      |  |  |  |                     |  |   |         |  |   |           |    
|Michael Bacon                         |  |  |  | 2004                |  | $ | 175,000 |  | $ |          |    
|Executive Vice President              |  |  |  | 2003                |  |   | 175,000 |  |   |          |    
|                                      |  |  |  | 2002                |  |   | 175,000 |  |   |          |    
|                                      |  |  |  |                     |  |   |         |  |   |           |    
|John Kallassy                         |  |  |  | 2004                |  | $ | 175,000 |  | $ | 50,000    |    
|Executive Vice President              |  |  |  | 2003                |  |   | 175,000 |  |   | 50,000    |    
|                                      |  |  |  | 2002                |  |   | 175,000 |  |   | 50,000    |    
|                                      |  |  |  |                     |  |   |         |  |   |           |    

|(1) 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.
In
addition, in February 2004, the Companys wholly-owned subsidiary, CellularVision Technology
& Telecommunications, L.P. (CT&T), received $15 million from a former international licensee
in settlement of litigation that CT&T instituted in May 2001. In connection with the settlement and as provided under the terms of his employment agreement, Mr.
Hovnanian received a contingent participation in the proceeds of the settlement in the amount of
$2,845,186.
Stock Option Grants Table
There were no grants of options to purchase Common Stock made to Named Executive Officers during 2004.@@
For information regarding stock option grants to employees in 2004, see Notes to Consolidated

Financial StatementsNote 5, Stockholders Equity.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21
|--



|Aggregate Stock Option Exercise Table
    The following table sets forth information regarding the number and value of unexercised options that were held by the Named Executive Officers as of December 31, 2004. None of the Named Executive Officers exercised any options during 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                          

|Name               | Number of 
      Shares 
      Acquired on 
      Exercise |  | Value 
      Realized |   | Number of Securities
      Underlying 
      Unexercised Options 
      Exercisable/ 
      Unexercisable |   |   | Value of Unexercised 
      In-the-Money Options 
      Exercisable/ 
      Unexercisable
|------------------ | ---------------------------------------------------------- |  | --------------------- | - | --------------------------------------------------------------------------------------------------------- | - | - | -----------------------------------------------------------------------------------------
|                   |                                                            |  |                       |   |                                                                                                           |   |   |                                                                                          
|Shant S. Hovnanian |                                                            |  |                       | 0 |                                                                                                           | $ |  |                                                                                          
|Thomas M. Finn     |                                                            |  |                       | 0 |                                                                                                           |   |  |                                                                                          
|Michael Bacon      |                                                            |  |                       | 0 |                                                                                                           |   |  |                                                                                          
|John Kallassy      |                                                            |  |                       | 0 |                                                                                                           |   |  |                                                                                          

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|For information regarding stock option grants to employees in 2004, see Notes to Consolidated

Financial StatementsNote 5, Stockholders Equity.
Director Compensation
During 2004, our Directors who are not officers or employees (Non-Employee Directors) received
an annual retainer of $24,000. 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 $48,000. In addition, upon their initial election to the Board, new Non-Employee Directors are
granted options to purchase 5,000 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 10,000 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
In April 2002, the Compensation Committee of the Board of Directors approved a new employment agreement
for Mr. Shant S. Hovnanian, effective as of April 25, 2002. The agreement provides that Mr. Hovnanian
will act as our President and Chief Executive Officer. The agreement has a three-year term and provides
for an annual salary of $250,000. Under the agreement, Mr. Hovnanian is entitled to be considered
for annual performance based bonuses targeted at 50% or greater of his base salary and a contingent
bonus based on certain performance factors, use of a Company apartment and car, a country club membership
and a $1,000,000 term life insurance policy with the beneficiary designated by Mr. Hovnanian. Under
the agreement, Mr. Hovnanian was also granted 250,000 options 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 June 1, 1999 with Mr. Michael Bacon. The agreement
provides that Mr. Bacon will act as our Executive Vice President. The agreement, which has no term,
provides for an annual salary of $137,500, subject to periodic review, and bonuses aggregating $37,500
and an increase in annual salary to $175,000 based on the executives attainment of certain
performance goals. Under this agreement, Mr. Bacon was granted 100,000 options to purchase shares
of our Common Stock at the market value as of the effective date of the agreement. 25,000 options
become exercisable each six months after June 1, 1999. Effective January 15, 2001, Mr. Bacons
salary was increased to $175,000.
We
entered into an employment agreement effective September 5, 2000 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 $175,000, subject to periodic review, and annual bonuses aggregating
$50,000 based on the executives attainment of certain performance goals. Under this agreement,
Mr. Kallassy was granted 225,000 options to purchase shares of our Common Stock at the market value
as of the effective date of the agreement. 18,750 of these options were fully vested and immediately
exercisable at the date of grant. As of December 31, 2004, all options under this grant were fully
vested and exercisable.

|22
|--



|ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 15, 2005 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) | 
|----------------------------------------------------------------- | ----------------------------------------------- | 
|
|
|                                                                  |                                                 | 
|Shant S. Hovnanian (2)(3)                                         |                                                 | 
|Vahak S. Hovnanian (4)(5)                                         |                                                 | 
|William F. Leimkuhler (6)                                         |                                                 | 
|Jeffrey Najarian (7)                                              |                                                 | 
|Christopher Vizas (8)                                             |                                                 | 
|Thomas M. Finn (9)                                                |                                                 | 
|Michael Bacon (10)                                                |                                                 | 
|John A Kallassy (11)                                              |                                                 | 
|XO Communications, Inc.                                           |                                                 | 
|                                                                  |                                                 | 
|All Directors and Executive Officers as a group (total 8 persons) |                                                 | 

| |                                               
| | ----------------------------------------------
| | * Less than 1% of the outstanding Common Stock

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)     Pursuant to the regulations of the Securities and Exchange Commission
(the 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 633,100 shares of Common Stock pursuant
to the Stock Incentive Plan, which are fully vested and exercisable.
(3)     Includes 100,000 shares of Common Stock owned by Mr. Shant S. Hovnanians
minor child, Vahak Willem Hovnanian, for which Mr. Hovnanian, as custodian, has sole voting power.
(4)     Includes options to purchase 92,500 shares of Common Stock pursuant
to the Stock Incentive Plan, which are fully vested and exercisable.
(5)     Includes 55,431 and 22,175 shares of Common Stock which Mr. Vahak
S. Hovnanian is required to sell upon the exercise of outstanding warrants at a per share exercise
price of $13.16 and $11.28, respectively.
(6)     Includes options to purchase 90,250 shares of Common Stock pursuant to the Stock Incentive Plan, which
are fully vested and exercisable.
(7)     Includes options to purchase 70,000 shares of Common Stock pursuant to the Stock Incentive Plan,
which are fully vested and exercisable.
(8)     Includes options to purchase 60,000 shares of Common Stock pursuant to the Stock Incentive Plan, which
are fully vested and exercisable.
(9)     Includes options to purchase 110,489 shares of Common Stock pursuant to the Stock Incentive Plan,
which are fully vested and exercisable.
(10)   Includes options
to purchase 262,500 shares of Common Stock pursuant to the Stock Incentive Plan, which are fully
vested and exercisable.
(11)   Includes options
to purchase 337,500 shares of Common Stock pursuant to the Stock Incentive Plan, which are fully
vested and exercisable.

|23
|--



|Stockholders Agreements.
Verizon Communications, 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.
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.
Equity Compensation Plans
The following table sets forth certain information as of December 31, 2004 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
      issuance | 
|---------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------- | 
|                                                                 |  |  |                                                                                                                                 |           |                                                                                                     |   |                                                                                       | 
|                                                                 |  |  |                                                                                                                                 |           |                                                                                                     |   |                                                                                       | 
|Equity compensation plans approved by
      security holders     |  |  |                                                                                                                                 | 1,778,959 |                                                                                                     | $ | 2.37                                                                                  | 
|Equity compensation plans not
      approved by security holders |  |  |                                                                                                                                 |           |                                                                                                     |   |                                                                                       | 
|Total                                                            |  |  |                                                                                                                                 | 1,778,959 |                                                                                                     | $ | 2.37                                                                                  | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The
information under Director Compensation included in Item 11. of this Form 10-K is incorporated
by reference.
ITEM 14.  PRINCIPAL ACCOUNTING 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, 2004 and 2003, the Company
paid or accrued $180,000 and $166,200, respectively, for audit fees to PricewaterhouseCoopers LLP.
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, 2004 and 2003, 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, 2004 and 2003, the Company paid or accrued $50,000 and
$70,000, respectively, for tax fees to PricewaterhouseCoopers LLP.
All Other Fees represent fees for services rendered other than those described above. For the years
ended December 31, 2004 and 2003, the Company did not pay or accrue any amounts for these services.
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 registered independent 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.

|24
|--



|PART IV                                                   
|----------------------------------------------------------
|                                                          
|ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES          
|                                                          
|(a) Financial Statements and Financial Statement Schedules
|                                                          

|(1) |  | Consolidated Financial Statements                                                                                      |  | Page(s)
|--- |  | ---------------------------------------------------------------------------------------------------------------------- |  | -------
|    |  |                                                                                                                        |  |        
|    |  | Report of Independent Registered Public Accounting Firm                                                                |  | 27     
|    |  |                                                                                                                        |  |        
|    |  | Consolidated Balance Sheets as of December 31, 2004 and 2003                                                           |  | 28     
|    |  |                                                                                                                        |  |        
|    |  | Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002                             |  | 29     
|    |  |                                                                                                                        |  |        
|    |  | Consolidated Statements of Changes in Stockholders Equity 
      for the years ended December 31, 2004, 2003 and 2002 |  | 30     
|    |  |                                                                                                                        |  |        
|    |  | Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                             |  | 31     
|    |  |                                                                                                                        |  |        
|    |  | Notes to Consolidated Financial Statements                                                                             |  | 32-41  
|    |  |                                                                                                                        |  |        

|            
|------------
|(b) Exhibits
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            

|
|

|
|---------------
|               
|               

|25
|--



| | (2) | Incorporated by reference to the Companys Form 10-K filed on March 31, 1999.                    
| | --- | -------------------------------------------------------------------------------------------------
| |     |                                                                                                  
| | (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 November 23, 2004.
| |     |                                                                                                  
| | (5) | Incorporated by reference to the Companys Form 10-K filed on March 31, 2003.                    
| |     |                                                                                                  
| | (6) | Filed herewith.                                                                                  

|                                       
|---------------------------------------
|(c) Financial Statement Schedules
None.

|26
|--



|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders ofSpeedus Corp.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1)
present fairly, in all material respects, the financial position of Speedus Corp. and its subsidiaries
at December 31, 2004 and December 31, 2003, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America. 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLPNew York, New YorkMarch 30, 2005
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
|--



|SPEEDUS CORP. CONSOLIDATED BALANCE SHEETS
|-----------------------------------------
|                                         

|                                                                                                                                                        | December 31,
      2004 |             | December 31,
      2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ----------- | ----------------------- | -
|                                                                                                                                                        |                         |             |                         |  
|                                                                                                                                                        |                         |             |                         |  
|ASSETS                                                                                                                                                  |                         |             |                         |  
|Current assets:                                                                                                                                        
|Cash
      and cash equivalents                                                                                                                         | $                       | 17,740,865  |                         | $
|United
      States Treasury bills                                                                                                                      |                         | 5,977,200   |                         |  
|Marketable securities                                                                                                                                   |                         | 1,060,592   |                         |  
|Prepaid
      expenses and other                                                                                                                        |                         | 173,979     |                         |  
|Accounts
      and other receivables                                                                                                                    |                         | 49,134      |                         |  
|Due
      from broker                                                                                                                                   |                         |            |                         |  
|                                                                                                                                                        |                         |             |                         |  
|Total
      current  assets                                                                                                                             |                         | 25,001,770  |                         |  
|Property
      and equipment, net of accumulated
        depreciation of $175,457 and $2,003,862                                                        |                         | 609,840     |                         |  
|Other
      intangible assets, net of accumulated
        amortization of $1,812,249 and $1,051,493                                                     |                         | 1,417,795   |                         |  
|Other investments                                                                                                                                       |                         | 900,000     |                         |  
|Other
      assets                                                                                                                                      |                         | 752,869     |                         |  
|Goodwill                                                                                                                                                |                         |            |                         |  
|                                                                                                                                                        |                         |             |                         |  
|Total
      assets                                                                                                                                      | $                       | 28,682,274  |                         | $
|                                                                                                                                                        |                         |             |                         |  
|                                                                                                                                                       
|LIABILITIES
      AND STOCKHOLDERS EQUITY                                                                                                             
|Current
      liabilities:                                                                                                                             
|Accounts
      payable                                                                                                                                  | $                       | 315,742     |                         | $
|Accrued liabilities                                                                                                                                     |                         | 1,357,720   |                         |  
|Securities
      sold and not purchased                                                                                                                 |                         |            |                         |  
|                                                                                                                                                        |                         |             |                         |  
|Total
      current liabilities                                                                                                                         |                         | 1,673,462   |                         |  
|                                                                                                                                                        |                         |             |                         |  
|Minority
      interest                                                                                                                                 |                         | 159,294     |                         |  
|                                                                                                                                                        |                         |             |                         |  
|Commitments
      and Contingencies                                                                                                                     |                         |             |                         |  
|                                                                                                                                                       
|Stockholders
      equity:                                                                                                                            
|Common
      stock ($.01 par value; 50,000,000 
           shares authorized; 21,587,674 and  21,516,088
      shares issued)                           |                         | 215,877     |                         |  
|Preferred
      stock ($.01 par value; 20,000,000 
          shares authorized):                                                                       
|Series
      A Junior Participating ($.01 par value;
                 4,000
      shares authorized; no shares issued
                 and outstanding) |                         |            |                         |  
|Additional
      paid-in-capital                                                                                                                        |                         | 90,546,583  |                         |  
|Treasury
      stock (at cost; 5,368,949 and 5,257,649 shares)                                                                                          |                         | (5,499,684  | )                       |  
|Accumulated deficit                                                                                                                                     |                         | (58,413,258 | )                       |  
|                                                                                                                                                        |                         |             |                         |  
|Stockholders
      equity                                                                                                                              |                         | 26,849,518  |                         |  
|                                                                                                                                                        |                         |             |                         |  
|Total
      liabilities and stockholders equity                                                                                                        | $                       | 28,682,274  |                         | $
|                                                                                                                                                        |                         |             |                         |  

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

|28
|--



|SPEEDUS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS
|---------------------------------------------------
|                                                   

|                                                                     | For the years
      ended December 31, |           
|-------------------------------------------------------------------- | -------------------------------------- | ----------
|
|
|                                                                     |                                        |           
|                                                                     |                                        |           
|Revenues                                                             | $                                      | 917,237   
|                                                                     |                                        |           
|                                                                    
|Expenses:                                                           
|Selling,
      general and administrative                            |                                        | 4,313,889 
|Technology
      settlement expenses                                 |                                        | 2,928,583 
|Research
      and development                                       |                                        | 1,515,934 
|Depreciation
      and amortization                                  |                                        | 1,116,759 
|Goodwill
      impairment loss                                       |                                        | 620,875   
|Cost
      of sales                                                  |                                        | 282,370   
|                                                                     |                                        |           
|Total
      operating expenses                                       |                                        | 10,778,410
|                                                                     |                                        |           
|                                                                     |                                        |           
|Operating
      loss                                                 |                                        | (9,861,173
|                                                                     |                                        |           
|Gain
      from technology settlement                                |                                        | 15,000,000
|Investment
      income/(loss)                                       |                                        | 419,197   
|Minority
      interest                                              |                                        | 508,261   
|Equity in
      loss of associated company                           |                                        |          
|                                                                     |                                        |           
|Earnings/(loss)
      before provision 
          for income taxes   |                                        | 6,066,285 
|Provision
      for income taxes                                     |                                        | 62,000    
|                                                                     |                                        |           
|                                                                     |                                        |           
|Net earnings/(loss)                                                  | $                                      | 6,004,285 
|                                                                     |                                        |           
|                                                                    
|Per share:                                                           |                                        |           
|Basic earnings/(loss)
      per common share                         | $                                      | 0.37      
|                                                                     |                                        |           
|Weighted
      average common shares
          outstanding - basic   |                                        | 16,245,281
|                                                                     |                                        |           
|                                                                     |                                        |           
|Diluted earnings/(loss)
      per common share                       | $                                      | 0.36      
|                                                                     |                                        |           
|Weighted
      average common shares
          outstanding - diluted |                                        | 16,799,298
|                                                                     |                                        |           
|                                                                     |                                        |           

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

|29
|--



|SPEEDUS CORP.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|-----------------------------------------------------------------------
|                                                                       
|For the years ended December 31, 2002, 2003 and 2004                   
|                                                                       

|                                  | Common Stock |         | Additional
    Paid-in-capital |  | Treasury Stock |  | Accumulated
    Deficit |            | Total
      Stockholders
    Equity |  
|--------------------------------- | ------------ | ------- | ------------------------------ |  | -------------- |  | ----------------------- | ---------- | ------------------------------------ | -
|
|
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Balance, January 1, 2002          | $            | 213,848 |                                |  | 21,384,838     |  | $                       | 90,289,432 |                                      | $
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Repurchase of common stock        |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Net loss                          |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                        
|Balance, December 31, 2002        |              | 213,848 |                                |  | 21,384,838     |  |                         | 90,289,432 |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Exercise of warrants              |              | 1,313   |                                |  | 131,250        |  |                         | 129,938    |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Stock based compensation          |              |         |                                |  |                |  |                         | 22,750     |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Repurchase of common stock        |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Net loss                          |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                        
|Balance, December 31, 2003        |              | 215,161 |                                |  | 21,516,088     |  |                         | 90,442,120 |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Exercise of options and  warrants |              | 716     |                                |  | 71,586         |  |                         | 70,870     |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Stock based compensation          |              |         |                                |  |                |  |                         | 33,593     |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Repurchase of common stock        |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Net earnings                      |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|                                  |              |         |                                |  |                |  |                         |            |                                      |  
|Balance, December 31, 2004        | $            | 215,877 |                                |  | 21,587,674     |  | $                       | 90,546,583 |                                      | $
|                                  |              |         |                                |  |                |  |                         |            |                                      |  

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

|30
|--



|SPEEDUS CORP.CONSOLIDATED STATEMENTS OF CASH FLOWS
|--------------------------------------------------
|                                                  

|                                                                                                                                  | For the years
      ended December 31, |           
|--------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----------
|
|
|                                                                                                                                  |                                        |           
|Cash
      flows from operating activities:                                                                                       |                                        |           
|Net
      earnings/(loss)                                                                                                         | $                                      | 6,004,285 
|Adjustments
      to reconcile net earnings/(loss) to
                 net cash
      provided by/(used in) operating activities:
|Depreciation
      and amortization                                                                                               |                                        | 1,116,759 
|Goodwill
      impairment loss                                                                                                    |                                        | 620,875   
|Unrealized
      investment (gains)/losses                                                                                        |                                        | (287,089  
|Equity
      in loss of associated company                                                                                        |                                        |          
|Minority
      interest                                                                                                           |                                        | (508,261  
|Stock
      based compensation                                                                                                    |                                        | 33,593    
|Changes
      in operating assets and liabilities:                                                                               
|Marketable
      securities                                                                                                       |                                        | 1,969,969 
|United
      States Treasury bills                                                                                                |                                        | (5,977,200
|Due
      from broker                                                                                                             |                                        | 3,131,835 
|Accounts
      and other receivables                                                                                              |                                        | (6,634    
|Prepaid
      expenses and other                                                                                                  |                                        | (90,757   
|Other
      assets                                                                                                                |                                        | (98,717   
|Accounts
      payable                                                                                                            |                                        | 164,484   
|Accrued
      liabilities                                                                                                         |                                        | (74,706   
|Securities
      sold and not purchased                                                                                           |                                        | (5,406,135
|Other
      current liabilities                                                                                                   |                                        |          
|                                                                                                                                  |                                        |           
|                                                                                                                                  |                                        |           
|Net
      cash provided by/(used in) operating activities                                                                         |                                        | 592,301   
|                                                                                                                                  |                                        |           
|                                                                                                                                  |                                        |           
|Cash
      flows from investing activities:                                                                                      
|Property
      and equipment additions                                                                                            |                                        | (536,253  
|Other
      investments                                                                                                           |                                        | (1,556,834
|Loans
      to related parties                                                                                                    |                                        |          
|Loans
      and other receivables, net of repayments                                                                              |                                        |          
|Acquisition
      of business, net of cash acquired                                                                               |                                        |          
|Proceeds
      from sale of assets                                                                                                |                                        |          
|                                                                                                                                  |                                        |           
|                                                                                                                                  |                                        |           
|Net
      cash provided by/(used in) investing activities                                                                         |                                        | (2,093,087
|                                                                                                                                  |                                        |           
|                                                                                                                                  |                                        |           
|Cash
      flows from financing activities:                                                                                      
|Proceeds
      from exercise of options or warrants                                                                               |                                        | 71,586    
|                                                                                                                                  |                                        |           
|Repurchase
      of stock                                                                                                         |                                        | (249,132  
|                                                                                                                                  |                                        |           
|                                                                                                                                  |                                        |           
|Net
      cash used in financing activities                                                                                       |                                        | (177,546  
|                                                                                                                                  |                                        |           
|Net
      increase/(decrease) in cash and cash                                   equivalents                                      |                                        | (1,678,332
|                                                                                                                                  |                                        |           
|Cash and
      cash equivalents, beginning of period                                                                              |                                        | 19,419,197
|                                                                                                                                  |                                        |           
|                                                                                                                                  |                                        |           
|Cash and
      cash equivalents, end of period                                                                                    | $                                      | 17,740,865
|                                                                                                                                  |                                        |           
|                                                                                                                                  |                                        |           
|Supplemental
      information of business acquired:                                                                             
|Fair
      value of assets acquired:                                                                                             
|Cash                                                                                                                              | $                                      |          
|Other
      current assets                                                                                                        |                                        |          
|Non
      current assets                                                                                                          |                                        |          
|Other
      intangible assets                                                                                                     |                                        | 136,500   
|Less-liabilities
      assumed:                                                                                                  
|Current
      liabilities                                                                                                         |                                        |          
|Acquisition
      costs                                                                                                           |                                        |          
|Minority
      interest                                                                                                           |                                        | (136,500  
|                                                                                                                                  |                                        |           
|Cash
      paid                                                                                                                   |                                        |          
|less-cash
      acquired                                                                                                          |                                        |          
|                                                                                                                                  |                                        |           
|Acquisition
      of business, net of cash acquired                                                                               | $                                      |          
|                                                                                                                                  |                                        |           

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

|31
|--



|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 activities
Speedus Corp. is a holding company that owns significant equity interests in diverse businesses. We

seek business opportunities across all industries for potential transactions and relationships
in
which we can apply our current resources and management strengths. The companies that we target,

either public or privately held, will be seeking growth or restructuring capital to pursue near
term
business objectives in demonstrated markets. We will continue to pursue opportunities involving
our
expertise in the medical device and wireless markets as well as those areas involving our broadband

assets as attractive opportunities present themselves.
We have co-invested with Siemens Corporate Research, Inc., a subsidiary of Siemens Corporation, in


Zargis Medical Corp. to develop medical diagnostic support service solutions that automatically

analyze
acoustical data from a patient to determine physiological significant features useful
in
medical
diagnosis. The first Zargis clinical device, the Zargis Acoustic Cardioscan, received
FDA
approval
in May 2004. Cardioscan will initially be launched to a select group of physicians,
teaching
hospitals
and other health care professionals. We own 80% of F&B Güdtfood Holding
Corp.,
the creator
and operator of the original Eurocentric chic and quick café,
which
is operating
two stores in Manhattan. We own a portfolio of patents that allow for high-speed
wireless
communications.
We also own fixed wireless spectrum in the New York City metropolitan
area that
we may commercialize
in the future to support high-speed, or broadband, Internet access service.
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. The interest
in the net assets and operations of these companies other stockholders is reflected in the
caption Minority interest in Speedus consolidated balance sheet and statements
of operations.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The
Companys share of earnings or losses of associated companies that are 20% to 50% owned is included
in the consolidated operating results using the equity method of accounting.
Companies in which Speedus owns less than 20% of the outstanding voting securities and does not have
the ability to exercise significant influence are accounted for under the cost method of accounting.
Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the financial statements and
the reported amounts of operating revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
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, 2004 and 2003, cash equivalents consisted
of money market funds.
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, 2004 and 2003, marketable securities consisted of publicly traded equity securities
which were recorded at fair

|32
|--



|market value. Their original cost was $877,000 and $2,040,000, unrealized gains since acquisition were
$184,000 and $47,000 and the carrying value was $1,061,000 and $2,087,000, respectively. At December
31, 2004, based upon the fair market value of these securities, 5% was invested in technology and
telecommunications companies and 95% was invested in a coal company.
Other investments
The Company has investments in equity and debt instruments of publicly and non-publicly held companies
and generally accounts for them under the cost method since the Company does not have the ability
to exercise significant influence over operations. The Company monitors these investments for other than temporary impairment
by considering current factors including economic environment, market conditions, operational performance
and other specific factors relating to the business underlying the investment, and records reductions
in carrying values when necessary.
At December 31, 2004, other investments, all of which were acquired during the year ended December
31, 2004, consist of:
(a) a convertible promissory note in a subsidiary of a publicly held drug delivery technology company,
recorded at cost in the amount of $600,000. In connection with this investment, the Company also
received warrants to purchase 300,000 shares of common stock at $1 per share, subject to adjustment
under certain circumstances, and
(b)  a convertible promissory note in a non-publicly held cardiovascular technology company,
recorded at cost in the amount of $300,000. In connection with this investment, the Company also
received warrants to purchase 375,000 shares of common stock at the lesser of $.40 or 80% of
the per share price sold in the next round of financing.
The Company does not believe there has been any impairment of other investments at December 31, 2004.
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. The amounts shown on the balance sheet as Securities sold and not purchased represent
the value of these securities at fair market value. At December 31, 2004, there were no securities
sold and not purchased. At December 31, 2003, the Company had sold securities it had not purchased.
The aggregate proceeds were $4,514,000, unrealized losses since acquisition were $892,000 and the
market value of the securities was $5,406,000.
Due from broker
In
connection with selling publicly traded securities that it does not own, the Company is obligated
to maintain balances with brokerage firms as security for these transactions. At December 31, 2004,
there were no restricted cash balances. At December 31, 2003, restricted cash balances in the amounts
of $3,132,000 were held by brokerage firms.
Concentrations of Credit Risk
Financial
instruments that potentially could subject the Company to concentrations of credit risk consist largely
of cash equivalents, amounts due from brokers and marketable securities. These instruments are potentially
subject to concentrations of credit risk but the Company believes that this risk is limited due to
diversification and investments being made in investment grade securities.
The Company has in the past and may in the future sell publicly traded equity securities that it does
not own in anticipation of declines in the fair market values of the securities. When the Company
sells securities that it does not own, it must borrow the securities it sold in order to deliver
them and settle the trades. Thereafter, the Company must buy the securities and deliver them to the
lender of the securities. The Companys potential for loss on these transactions is unlimited
since the value of the underlying security can keep increasing which could have a material adverse
effect on the Companys consolidated financial statements.
Property and Equipment
Transmission
equipment, customer premises 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 two to seven years, but not longer than initial lease terms in the case of leasehold improvements.
Fiber optic lines are depreciated over an estimated useful life of 10 years.
When
assets are fully depreciated, it is the Companys policy to remove the costs and related accumulated
depreciation from its books and records.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|33
|--



|During the year ended December 31, 2002, the Company recorded a charge, included in Depreciation
and amortization in the accompanying Consolidated Statements of Operations, in the amount of
$3,650,000 for property and equipment taken out of service.
Long-lived assets
The
Company periodically evaluates the net realizable value of long-lived assets, including fixed and
intangible assets, in accordance with Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, relying on anticipated future cash flows.
The Companys evaluation of anticipated future cash flows considers operating results, business
plans and economic projections, as well as, non-financial data such as market trends, product and
development cycles, and changes in managements market emphasis. An impairment in the carrying
value of an asset is recognized when the expected future operating cash flows derived from the asset
are less than its carrying value.
Goodwill and Other Intangible Assets
The
Company accounts for goodwill and other intangible assets in accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets which requires the
use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under
the nonamortization approach, goodwill is not being amortized into results of operations, but instead
is reviewed for impairment on a reporting unit basis at least annually and charged against results
of operations only in the periods in which the recorded value of goodwill is more than its implied
fair value. During the fourth quarter of 2004, after determining that the estimated present value
of future cash flows was less than its carrying value, the Company recorded a $621,000 charge for
impairment of goodwill in connection with the acquisition of F&B Güdtfood with a balance
of $621,000 at December 31, 2003.
The Company owns broadband assets, included in intangible assets, with a carrying value of $0.8 million
at December 31, 2004 and currently does not generate significant revenues or cash flows. However,
the Company estimated that, based upon its review of recent transactions and other factors, the fair
value of its remaining FCC license and certain patents that have no carrying value on its books would
generate sufficient cash to fully realize the assets described above. This estimate evaluated the
recovery of these broadband assets compared to the fair value of the remaining FCC license and certain
patents as a group since it represents the lowest level for which identifiable cash flows are largely
independent of the cash flows of other groups of assets and liabilities.
Other intangible assets consist of: (i) the cost of a broadband patent and (ii) medical technology
in connection with the acquisition of a controlling interest in Zargis Medical during 2003. Through
the year ended December 31, 2002, the patent was amortized over its life of fourteen years at the
time of acquisition. During the three months ended March 31, 2003, the Company reviewed the estimated
useful life of this patent in light of the continuing depressed economic state of the telecommunications
industry. As a result, effective January 1, 2003, the Company considered the remaining useful life
to be four years and has accounted for this determination as a change in an estimate. At December
31, 2004, the broadband patent was recorded at cost in the amount of $2,070,000 with accumulated
amortization of $1,244,000. Medical technology, in the aggregate amount of $1,160,000 with accumulated
amortization in the amount of $568,000 at December 31, 2004, is being amortized over a period of three years.
Amortization
expense relating to intangible assets for the years ended December 31, 2004, 2003 and 2002 amounted
to $761,000, $633,000 and $148,000, respectively. The estimated annual amortization expense for 2005,
2006 and 2007, the expiration of the remaining useful life of the Companys intangible assets
at December 31, 2004, is $795,000, $589,000 and $34,000, respectively. Amortization expense is included
in Depreciation and amortization on the accompanying Consolidated Statement of Operations
and not allocated to Selling, General and Administrative or Research and Development.
Revenue Recognition
Revenues from F&B Güdtfoods operations are recorded on a cash basis.
During 2002, the Company earned fees in the amount of $428,000 from the sale and activation of wireless
phones. In accordance with the provisions of the Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SAB No.
104, these revenues and associated costs were deferred until the expiration of cancellation privileges
and chargeback periods from carriers. No such fees were earned after 2002.
Income Taxes
As
required by Statement of Financial Accounting Standards 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.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|34
|--



|As
of December 31, 2004, the Company has a deferred tax asset of approximately $5.7 million, relating
primarily to operating losses.. An offsetting valuation allowance of $5.7 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, |     |   
| | ---------------------------------------------------------- | ----------------------------- | --- | --
|
|
| |                                                            |                               |     |   
| | Statutory
      rate                                       |                               | (34 | %)
| | Permanent
      difference goodwill impairment             |                               | 10  | % 
| | State
      and local income taxes, net of federal benefit |                               | (10 | %)
| | Change in
      valuation allowance                        |                               | 35  | % 
| |                                                            |                               |     |   
| | Effective
      rate                                       |                               | 1   | % 
| |                                                            |                               |     |   

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|At
December 31, 2004, the Company had net operating loss carryforwards of approximately $14.6 million
which expire between 2020 and 2025. 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.
Earnings Per Share
Basic
and diluted earnings/(loss) per common share are determined in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share.
For
the year ended December 31, 2004, the weighted average common shares for diluted earnings per share
were determined by adding 550,000 and 4,000 weighted average shares for the assumed exercise of stock
options and warrants, respectively, calculated using the treasury stock method, to the weighted average
shares outstanding used for basic earnings per share for a total of 16,799,000 weighted average shares
outstanding for diluted earnings per share. Outstanding stock options and warrants in the weighted
average amounts of 691,000 and 113,000, respectively, were excluded from the computation of diluted
earnings per share for the year ended December 31, 2004 since the exercise prices were greater than
the average market price of the common stock.
Outstanding
stock options in the weighted average amounts of 1,743,000 and 1,675,000 and outstanding warrants
in the weighted average amounts of 278,000 and 573,000 for the years ended December 31, 2003 and
2002, respectively, have been excluded from the diluted loss per share since their effect would be
antidilutive.
Stock Options
The Company accounts for its employee stock options in accordance with Statement of Financial Accounting

Standards No. 123, Accounting for Stock-Based Compensation, as amended by SFAS 148,
*Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement

No. 123*, which defines a fair value method of measuring and accounting for compensation
expense from employee stock options. This standard also allows accounting for such options under
the intrinsic value method in accordance with Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees. The Company has elected to use the intrinsic value method. Pro
forma earnings information giving effect to compensation expense based upon the fair value at the
date of grant in accordance with SFAS 123 for the years ended December 31, 2004, 2003 and 2002 is
summarized as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                                            | 2004 |           | 2003 |   | 2002        |   |  
| | ------------------------------------------ | ---- | --------- | ---- | - | ----------- | - | -
| |                                            |      |           |      |   |             |   |  
| | Net earnings/(loss) as reported            | $    | 6,004,285 |      | $ | (10,704,097 | ) | $
| | After tax effect of pro forma compensation |      | (50,000   | )    |   | (267,000    | ) |  
| | Pro forma net earnings/(loss)              | $    | 5,954,285 |      | $ | (10,971,097 | ) | $
| |                                            |      |           |      |   |             |   |  
| | Earnings/(loss) per share:                 |      |           |      |   |             |   |  
| | Basic - as reported                        | $    | 0.37      |      | $ | (0.65)      |   | $
| |                                            |      |           |      |   |             |   |  
| | Basic - pro forma                          | $    | 0.37      |      | $ | (0.66)      |   | $
| |                                            |      |           |      |   |             |   |  
| | Diluted - as reported                      | $    | 0.36      |      | $ | (0.65)      |   | $
| |                                            |      |           |      |   |             |   |  
| | Diluted - pro forma                        | $    | 0.35      |      | $ | (0.66)      |   | $
| |                                            |      |           |      |   |             |   |  

|                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|In determining fair value, the stock options were valued using the Black-Scholes option pricing model. Key assumptions used in valuing the options granted during the years ended December 31, 2004, 2003 and 2002 are summarized as follows:

|35
|--



| |                             | 2004 |         | 2003 |  | 2002    |  | 
| | --------------------------- | ---- | ------- | ---- |  | ------- |  | 
| |                             |      |         |      |  |         |  | 
| | Risk free investment rate   |      | 2%      |      |  | 2%      |  | 
| | Expected lives              |      | 3 years |      |  | 3 years |  | 
| | Expected volatility factors |      | 70%     |      |  | 51%     |  | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting

Standards No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29,
Accounting
for Nonmonetary Transactions. SFAS 153 eliminates the exception from fair value
measurement
for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion
No. 29,
Accounting for Nonmonetary Transactions, and replaces it with an exception
for exchanges
that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange
has commercial
substance if the future cash flows of the entity are expected to change significantly
as a result
of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15,
2005.
The Company does not expect the adoption of SFAS No. 153 to have a material effect on the
Companys
financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
which replaces SFAS No. 123 and supercedes APB Opinion No. 25. SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the financial
statements based on their fair values beginning with the first interim or annual period after June 15,
2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123
no longer will be an alternative to financial statement recognition. The Company is required to adopt
SFAS No. 123R beginning July 1, 2005. Under SFAS No. 123R, the Company must determine the appropriate
fair value model to be used for valuing share-based payments, the amortization method for compensation
cost and the transition method to be used at date of adoption. The transition methods include modified
prospective and modified retrospective adoption options, using the previously disclosed pro forma
data. Under the modified retrospective option, prior periods may be restated either as of the beginning
of the year of adoption or for all periods presented. The modified prospective method requires that
compensation expense be recorded for all unvested stock options and restricted stock at the beginning
of the first quarter of adoption of SFAS No. 123R, while the modified retrospective methods would
record compensation expense for all unvested stock options and restricted stock beginning with the
first period restated. The Company is evaluating the requirements of SFAS No. 123R and expects that
the adoption of SFAS 123R could have a material impact on the Companys financial statements.
3. Acquisitions
a. On February 28, 2003, the Company increased its investment in Zargis Medical to 57.7% with an additional
investment of $1,250,000. Prior to February 28, 2003, the Company held a 46.4% interest in Zargis
and accounted for its investment under the equity method of accounting. On July 28, 2003, the Company
increased its ownership in Zargis Medical to 68.9% with an additional investment of $2,000,000. As
of December 31, 2003 and February 1, 2004, our ownership increased to 70.5% and 71.2%, respectively,
as a result of Zargis not having met certain milestones. On September 22, 2004, the Company increased
its ownership in Zargis Medical to 72.7% with an additional investment of $500,000.
This acquisition was accounted for using the purchase method of accounting. The results of operations
of Zargis Medical have been included in the consolidated statements of operations from the date of
acquisition. The $3,750,000 aggregate purchase price was allocated as follows: $3,769,000 to cash,
$34,000 to non current assets, $1,160,000 to other intangible assets, $(219,000) to current liabilities
and $(994,000) to minority interest. An aggregate of $1,160,000 has been allocated as medical technology
to an intangible asset and is being amortized over a period of three years.
Unaudited pro forma operating results of the Company as though the acquisition of Zargis Medical had
occurred at the beginning of each period presented, are as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                |                                  | Years ended December 31, |             |  
|--------------- | -------------------------------- | ------------------------ | ----------- | -
|                |                                  |                         
|**(unaudited)** |                                  |                         
|
|                |                                  |                          |             |  
|                | Revenues                         | $                        | 710,786     |  
|                | Operating loss                   | $                        | (7,405,880  | )
|                | Net loss                         | $                        | (11,086,116 | )
|                | Basic and diluted loss per share | $                        | (0.67       | )

|                                                                                                                                                                                                                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|b.  On May 6, 2002, the Company acquired a 51% interest in F&B Güdtfood, the creator and operator of the original Eurocentric chic and quick café, which is operating two stores in Manhattan. The acquisition price was $3,500,000. On February 8, 2003, the Company reduced its cash investment in F&B Güdtfood and received

|36
|--



|$1,775,000 while maintaining its 51% interest. In December 2003, as a result of renegotiation, our interest increased to 80% without an additional investment and, under certain circumstances, could increase to 90%.
    Unaudited pro forma operating results of the Company as though the acquisition of F&B Güdtfood had occurred at the beginning of the period presented, are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                

| |                                      | Year ended
      December 31,
      2002 |             |  
| | ------------------------------------ | ---------------------------------------- | ----------- | -
| |                                      |                                          |             |  
| |                                      | (unaudited)                              |             |  
| | Revenues                             | $                                        | 1,175,523   |  
| | Operating loss                       | $                                        | (10,457,705 | )
| | Net loss                             | $                                        | (11,092,702 | )
| | Basic and diluted net loss per share | $                                        | (0.62       | )

|                                                                               
|-------------------------------------------------------------------------------
|4. Property and Equipment
    Property and equipment consists of the following:
|                                                                               

| |                               | December 31, |          |  
| | ----------------------------- | ------------ | -------- | -
|
|
| |                               |              |          |  
| | Leasehold improvements        | $            | 439,255  |  
| | Office equipment              |              | 346,042  |  
| |                               |              |          |  
| |                               |              | 785,297  |  
| | Less accumulated depreciation |              | (175,457 | )
| |                               |              |          |  
| | Property and equipment        | $            | 609,840  |  
| |                               |              |          |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Depreciation
expense was $346,000, $526,000 and $5,130,000 (including a charge in the amount of $3,650,000 for
property and equipment taken out of service) for the years ended December 31, 2004, 2003 and 2002,
respectively. Depreciation expense is included in Depreciation and amortization on the
accompanying Consolidated Statement of Operations and not allocated to Selling, General and
Administrative or Research and Development.
5. Stockholders Equity
Stock Options
The
Companys 1995 Stock Incentive Plan, as amended, provides for the grant of various stockbased
incentives, including non-qualified and incentive stock options. The Plan has reserved 3,250,000
shares of Common Stock of the Company for issuance to employees, directors and consultants, including
an additional 500,000 shares approved by stockholders in each of 1999, 2000, 2001 and 2004.
The Company accounts for its employee stock options in accordance with Statement of Financial Accounting

Standards No. 123, Accounting for Stock-Based Compensation, as amended by SFAS 148,
*Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement

No. 123*, which defines a fair value method of measuring and accounting for compensation
expense from employee stock options. This standard also allows accounting for such options under
the intrinsic value method in accordance with Accounting Principles Board No. 25, Accounting
for Stock Issued to Employees. The Company has elected to use the intrinsic value method. See
Note 2 for pro forma earnings information giving effect to compensation expense based upon the fair
value at the date of grant in accordance with SFAS 123 for the years ended December 31, 2004, 2003
and 2002.

|37
|--



|Stock option activity and weighted average prices for the three years ended December 31, 2004 is summarized as follows:
|-----------------------------------------------------------------------------------------------------------------------
|                                                                                                                       

|                                   | 2004      |   | 2003 |      | 2002 |          
|---------------------------------- | --------- | - | ---- | ---- | ---- | ---------
|
|
|                                   |           |   |      |      |      |          
|Outstanding at January 1           | 1,777,465 |   | $    | 2.43 |      | 1,701,524
|Granted                            | 100,000   |   |      | 2.05 |      | 140,000  
|Exercised                          | (27,836   | ) |      | 1.00 |      |         
|Cancelled                          | (70,670   | ) |      | 4.00 |      | (64,059  
|                                   |           |   |      |      |      |          
|Outstanding at December 31         | 1,778,959 |   | $    | 2.37 |      | 1,777,465
|                                   |           |   |      |      |      |          
|Exercisable at December 31         | 1,700,623 |   | $    | 2.41 |      | 1,731,631
|                                   |           |   |      |      |      |          
|Available for grant at December 31 | 1,279,368 |   |      |      |      | 808,698  
|                                   |           |   |      |      |      |          

|                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------
|The following table summarizes information concerning currently outstanding and exercisable stock options at December 31, 2004:
|                                                                                                                               

|                 | Stock options outstanding |           | Stock options exercisable |  
|---------------- | ------------------------- | --------- | ------------------------- | -
|
|
|
|$    0.83 - 1.00 |                           | 555,720   |                           | 6
|1.07 - 2.08      |                           | 510,000   |                           | 8
|3.00 - 4.84      |                           | 666,500   |                           | 5
|5.20 - 9.88      |                           | 31,739    |                           | 3
|13.75 - 15.00    |                           | 15,000    |                           | 4
|                 |                           |           |                           |  
|                 |                           | 1,778,959 |                           |  
|                 |                           |           |                           |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Warrants
      The Company accounts for warrants granted to non-employees under the provisions of Statement of Financial Accounting Standards No. 123 and 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 warrants at the time of issuance was determined using the Black-Scholes option-pricing model. Expenses are recognized over the service terms. No such expenses were recognized during the years ended December 31, 2004, 2003 or 2002.
    Warrant activity and weighted average prices for the three years ended December 31, 2004 is summarized as follows:

|                           | 2004    |   |   | 2003  |  | 2002 |         
|-------------------------- | ------- | - | - | ----- |  | ---- | --------
|
|
|                           |         |   |   |       |  |      |         
|Outstanding at January 1   | 157,006 |   | $ | 10.21 |  |      | 413,256 
|Granted                    |        |   |   |      |  |      |        
|Exercised                  | (43,750 | ) |   | 1.00  |  |      | (131,250
|Cancelled                  |        |   |   |      |  |      | (125,000
|                           |         |   |   |       |  |      |         
|Outstanding at December 31 | 113,256 |   | $ | 13.77 |  |      | 157,006 
|                           |         |   |   |       |  |      |         
|Exercisable at December 31 | 113,256 |   | $ | 13.77 |  |      | 157,006 
|                           |         |   |   |       |  |      |         
|                           |         |   |   |       |  |      |         

|Warrants
outstanding and exercisable at December 31, 2004 have exercise prices ranging from $12.50 to $15.03
and a weighted average remaining life of 1 year.
Treasury Stock
During
the years ended December 31, 2004, 2003 and 2002, the Company repurchased 111,300, 839,072 and 2,141,045
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 one right for each
share of the
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|38
|--



|Companys Common Stock.
      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.
      6. Gain from Technology Settlement
      In February 2004, the Companys wholly-owned subsidiary, CellularVision Technology & Telecommunications, L.P. (CT&T), received $15 million from a former international licensee in settlement of litigation that CT&T instituted in May 2001.
    In connection with the settlement and as provided under the terms of his 2002 employment agreement, Shant S. Hovnanian, Chairman of the Board and Chief Executive Officer of the Company, received a contingent participation in the proceeds of the settlement in the amount of approximately $2.8 million. In addition, approximately $0.1 million in legal and other closing costs was paid at closing to unaffiliated third parties. These expenses are included in Technology Settlement Expenses for the year ended December 31, 2004 in the accompanying consolidated statement of operations.
    7. Commitments and Contingencies
    Noncancelable Leases
    At December 31, 2004, future minimum lease payments due under noncancelable leases are as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | 2005       | $ | 458,000   |  | 
| | ---------- | - | --------- |  | 
| | 2006       |   | 365,000   |  | 
| | 2007       |   | 276,000   |  | 
| | 2008       |   | 284,000   |  | 
| | 2009       |   | 233,000   |  | 
| | Thereafter |   | 562,000   |  | 
| |            |   |           | 
| |            | $ | 2,178,000 |  | 
| |            |   |           | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 $500,000, $300,000 or $200,000 if the license agreement
is terminated by the Company before September 2007, September 2009 or September 2011, respectively.
Rent
expense was approximately $491,000, $401,000 and $355,000 for the years ended December 31, 2004,
2003 and 2002, 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, 2004.

|39
|--



|8. Legal Proceedings
      The Company is not currently involved in any material pending legal proceedings.
      9. Business Segment Information
    The following table sets forth the Companys financial performance by reportable operating segment for the years ended December 31, 2004, 2003 and 2002. F&B Güdtfood and Zargis Medical are included in the consolidated financial statements of the Company since May 6, 2002 and February 28, 2003, respectively, the dates of acquisition of majority interests. During 2002, the Company recognized revenues in the amount of $428,000 from the sale and activation of wireless phones through the Companys online cell phone store, 007phones. No revenues were recognized in connection with 007 phones during 2004 or 2003.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                           | Year ended
      December 31, 2004 |    
|------------------------------------------ | ---------------------------------- | ---
|
|
|                                           |                                    |    
|Revenues
      from external customers     |                                    | $  
|Depreciation
      and amortization        |                                    |    
|Operating
      loss                       |                                    |    
|Investment
      income/(loss)             |                                    |    
|Goodwill
      and other intangible assets |                                    |    
|Fixed assets                               |                                    |    
|Total assets                               |                                    |    
|                                           |                                    |    
|                                           |                                    |    
|                                           |                                    |    
|                                           |                                    |    
|                                           |                                    | F&B
|                                           |                                    |    
|Revenues
      from external customers     |                                    | $  
|Depreciation
      and amortization        |                                    |    
|Operating
      loss                       |                                    |    
|Investment
      income/(loss)             |                                    |    
|Goodwill
      and other intangible assets |                                    |    
|Fixed assets                               |                                    |    
|Total assets                               |                                    |    

| | Year ended
      December 31, 2002         |  |  
| | ------------------------------------------ |  | -
|
|
| |                                            |  |  
| | Revenues
      from external customers     |  | $
| | Depreciation
      and amortization        |  |  
| | Operating
      loss                       |  |  
| | Investment
      income/(loss)             |  |  
| | Goodwill
      and other intangible assets |  |  
| | Fixed assets                               |  |  
| | Total assets                               |  |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The
Company has no foreign operations. During the years ended December 31, 2004, 2003 and 2002, the Company
did not have sales to any individual customer greater than 10% of total Company revenues. The Companys
accounting policies for segments are the same as those described in Note 2.
10. Selected Quarterly Data (unaudited)
Quarterly
financial information is summarized in the table below (amounts in thousands, except per share amounts):

|40
|--



|                                                   | Year ended
      December 31, 2004 |       
|-------------------------------------------------- | ---------------------------------- | ------
|
|
|                                                   |                                    |       
|Revenues                                           | $                                  | 151   
|Selling,
      general and administrative expenses |                                    | 993   
|Technology
      Settlement                        |                                    |       
|expenses                                           |                                    | 2,929 
|Research
      and development                     |                                    | 371   
|Goodwill
      impairment loss                     |                                    |      
|Cost of
      sales                                |                                    | 45    
|Operating
      loss                               |                                    | (4,471
|Gain from
      technology                         |                                    |       
|settlement                                         |                                    | 15,000
|Investment
      income/(loss)                     |                                    | (258  
|Net earnings/(loss)                                | $                                  | 10,412
|Per share
      (1):                               |                                    |       
|Basic                                              | $                                  | 0.64  
|Diluted                                            | $                                  | 0.62  
|                                                   |                                    |       
|                                                   |                                    |       
|
|
|
|                                                   |                                    |       
|Revenues                                           | $                                  | 170   
|Selling,
      general and administrative expenses |                                    | 927   
|Research
      and development                     |                                    | 335   
|Cost of sales                                      |                                    | 48    
|Operating
      loss                               |                                    | (1,355
|Investment
      income/(loss)                     |                                    | (48   
|Net
      earnings/(loss)                          | $                                  | (1,415
|Per share
      (1):                              
|Basic                                              | $                                  | (0.08 
|Diluted                                            | $                                  | (0.08 

|41
|--



|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 March 31, 2005.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                    

| | SPEEDUS CORP.                         
| | --------------------------------------
| |                                       
| | s/s Shant S. Hovnanian                
| |                             
| | Shant S. Hovnanian                    
| | President, Chief Executive Officer and
| | Chairman 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/s Shant S. Hovnanian    |  | Chairman of the Board of Directors,     |  | March 31, 2005
|              |  | President and Chief Executive Officer   |  |               
|Shant S. Hovnanian        |  |                                         |  |               
|                          |  |                                         |  |               
|s/s Thomas M. Finn        |  | Treasurer and Chief Financial Officer   |  | March 31, 2005
|              |  |                                         |  |               
|Thomas M. Finn            |  |                                         |  |               
|                          |  |                                         |  |               
|s/s Stephen D. Quinn      |  | Controller and Chief Accounting Officer |  | March 31, 2005
|              |  |                                         |  |               
|Stephen D. Quinn          |  |                                         |  |               
|                          |  |                                         |  |               
|s/s Vahak S. Hovnanian    |  | Director                                |  | March 31, 2005
|              |  |                                         |  |               
|Vahak S. Hovnanian        |  |                                         |  |               
|                          |  |                                         |  |               
|s/s William F. Leimkuhler |  | Director                                |  | March 31, 2005
|              |  |                                         |  |               
|William F. Leimkuhler     |  |                                         |  |               
|                          |  |                                         |  |               
|s/s Jeffrey Najarian      |  | Director                                |  | March 31, 2005
|              |  |                                         |  |               
|Jeffrey Najarian          |  |                                         |  |               
|                          |  |                                         |  |               
|/s/ Christopher Vizas     |  | Director                                |  | March 31, 2005
|              |  |                                         |  |               
|Christopher Vizas         |  |                                         |  |               

|42
|--