UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-QSB
| x |
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the quarterly period ended March 31, 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
(State
or other jurisdiction of
incorporation
or organization) |
33-0961488
(I.R.S.
Employer
Identification
No.) |
|
1139
Senoia Road
Suite
B
Tyrone,
GA
(Address
of principal executive offices) |
30290
(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 x 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 May 4, 2005, there were 25,291,594
shares of common stock, par value $0.001, issued and
outstanding.
Transitional
Small Business Disclosure Format
(check
one):
Yes o No x
TABLE
OF CONTENTS
|
PART
I |
| |
|
|
ITEM
1 Financial Statements |
3 |
|
ITEM
2 Managements Discussion and Analysis |
18 |
|
ITEM
3 Controls and Procedures |
23 |
| |
|
|
PART
II |
| |
|
|
ITEM
1 Legal Proceedings |
24 |
|
ITEM
2 Unregistered Sales of Equity Securities and Use of
Proceeds |
24 |
|
ITEM
3 Defaults Upon Senior Securities |
24 |
|
ITEM
4 Submission of Matters to a Vote of Security
Holders |
25 |
|
ITEM
5 Other Information |
25 |
|
ITEM
6 Exhibits |
26 |
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.
ITEM
1 Financial
Statements
|
Speedemissions,
Inc. |
|
|
|
(Accounting
and Reporting Successor to SKTF Enterprises, Inc. - see Note
1) |
| |
|
|
|
|
|
Condensed
Consolidated Balance Sheet |
|
|
|
March
31, 2005 |
|
(Unaudited) |
|
|
Assets |
|
|
|
| |
|
|
|
|
Current
assets: |
|
|
|
|
Cash
|
|
$ |
62,644 |
|
|
Other
current assets |
|
|
116,106
|
|
|
Total
current assets |
|
|
178,750
|
|
| |
|
|
|
|
Property
and equipment, at cost less accumulated depreciation and
amortization |
|
|
1,113,183
|
|
| |
|
|
|
|
|
Goodwill |
|
|
2,954,941
|
|
| |
|
|
|
|
|
Other
assets |
|
|
63,354
|
|
|
Total
assets |
|
$ |
4,310,228 |
|
| |
|
|
|
|
|
Liabilities
and Stockholders' Equity |
|
|
|
|
| |
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Accounts
payable and accrued liabilities |
|
$ |
592,222 |
|
|
Debt
payable to related parties |
|
|
933,206
|
|
|
Accrued
interest on debt payable to related parties |
|
|
171,764
|
|
|
Current
portion of capitalized lease obligation |
|
|
43,024
|
|
|
Total
current liabilities |
|
|
1,740,216
|
|
| |
|
|
|
|
|
Long-term
liabilities: |
|
|
|
|
|
Debt
payable to related parties, less current portion |
|
|
1,246,728
|
|
|
Capitalized
lease obligation, less current portion |
|
|
16,401
|
|
|
Total
long-term liabilities |
|
|
1,263,129
|
|
| |
|
|
|
|
|
Total
liabilities |
|
|
3,003,345
|
|
| |
|
|
|
|
|
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 |
|
Common
stock, $.001 par value, 100,000,000 shares authorized 25,041,594
shares issued and outstanding |
|
|
25,042
|
|
|
Additional
paid-in capital |
|
|
8,573,188
|
|
|
Deferred
compensation |
|
|
(46,875 |
) |
|
Accumulated
deficit |
|
|
(7,244,475 |
) |
|
Total
stockholders' equity |
|
|
1,306,883
|
|
|
Total
liabilities and stockholders' equity |
|
$ |
4,310,228 |
|
| |
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements. |
|
Speedemissions,
Inc. |
|
|
|
|
|
|
(Accounting
and Reporting Successor to SKTF Enterprises, Inc. - see Note
1) |
| |
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations |
|
|
|
|
|
For
the Three Months Ended March 31, 2005 and 2004 |
|
(Unaudited) |
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,278,290 |
|
$ |
618,397 |
|
| |
|
|
|
|
|
|
|
|
Costs
and expenses: |
|
|
|
|
|
|
|
|
Cost
of emissions certificates |
|
|
429,043
|
|
|
185,408
|
|
|
General
and administrative expenses |
|
|
1,146,889
|
|
|
1,652,556
|
|
| |
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(297,642 |
) |
|
(1,219,567 |
) |
|
Interest
expense |
|
|
64,093
|
|
|
18,931
|
|
|
Net
loss |
|
$ |
(361,735 |
) |
$ |
(1,238,498 |
) |
| |
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share |
|
$ |
(0.01 |
) |
$ |
(0.07 |
) |
| |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding, basic and diluted |
|
|
24,844,372
|
|
|
19,051,118
|
|
| |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements. |
|
Speedemissions,
Inc. |
|
|
|
|
|
|
(Accounting
and Reporting Successor to SKTF Enterprises, Inc. - see Note
1) |
| |
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows |
|
|
|
|
|
|
For
the Three Months Ended March 31, 2005 and 2004 |
|
(Unaudited) |
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
|
Operating
activities: |
|
|
|
|
|
|
Net
(loss) |
|
$ |
(361,735 |
) |
$ |
(1,238,498 |
) |
Adjustments
to reconcile net (loss) to net cash used by operating
activities: |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
88,105 |
|
|
52,497 |
|
|
Stock
expense incurred in payment of promissory notes |
|
|
-- |
|
|
258,563 |
|
|
Stock
expense incurred in business acquisition |
|
|
-- |
|
|
559,514 |
|
|
Stock
option expenses |
|
|
(19,949 |
) |
|
46,909 |
|
|
Stock
issued for services |
|
|
181,764 |
|
|
96,300 |
|
|
Changes
in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Other
current assets |
|
|
(8,083 |
) |
|
(133,521 |
) |
|
Other
assets |
|
|
-- |
|
|
(23,956 |
) |
|
Accrued
interest on long-term debt payable to related parties |
|
|
58,427 |
|
|
16,015 |
|
|
Accounts
payable and accrued liabilities |
|
|
(207,839 |
) |
|
65,913 |
|
| |
|
|
|
|
|
|
|
|
Net
cash used by operating activities |
|
|
(269,310 |
) |
|
(300,264 |
) |
| |
|
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition
of businesses |
|
|
-- |
|
|
(2,251,000 |
) |
|
Net
purchases of property and equipment |
|
|
-- |
|
|
(58,195 |
) |
| |
|
|
|
|
|
|
|
|
Net
cash used by investing activities |
|
|
-- |
|
|
(2,309,195 |
) |
| |
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
Proceeds
from issuance of convertible preferred stock to related party, net
of expenses |
|
|
-- |
|
|
2,234,000 |
|
|
Proceeds
from issuance of common stock and warrants |
|
|
-- |
|
|
427,500 |
|
|
Proceeds
from promissory note payable to related party |
|
|
350,000 |
|
|
50,000 |
|
|
Payments
on promissory notes |
|
|
(20,000 |
) |
|
(41,666 |
) |
|
Payments
on capitalized leases |
|
|
(14,477 |
) |
|
-- |
|
|
Net
cash provided by financing activities |
|
|
315,523 |
|
|
2,669,834 |
|
|
Net
increase in cash |
|
|
46,213 |
|
|
60,375 |
|
| |
|
|
|
|
|
|
|
|
Cash
at beginning of period, December 31 |
|
|
16,431 |
|
|
9,231 |
|
|
Cash
at end of period, March 31 |
|
$ |
62,644 |
|
$ |
69,606 |
|
| |
|
|
|
|
|
|
|
|
Supplemental
Information: |
|
|
|
|
|
|
|
|
Cash
paid during the period for interest |
|
$ |
4,797 |
|
$ |
2,898 |
|
| |
|
|
|
|
|
|
|
|
Non-cash
Investing and Financing activities: |
|
|
|
|
|
|
|
|
Equity
securities issued in connection with the acquisition of |
|
$ |
-- |
|
$ |
573,790 |
|
|
Twenty
Dollar Emission, Inc. |
|
|
|
|
|
|
|
|
Equity
securities issued in payment of notes payable |
|
$ |
-- |
|
$ |
539,000 |
|
| |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements. |
Speedemissions,
Inc.
(Accounting
and Reporting Successor to SKTF Enterprises, Inc.)
Notes
to Condensed Consolidated Financial Statements
March
31, 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.
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 and SKTF 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 March 31, 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
March 31, 2005 the Company operated, twenty-three (23) emissions testing
stations and four (4) mobile units in Georgia and Texas. The Company does
business under the trade name Speedemissions. 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.
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 March 31, 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 March
31, 2005
or 2004.
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 March 31, 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.
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.
| |
|
Three
months ended
March
31, |
|
| |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
|
|
|
Net
loss, as reported |
|
$ |
(361,735 |
) |
$ |
(1,238,498 |
) |
|
Deduct:
Total stock based employee compensation expense determined under the fair
value method for all awards, net of related tax effects |
|
|
36,915 |
|
|
242,488 |
|
|
Pro
forma net loss |
|
$ |
(398,650 |
) |
$ |
(1,480,986 |
) |
| |
|
|
|
|
|
|
|
|
Loss
per share: |
|
|
|
|
|
|
|
|
Basic
and diluted, as reported |
|
$ |
(0.01 |
) |
$ |
(0.07 |
) |
|
Basic
and diluted, pro forma |
|
$ |
(0.02 |
) |
$ |
(0.08 |
) |
The fair
value of stock options issued during the three months ended March 31, 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 is a start-up enterprise with limited operations and has not generated
significant amounts of revenue. The Company incurred net losses and operating
cash flow deficiencies in 2005, 2004 and 2003 and had a deficit in working
capital of $1,561,466 (including $1,104,970 in accrued interest and current
portion of long-term debt payable to related parties) at March 31, 2005. 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 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 March 31, 2005 was as follows:
|
GCA
Fund 10% note
(a) |
|
$ |
300,000 |
|
|
V2R
10% note (b) |
|
|
63,334 |
|
|
Calabria
5% note (c) |
|
|
25,600 |
|
|
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 |
|
| |
|
|
|
|
| |
|
|
2,179,934 |
|
|
Less
current portion |
|
|
933,206 |
|
| |
|
$ |
1,246,728 |
|
(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 March 31, 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
the date hereof we have only made two payments totaling $61,666, leaving an
unpaid balance of principal and interest of approximately $74,200 as of March
31, 2005.
(c) An
entity controlled by the president and chief executive officer of the Company
had advanced the Company $25,600 during 2004, on several unsecured promissory
notes. Principal and interest on the notes were due and payable in 180 days,
from their respective date of issuance, and carry interest at 5%. Effective as
of March 29, 2005, the Company and the president and chief executive officer of
the Company agreed to extend the maturity dates to July 1, 2005.
(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 March 31, 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. No interest payments
on this note were made during the quarter ended March 31, 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:
| |
|
At
March 31, 2005 |
|
| |
|
(unaudited) |
|
| |
|
|
|
|
|
Series
A convertible and cumulative preferred stock, $.001 par value, 5,000,000
shares authorized, 2,500 shares issued and outstanding |
|
|
3 |
|
|
Common
stock, $.001 par value, 100,000,000 shares authorized, 25,041,594 shares
issued and outstanding |
|
|
25,042 |
|
|
Additional
paid in capital |
|
|
8,573,188 |
|
|
Deferred
compensation |
|
|
(46,875 |
) |
|
Accumulated
deficit |
|
|
(7,244,475 |
) |
|
Total
stockholders’ equity |
|
$ |
1,306,883 |
|
| |
|
|
|
|
Preferred
Stock
On
January 21, 2004, the Company completed a private placement of 2,500 shares of
its 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.
Common
Stock
The
Company is authorized to issue 100,000,000 shares of $0.001 par value common
stock, of which 25,041,594 and 24,541,594 shares were issued and outstanding as
of March 31, 2005 and December 31, 2004, respectively.
In the
three months ended March 31, 2005 and 2004, the Company issued 500,000 and
410,000 shares of its common stock, respectively, for general and administrative
expenses, which consisted principally of legal and consulting services. The
Company recognized expense of $75,000 and $129,800 in the three months ended
March 31, 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 921,750
and 686,750 stock options issued and outstanding as of March 31, 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 $46,909 in compensation
(income) expense, respectively, during the three months ended March 31, 2005 and
2004.
On March
10, 2005, the Company granted 235,000 stock options to ten 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.
Stock
Warrants
There
were 5,855,073
and 5,155,073 common stock warrants issued and outstanding as of March 31, 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.
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.
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
three months ended March 31, 2005 and 2004, the Company paid a total of
approximately $7,500 and $35,100, respectively, under the consulting agreement.
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 and March 9, 2004, the Company issued a total of 360,000
shares of its common stock under the terms of its consulting agreement with the
public relations firm. During the three months ended March 31, 2004, the Company
recognized approximately $96,300 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
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. No services were performed and no shares were issued under the
terms of this agreement during the quarter ended March 31, 2004.
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 three months ended March 31, 2005, the Company recognized
approximately $19,300 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.
Note
8: Contingencies
The
Company is involved in various proceedings and litigation arising in the
ordinary course of business. While any proceeding or litigation has an element
of uncertainty, the Company believes that the outcome of any lawsuit or claim
that is pending or threatened, or all of them combined, will not have a material
adverse effect on its consolidated financial position or results of
operations.
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
March 31, 2005 we operated twenty-three (23) 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 two Texas
stations and a consolidation of mobile operations from seven (7) to four (4)
units during the three months ended March 31, 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 intend to close more acquisitions,
and to open company-owned stations, in 2005.
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 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-month period
ended March 31, 2005 to the comparable period ended March 31,
2004.
Results
of Operations
Introduction
Our
operations reflect a significantly different company as of March 31, 2005 versus
March 31, 2004. As of March 31, 2004 we operated fourteen (14) emissions testing
stations in Georgia and three (3) emissions testing stations in Texas.
Subsequent to March 31, 2004 we made two (2) acquisitions which resulted in the
addition of six (6) and one (1) emissions testing stations respectively in Texas
and Georgia and seven (7) mobile units in Georgia. We have also opened a new
store in Georgia since March 31, 2004. During the three months ended March 31,
2005 we closed two (2) Texas 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-three
(23) stations and four (4) mobile units as of March 31, 2005. Therefore, our
operating expenses and revenues during the three months ended March 31, 2005
were significantly greater than the three months ended March 31,
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 March 31, 2005 as compared to
the three months ended March 31, 2004 and December 31, 2004 are as
follows:
| |
|
3
Months Ended |
|
3
Months Ended |
|
Percentage |
|
3
Months Ended |
|
| |
|
March
31, 2005 |
|
March
31, 2004 |
|
Change |
|
December
31, 2004 |
|
| |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,278,290 |
|
$ |
618,397 |
|
|
107 |
% |
$ |
$
746,515 |
|
|
Cost
of Emission Certificates |
|
|
429,043 |
|
|
185,408 |
|
|
131 |
% |
|
225,075 |
|
|
General
& Administrative Expenses |
|
|
1,146,889 |
|
|
1,652,556 |
|
|
(31 |
)% |
|
946,765 |
|
|
Loss
from Operations |
|
$ |
(297,642 |
) |
$ |
(1,219,567 |
) |
|
(76 |
)% |
$ |
(425,325 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
revenues increased in the three months ended March 31, 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 $56,000 for the first
quarter of 2005, an increase of over $17,000 per station. Contributing to the
increase in revenues from fourth quarter 2004 to first quarter 2005 was the
closing of two unprofitable stations during January 2005. Our cost of emission
certificates increased in the three months ended March 31, 2005 as compared to
the same period in 2004 primarily because of the seven stations we acquired
after March 31, 2004.
Our
general and administrative expenses during the three months ended March 31, 2005
were $1,146,889, a decrease of $505,667, or (31)% as compared to the three
months ended March 31, 2004. The primary causes of the decreased general and
administrative expenses were the following expenses recorded in the three months
ended March 31, 2004, which did not occur in the three months ended March 31,
2005:
| |
|
|
|
|
|
Excess
of purchase price over fair market value of assets
purchased |
|
$ |
559,514 |
|
|
Discount
from market price on 1,100,000 common shares issued in debt
conversion |
|
|
231,000
|
|
|
Compensation
expense associated with 400,000 variable stock options |
|
|
46,909
|
|
| |
|
$ |
837,423 |
|
| |
|
|
|
|
Partially
offsetting the above expense decreases were increases in general and
administrative expenses due to the seven (7) stations added after March 31, 2004
amounting to approximately $346,000.
Interest
Expense and Net Loss
Our
interest expense and net loss for the three months ended March 31, 2005 as
compared to the three months ended March 31, 2004 is as follows:
| |
|
Three
months ended March 31, 2005 |
|
Three
months ended March 31, 2004 |
|
%
Change |
|
| |
|
|
|
|
|
|
|
|
Interest
Expense |
|
$ |
64,093 |
|
$ |
18,931 |
|
|
239 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
Net
Loss |
|
|
(361,735 |
) |
|
(1,238,498 |
) |
|
(71 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Loss per Share |
|
$ |
(0.01 |
) |
$ |
(0.07 |
) |
|
(86 |
)% |
Our
interest expense during the three months ended March 31, 2005 was $64,093, a
$45,162, or 239% increase compared to $18,931 for the three months ended March
31, 2004. The increase was due to interest costs associated with an increase of
debt of approximately $1,482,000 from March 31, 2004 to March 31, 2005. Total
long-term debt, including current portion, as of March 31, 2005 was
approximately $2,180,000.
During
the three months ended March 31, 2005, we had a net loss of $361,735 or $0.01
per weighted-average share. During the three months ended March 31, 20043, we
reported a net loss of $1,238,498 or $0.07 per weighted-average share. The
$876,763 decrease in net loss for the three months ended March 31, 2005 was
primarily due to approximately $837,000 in cost decreases related to stock,
capital raise and acquisition transactions, as detailed above, partially offset
by an increase of approximately $346,000 in general and administrative expenses,
due to the acquisition of seven new stores, which occurred after March 31,
2004.
Liquidity
and Capital Resources
Introduction
During
the three months ended March 31, 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, subsequent to the three
months ended March 31, 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. To date, the Company has funded operations and
acquisitions primarily through the issuance of equity securities to related
parties. We anticipate raising additional capital during the second quarter of
2005 from the sale of our equity securities, although the terms of an offering
have not been determined.
Our cash,
total current assets, total assets, total current liabilities, and total
liabilities as of March 31, 2005 as compared to December 31, 2004
were:
| |
|
March
31, |
|
December
31, |
|
|
|
| |
|
2005 |
|
2004 |
|
Change |
|
| |
|
|
|
|
|
|
|
|
Cash |
|
$ |
62,644 |
|
$ |
16,431 |
|
$ |
46,213 |
|
|
Total
current assets |
|
|
178,750
|
|
|
88,355
|
|
|
90,395 |
|
|
Total
assets |
|
|
4,310,228
|
|
|
4,344,038
|
|
|
(33,810 |
) |
|
Total
current liabilities |
|
|
1,740,216
|
|
|
1,504,933
|
|
|
235,283 |
|
|
Total
liabilities |
|
|
3,003,345
|
|
|
2,837,235
|
|
|
166,110 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash
Requirements
For the
three months ended March 31, 2005 our net cash used by operating activities was
($269,310), as compared to ($300,264) for the three months ended March 31, 2004.
Negative operating cash flows during the three months ended March 31, 2005 were
primarily created by a net loss from operations of $361,735, partially offset by
non-cash stock related expenses of $161,815 plus depreciation of $88,105 less a
decrease of $207,839 in accounts payable and accrued liabilities. Because of our
rapid growth, we do not have an opinion as to how indicative these results will
be of future results.
The
Company's net cash used by operating activities remained relatively unchanged
from 2004 to 2005. The following table shows net loss as a percentage of
revenues decreasing from 200% in 2004 to 28% in 2005. This
further 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 |
|
| |
|
|
|
|
|
|
|
|
Three
months ended March 31, 2005 |
|
$ |
1,278,290 |
|
$ |
(361,735 |
) |
|
28 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, 2004 |
|
|
618,397 |
|
|
(1,238,498 |
) |
|
200 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Negative
operating cash flows during the three months ended March 31, 2004 were primarily
created by a net loss from operations of $1,238,498, partially offset by
non-cash stock related expenses of $961,286 less an increase of $133,521 in
other current assets.
Sources
and Uses of Cash
Net cash
used by investing activities was $0 and $2,309,195, respectively, for the three
months ended March 31, 2005 and 2004. The investing activities during the three
months ended March 31, 2004 involved primarily the $2,251,000 used in the
acquisition of businesses.
Net cash
provided by financing activities was $315,523 and $2,669,834, respectively, for
the three months ended March 31, 2005 and 2004. Net cash provided during the
quarter ended March 31, 2005 resulted primarily from the $350,000 in promissory
note proceeds from a related party. Net cash provided during the three months
ended March 31, 2004 resulted primarily from the $2,234,000 in proceeds from the
sale of convertible preferred stock, net of $266,000 in associated financing
costs and an increase of $427,500 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.
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 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
The
Company’s Chief Executive Officer and Chief Financial Officer (or those persons
performing similar functions), after evaluating the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date
within 90 days of the filing of this quarterly report (the “Evaluation Date”),
have concluded that, as of the Evaluation Date, the Company’s disclosure
controls and procedures were effective to ensure the timely collection,
evaluation and disclosure of information relating to the Company 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 the Company’s internal controls or in other factors that
could significantly affect the internal controls subsequent to the Evaluation
Date.
PART
II
ITEM
1 Legal
Proceedings
In the
ordinary course of business, we are from time to time 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, 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
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
January 26, 2005, in connection with and as additional consideration for the
issuance of a promissory note in favor
of GCA Strategic Investment Fund Limited in the principal amount of
$350,000, 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.
Both issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, and both holders are accredited.
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.
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.
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 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 two payments totaling $61,666, leaving an
unpaid balance of principal and interest of approximately $74,200 as of March
31, 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
March 31, 2005, and as of the date hereof, we have not paid any dividends on the
Series A Convertible Preferred Stock. As of December 31, 2004, we have accrued
$164,932 in unpaid dividends.
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
There
have been no events that are required to be reported under this
Item.
ITEM
6 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 |
| |
|
|
10.1
(9) |
Promissory
Note dated January 26, 2005 |
| |
|
|
10.2
(9) |
Common
Stock Purchase Warrant issued to GCA Strategic Investment Fund
Limited |
| |
|
|
10.3
(9) |
Common
Stock Purchase Warrant issued to Global Capital Advisors,
LLC |
| |
|
|
10.4
(9) |
Registration
Rights Agreement dated January 26, 2005 |
| |
|
|
10.5
(10) |
Form
of Speedemissions, Inc. Warrant dated February 22, 2005 |
| |
|
|
10.6
(11) |
Letter
Agreement Extending Note dated March 1, 2005 |
| |
|
|
10.7 |
Note
Extension Agreement with Calabria Advisors dated March 29,
2005 |
| |
|
|
10.8 |
Letter
Agreement Extending Note dated March 31, 2005 with GCA |
| |
|
|
10.9 |
Letter
Agreement Extending Note dated March 31, 2005 with State Inspections of
Texas, Inc. |
| |
|
|
10.10 |
Letter
Agreement Extending Note dated March 31, 2005 with State Inspections of
Texas, Inc. |
| |
|
|
10.11 |
Letter
Agreement Extending Note dated March 31, 2005 with State Inspections of
Texas, Inc. |
| |
|
|
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 |
| |
|
|
32.1 |
Chief
Executive Officer Certification Pursuant to 18 USC, Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
| |
|
|
32.2 |
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 February 2, 2005
and filed with the Commission on February 3,
2005. |
|
(10) |
Incorporated
by reference from our Current Report on Form 8-K dated March 10, 2005 and
filed with the Commission on March 17,
2005. |
|
(11) |
Incorporated
by reference from our Annual Report on Form 10-KSB dated April 14, 2005
and filed with the Commission on April 15,
2005. |
On
January 7, 2005, we filed an Item 1.01 and 2.01 Current Report on Form 8-K
regarding our acquisition of all of the remaining assets of State Inspections of
Texas, Inc.
On
January 24, 2005, we filed an Item 3.02 Current Report on Form 8-K regarding the
issuance of unregistered securities.
On
February 3, 2005, we filed an Item 1.01, 2.03, 3.02, and 4.01 Current Report on
Form 8-K regarding our entry into a $350,000 promissory note and corresponding
issuance of unregistered securities, as well as the change in our certifying
accountant.
On March
17, 2005, we filed an Item 3.02 Current Report on Form 8-K regarding the
issuance of unregistered securities.
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.
| |
|
|
| |
SPEEDEMISSIONS,
INC. |
|
|
|
| Date: May 11, 2005 |
By: |
/s/ Richard A.
Parlontieri |
| |
|
| |
Richard A.
Parlontieri
President |
| |
|
|
|
|
|
|
By: |
/s/ Larry Cobb |
| |
|
| |
Larry Cobb
Chief Financial Officer |