UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-QSB/A

 

Amendment No. 1

 

ý

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended June 30, 2005

 

 

 

o

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

 

 

For the transition period from                 to                .

 

Commission file number:  000-49688

 

Speedemissions, Inc.

(Exact name of small business issuer as specified in its charter)

 

Florida

 

33-0961488

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

1015 Tyrone Road

 

 

Suite 220

 

 

Tyrone, GA

 

30290

(Address of principal executive offices)

 

(Zip Code)

 

Issuer’s telephone number   (770) 306-7667

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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     ý     No     o

 

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years

 

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.     Yes     o     No     o

 

Applicable only to corporate issuers

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. As of August 9, 2005, there were 26,610,808 shares of common stock, par value $0.001, issued and outstanding.

 

Transitional Small Business Disclosure Format

(check one):

 

Yes     o     No     ý

 

 



 

Speedemissions, Inc.

 

TABLE OF CONTENTS

 

Explanatory Note

 

The purpose of this amendment on Form 10-QSB/A to the Quarterly Report on Form 10-QSB of Speedemissions, Inc. for the quarterly period ended June 30, 2005 is to restate our consolidated financial statements for the quarterly periods ended June 30, 2005 and June 30, 2004 and the Condensed Consolidated Balance Sheets as of June 30, 2005 and related disclosures, as described in the Notes to Condensed Consolidated Financial Statements. Additional information about the decision to restate these financial statements can be found in our Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 3, 2006.

 

Except for the foregoing amended information required to reflect the effects of the restatement, this Form 10-QSB/A continues to describe conditions as presented in the original report on Form 10-QSB, except as required to reflect the effects of the restatement. The Form 10-QSB/A generally does not reflect events occurring after the filing of the Form 10-QSB, or modify or update those disclosures, including the exhibits to the Form 10-QSB affected by subsequent events. Information not affected by the restatement is unchanged and should be read in conjunction with our filings made with Securities and Exchange Commission subsequent to the filing of the original Form 10-QSB, including any amendments to those filings. The following items have been amended as a result of the restatement:

 

                  Part I – Item 1 – Financial Statements

                  Part I – Item 2 – Management’s Discussion and Analysis

 

In March 2006, the Company determined that an error was made in connection with the recording of an equity transaction relating to a beneficial conversion feature during the quarter ending June 30, 2005. During that quarter the Company, after discussing the accounting treatment with its independent accountants, recorded a charge to accumulated deficit of $4,577,632 associated with the 2,500,000 shares of Series B convertible preferred stock issued. This error was the result of not considering a provision in the stock purchase agreement which limited the shareholder from having beneficial ownership of more than 4.9% of the Company’s outstanding and issued shares. The correction of the error decreases the net loss attributable to common shareholders for the three month period ended June 30, 2005 from $5,086,929 to $509,297 and decreases the net loss per share from $0.20 to a net loss of $0.02 per share for the same period. The correction of the error decreases the net loss attributable to common shareholders for the six month period ended June 30, 2005 from $5,492,769 to $915,137 and decreases the net loss per share from $0.22 to $0.04 per share for the same period. The correction of this error is non-cash in nature and will not impact the Company’s cash flow from operations or financial condition for the affected periods.

 

PART I

 

 

 

 

ITEM 1

Financial Statements

 

ITEM 2

Management’s Discussion and Analysis

 

ITEM 3

Controls and Procedures

 

 

2



 

PART II

 

 

 

 

ITEM 1

Legal Proceedings

 

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

ITEM 3

Defaults Upon Senior Securities

 

ITEM 4

Submission of Matters to a Vote of Security Holders

 

ITEM 5

Other Information

 

ITEM 6

Exhibits and Reports on Form 8-K

 

 

3



 

PART I

 

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,”  “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

 

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company’s future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

 

4



 

ITEM 1           Financial Statements

 

Speedemissions, Inc.

(Accounting and Reporting Successor to SKTF Enterprises, Inc. - see Note 1)

 

Condensed Consolidated Balance Sheet

June 30, 2005

(Unaudited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

Cash

 

$

87,777

 

Due from issuance convertible preferred stock

 

0

 

Other current assets

 

160,718

 

Deferred tax asset

 

23,960

 

Total current assets

 

272,455

 

 

 

 

 

Property and equipment, at cost less accumulated depreciation and amortization

 

1,272,737

 

 

 

 

 

Goodwill

 

5,818,543

 

 

 

 

 

Investment in Subsidiary

 

0

 

 

 

 

 

Other assets

 

65,109

 

Total assets

 

$

7,428,844

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

687,688

 

Debt payable to related parties

 

1,091,872

 

Accrued interest on debt payable to related parties

 

218,506

 

Current portion of capitalized lease obligation

 

35,854

 

Total current liabilities

 

2,033,920

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

Debt payable to related parties less current portion

 

1,152,462

 

Capitalized lease obligation less current portion

 

10,458

 

Deferred tax Liability

 

49,512

 

Total long-term liabilities

 

1,212,432

 

 

 

 

 

Total liabilities

 

3,246,352

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

Series A convertible and cumulative preferred stock, $.001 par value, 5,000,000 shares authorized, 2,500 shares issued and outstanding

 

3

 

Series B convertible and cumulative preferred stock, $.001 par value, 3,000,000 shares authorized, 2,500,000 shares issued and outstanding

 

2,500

 

Common stock, $.001 par value, 100,000,000 shares authorized, 25,737,522 shares issued and outstanding

 

25,738

 

(Common Stock MS)

 

0

 

Additional paid-in capital

 

14,663,852

 

Deferred compensation

 

(53,544

)

Series B convertible and cumulative preferred stock, subscription receivable

 

(2,746,400

)

Accumulated deficit

 

(7,709,657

)

Total stockholders’ equity

 

4,182,492

 

Total liabilities and stockholders’ equity

 

$

7,428,844

 

 

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

 

5



 

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended
June 30

 

Six Months Ended
June 30

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,255,586

 

$

748,608

 

$

2,533,876

 

$

1,367,005

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of emissions certificates

 

391,677

 

230,343

 

820,720

 

415,751

 

General and administrative expenses

 

1,263,803

 

1,335,090

 

2,410,687

 

2,987,647

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(399,894

)

(816,825

)

(697,531

)

(2,036,393

)

Interest expense

 

65,293

 

16,908

 

129,386

 

35,839

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(465,187

)

$

(833,733

)

$

(826,917

)

$

(2,072,232

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(465,187

)

$

(833,733

)

$

(826,917

)

$

(2,072,232

)

Less: preferred stock dividends (undeclared)

 

44,110

 

44,110

 

88,220

 

77,672

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common shareholders

 

$

(509,297

)

$

(877,843

)

$

(915,137

)

$

(2,149,904

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.02

)

$

(0.04

)

$

(0.04

)

$

(0.11

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

25,095,166

 

20,786,921

 

24,970,461

 

19,919,019

 

 

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

 

6



 

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2005 and 2004

(Unaudited)

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net (loss)

 

$

(826,917

)

$

(2,072,232

)

Adjustments to reconcile net (loss) to net cash used by operating activities:

 

 

 

 

 

Depreciation and amortization

 

169,231

 

113,690

 

Loss on sale of assets

 

14,046

 

 

 

Stock expense incurred in payment of promissory notes

 

 

489,812

 

Stock expense incurred in business acquisition

 

 

559,514

 

Stock option expenses

 

(19,949

)

31,070

 

Stock issued for services

 

293,156

 

226,762

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

Other current assets

 

(5,058

)

42,686

 

Other assets

 

13,695

 

(36,759

)

Accrued interest on long-term debt payable to related parties

 

105,968

 

28,927

 

Accounts payable and accrued liabilities

 

(161,978

)

269,633

 

 

 

 

 

 

 

Net cash used by operating activities

 

(417,806

)

(346,897

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Acquisition of businesses

 

(3,100,000

)

(2,376,015

)

Proceeds from asset sales

 

34,000

 

 

 

Net purchases of property and equipment

 

 

(147,303

)

Cash acquired in acquisition

 

2,743

 

 

 

 

 

 

 

 

Net cash used by investing activities

 

(3,063,257

)

(2,523,318

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of convertible preferred stock to related party, net of expenses

 

3,160,000

 

2,234,000

 

Proceeds from issuance of common stock and warrants

 

 

712,500

 

Proceeds from promissory note payable to related party

 

350,000

 

50,000

 

Payments on promissory notes

 

(20,000

)

(41,666

)

Proceeds from convertible debenture

 

90,000

 

 

 

Payments on capitalized leases

 

(27,591

)

(21,729

)

 

 

 

 

 

 

Net cash provided by financing activities

 

3,552,409

 

2,933,105

 

 

 

 

 

 

 

Net increase in cash

 

71,346

 

62,890

 

 

 

 

 

 

 

Cash at beginning of period, December 31

 

16,431

 

9,231

 

 

 

 

 

 

 

Cash at end of period, March 31

 

$

87,777

 

$

72,121

 

 

 

 

 

 

 

Supplemental Information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

7,989

 

$

6,876

 

 

 

 

 

 

 

Non-cash Investing and Financing activities:

 

 

 

 

 

Equity securities issued in connection with the acquisition of Mr. Sticker, Inc.

 

$

43,000

 

$

 

 

 

 

 

 

 

Equity securities issued in connection with the acquisition of Twenty Dollar Emission, Inc.

 

$

 

$

573,790

 

 

 

 

 

 

 

Equity securities issued in payment of notes payable

 

$

57,418

 

$

539,000

 

 

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

 

7



 

Speedemissions, Inc.

Notes to Condensed Consolidated Financial Statements

 

June 30, 2005

(Unaudited)

 

Note 1: Basis of Presentation

 

Emissions Testing, Inc. (Emissions Testing) was incorporated on May 5, 2000 under the laws of the state of Georgia for the primary business purpose of opening, acquiring, developing and operating vehicle emissions testing stations. Effective as of March 19, 2002, Emissions Testing and Speedemissions, LLC merged and changed its name to Speedemissions, Inc. Effective as of June 16, 2003, Speedemissions, Inc. (Speedemissions or the Company) entered into an acquisition agreement with SKTF Enterprises, Inc. (SKTF). Pursuant to the acquisition agreement, SKTF acquired all of the outstanding common stock of Speedemissions in exchange for 9,000,000 shares of SKTF common stock, which were issued to the stockholders of Speedemissions. Accordingly, Speedemissions became a wholly owned subsidiary of SKTF.

 

SKTF was a development stage company that had not begun operations and had no revenues and a minimal amount of assets and liabilities. For accounting purposes, Speedemissions is viewed as the acquiring entity and has accounted for the transaction as a reverse acquisition. Accounting and reporting guidance indicates that the merger of a private operating company into a nonoperating public shell corporation with nominal net assets is in substance a capital transaction rather than a business combination. That is, the transaction is equivalent to the private company issuing common stock for the net monetary assets of the shell corporation, accompanied by a recapitalization.

 

The accumulated deficit of Speedemissions has been carried forward subsequent to the acquisition. Results of operations subsequent to the date of acquisition reflect the consolidated results of operations of Speedemissions and SKTF. Operations for periods prior to the acquisition reflect those of Speedemissions. Assets and liabilities of Speedemissions and SKTF have been consolidated at their historical cost carrying amounts at the date of acquisition.

 

Effective on September 5, 2003, SKTF Enterprises, Inc. changed its name to Speedemissions, Inc. For ease of reference, these notes and the accompanying consolidated financial statements continue to refer to “SKTF” and “Speedemissions” in the context of their legal names prior to the September 5, 2003 name change.

 

On June 30, 2005, the Company purchased all of the outstanding common stock of Mr. Sticker, Inc., (Mr. Sticker) a Houston, Texas, company that operates six (6) emissions testing stations in the Houston, Texas, area. The purchase price was $3,100,000 in cash plus approximately 183,000 shares of the Company’s common stock. Mr. Sticker’s financial statements have been consolidated, as a wholly owned subsidiary, with the Company’s financial statements as of June 30, 2005.

 

8



 

Note 2: Nature of Operations and Summary of Significant Accounting Policies

 

Nature of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Speedemissions, SKTF and Mr. Sticker as discussed in Note 1. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and in accordance with the SEC’s instructions applicable to Form 10-QSB interim financial information. In the opinion of management, such condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows as of June 30, 2005 and for all periods presented. The results of operations presented in the accompanying condensed consolidated financial statements are not necessarily indicative of the results expected for the full fiscal year or for any future period.

 

The accompanying condensed consolidated financial statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. Such interim condensed consolidated financial statements should be read in conjunction our Company’s audited financial statements contained in our Form 10-KSB for the year ended December 31, 2004.

 

Nature of Operations

 

Speedemissions is engaged in opening, acquiring, developing and operating vehicle emissions testing stations. The federal government and a number of state and local governments in the United States (and in certain foreign countries) mandate vehicle emissions testing as a method of improving air quality.

 

As of June 30, 2005 the Company operated, twenty-eight (28) emissions testing stations and four (4) mobile units in Georgia and Texas. The Company does business under the trade names Speedemissions and Mr. Sticker. At its emissions testing stations, the Company uses computerized emissions testing equipment that tests vehicles for compliance with emissions standards; in the emissions testing industry, such stations are known as decentralized facilities. The Company utilizes “basic” testing systems that test a motor vehicle’s emissions while in neutral and “enhanced” testing systems that test a vehicle’s emissions under simulated driving conditions.

 

Use of Estimates in Financial Statements

 

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 date of the balance sheet. Accordingly, actual results could differ from those estimates.

 

9



 

Revenue Recognition

 

Revenue is recognized as the testing services are performed. Under current state of Georgia law, the charge for an emissions test is limited to $25.00 per vehicle, which is recorded by the Company as gross revenue. The cost of emissions certificates paid to the state of Georgia is approximately $6.95 per certificate and is shown separately in the accompanying condensed consolidated statements of operations. Under current state of Texas law, the charge for an emissions test is generally limited to $39.50 per vehicle, which is recorded by the Company as gross revenue. The cost of emissions certificates paid to the state of Texas varies between approximately $5.50 and $14.00 per certificate depending on the type of test and is shown separately in the accompanying condensed consolidated statements of operations. In some cases, in response to competitive situations, the Company has charged less than the statutory maximum revenue charges allowed.

 

The Company normally requires that the customer’s payment be made with cash, check or credit card; accordingly, the Company does not have significant levels of accounts receivable.

 

Under current Georgia and Texas laws, if a vehicle fails an emissions test, it may be retested at no additional charge during a specified period after the initial test, as long as the subsequent test is performed at the same facility. At the time of initial testing, the Company provides an allowance for potential retest costs, based on prior retest experience and information furnished by the states of Georgia and Texas, which is comprised mainly of the labor cost associated with performing a retest. When a retest is performed, the incremental cost of performing a retest is applied against the retest allowance. At June 30, 2005 and 2004, the allowance for retest costs was not material.

 

Fair Value of Financial Instruments

 

The carrying amounts of cash, approximate fair value because of the short-term nature of these accounts. Management does not believe it is practicable to estimate the fair value of its liability of its financial instruments because of the Company’s financial position.

 

Accounting for Business Combinations

 

Statement of Financial Accounting Standards No 141, Business Combinations (SFAS 141), prescribes the accounting for all business combinations by, among other things, requiring the use of the purchase method of accounting. SFAS 141 was effective for the Company for business combinations consummated after June 30, 2001.

 

Impairment of Long-Lived Assets

 

Property and Equipment

 

The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When indicators of impairment are present, the Company evaluates the carrying amount of such assets in relation to the operating performance and future estimated undiscounted net cash flows expected to be generated by the assets or underlying businesses. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The assessment of the recoverability of the carrying amount of the assets will be impacted if estimated future operating cash flows are not achieved. In the opinion of management, property and equipment was not impaired as of June 30, 2005 or 2004.

 

10



 

Goodwill

 

The Company has adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which prescribes the accounting for all purchased goodwill. In accordance with SFAS 142, goodwill is not amortized but tested for impairment annually and also whenever an impairment indicator arises.

 

Goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of the specific reporting unit of the Company, as defined, to which the goodwill is attributable and a comparison of such fair value to the carrying amount of the reporting unit, including goodwill. If the carrying amount exceeds fair value, the second step is performed to measure the amount of the impairment loss, which equals the amount by which the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill (the implied fair value of goodwill represents the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit). In the opinion of management, goodwill was not impaired as of June 30, 2005 and 2004.

 

Net Loss Per Common Share

 

Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and potential common shares outstanding during the period, if the effect of the potential common shares is dilutive. As a result of the Company’s net losses, all potentially dilutive securities would be antidilutive and are excluded from the computation of diluted net loss per share.

 

Regulatory Impact

 

The current and future demand for the Company’s services is substantially dependent upon federal, state, local and foreign legislation and regulations mandating air pollution controls and emissions testing. If any or all of these governmental agencies should change their positions or eliminate or revise their requirements related to air pollution controls and emissions testing (including a shift to centralized facilities versus decentralized facilities), the Company could experience a significant adverse impact on its financial position and results of operations.

 

Accounting for Stock-Based Compensation

 

The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for stock options. The Company has adopted only the disclosure provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, in accounting for stock options and does not recognize compensation expense under the fair value provisions of SFAS 123. Beginning with the first reporting period that begins after December 31, 2005, we will no longer be allowed to use the intrinsic value recognition method and instead will recognize the cost of employee services received in exchange for equity securities based on the grant date fair value of the awards.

 

11



 

The Company applies APB Opinion 25 and related interpretations in accounting for its stock options. Stock-based employee compensation cost has been reflected in net loss in the accompanying consolidated statements of operations, for the 400,000 options classified as variable stock options granted that had an exercise price less than the market value of the underlying common stock on the date of grant (see Note 5). At the end of each calendar quarter, the Company determines a value for the financial effect of the variable stock options. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.

 

 

 

Six months ended June 30

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Net loss, attributable to common shareholders

 

$

(915,137

)

$

(2,149,904

)

Deduct: Total stock based employee compensation expense determined under the fair value method for all awards

 

78,151

 

362,447

 

Pro forma net loss

 

$

(993,288

)

$

(2,512,351

)

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

Basic and diluted, as reported

 

$

(0.04

)

$

(0.11

)

Basic and diluted, pro forma

 

$

(0.04

)

$

(0.13

)

 

The fair value of stock options issued during the six months ended June 30, 2005 and 2004 has been determined using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rates of 3.00%; expected lives of 3 years; expected volatility of 45.00%; and no dividend yield.

 

Recently Issued Accounting Standard

 

FASB statement No. 123R, “Share Based Payment” becomes effective at the beginning of the Company’s quarter ending March 31, 2006 and will require all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and no longer allow pro forma disclosure as an alternative to financial statement recognition.

 

Note 3: Factors Affecting Operations

 

The Company has limited operations and has not yet generated a profit. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The future success of the Company is contingent upon, among other things, the ability to: achieve and maintain satisfactory levels of profitable operations; obtain and maintain adequate levels of debt and/or equity financing; and provide sufficient cash from operations to meet current and future obligations. The Company is actively seeking new sources of financing, however there is no guarantee that the Company will be successful in obtaining the financing required to fund its capital needs.

 

The Company has prepared financial forecasts which indicate that, based on its current business plans and strategies, it anticipates that it will achieve profitable operations and generate positive

 

12



 

cash flows in the next few years. However, the ultimate ability of the Company to achieve these forecasts and to meet the objectives discussed in the preceding paragraph cannot be determined at this time. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Note 4: Long-Term Debt Payable to Related Parties

 

Long-term debt payable to related parties at June 30, 2005 was as follows:

 

GCA Fund 10% note (a)

 

$

300,000

 

V2R 10% note (b)

 

63,334

 

Convertible Debentures (c)

 

90,000

 

State Inspections of Texas 12.5% note (d)

 

120,000

 

State inspections of Texas non-interest bearing note (e)

 

36,000

 

State Inspections of Texas 12.5% note (f)

 

1,285,000

 

GCA Fund 8% note (g)

 

350,000

 

 

 

 

 

 

 

2,244,334

 

Less current portion

 

1,091,872

 

 

 

$

1,152,462

 

 


(a)  The $300,000 promissory note payable had an original maturity date of August 2, 2003 but was not repaid on that date. Effective as of September 2, 2003, the Company and GCA Fund agreed to extend the maturity date to April 24, 2004. Effective as of May 5, 2004, the Company and GCA Fund agreed to extend the maturity date to October 24, 2004. Effective as of October 15, 2004, the Company and GCA Fund agreed to extend the maturity date to October 24, 2005. At June 30, 2005, the Company had made no interest payments to GCA Fund and thus was not in compliance with the applicable interest payment provisions of the promissory note payable agreements; however, the Company obtained a waiver from GCA Fund regarding such noncompliance.

 

The $300,000 promissory note payable is mandatorily redeemable, at the option of GCA Fund, under certain circumstances as outlined in the note payable agreement, including but not limited to a change in control, as defined. The promissory note payable agreement contains certain financial and nonfinancial covenants to which the Company must adhere.

 

(b)  On June 13, 2003, the Company entered into a consulting agreement with V2R, Inc., which is controlled by Bahram Yusefzadeh, who subsequent to June 13, 2003 became one of our directors. Under the terms of the agreement, our subsidiary agreed to pay to V2R, upon the successful closing of a merger or acquisition of our subsidiary with a publicly traded corporation, the sum of $225,000. Of this amount, $125,000 was to be paid in accordance with the terms of a promissory note. The principal balance of the note was due on December 31, 2003, but was extended pursuant to an amendment dated December 30, 2003 to the earlier to occur of (i) the closing of a round of equity or debt financing in excess of $1,500,000, (ii) 90 days after the effectiveness of a registration statement, or (iii) in three equal installments beginning March 1, 2004, May 1, 2004, and July 1, 2004. The entire principal and interest became due on January 21, 2004 when we closed a round of equity financing in excess of $1,500,000; however, as of June 30, 2005 we had only made two payments totaling $61,666, leaving an unpaid balance of principal and interest of approximately $75,800 as of June 30, 2005. On July 14, 2005, we made an additional payment of

 

13



 

$25,000, leaving an unpaid balance of principal and interest of approximately $51,747 as of that date.

 

(c)  On June 6, 2005, the Company issued a convertible debenture to a qualified investor in the  amount of 140,000. The debenture was issued at a 10% discount. The Company received $90,000 in cash on June 6, 2005 and the balance after June 30, 2005. The debenture is due and payable in 24 months, from the date of issuance, and carries interest at 10.0%. The holder has the right to convert the debenture, at any time prior to maturity, into shares of the Company’s common stock at $0.20 per common share. Additionally the holder received a warrant to purchase 140,000 shares of the Company’s common stock. The warrant has a five year term and an exercise price of $0.25 per share.

 

(d)  On November 15, 2004, State Inspections of Texas, Inc. (SIT) advanced the Company $120,000 on a secured promissory note. The note is due and payable in 180 days, from the date of issuance, and carries interest at 12.5%. The note is secured by certain real property of the Company. Effective March 31, 2005, the due date on the note was extended to November 15, 2005.

 

(e)  On December 1, 2004, SIT sold the Company certain assets for $36,000 on an unsecured promissory note. The note was due and payable in 36 equal monthly installments, starting January 2005 and ending December 2008 and carries no interest. No payments on this note were made during the quarter ended June 30, 2005, and effective March 31, 2005 the starting date for the monthly payments was extended to August 2005.

 

(f)  On December 30, 2004, SIT sold the Company certain assets for $1,285,000 on a secured promissory note. Payment terms of the note are; interest only (12.5% annually) payable monthly from February 2005 through January 2006, monthly principal and interest payments of $43,000 from February 2006 through June 2008 and a final payment of approximately $291,000 in July 2008. The note is secured by the assets sold to the Company by SIT under the terms of this promissory note. One interest payments on this note was made during the quarter ended June 30, 2005, and effective March 31, 2005 the starting date for the monthly payments was extended to September 2005.

 

(g)  On January 26, 2005, the Company executed a promissory note in favor of GCA Strategic Investment Fund Limited in the principal amount of $350,000, and on that date the Company received funds in the same amount. Under the terms of the note, we were obligated to repay the entire principal amount, plus interest at the rate of 8% per year, on April 26, 2005, however payment was not made on that date. Effective as of March 31, 2005, the Company and GCA Fund agreed to extend the maturity date to October 31, 2005. The obligation is secured by certain of our real property. We will use the funds for general working capital purposes. In connection with and as consideration for the issuance of the promissory note, we issued warrants to acquire a total of 200,000 shares of our common stock at $0.357 per share, and entered into a registration rights agreement in connection therewith. We issued to GCA Strategic Investment Fund Limited warrants to acquire 100,000 shares of our common stock, exercisable for a period of five years at $0.357 per share. We also issued to Global Capital Advisors, LLC, the investment advisory to GCA Strategic Investment Fund Limited, warrants to acquire 100,000 shares of our common stock, exercisable for a period of five years at $0.357 per share.

 

Note 5: Stockholders’ Equity

 

Stockholders’ Equity was comprised of the following:

 

14



 

 

 

At June 30, 2005

 

 

 

(unaudited)

 

 

 

 

 

Series A convertible and cumulative preferred stock, $.001 par value, 5,000,000 shares authorized, 2,500 shares issued and outstanding

 

$

3

 

 

 

 

 

Series B convertible and cumulative preferred stock, $.001 par value, 3,000,000 shares authorized, 2,500,000 shares issued and outstanding

 

2,500

 

 

 

 

 

Common stock, $.001 par value, 100,000,000 shares authorized, 25,737,522 shares issued and outstanding

 

25,738

 

 

 

 

 

Additional paid in capital

 

14,663,852

 

 

 

 

 

Deferred compensation

 

(53,544

)

 

 

 

 

Series B convertible and cumulative preferred stock, subscriptions receivable

 

(2,746,400

)

 

 

 

 

Accumulated deficit

 

(7,709,657

)

 

 

 

 

Total stockholders’ equity

 

$

4,182,492

 

 

Preferred Stock

 

On January 21, 2004, the Company completed a private placement of 2,500 shares of its par value $.001 Series A Convertible Preferred Stock (the Preferred Stock) and 2,500,000 common stock purchase warrants (the Warrants) to GCA Strategic Investment Fund Limited, an existing affiliate shareholder of the Company, in exchange for gross proceeds to the Company of $2,500,000. Net proceeds to the Company after the payment of an advisors fee and offering expenses was $2,234,000.

 

The Preferred Stock accrues a dividend of 7% per annum, and each share of Preferred Stock is convertible into 1,000 shares of the Company’s common stock or 2,500,000 shares of common stock in the aggregate. The Warrants are exercisable for a period of five years at an exercise price of $1.25 per share of common stock to be acquired upon exercise. In the event of liquidation, dissolution or winding up of the Company preferred stockholders are entitled to be paid prior to any preference of any other payment or distribution.

 

On June 30, 2005 the Company completed a private placement of 2,500,000 shares of its par value $.001 Series B Convertible Preferred Stock (the Preferred B) and 43,900,000 common stock purchase warrants (the B-1 Warrants and the B-2 Warrants) to Barron Partners LP, in exchange for gross proceeds to the Company of $6,420,000. Net proceeds to the Company after the payment of advisors fees and offering expenses was $5,846,400. In addition to the cash portion of the advisors fee, the Company issued 2,850,000 common stock purchase warrants (the Advisor’s Warrants) to Prospect Financial Advisors, LLC. The 2,850,000 Advisor’s Warrants are exercisable for a period of five years at an exercise price of $0.06 per share of common stock to

 

15



 

be acquired upon exercise. On June 30, 2005, the Company used $3,100,000 of the net proceeds from the Preferred B placement to purchase all of the outstanding common stock of Mr. Sticker. The remainder of the net proceeds, or $2,746,400, was received on July 1, 2005 and was retained, by the Company for a future acquisition and current working capital. The $2,746,400 is recorded in the Company’s June 30, 2005, condensed consolidated balance sheet as a convertible preferred stock subscription receivable.

 

The Preferred Stock does not pay a dividend and has no voting rights. Each share of Preferred Stock is convertible into 42.8 shares of the Company’s common stock or 107,000,000 shares of common stock in the aggregate. The 25,000,000 B-1 Warrants are exercisable for a period of five years at an exercise price of $0.24 per share of common stock to be acquired upon exercise. The 18,900,000 B-2 Warrants are exercisable for a period of five years at an exercise price of $0.48 per share of common stock to be acquired upon exercise. In the event of liquidation, dissolution or winding up of the Company preferred stockholders are entitled to be paid prior to any preference of any other payment or distribution.

 

Common Stock

 

The Company is authorized to issue 100,000,000 shares of $0.001 par value common stock, of which 25,737,522 and 24,541,594 shares were issued and outstanding as of June 30, 2005 and December 31, 2004, respectively.

 

In the six months ended June 30, 2005 and 2004, the Company issued 900,534 and 600,000 shares of its common stock, respectively, for general and administrative expenses, which consisted principally of legal and consulting services. The Company recognized an expense of $293,156 and $226,762 in the six months ended June 30, 2005 and 2004, respectively. (see note 7).

 

Stock Option Plan

 

SKTF’s board of directors and stockholders approved a stock option plan, effective June 1, 2001, pursuant to which 1,000,000 shares of common stock have been reserved for issuance under the plan. There were 951,750 and 686,750 stock options issued and outstanding as of June 30, 2005 and December 31, 2004, respectively.

 

On October 2, 2003 the Company issued options to purchase up to 400,000 shares of common stock at an exercise price of $2.00 per share. No stock-based employee compensation cost was recorded related to these options as the options granted had an exercise price greater than the market value of the underlying common stock on the date of grant.

 

On December 19, 2003, the 400,000 options granted on October 2, 2003, were cancelled and immediately re-issued with an exercise price of $.25 per share and an expiration date of December 18, 2013. Of the 400,000 options, 100,000 vested immediately with the remaining options vesting in three equal increments on October 1, 2004, 2005 and 2006, respectively. The 400,000 options granted on December 19, 2003 have been reclassified as variable stock options since they had an exercise price less than the market value of the underlying common stock on the date of grant. The Company recorded $(19,949) and $31,070 in compensation (income) expense, respectively, during the six months ended June 30, 2005 and 2004.

 

16



 

On March 10, 2005, the Company granted 265,000 stock options to eleven of its employees. All of the options carried an exercise price of $.25, vested as of the date of the grant and expire March 10, 2015. No stock-based employee compensation cost has been recorded in the accompanying consolidated statements of operations related to these options as the options granted had an exercise price greater than the fair value of the underlying common stock on the date of grant.

 

On June 30, 2005, the Company granted 175,000 stock options to two of its employees. All of the options carried an exercise price of $.235, vested as of the date of the grant and expire June 30, 2015. No stock-based employee compensation cost has been recorded in the accompanying consolidated statements of operations related to these options as the options granted had an exercise price greater than the fair value of the underlying common stock on the date of grant.

 

Stock Warrants
 

There were 52,630,073 and 5,180,073 common stock warrants issued and outstanding as of June 30, 2005 and December 31, 2004, respectively.

 

On January 26, 2005, the Company executed a promissory note in favor of GCA Strategic Investment Fund Limited in the principal amount of $350,000, and on that date the Company received funds in the same amount. In connection with and as consideration for the issuance of the promissory note, we issued warrants to acquire a total of 200,000 shares of our common stock at $0.357 per share, and entered into a registration rights agreement in connection therewith. We issued to GCA Strategic Investment Fund Limited warrants to acquire 100,000 shares of our common stock, exercisable for a period of five years at $0.357 per share. We also issued to Global Capital Advisors, LLC, the investment advisory to GCA Strategic Investment Fund Limited, warrants to acquire 100,000 shares of our common stock, exercisable for a period of five years at $0.357 per share.

 

On February 22, 2005, we issued warrants to acquire up to 250,000 shares of our common stock, restricted in accordance with Rule 144, to Richard A. Parlontieri, our President and a Director. These warrants were issued as incentive compensation for his work for us and at an exercise price of $0.25 per share. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and Mr. Parlontieri is a sophisticated investor.

 

On March 10, 2005, we issued warrants to acquire up to 250,000 shares of our common stock, restricted in accordance with Rule 144, to two unrelated consultants. These warrants were issued for services rendered to us and at an exercise price of $0.25 per share. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the consultants are sophisticated investors and familiar with our operations.

 

On June 30, 2005 the Company completed a private placement of 2,500,000 shares of its Series B Convertible Preferred Stock (the Preferred B) and 43,900,000 common stock purchase warrants (the B-1 Warrants and the B-2 Warrants) to Barron Partners LP, in exchange for gross proceeds to the Company of $6,420,000. In addition to a cash advisors fee, the Company issued 2,850,000 common stock purchase warrants (the Advisor’s Warrants) to Prospect Financial Advisors, LLC. The 2,850,000 Advisor’s Warrants are exercisable for a period of five years at an exercise price of $0.06 per share of common stock to be acquired upon exercise. The 25,000,000 B-1 Warrants are exercisable for a period of five years at an exercise price of $0.24 per share of common stock

 

17



 

to be acquired upon exercise. The 18,900,000 B-2 Warrants are exercisable for a period of five years at an exercise price of $0.48 per share of common stock to be acquired upon exercise. In the event of liquidation, dissolution or winding up of the Company preferred stockholders are entitled to be paid prior to any preference of any other payment or distribution.

 

Additional Warrants

 

In connection with the acquisition of Speedemissions by SKTF, Speedemissions issued a warrant to V2R. The warrant entitles V2R to purchase 130,000 shares of Speedemissions common stock at an exercise price of $.01 per share. At December 31, 2004, the warrant was exercisable.

 

Note 6: Income Taxes

 

As of December 31, 2004, Speedemissions had net operating loss (NOL) carryforwards of approximately $6,046,000 that may be used to offset future taxable income. The NOL carryforwards will expire at various dates through 2024.

 

As a result of the NOL carryforwards, the Company has recorded no provision or benefit for income taxes in the accompanying condensed consolidated financial statements. A valuation allowance has been recorded to offset the recognition of any deferred tax assets due to the uncertainty of future realization. However, as a result of the consolidation of the financial statements of the June 30, 2005, acquired company, Mr. Sticker, the Company’s condensed consolidated  balance sheet presents $23,960 and $49,512 in, respectively, a deferred tax asset and a deferred tax liability. The deferred tax liability resulted from temporary differences between the financial reporting basis and tax basis of fixed assets. The deferred tax asset resulted from net operating loss carryforwards.

 

Note 7: Consulting Agreements

 

In connection with the June 16, 2003 acquisition of Speedemissions by SKTF, Speedemissions entered into a consulting agreement with V2R. Effective January 1, 2004, the consulting agreement was cancelled and replaced, by mutual agreement of the Company and V2R, with a new agreement. The new agreement continues for 30 months at a consulting fee of $8,334 per month. The new agreement grants V2R warrants to purchase 100,000 shares of the Company’s common stock at $0.25 per share. The warrants vest in two increments of 50,000 on January 1, 2005 and 2006, respectively. Additionally, V2R can earn success fees calculated using the Lehman Formula, as defined, for merger and acquisition and strategic alliance or partnership agreements arranged by the entity. During the six months ended June 30, 2005 and 2004, the Company paid a total of approximately $7,500 and $40,100, respectively, under the consulting agreement. Effective June 30, 2005, this agreement was terminated by mutual consent of V2R and the Company.

 

Effective December 1, 2003, the Company entered into an agreement with a public relations firm to issue stock in exchange for consulting services to be rendered by the public relations firm during the period from December 1, 2003 to May 31, 2004. On January 7, 2004, March 9, 2004 and May 7, 2004, the Company issued a total of 450,000 shares of its common stock under the terms of its consulting agreement with the public relations firm. During the six months ended June 30, 2004, the Company recognized approximately $142,000 in general and administrative expenses related to this agreement.

 

18



 

Effective January 1, 2004, the Company entered into an agreement with a financial consulting firm to issue stock in exchange for consulting services to be rendered by the financial consulting firm during the period from January 1, 2004 to June 30, 2004. The Company issued, on May 24, 2004, a total of 100,000 shares of its common stock under the terms of this agreement. During the six months ended June 30, 2004, the Company recognized $51,000 in general and administrative expenses related to this agreement.

 

On February 25, 2004, the Company issued 50,000 shares of its common stock for services rendered during the three months ended March 31, 2004, recording an expense of $33,500 during that period.

 

Effective November 5, 2004, the Company entered into an agreement with an equity research services firm to issue stock in exchange for consulting services to be rendered by the equity research services firm. The Company issued, on November 5, 2004, a total of 312,500 shares of its common stock, under the terms of this agreement. During the six months ended June 30, 2005, the Company recognized approximately $38,500 in general and administrative expenses related to this agreement.

 

On January 18, 2005, we issued a total of 250,000 shares of our common stock, restricted in accordance with Rule 144, to two consultants for services rendered during the year ended December 31, 2004. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders were sophisticated purchasers.

 

On February 22, 2005, we issued a total of 250,000 shares of our common stock, restricted in accordance with Rule 144, to Calabria Advisors, LLC, an entity controlled by Mr. Richard A. Parlontieri, our President and a Director. Calabria Advisers, LLC provides us with consulting services. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder is a sophisticated investor and familiar with our operations. During the three months ended March 31, 2005, the Company recognized $75,000 in general and administrative expenses related to this agreement.

 

On June 17, 2005, we issued a total of 250,000 shares of our common stock, restricted in accordance with Rule 144, to Calabria Advisors, LLC, an entity controlled by Mr. Richard A. Parlontieri, our President and a Director. Calabria Advisers, LLC provides us with consulting services. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder is a sophisticated investor and familiar with our operations. During the three months ended June 30, 2005, the Company recognized $58,750 in general and administrative expenses related to this agreement.

 

Note 8: Goodwill

 

As discussed in Note 1, the Company made one acquisition during the quarter ended June 30, 2005. The acquisition all of the outstanding common stock of Mr. Sticker, Inc. (Mr. Sticker) resulted in the recording of goodwill of $2,886,354. The following table provides details of the acquisition:

 

19



 

 

 

Mr. Sticker

 

 

 

 

 

Assets acquired

 

 

 

Current assets

 

$

51,588

 

Equipment

 

292,500

 

Other assets

 

11,675

 

Goodwill

 

2,886,354

 

 

 

$

3,242,117

 

 

 

 

 

Purchase price

 

 

 

Cash

 

$

3,100,000

 

Current liabilities

 

49,605

 

Deferred tax liability

 

49,512

 

Common stock

 

43,000

 

 

 

$

3,242,117

 

 

The Company made the above acquisition to increase its market share in the Houston, Texas area and reduce average overhead costs per store by acquiring six (6) locations, which could be controlled by a local management team, using existing resources. These circumstances were the primary contributing factors for the recognition of goodwill as a result of this acquisition.

 

Note 9: Contingencies

 

In April 2005, a lawsuit was filed against us by Weingarten Realty Investors in the U.S. District Court of Harris County, Texas, case number 2005-25671. The Complaint alleges breach of contract arising out of a real property lease in Texas for two testing sites that were to be built. The case does not allege specific damages, although the total of all monthly payments under the two leases is approximately $516,000. We filed an Answer to the Complaint, and we are in discussions to settle the matter.

 

We are not a party to or otherwise involved in any other legal proceedings.

 

In the ordinary course of business, we may from time to time be involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

 

Note 10: Subsequent Events

 

On July 1, 2005, the Company received and deposited to its cash account $2,746,400, which represented the balance of the cash proceeds from the June 30, 2005 sale of 2,500,000 shares of its Series B Convertible Preferred Stock.

 

On June 30, 2005, we entered into a Preferred Stock Purchase Agreement (the “Agreement”) with Barron Partners LP (the “Investor”) pursuant to which the Investor purchased $6,420,000 worth

 

20



 

of our Series B Convertible Preferred Stock (the “Preferred Shares”), along with warrants to purchase 25,000,000 shares of our common stock at $0.24 per share, and warrants to purchase 18,900,000 shares of our common stock at $0.48 per share.

 

On August 4, 2005, we entered into an Amendment to Stock Purchase Agreement (the “Amendment”) which modified the Agreement as follows:

 

a.                                       the Investor purchased $6,615,000 of our Preferred Shares;

 

b.                                      the warrants were increased to 26,214,953 shares at $0.24 per share, 19,659,346 shares at $0.48 per share, and 40,000,000 shares at $0.12 per share. We may call the $0.12 warrants if our stock price exceeds $0.24 for fifteen (15) consecutive trading days;

 

c.                                       each of the Preferred Shares is convertible into 75.6 shares of our common stock, subject to adjustment if certain conditions are met, for a total of 189,000,000 shares of common stock, has a liquidation preference equal to its purchase price, and has no voting rights.

 

d.                                      the exercise of the warrants, including the call provision on the $0.12 warrants, and the conversion of the Preferred Shares are subject to a maximum ownership by the Investor at any time of 4.9%.

 

On August 4, 2005, in conjunction with the above-referenced amended financing transaction, we issued restated warrants to acquire 26,214,953 shares of our common stock at $0.24 per share, restated warrants to acquire 19,659,346 shares of our common stock at $0.48 per share, and warrants to acquire 40,000,000 shares of our common stock at $0.12 per share, to a single accredited investor, in exchange for an additional $195,000 in cash. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder is accredited.

 

21



 

ITEM 2                   Managements Discussion and Analysis

 

Disclaimer Regarding Forward Looking Statements

 

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

 

Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

Overview

 

As of June 30, 2005 we operated twenty-eight (28) vehicle emissions testing stations and four (4) mobile units in two separate markets, greater Atlanta, Georgia and Houston, Texas. This number of operating units reflects a closing of three stations, the acquisition of Mr. Sticker, with its six (6) stations and a consolidation of mobile operations from seven (7) to four (4) units during the six months ended June 30, 2005. These actions were taken to improve efficiencies and increase profitability. We do not provide automotive repair services at our centers because we believe that it inhibits our ability to provide timely customer service and creates a perception that our test results might be compromised.

 

We charge a fee for each test, whether it passes or not, and a portion of that fee is passed on to the state governing agency. In Georgia, the maximum fee that we can charge is $25, and a fee of $6.95 is paid to the State of Georgia. In Texas, the maximum fee that we can charge is $39.50, for both an emissions test and a safety inspection, and a fee varying between approximately $5.50 and $14.00 per certificate, depending on the type of test is paid to the State of Texas. In some cases, in response to competitive situations, the Company has charged less than the statutory maximum revenue charges allowed.

 

We want to grow. We completed four acquisitions during 2004, which added nineteen testing centers and seven mobile units. We completed one acquisition during the six months ended June 30, 2005, which added six testing centers. We intend to close more acquisitions, and to open company-owned stations, in 2005.

 

22



 

As a result of our growth plans, our biggest challenge will be managing our growth and integrating our acquisitions. We have tried to attract qualified personnel to assist us with this growth, while keeping our overhead expenses manageable. We have not operated at a profit, nor have we operated on a break-even operating cash flow basis. However, if we are successful in implementing our growth strategy, we believe that both of these financial goals are achievable in the next 12 months. Until that time, we will have to continue to fund our operations, and our acquisitions, with capital raised from selling our stock.

 

Explanatory Paragraph in Report of Our Independent Certified Public Accountants

 

Our independent accountants have included an explanatory paragraph in their most recent report, stating that our audited financial statements for the period ending December 31, 2004 were prepared assuming that we will continue as a going concern. However, they note that we have not yet generated significant revenues, that we have a large accumulated working capital deficit, and that there are no assurances that we will be able to meet our financial obligations in the future.

 

Our independent accountants included the explanatory paragraph based primarily on an objective test of our historical financial results. Although we agree that this explanatory paragraph is applicable when the objective test is applied, we believe that if we can successfully implement our business plan in the next fiscal year, future audit reports might be issued without this explanatory paragraph. Until such time, however, our going concern paragraph may be viewed by some shareholders and investors as an indication of financial instability, and it may impair our ability to raise capital.

 

The following analysis compares the results of operations for the three and six month periods ended June 30, 2005 to the comparable periods ended June 30, 2004.

 

Results of Operations

 

Introduction

 

Our operations reflect a significantly different company as of June 30, 2005 versus June 30, 2004. As of June 30, 2004 we operated sixteen (16) emissions testing stations in Georgia and three (3) emissions testing stations in Texas. During December 2004 we made one (1) acquisition which resulted in the addition of six (6) emissions testing stations Texas and seven (7) mobile units in Georgia. During the six months ended June 30, 2005 we closed three (3) stations, acquired Mr. Sticker’s six (6) stations and consolidated mobile operations from seven (7) to four (4) units. These actions were taken to improve efficiencies and increase profitability. As a result, we operated a total of twenty-eight (28) stations and four (4) mobile units as of June 30, 2005. Therefore, our operating expenses and revenues during the three and six months ended June 30, 2005 were significantly greater than the three and six months ended June 30, 2004, primarily due to the six (6) Texas stations acquired in December 2004.

 

Revenues and Loss from Operations

 

Our revenue, cost of emission certificates, general and administrative expenses, and loss from operations for the three months ended June 30, 2005 as compared to the three months ended June 30, 2004 and December 31, 2004 are as follows:

 

23



 

 

 

3 Months
Ended
June 30,
2005

 

3 Months
Ended
June 30,
2004

 

Percentage
Change

 

3 Months
Ended
December 31,
2004

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,255,586

 

$

748,608

 

68

%

$

746,515

 

Cost of Emission Certificates

 

391,677

 

230,343

 

70

%

225,075

 

General & Administrative Expenses

 

1,263,803

 

1,335,090

 

(5

)%

946,765

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

$

(399,894

)

$

(816,825

)

(51

)%

$

(425,325

)

 

Our revenues increased in the three months ended June 30, 2005 primarily because of the six stations we acquired via acquisition during December 2004, plus the single station acquired during June 2004. For the fourth quarter of 2004, our average per-station revenue was $39,000, compared to over $57,000 for the second quarter of 2005, an increase of over $18,000 per station. Contributing to the increase in revenues from fourth quarter 2004 to second quarter 2005 was the closing of two unprofitable stations during January 2005 and one unprofitable station during April 2005. Our cost of emission certificates increased in the three months ended June 30, 2005 as compared to the same period in 2004 primarily because of the six stations we acquired in December 2004 and the one station we acquired in June 2004.

 

Our general and administrative expenses during the three months ended June 30, 2005 were $1,263,803, a decrease of $71,287, or (5)% as compared to the three months ended June 30, 2004. The primary causes of the decreased general and administrative expenses were the following differences in expenses recorded between the three months ended June 30, 2004, and the three months ended June 30, 2005 which respectively increased or (decreased) expenses recorded in the three months ended June 30, 2005 when compared to the three months ended June 30, 2004:

 

General and administrative expenses associated with the six Texas stations purchased in December 2004

 

$

307,000

 

Discount from market price on 1,100,000 common shares issued in debt conversion — expensed three months ended June 30, 2004

 

(231,000

)

Decrease in consulting fees from 2004 to 2005

 

(129,000

)

Decrease in legal and accounting fees from 2004 to 2005

 

(59,000

)

 

 

$

(112,000

)

 

Our revenue, cost of emission certificates, general and administrative expenses, and loss from operations for the six months ended June 30, 2005 as compared to the six months ended June 30, 2004 and December 31, 2004 are as follows:

 

24



 

 

 

6 Months
Ended
June 30,
2005

 

6 Months
Ended
June 30,
2004

 

Percentage
Change

 

6 Months
Ended
December 31,
2004

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

2,533,876

 

$

1,367,005

 

85

%

$

1,504,523

 

Cost of Emission Certificates

 

820,720

 

415,751

 

97

%

458,756

 

General & Administrative Expenses

 

2,410,687

 

2,987,647

 

(19

)%

1,917,620

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

$

(697,531

)

$

(2,036,393

)

(66

)%

$

(871,853

)

 

Our revenues increased in the six months ended June 30, 2005 primarily because of the six stations we acquired via acquisition during December 2004, plus the single station acquired during June 2004. For the six months ended December 31, 2004, our average per-station revenue was $79,000, compared to over $115,000 for the six months ended June 30, 2005, an increase of over $36,000 per station. Contributing to the increase in revenues from the six months ended December 31, 2004 to the six months ended June 30, 2005 was the closing of two unprofitable stations during January 2005 and one unprofitable station during April 2005. Our cost of emission certificates increased in the six months ended June 30, 2005 as compared to the same period in 2004 primarily because of the six stations we acquired in December 2004 and the one station we acquired in June 2004.

 

Our general and administrative expenses during the six months ended June 30, 2005 were $2,410,687 a decrease of $576,960, or (19) % as compared to the six months ended June 30, 2004. The primary causes of the decreased general and administrative expenses were the following differences in expenses recorded between the six months ended June 30, 2004, and the six months ended June 30, 2005 which respectively increased or (decreased) expenses recorded in the six months ended June 30, 2005 when compared to the six months ended June 30, 2004:

 

General & administrative expenses associated with the six Texas stations purchased in December 2004

 

$

577,000

 

Excess of purchase price over fair market value of assets purchased during the six months ended June 30, 2004

 

(560,000

)

Discount from market price on 2,024,996 common shares issued in debt conversion — expensed six months ended June 30, 2004

 

(462,000

)

Decrease in legal and accounting fees from 2004 to 2005

 

(144,000

)

 

 

$

(589,000

)

 

Interest Expense and Net Loss

 

Our interest expense and net loss for the three months ended June 30, 2005 as compared to the three months ended June 30, 2004 is as follows:

 

25



 

 

 

Three months
ended June 30,
2005

 

Three months
ended June 30,
2004

 

% Change

 

 

 

 

 

 

 

 

 

Interest Expense

 

$

65,293

 

$

16,908

 

286

%

 

 

 

 

 

 

 

 

Net Loss

 

(465,187

)

(833,733

)

(44

)%

Preferred stock dividends on Series A convertible preferred stock (undeclared)

 

44,110

 

44,110

 

0

%

 

 

 

 

 

 

 

 

Net loss attributable to common shareholders

 

(509,297

)

(877,843

)

(42

)%

Basic and Diluted Loss per Share

 

$

(0.02

)

$

(0.04

)

(50

)%

 

Our interest expense during the three months ended June 30, 2005 was $ 65,293, a $48,385, or 286% increase compared to $16,908 for the three months ended June 30, 2004. The increase was due to interest costs associated with an increase of debt of approximately $1,861,000 from June 30, 2004 to June 30, 2005. Total debt, as of June 30, 2005 was approximately $2,244,000.

 

During the three months ended June 30, 2005, we had a net loss, before preferred stock dividends on Series A convertible preferred stock, of $465,187. During the three months ended June 30, 2004, we reported a net loss of $833,733. The $368,546 decrease in net loss for the three months ended June 30, 2005 was primarily due to approximately $112,000 in net general and administrative cost decreases, as detailed above, less approximately $48,000 in increased interest expense, favorably offset by an increase of approximately $346,000 in revenue, less cost of emission certificates, for the three months ended June 30, 2005 compared to the three months ended June 30, 2004.

 

Our basic and diluted loss per share for the three months ended June 30, 2005 decreased from $(0.04) to $(0.02).

 

Interest Expense and Net Loss

 

Our interest expense and net loss for the six months ended June 30, 2005 as compared to the six months ended June 30, 2004 is as follows:

 

26



 

 

 

Six months
ended June 30,
2005

 

Six months
ended June 30,
2004

 

% Change

 

 

 

 

 

 

 

 

 

Interest Expense

 

$

129,386

 

$

35,839

 

261

%

 

 

 

 

 

 

 

 

Net Loss

 

(826,917

)

(2,072,232

)

(60

)%

Preferred stock dividends on Series A convertible preferred stock (undeclared)

 

88,220

 

77,672

 

14

%

Net loss attributable to common shareholders

 

(915,137

)

(2,149,904

)

(57

)%

 

 

 

 

 

 

 

 

Basic and Diluted Loss per Share

 

$

(0.04

)

$

(0.11

)

(64

)%

 

Our interest expense during the six months ended June 30, 2005 was $129,386, a $93,547, or 261% increase compared to $35,839 for the three months ended June 30, 2004. The increase was due to interest costs associated with an increase of debt of approximately $1,861,000 from June 30, 2004 to June 30, 2005. Total debt, as of June 30, 2005 was approximately $2,244,000.

 

During the six months ended June 30, 2005, we had a net loss before preferred stock dividends on Series A convertible preferred stock,  of $826,917. During the six months ended June 30, 2004, we reported a net loss of $2,072,232. The $1,245,315 decrease in net loss for the six months ended June 30, 2005 was primarily due to approximately $589,000 in net general and administrative cost decreases, as detailed above, less approximately $94,000 in increased interest expense, plus an increase of approximately $762,000 in revenue, less cost of emission certificates, for the six months ended June 30, 2005 compared to the six months ended June 30, 2004.

 

Our basic and diluted loss per share for the six months ended June 30, 2005 decreased from $(0.11) to $(0.04).

 

Liquidity and Capital Resources

 

Introduction

 

During the six months ended June 30, 2005, we did not generate positive operating cash flows. With four acquisitions completed during 2004 and as we continue to implement our growth strategy, we anticipate an increase in our operating cash flow, but with the increased costs of expanding our operations, may not achieve positive operating cash flow during 2005. Therefore, during the six months ended June 30, 2005, we raised $350,000 from the issuance of a promissory note to the GCA Strategic Investment Fund Limited, to be used for working capital purposes and $6,420,000 from the issuance 2,500,000 of our Series B convertible preferred stock, to be used for acquisitions and working capital. To date, the Company has funded operations and acquisitions primarily through the issuance of equity securities to related parties. We anticipate

 

27



 

raising additional capital during the third quarter of 2005 from the issuance of long-term debt, although the terms of a debt placement have not been determined.

 

Our cash, total current assets, total assets, total current liabilities, and total liabilities as of June 30, 2005 as compared to December 31, 2004 were:

 

 

 

June 30,
2005

 

December 31,
2004

 

Change

 

 

 

 

 

 

 

 

 

Cash

 

$

87,777

 

$

16,431

 

$

71,346

 

Total current assets

 

272,455

 

88,355

 

184,100

 

Total assets

 

7,428,844

 

4,344,038

 

3,084,806

 

Total current liabilities

 

2,033,920

 

1,504,933

 

528,987

 

Total liabilities

 

3,246,352

 

2,837,235

 

409,117

 

 

Cash Requirements

 

For the six months ended June 30, 2005 our net cash used by operating activities was ($417,406), as compared to ($346,897) for the six months ended June 30, 2004. Negative operating cash flows during the six months ended June 30, 2005 were primarily created by a net loss from operations of $826,917 plus a decrease of $161,978 in accounts payable and accrued liabilities, partially reduced by non-cash stock related expenses of $273,207, depreciation of $169,231 and an increase in interest payable to related parties of $105,968. Because of our rapid growth, we do not have an opinion as to how indicative these results will be of future results.

 

For the six months ended June 30, 2004 our net cash used in operating activities was ($346,897). Negative operating cash flows during the six months ended June 30, 2004 were primarily created by a net loss from operations of $2,072,232, partially offset by non-cash stock related expenses of $1,307,158, an increase of 269,633 in accounts payable and accrued liabilities and depreciation and amortization of $113,690.

 

The following table shows net loss as a percentage of revenues decreasing from 152% in 2004 to 33% in 2005. This indicates that the significant fixed expenses associated with being a public company do not increase proportionally with increased revenues. As we grow through future acquisitions we expect revenues will continue to increase at a faster rate than associated expenses and these efficiencies will result in more profitable operations.

 

 

 

Revenues

 

Net Loss

 

Percentage of
Revenues

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2005

 

$

2,533,876

 

$

(826,917

)

33

%

Six months ended June 30, 2004

 

1,367,005

 

(2,072,232

)

152

%

 

28



 

Sources and Uses of Cash

 

Net cash used by investing activities was $3,063,257 and $2,523,318, respectively, for the six months ended June 30, 2005 and 2004. The investing activities during the six months ended June 30, 2005 and June 30, 2004 involved primarily $3,100,000 and $2,376,015, respectively, used in the acquisition of businesses.

 

Net cash provided by financing activities was $3,552,409 and $2,933,105, respectively, for the six months ended June 30, 2005 and 2004. Net cash provided during the six months ended June 30, 2005 resulted primarily from $3,160,000 in net proceeds from the issuance of the Series B convertible preferred stock, $350,000 in promissory note proceeds from a related party and $90,000 in proceeds from the sale of a convertible debenture. Net cash provided during the six months ended June 30, 2004 resulted primarily from $2,234,000 in net proceeds from the issuance of Series A convertible preferred stock and an increase of $712,500 resulting from a private placement of the Company’s common stock and warrants.

 

On January 18, 2004, the combined principal amount of $225,000 and accrued interest amount of approximately $55,000 outstanding under one of our promissory notes were converted into 1,100,000 shares of our common stock at an exchange rate of $0.25 per common share.

 

On June 16, 2004, the combined principal amount of $315,000 and accrued interest amount of approximately $9,000 outstanding under a series of our promissory notes were converted into 924,996 shares of our common stock at an exchange rate of $0.35 per common share.

 

On June 17, 2005, the principal amount of $25,000 outstanding under a promissory note were converted into 125,001 shares of our common stock at an exchange rate of $0.20 per common share.

 

On June 30, 2005, the combined principal amount of $25,600 and accrued interest amount of approximately $1,000 outstanding under a series of our promissory notes were converted into 112,415 shares of our common stock at an exchange rate of $0.235 per common share.

 

We are not generating sufficient cash flow from operations to fund growth as we continue to acquire and open new emission testing stations. If we can successfully complete one or more acquisitions of profitable businesses, then we anticipate that we can operate at a profitable level. Until such time, however, and in order to complete the acquisitions, we will need to raise additional capital through the sale of our equity securities. If we are unsuccessful in raising the required capital, we may have to curtail operations.

 

Critical Accounting Policies

 

The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with its Board of Directors, the Company has identified accounting policies related to valuation of its common stock and for assessing whether any value should be assigned to a warrant that it believes are key

 

29



 

to an understanding of its financial statements. Additionally, the Company has identified accounting policies related to the valuation of goodwill, created as the result of business acquisitions, as a key to an understanding of its financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.

 

ITEM 3                   Controls and Procedures

 

Our Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report (the “Evaluation Date”), have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to us that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.

 

30



 

PART II

 

ITEM 1                   Legal Proceedings

 

In April 2005, a lawsuit was filed against us by Weingarten Realty Investors in the U.S. District Court of Harris County, Texas, case number 2005-25671. The Complaint alleges breach of contract arising out of a real property lease in Texas for two testing sites that were to be built. The case does not allege specific damages, although the total of all monthly payments under the two leases is approximately $516,000. We filed an Answer to the Complaint, and we are in discussions to settle the matter.

 

We are not a party to or otherwise involved in any other legal proceedings.

 

In the ordinary course of business, we may from time to time be involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

 

ITEM 2                   Unregistered Sales of Equity Securities and Use of Proceeds

 

On April 11, 2005, we issued a total of 250,000 shares of our common stock, restricted in accordance with Rule 144, to Calabria Advisors, LLC, an entity controlled by Mr. Richard A. Parlontieri, our President and a Director. Calabria Advisers, LLC provides us with consulting services. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder is a sophisticated investor and familiar with our operations.

 

On June 30, 2005, we issued 2,500,000 shares of our Series B Convertible Preferred Stock, warrants to acquire 25,000,000 shares of our common stock at $0.24 per share, and warrants to acquire 18,900,000 shares of our common stock at $0.48 per share, to a single accredited investor, in exchange for $6,420,000 in cash. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder is accredited. On August 4, 2005, we amended the transaction and issued restated warrants to acquire 26,214,953 shares of our common stock at $0.24 per share, restated warrants to acquire 19,659,346 shares of our common stock at $0.48 per share, and warrants to acquire 40,000,000 shares of our common stock at $0.12 per share, in exchange for an additional $195,000 in cash. The amended issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder is accredited.

 

On June 30, 2005, in conjunction with the financing transaction on the same date, we issued warrants to acquire 2,850,000 shares of our common stock at $0.06 per share to a single accredited investor, as consideration for services rendered. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder is accredited.

 

ITEM 3                   Defaults Upon Senior Securities

 

On June 13, 2003, our subsidiary entered into a consulting agreement with V2R, Inc., which is controlled by Bahram Yusefzadeh, who subsequent to June 13, 2003 became one of our directors. Under the terms of the agreement, our subsidiary agreed to pay to V2R, upon the

 

31



 

successful closing of a merger or acquisition of our subsidiary with a publicly traded corporation, the sum of $225,000. Of this amount, $125,000 was to be paid in accordance with the terms of a promissory note. The principal balance of the note was due on December 31, 2003, but was extended pursuant to an amendment dated December 30, 2003 to the earlier to occur of (i) the closing of a round of equity or debt financing in excess of $1,500,000, (ii) 90 days after the effectiveness of a registration statement, or (iii) in three equal installments beginning March 1, 2004, May 1, 2004, and July 1, 2004. The entire principal and interest became due on January 21, 2004 when we closed a round of equity financing in excess of $1,500,000; however, as of the date hereof we have only made three payments totaling $86,666, leaving an unpaid balance of principal and interest of approximately $51,747.17 as of July 14, 2005.

 

On January 21, 2004, we completed a private placement of 2,500 shares of our Series A Convertible Preferred Stock to GCA Fund, in exchange for gross proceeds to us of $2,500,000. The Preferred stock pays a dividend of seven percent (7%) per annum, payable quarterly. Dividends on the Series A Convertible Preferred Stock shall be paid, at our discretion, in either (i) additional shares of Series A Convertible Preferred Stock based on the Original Issue Price, or (ii) Common Stock based on the Market Price. As of June 30, 2005, and as of the date hereof, we have not paid any dividends on the Series A Convertible Preferred Stock. As of June 30, 2005, we are in arrears on these dividends in the amount of $254,112.00.

 

ITEM 4                   Submission of Matters to a Vote of Security Holders

 

There have been no events that are required to be reported under this Item.

 

ITEM 5                   Other Information

 

Resignation and Appointment of Officer

 

Effective on April 15, 2005, Mr. William Klenk resigned from his position as our Chief Financial Officer and Secretary. Effective on April 15, 2005, our Board of Directors hired Mr. Larry C. Cobb as our Chief Financial Officer to replace Mr. Klenk.

 

Appointment of Director

 

Effective on May 26, 2005, our Board of Directors appointed Mr. Erik Sander to fill a vacancy on our Board of Directors.

 

Acquisition of Mr. Sticker

 

On June 30, 2005, we completed the acquisition of all of the outstanding securities of Mr. Sticker, Inc., a Texas corporation, which is now our wholly-owned subsidiary. Mr. Sticker owns and operates six (6) emission testing centers in the Houston, Texas area.

 

Barron Partners LP Financing

 

On June 30, 2005, we entered into a Preferred Stock Purchase Agreement (the “Agreement”) with Barron Partners LP (the “Investor”) pursuant to which the Investor purchased $6,420,000 worth of our Series B Convertible Preferred Stock (the “Preferred Shares”), along with warrants to purchase 25,000,000 shares of our common stock at $0.24 per share, and warrants to purchase 18,900,000 shares of our common stock at $0.48 per share.

 

32



 

Each of the Preferred Shares is convertible into 42.8 shares of our common stock, subject to adjustment if certain conditions are met, for a total of 107,000,000 shares of common stock, has a liquidation preference equal to its purchase price, and has no voting rights. The warrants are exercisable for a period of five years, and the exercise price is subject to adjustment if certain conditions are met. In conjunction with the Agreement, we entered into a Registration Rights Agreement wherein we agreed to file a registration statement with 30 days, and to have it effective within 150 days.

 

On August 4, 2005, we entered into an Amendment to Stock Purchase Agreement (the “Amendment”) which modified the Agreement as follows:

 

a.                                       the Investor purchased $6,615,000 of our Preferred Shares;

 

b.                                      the warrants were increased to 26,214,953 shares at $0.24 per share, 19,659,346 shares at $0.48 per share, and 40,000,000 shares at $0.12 per share. We may call the $0.12 warrants if our stock price exceeds $0.24 for fifteen (15) consecutive trading days;

 

c.                                       each of the Preferred Shares is convertible into 75.6 shares of our common stock, subject to adjustment if certain conditions are met, for a total of 189,000,000 shares of common stock, has a liquidation preference equal to its purchase price, and has no voting rights.

 

d.                                      the exercise of the warrants, including the call provision on the $0.12 warrants, and the conversion of the Preferred Shares are subject to a maximum ownership by the Investor at any time of 4.9%.

 

As consideration related to the transaction, we issued warrants to acquire 2,850,000 shares of our common stock at $0.06 per share, exercisable for a period of five years, to Prospect Financial Advisors, LLC. Prospect also received a cash commission equal to eight percent (8%) of the cash raised.

 

Creation of Series B Preferred Stock

 

On June 30, 2005, as amended on August 4, 2005 in conjunction with the financing described above, we created a new series of preferred stock consisting of 3,000,000 shares and known as the Series B Convertible Preferred Stock. An Amendment to our Articles of Incorporation has been filed with the State of Florida setting for the rights, privileges, and preferences thereof.

 

33



 

ITEM 6                   Exhibits

 

(a)           Exhibits

 

2.1 (1)

 

Acquisition Agreement dated June 13, 2003 with Speedemissions, Inc.

 

 

 

2.2 (5)

 

Asset Purchase Agreement dated January 21, 2004

 

 

 

2.3 (6)

 

Asset Purchase Agreement dated January 30, 2004

 

 

 

2.4 (7)

 

Asset Purchase Agreement dated December 2, 2004

 

 

 

2.5 (8)

 

Asset Purchase Agreement dated December 30, 2004

 

 

 

3.1 (2)

 

Articles of Incorporation of SKTF Enterprises, Inc.

 

 

 

3.2 (3)

 

Articles of Amendment to Articles of Incorporation of SKTF Enterprises, Inc.

 

 

 

3.3 (2)

 

Bylaws of SKTF Enterprises, Inc.

 

 

 

4.1 (4)

 

Certificate of Designation of Series A Convertible Preferred Stock

 

 

 

4.2 (9)

 

Certificate of Designation of Series B Convertible Preferred Stock

 

 

 

10.1 (9)

 

Common Stock Purchase Warrant “A” issued to Barron Partners dated June 30, 2005

 

 

 

10.2 (9)

 

Common Stock Purchase Warrant “B” issued to Barron Partners dated June 30, 2005

 

 

 

10.3 (9)

 

Common Stock Purchase Warrant issued to Prospect Financial Advisors, LLC dated June 30, 2005

 

 

 

10.4 (9)

 

Stock Purchase Agreement dated June 30, 2005 for the acquisition of Mr. Sticker, Inc.

 

 

 

10.5 (9)

 

Preferred Stock Purchase Agreement with Barron Partners LP dated June 30, 2005

 

 

 

10.6 (9)

 

Registration Rights Agreement dated June 30, 2005

 

 

 

31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

 

 

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

34



 

32

 

Chief Executive Officer and Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 


(1)

 

Incorporated by reference from our Current Report on Form 8-K dated June 16, 2003 and filed with the Commission on June 17, 2003.

 

 

 

(2)

 

Incorporated by reference from our Pre-Effective Registration Statement on Form SB-2 dated and filed with the Commission on August 30, 2001.

 

 

 

(3)

 

Incorporated by reference from our Current Report on Form 8-K dated August 29, 2003 and filed with the Commission on September 2, 2003.

 

 

 

(4)

 

Incorporated by reference from our Current Report on Form 8-K dated January 26, 2004 and filed with the Commission on January 29, 2004.

 

 

 

(5)

 

Incorporated by reference from our Current Report on Form 8-K dated and filed with the Commission on February 3, 2004.

 

 

 

(6)

 

Incorporated by reference from our Current Report on Form 8-K dated February 4, 2004 and filed with the Commission on February 5, 2004.

 

 

 

(7)

 

Incorporated by reference from our Current Report on Form 8-K dated December 7, 2004 and filed with the Commission on December 8, 2004.

 

 

 

(8)

 

Incorporated by reference from our Current Report on Form 8-K dated January 3, 2005 and filed with the Commission on January 7, 2005.

 

 

 

(9)

 

Incorporated by reference from our Current Report on Form 8-K dated July 6, 2005 and filed with the Commission on July 7, 2005.

 

(b)                                 Reports on Form 8-K

 

On April 18, 2005, we filed an Item 3.02 Current Report on Form 8-K regarding the issuance of unregistered securities.

 

On April 25, 2005, we filed an Item 5.02 Current Report on Form 8-K regarding the resignation of our Chief Financial Officer and the appointment of his replacement.

 

On June 2, 2005, we filed an Item 5.02 Current Report on Form 8-K regarding the appointment of a director.

 

35



 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

Dated: May 8, 2005

Speedemissions, Inc.

 

 

 

 

 

/s/ Richard A. Parlontieri

 

 

By:

Richard A. Parlontieri, President

 

 

 

 

 

/s/ Michael Shanahan

 

 

By:

Michael Shanahan, Chief Financial
Officer

 

36