As
filed with the Securities and Exchange Commission on November 29,
2005
Registration
No. 333-127814
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1 TO
Form
SB-2/A
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
SPEEDEMISSIONS,
INC.
(Name
of
small business issuer in its charter)
|
Florida
|
7549
|
33-0961488
|
|
(State
or jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
No.)
|
|
1134
Senoia Road
Suite
B2
Tyrone,
GA 30290
|
(770)
306-7667
|
|
(Address
of principal executive offices
and
intended principal place of business)
|
(Telephone
number)
|
Richard
A. Parlontieri, President
1134
Senoia Road, Suite B2
Tyrone,
Georgia 30290
(770)
306-7667
(Name,
address, and telephone
number
of
agent for service)
COPIES
TO:
Brian
A.
Lebrecht, Esq.
The
Lebrecht Group, APLC
22342
Avenida Empresa, Suite 220
Rancho
Santa Margarita, California 92688
(949)
635-1240
Approximate
date of commencement of proposed sale to the public:
From
time
to time after this registration statement becomes effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If
this
Form is filed to register additional securities for an offering pursuant
to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. o
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a),
may determine.
| The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the SEC is effective. This prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Subject
to Completion, Dated November 29, 2005
PROSPECTUS
Up
to
359,272,585 shares of common stock
SPEEDEMISSIONS,
INC.
Speedemissions
is registering 848,286 shares for sale by existing shareholders, and 358,424,299
shares for sale by existing warrant and preferred stock holders upon the
exercise of warrants or conversion of preferred shares. This offering will
terminate when all 359,272,585 shares are sold or on June 30, 2008, unless
we
terminate it earlier.
Our
common stock is quoted on the over-the-counter electronic bulletin board
under
the symbol “SPEM.”
Investing
in the common stock involves risks. Speedemissions currently has limited
operations, limited income, and limited assets, is in unsound financial
condition, and you should not invest unless you can afford to lose your entire
investment. See “Risk Factors” beginning on page 3.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
All
of
the common stock registered by this prospectus will be sold by the selling
shareholders at the prevailing market prices at the time they are sold.
Speedemissions is not selling any of the shares of common stock in this offering
and therefore will not receive any proceeds from this offering. Speedemissions
will, however, receive proceeds upon the exercise of warrants.
The
date of this prospectus is [__________], 2005
SPEEDEMISSIONS,
INC.
We
have
been in the vehicle emissions testing business since May 2000. We currently
operate thirty-five vehicle emissions testing centers in three separate markets,
greater Atlanta, Georgia, Houston, Texas, and Salt Lake City, Utah. In addition,
we operate four mobile testing units in the greater Atlanta area.
Our
objective is to become a national provider of vehicle emissions tests.
Presently, the American Automobile Motor Vehicle Association reports that
34
states and the District of Columbia are required by the United States
Environmental Protection Agency to have vehicle emissions testing. According
to
the 2000 census, these states constitute 72% of the U.S. population, or about
206 million citizens. The major metropolitan areas of these states represent
141
million citizens and 87.1 million vehicles. Each state, in turn, has its
own
regulatory structure for emissions testing with which we must
comply.
We
intend
to grow using three methods. First, we intend to continue opening and operating
company-owned testing stations. Second, we intend to acquire competitors
in
favorable markets. Third, we intend to offer franchises in selected markets.
Currently, in addition to the Atlanta, Houston and Salt Lake City areas,
we have
targeted the following areas for application of our three growth strategies:
Dallas, Texas; Charlotte, North Carolina; Northern Virginia; Pittsburgh and
Philadelphia, Pennsylvania; Southern California; New York City; and Boston,
Massachusetts. We intend to create brand awareness in each of these areas
through a standard building style and facade, consistent color schemes, signs,
employee uniforms, and limited local advertising.
Corporate
Information
We
were
incorporated as SKTF Enterprises, Inc. in the State of Florida on March 27,
2001. Our original business plan, to market clothing and related merchandise
at
major sporting events, concerts, and political events, was abandoned. In
June
2003, we acquired Speedemissions, Inc., a Georgia corporation, that is now
our
wholly owned subsidiary, and in September 2003 we changed our name from SKTF
Enterprises, Inc. to Speedemissions, Inc.
Our
principal offices are located at 1134 Senoia Road, Suite B2, Tyrone, Georgia
30290, and our telephone number is (770) 306-7667. Our website address is
www.speedemissions.com. Information contained on our website is not incorporated
into, and does not constitute any part of, this prospectus.
The
Offering
We
are
registering 848,286 shares for sale by existing shareholders, and 358,424,299
shares for sale by existing warrant and preferred stock holders upon the
exercise of warrants or conversion of preferred shares. All of the common
stock
registered by this prospectus will be sold by the selling shareholders at
the
prevailing market prices at the time they are sold. We currently have 26,835,808
shares of common stock outstanding, and if all of the warrants are exercised
and
preferred shares converted, we will have 385,260,107 shares of common stock
outstanding.
Any
investment in our common stock involves a high degree of risk. You should
consider carefully the following information, together with the other
information contained in this prospectus, before you decide to buy our common
stock. If any of the following events actually occurs, our business, financial
condition or results of operations would likely suffer. In this case, the
market
price, if any, of our common stock could decline, and you could lose all
or part
of your investment in our common stock.
We
depend upon government laws and regulations that may be changed in ways that
hurt our business.
Our
business depends upon government legislation and regulations mandating air
pollution controls. At this point, Georgia, Texas and Utah law are especially
important to us because all of our existing emissions testing services are
conducted in those states. Changes in federal or state law that govern or
apply
to our operations could have a materially adverse effect on our business.
For
example, Georgia law could be changed so as to require that vehicles in the
state be tested every other year, as opposed to every year. Such a change
would
reduce the number of vehicles that need to be tested in any given year and
such
a reduction would have a material adverse effect on our revenues in Georgia.
Other changes that would adversely affect us would be a reduction in the
price
we can charge customers for our testing service, an increase in the fees
we must
pay to the state in order to operate emissions testing stations in its
jurisdiction, and the adoption of a system whereby the state, as opposed
to
private operators, performs vehicle emissions testing. We cannot be assured
that
changes in federal or state law would not have a materially adverse effect
on
the vehicle emissions testing industry generally or, specifically, on our
business.
We
have a limited operating history and limited historical financial information
upon which you may evaluate our performance.
You
should consider, among other factors, our prospects for success in light
of the
risks and uncertainties encountered by companies that, like us, are in their
early stages of development. We may not successfully address these risks
and
uncertainties or successfully implement our operating and acquisition
strategies. If we fail to do so, it could materially harm our business and
impair the value of our common stock. Even if we accomplish these objectives,
we
may not generate positive cash flows or profits we anticipate in the
future.
We
may be unable to effectively manage our growth and operations.
We
anticipate rapid growth and development by both opening and acquiring stations
in a relatively short period of time. The management of this growth will
require, among other things, continued development of our financial and
management controls and management information systems, stringent control
of
costs, increased marketing activities, the ability to attract and retain
qualified management personnel and the training of new personnel. We intend
to
hire additional personnel in order to manage our expected growth and expansion.
Failure to successfully manage our expected growth and development and
difficulties in managing our emissions testing stations could have a material
adverse effect on our business and the value of our common stock.
Our
strategy of acquiring and opening more testing stations may not produce positive
financial results for us.
Our
strategy of acquiring and opening more emissions testing stations in the
greater
Atlanta, Houston and Salt Lake City areas and in other areas is subject to
a
variety of risks, including the:
| · |
Inability
to find suitable acquisition
candidates;
|
| · |
Failure
or unanticipated delays in completing acquisitions due to difficulties
in
obtaining regulatory approvals or
consents;
|
| · |
Difficulty
in integrating the operations, systems and management of our acquired
stations and absorbing the increased demands on our administrative,
operational and financial resources;
|
| · |
Loss
of key employees;
|
| · |
Reduction
in the number of suitable acquisition targets resulting from continued
industry consolidation;
|
| · |
Inability
to negotiate definitive purchase agreements on satisfactory terms
and
conditions;
|
| · |
Increases
in the prices of sites and testing equipment due to increased competition
for acquisition opportunities or other factors; and
|
| · |
Inability
to sell any non-performing stations or to sell used
equipment.
|
If
we are
not able to successfully address these risks, it could materially harm our
business and impair the value of our common stock.
We
do
not have any experience in franchising, and thus our strategy of franchising
locations may not be profitable for us.
One
of
our growth strategies is to franchise locations throughout certain regions
of
the country. We believe this will allow us to grow at a much faster rate
than
opening only company-owned stores, and will help us create brand identity
and
loyalty. However, we do not have any experience in franchising, and none
of our
current management team has any direct experience in franchising. Although
we
intend to acquire personnel with the necessary experience, we may not be
able to
attract such personnel, or the personnel we do attract may not be successful
in
managing our growth through franchising. If we are not able to manage our
franchise strategy, it could materially harm our business, affect our overall
financial results, and impair the value of our common stock.
We
may not have access to additional financing or money.
In
order
to fund our opening and acquiring of emissions testing stations, we will
require
additional equity or debt financing. We cannot be assured that any such
financing will be available to us in the future or, if available, will be
offered on terms and conditions that are acceptable to us. It is unlikely
that
any bank or financial institution would provide a conventional loan to us
given
our limited operating history.
Because
the emissions testing industry is highly competitive, we may lose customers
and
revenues to our competitors.
Our
testing stations face competition from other emission station operators that
are
located near our sites. We expect such competition whenever and wherever
we open
or acquire a station. Our revenue from emissions testing is affected primarily
by the number of vehicles our stations service, and the price charged per
test.
Other emissions testing operators may have greater financial resources than
us,
which may allow them to obtain more expensive and advantageous locations
for
testing stations, to provide services in addition to emissions testing, to
charge lower prices than us, and to advertise and promote their businesses
more
effectively than us. Although we believe our stations are well positioned
to
compete, we cannot assure you that our stations will maintain, or will increase,
their current testing volumes and revenues. A decrease in testing volume
as the
result of competition or other factors could materially impair our profitability
and our cash flows, thereby adversely affecting our business and the value
of
our common stock.
A
downturn at any one of our emission testing stations could adversely affect
our
revenues and the amount of cash we have.
We
currently operate thirty-five emissions testing stations. A significant decline
in testing volume and revenue at any one of our stations could have a materially
adverse effect on our overall operations and financial condition, thereby
adversely affecting our business and the value of our common stock.
The
loss of Richard A. Parlontieri, President and Chief Executive Officer, and
the
inability to hire or retain other key personnel, would adversely affect our
ability to manage and control our business.
Our
business now depends primarily upon the efforts of Mr. Richard A. Parlontieri,
who currently serves as our President and Chief Executive Officer. We believe
that the loss of Mr. Parlontieri's services would have a materially adverse
effect on us. In this regard, we note that we have entered into a three-year
employment agreement with Mr. Parlontieri.
As
our
business grows and expands, we will need the services of other persons to
fill
key positions in our company. As an early growth-stage company with limited
financial resources, however, we may not be able to attract, or retain,
competent, qualified and experienced individuals to direct and manage our
business. The absence of skilled persons within our company will have a
materially adverse effect on us and the value of our common stock.
We
have a large amount of outstanding common stock held by a single shareholder,
and a large amount of common stock that could be acquired by a second
shareholder upon conversion of preferred stock, which if sold could have
a
negative impact on our stock price.
Our
largest shareholder, GCA Strategic Investment Fund Limited, and its affiliates,
owns 14,570,619 shares of our common stock and upon conversion of all their
outstanding warrants and preferred stock could own up to 64,203,940 shares
of
our common stock. Another shareholder, Barron Partners LP, could acquire
up to
314,874,299 shares of our common stock upon the exercise of warrants and
the
conversion of preferred stock. If either of these shareholders sold a large
number of shares of our common stock into the public market, or if the public
market perceived the sale of those shares into the market, it would have
a
negative impact on our stock price.
Restrictions
and limitations imposed under any credit facility could adversely affect
our
ability to expand our business, thereby hurting the value of our common
stock.
We
will
require additional financing, and one source of financing may be a credit
facility. We expect that any credit facility we enter into will restrict
our
ability to, among other things:
| · |
Incur
additional indebtedness;
|
| · |
Pay
dividends or make certain other payments or
distributions;
|
| · |
Enter
into certain transactions with
affiliates;
|
| · |
Merge
or consolidate with any other entity; or
|
| · |
Sell,
assign, transfer, lease, convey, or otherwise dispose of all or
substantially all of our assets.
|
In
addition, any credit facility may restrict our ability to incur liens or
to sell
certain assets and may require us to maintain specified financial ratios
and
satisfy certain financial condition tests.
These
restrictions and limitations may adversely affect our ability to grow and
expand
our business, which may, in turn, adversely affect the value of our common
stock.
Our
largest shareholder controls our company, allowing them to direct the company
in
ways that may be contrary to the wishes of other shareholders.
Our
largest shareholder, GCA Strategic Investment Fund Limited, and its affiliate,
owns approximately 54% of our outstanding shares, and controls approximately
79%
of our outstanding voting securities. They have the ability to control the
direction of our company, which may be contrary to the wishes of other
shareholders or new investors.
Upon
completion of this offering, approximately 7,529,622 shares of our common
stock
will be available for immediate resale. The immediate availability for sale
of
such a large amount of our stock may decrease the price at which our investors
are able to sell their shares.
Immediately
following the completion of this offering, there will be approximately 7,529,622
shares, including the 848,286 shares held by existing shareholders included
in
this offering, of our common stock available for immediate resale. The sale
of
all or substantially all of those shares in the public market, or the market's
expectation of such sales, may result in an immediate and substantial decline
in
the market price of our shares. Such a decline will adversely affect our
investors, and make it more difficult for us to raise additional funds through
equity offerings in the future.
Certain
shares of our common stock are restricted from immediate resale. The lapse
of
those restrictions, coupled with the sale of the related shares in the market,
or the market’s expectation of such sales, could result in an immediate and
substantial decline in the market price of our common stock.
A
substantial number of our shares of common stock are restricted from immediate
resale in the public market. However, those restrictions began to expire
on June
17, 2004. The sale or resale of those shares in the public market, or the
market's expectation of such sales, may result in an immediate and substantial
decline in the market price of our shares. Such a decline will adversely
affect
our investors, and make it more difficult for us to raise additional funds
through equity offerings in the future.
Our
stock price will fluctuate after this offering, which could result in
substantial losses for investors.
The
market price for our common stock may fluctuate significantly in response
to a
number of factors, some of which are beyond our control. These factors
include:
| · |
Quarterly
variations in operating results;
|
| · |
Changes
in financial estimates by securities
analysts;
|
| · |
Announcements
by us or our competitors of new products, significant contracts,
acquisitions or strategic
relationships;
|
| · |
Publicity
about our company, management, products or our
competitors;
|
| · |
Additions
or departures of key personnel;
|
| · |
Any
future sales of our common stock or other securities;
and
|
| · |
Stock
market price and volume fluctuations of publicly traded
companies.
|
These
and
other external factors have caused and may continue to cause the market price
and demand for our common stock to fluctuate substantially, which may limit
or
prevent investors from readily selling their shares of common stock and may
otherwise negatively affect the liquidity of our common stock.
In
the
past, securities class action litigation has often been brought against
companies following periods of volatility in the market price of their
securities. If securities class action litigation is brought against us it
could
result in substantial costs and a diversion of our management's attention
and
resources, which could hurt our business.
Because
we are subject to the “penny stock” rules, the level of trading activity in our
stock may be reduced.
Our
common stock is traded on the OTC Electronic Bulletin Board. Broker-dealer
practices in connection with transactions in “penny stocks” are regulated by
certain penny stock rules adopted by the Securities and Exchange Commission.
Penny stocks, like shares of our common stock, generally are equity securities
with a price of less than $5.00, other than securities registered on certain
national securities exchanges or quoted on Nasdaq. The penny stock rules
require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current
bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and, if the broker-dealer is the
sole
market maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market, and monthly account statements showing
the
market value of each penny stock held in the customer's account. In addition,
broker-dealers who sell these securities to persons other than established
customers and “accredited investors” must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive
the
purchaser's written agreement to the transaction. Consequently, these
requirements may have the effect of reducing the level of trading activity,
if
any, in the secondary market for a security subject to the penny stock rules,
and investors in our common stock may find it difficult to sell their
shares.
The
conversion terms and the exercise price, respectively, of the preferred stock
and the warrants, may be adjusted if we do not meet certain goals, and as
a
result you may incur dilution in the future.
The
conversion price for the preferred stock may be adjusted downward if we obtain
financing on terms less favorable than our terms with the preferred stock
holders. In addition, if certain earnings per share and other milestones
are not
met, the exercise price of the warrants may be reduced. Either of these events,
or similar events, will cause substantial additional dilution to our
shareholders.
We
will
require additional funds to support our working capital requirements or for
other purposes, and will seek to raise additional funds through public or
private equity financing. Also, we may acquire other companies or finance
strategic alliances by issuing equity. Any capital raising transaction may
result in additional dilution to our shareholders.
SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
We
have
made forward-looking statements in this prospectus, including the sections
entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Business,” that are based on our management’s
beliefs and assumptions and on information currently available to our
management. Forward-looking statements include the information concerning
our
possible or assumed future results of operations, business strategies, financing
plans, competitive position, industry environment, potential growth
opportunities, the effects of future regulation and the effects of competition.
Forward-looking statements include all statements that are not historical
facts
and can be identified by the use of forward-looking terminology such as the
words “believe,”“expect,”“anticipate,”“intend,”“plan,”“estimate” or similar
expressions. These statements are only predictions and involve known and
unknown
risks and uncertainties, including the risks outlined under “Risk Factors” and
elsewhere in this prospectus.
Although
we believe that the expectations reflected in our forward-looking statements
are
reasonable, we cannot guarantee future results, events, levels of activity,
performance or achievement. We are not under any duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results, unless required by law.
This
prospectus relates to shares of our common stock that may be offered and
sold
from time to time by certain selling shareholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However,
we
may receive proceeds from the exercise of warrants. The weighted average
exercise price to acquire all of the shares of common stock included in this
prospectus underlying the exercise of warrants is $0.119 per share, and the
maximum proceeds to us upon the exercise of all the warrants is approximately
$20,223,615.
These
proceeds would be received from time to time as warrants are exercised, and
we
will use these proceeds for working capital needs.
Our
allocation of proceeds represents our best estimate based upon the expected
exercise of warrants and the requirements of our proposed business and marketing
plan. If any of these factors change, we may reallocate some of the net
proceeds. The portion of any net proceeds not immediately required will be
invested in certificates of deposit or similar short-term interest bearing
instruments.
The
following table provides information with respect to shares offered by the
selling stockholders:
|
Selling
stockholder
|
Shares
for sale
|
Shares
Underlying Warrants or Preferred Stock
|
Shares
before offering
|
Percent
before offering (1)
|
Shares
after offering
|
Percent
after offering (1)
|
|||||||||||||
|
Barron
Partners LP
|
-0-
|
314,874,299
(2
|
)
|
-0-
|
-0-
|
%
|
-0-
|
-0-
|
%
|
||||||||||
|
Prospect
Financial Advisors,
LLC
|
-0-
|
2,850,000
(3
|
)
|
-0-
|
-0-
|
%
|
-0-
|
-0-
|
%
|
||||||||||
|
The
Lebrecht Group, APLC
(4)
|
138,888
|
-0-
|
832,530
|
3.1
|
%
|
693,642
|
2.6
|
%
|
|||||||||||
|
GCA
Strategic Investment
Fund Limited
|
-0-
|
16,100,000
(5
|
)
|
14,570,619
|
55.1
|
%
|
14,570,619
|
55.1
|
%
|
||||||||||
|
Global
Capital Advisors, LLC
|
-0-
|
100,000
(6
|
)
|
100,000
|
<
1
|
%
|
100,000
|
<
1
|
%
|
||||||||||
|
Global
Capital Funding Group LP
|
-0-
|
24,000,000
(7
|
)
|
622,985
|
2.4
|
%
|
622,985
|
2.3
|
%
|
||||||||||
|
Pamplona
Capital, Inc.
|
709,398
|
-0-
|
709,398
|
2.7
|
%
|
-0-
|
-0-
|
%
|
|||||||||||
|
Ronald
Muschetta
|
-0-
|
70,833
(8
|
)
|
-0-
|
-0-
|
%
|
-0-
|
-0-
|
%
|
||||||||||
|
P.
Tony Polyviou
|
-0-
|
70,833
(8
|
)
|
-0-
|
-0-
|
%
|
-0-
|
-0-
|
%
|
||||||||||
|
Andrew
Gonchar
|
-0-
|
70,834
(8
|
)
|
-0-
|
-0-
|
%
|
-0-
|
-0-
|
%
|
||||||||||
|
Brian
K. Coventry
|
-0-
|
212,500
(8
|
)
|
-0-
|
-0-
|
%
|
-0-
|
-0-
|
%
|
||||||||||
|
Michael
Shumacher
|
-0-
|
37,500
(8
|
)
|
-0-
|
-0-
|
%
|
-0-
|
-0-
|
%
|
||||||||||
|
Allan
M. Levine
|
-0-
|
37,500
(8
|
)
|
-0-
|
-0-
|
%
|
-0-
|
-0-
|
%
|
||||||||||
|
Total
|
848,286
|
358,424,299
|
16,835,532
|
63.2
|
%
|
15,987,246
|
60.0
|
%
|
|||||||||||
| * |
Less
than 1%
|
|
(1)
|
Based
on 26,835,808 shares outstanding.
|
|
(2)
|
Includes
up to 125,874,299 shares of common stock which may be acquired
upon the
exercise of warrants, and 189,000,000 shares of common stock which
may be
acquired upon conversion of 2,500,000 shares of Series B Convertible
Preferred Stock.
|
|
(3)
|
Includes
2,850,000 shares of common stock which may be acquired upon the
exercise
of warrants.
|
|
(4)
|
Includes
138,888 shares issued as compensation for legal services rendered
in
connection with the registration statement. The Lebrecht Group,
APLC is
legal counsel to Speedemissions.
|
| (5) |
Includes
16,100,000 shares of common stock which may be acquired upon the
exercise
of warrants.
|
| (6) |
Includes
100,000 shares of common stock which may be acquired upon the exercise
of
warrants.
|
| (7) |
Includes
24,000,000 shares of common stock which may be acquired upon the
exercise
of warrants.
|
| (8) |
Includes
shares of common stock which may be acquired upon the exercise
of
warrants.
|
The
selling stockholders have advised us that the sale or distribution of our
common
stock owned by the selling stockholders may be effected by the selling
stockholders as principals or through one or more underwriters, brokers,
dealers
or agents from time to time in one or more transactions (which may involve
crosses or block transactions) (i) on the over-the-counter market or on any
other market in which the price of our shares of common stock are quoted
or (ii)
in transactions otherwise than in the over-the-counter market or in any other
market on which the price of our shares of common stock are quoted. Any of
such
transactions may be effected at market prices prevailing at the time of sale,
at
prices related to such prevailing market prices, at varying prices determined
at
the time of sale or at negotiated or fixed prices, in each case as determined
by
the selling stockholders or by agreement between the selling stockholders
and
underwriters, brokers, dealers or agents, or purchasers. If the selling
stockholders effect such transactions by selling their shares of common stock
to
or through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders or commissions from purchasers
of
common stock for whom they may act as agent (which discounts, concessions
or
commissions as to particular underwriters, brokers, dealers or agents may
be in
excess of those customary in the types of transactions involved).
We
will
pay all expenses in connection with the registration and sale of the common
stock by the selling security holders, who may be deemed to be underwriters
in
connection with their offering of shares. The estimated expenses of issuance
and
distribution are set forth below:
|
Registration
Fees
|
Approximately
|
$
|
3,300.00
|
||||
|
Transfer
Agent Fees
|
Approximately
|
$
|
1,000.00
|
||||
|
Costs
of Printing and Engraving
|
Approximately
|
$
|
1,000.00
|
||||
|
Legal
Fees
|
Approximately
|
$
|
50,000.00
|
||||
|
Accounting
Fees
|
Approximately
|
$
|
5,000.00
|
||||
|
Total
|
$
|
60,300.00
|
Under
the
securities laws of certain states, the shares of common stock may be sold
in
such states only through registered or licensed brokers or dealers. The selling
stockholders are advised to ensure that any underwriters, brokers, dealers
or
agents effecting transactions on behalf of the selling stockholders are
registered to sell securities in all fifty states. In addition, in certain
states the shares of common stock may not be sold unless the shares have
been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and we have complied with them. The selling
stockholders and any brokers, dealers or agents that participate in the
distribution of common stock may be considered underwriters, and any profit
on
the sale of common stock by them and any discounts, concessions or commissions
received by those underwriters, brokers, dealers or agents may be considered
underwriting discounts and commissions under the Securities Act of
1933.
In
accordance with Regulation M under the Securities Exchange Act of 1934, neither
we nor the selling stockholders may bid for, purchase or attempt to induce
any
person to bid for or purchase, any of our common stock while we or they are
selling stock in this offering. Neither we nor any of the selling stockholders
intends to engage in any passive market making or undertake any stabilizing
activity for our common stock. None of the selling stockholders will engage
in
any short selling of our securities. We have been advised that under the
rules
and regulations of the NASD, any broker-dealer may not receive discounts,
concessions, or commissions in excess of 8% in connection with the sale of
any
securities registered hereunder.
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 be 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.
The
following table sets forth the names and ages of the current directors and
executive officers of the Company, the director nominees, and the principal
offices and positions with the Company held by each person and the date such
person became a director or executive officer of the Company. The executive
officers of the Company are elected annually by the Board of Directors. The
directors serve one-year terms until their successors are elected. The executive
officers serve terms of one year or until their death, resignation or removal
by
the Board of Directors. Unless described below, there are no family
relationships among any of the directors and officers, and none of our officers
or directors serves as a director of another reporting issuer.
|
Name
|
Age
|
Position(s)
|
||
|
Richard
A. Parlontieri
|
59
|
Director,
President, and Secretary (2003)
|
||
|
Bahram
Yusefzadeh
|
59
|
Director
(2003)
|
||
|
Bradley
A. Thompson
|
41
|
Director
(2003)
|
||
|
Larry
C. Cobb
|
55
|
Chief
Financial Officer (2005)
|
||
|
Erik
Sander
|
44
|
Director
(2005)
|
||
|
Ernest
A. Childs, PhD.
|
58
|
Director
(2005)
|
Richard
A. Parlontieri
was
appointed to our Board of Directors and as an officer in connection with
the
acquisition of Speedemissions, Inc., a Georgia corporation, our subsidiary
of
which Mr. Parlontieri is a founder and President/CEO. He was the founder,
Chairman and Chief Executive Officer of ebank.com, Inc., a publicly held
bank
holding company headquartered in Atlanta. ebank, which began as a traditional
bank designed to deliver banking services in a non-traditional way, was the
first internet bank to provide banking services focusing on small business
owners. The Company opened in August 1998, and was named one of “The Best 100
Georgia Companies” in May 2000, by the Atlanta-Journal
Constitution.
Prior
to
starting ebank, Mr. Parlontieri was President/CEO of Habersham Resource
Management, Inc., a consulting firm with over 16 years experience in the
financial services, mortgage banking, real estate, home health care and capital
goods industries. While at Habersham, Mr. Parlontieri co-founded and organized
banks (including Fayette County Bank which was sold to Regions Financial
Corporation) and completed strategic acquisitions or divestitures for banks,
mortgage companies and real estate projects.
Mr.
Parlontieri currently serves on the Georgia Emissions Industry Advisory Board
as
Secretary. He also is a member of the Georgia Emissions Testing Association
(GETA). Over the past several years he has spoken or given presentations
at
various conferences concerning the financial services industry and the Internet.
These include the American Banker Online Financial Services in Cyberspace
Conference, the Phoenix International Users Banking Conference, GE Capital
Management Conference and the eFinancial World Conference.
Mr.
Parlontieri is an active participant in community and civic organizations,
including serving as a three-term city councilman in suburban Atlanta, a
past
two-term President of the local chapter of the American Heart Association,
and
was an Organizer/Director of the suburban YMCA.
Bahram
Yusefzadeh was
elected to our Board of Directors at our annual shareholders meeting in August
2003. Mr. Yusefzadeh is currently the founder and Managing Director of V2R,
LLC.
V2R is a strategic, multi-faceted consulting firm that assists both United
States and international organizations with increasing their value and
accelerating their growth through C-Level services and capital investment.
To
further support their clients, V2R provides strategic management services
across
mission critical business areas, including sales and marketing, finance,
legal,
and human resources management.
A
seasoned businessman and entrepreneur, Mr. Yusefzadeh’s career began in 1969
when he co-founded a banking software company, Nu-Comp Systems, Inc., and
developed the Liberty Banking System. This system was marketed by IBM as
the IBM
Banking System from 1981 through 1985. He served as Nu-Comp’s Chief Executive
Officer and President through Broadway & Seymour, Inc.’s acquisition of the
company in June 1986 and remained with Broadway & Seymour as their Chairman
of the Board through November 1986.
From
1986
to 1992, he served in various capacities at The Kirchman Corporation, first
as
President of the product and marketing strategies division, where he was
instrumental in bringing innovative bank automation products to market. He
later
served as President of both the independent banking group, which focused
on
delivering products in-house, and the outsourcing division, where the focus
was
on data center operations.
In
1993,
he founded Phoenix International, a provider of integrated, client/server
based
software applications for the global financial services industry. Mr. Yusefzadeh
served as their Chairman and Chief Executive Officer and was instrumental
in
Phoenix’s successful initial public offering in 1996, secondary offering in 1997
and acquisition by London Bridge Software Holdings plc in 2001.
Mr.
Yusefzadeh has also provided his expertise to numerous boards. From 1997
to
2001, he served on the board of Towne Services, Inc. (now merged with Private
Business, Inc.), a provider of a merchant sales and payment transaction
processing system. He also chaired Towne Services’ audit committee and was a
member of the compensation committee.
Today,
Mr. Yusefzadeh serves as a member of an advisory board to Capital Appreciation
Partners, a venture fund that invests in stage II technology focused companies
in the United States. He is also Chairman of the Board of Trustees for the
International Center for Automated Information Research, a capital fund
sponsored by the University of Florida College of Law and the Warrington
Graduate School of Business that invests in early stage technology companies
focused on enhancing the law and accounting professions.
Throughout
his career, Mr. Yusefzadeh has been dedicated to community involvement. Prior
to
moving to Central Florida, he actively participated in various economic and
community development organizations in Minneapolis. Since joining the Central
Florida community, he has served as director of the Seminole County/Lake
Mary
Chamber of Commerce and co-chair of the Economic Development Counsel Technology
Roundtable. He has also funded an Endowed Teaching Chair at Seminole Community
College and serves on the advisory boards for the Central Florida Festival
of
Orchestra and BETA Center.
Bradley
A. Thompson, CFA was
elected to our Board of Directors at our annual shareholders meeting in August
2003. Mr. Thompson is currently the Chief Investment Officer and Chief Financial
Analyst for Global Capital Advisors, LLC, an affiliate of GCA Strategic
Investment Fund, Limited. Mr. Thompson is also the Chief Operating Officer
and
Secretary for Global Capital Management Services, Inc. the Corporate General
Partner and Managing Partner of Global Capital Funding Group, LP, a licensed
SBIC.
Mr.
Thompson, born August 15, 1964, has over 18 years of experience in commercial
banking, investment management, bond credit underwriting, financial analysis,
and business management. Mr. Thompson received his Bachelors of Business
Administration degree in Finance from the University of Georgia in 1986.
Mr.
Thompson also holds the Chartered Financial Analyst (CFA) designation sponsored
by the CFA institute.
Mr.
Thompson began his career in banking with Trust Company Bank, now SunTrust
Bank,
as a financial analyst. He later joined the firm of Merrill Lynch, Pierce
Fenner
& Smith in the securities industry managing retirement, profit sharing,
pension, trust, and individual investment portfolios. While at Merrill Lynch,
Mr. Thompson received his NASD Series 7 (General Securities) and Series 63
(State Securities) License, both of which have now expired. Mr. Thompson
subsequently performed the duties of financial analyst and bond underwriter
for
SAFECO Insurance Company of America. At SAFECO, Mr. Thompson was responsible
for
the financial analysis and credit evaluations of the prospective and current
bond accounts, and was ultimately responsible for the credit decision with
a
single line of credit approval authority ranging from $1 million to $10 million
and an aggregate line of authority on specific accounts in excess of $175
million.
Prior
to
joining GCA, Mr. Thompson was self-employed managing his own small business
enterprises. Mr. Thompson was the President and sole owner of Time Plus,
an
automated payroll accounting services firm for small to mid sized companies.
Mr.
Thompson successfully negotiated the sale of Time Plus, a sole proprietorship,
for a 328% annualized return on investment. Mr. Thompson was also 50% owner
and
Vice President, Chief Financial Officer of AAPG, Inc., a specialty retail
sporting goods firm. Mr. Thompson has since sold his interest in AAPG,
Inc.
Mr.
Thompson currently serves as a Director on the Board of GCA Strategic Investment
Fund, and he is a former Director of Axtive Inc., a publicly traded technology
consulting firm that acquires and operates various technology product and
service companies and a former Director and Secretary on the Board of Directors
of AdMark Systems, LLC., a privately held marketing firm.
Larry
C. Cobb
was
hired as our Chief Financial Officer on April 15, 2005. Mr. Cobb is the
principal of CFO-ON-CALL of Georgia, Inc. and has held this position since
1994.
Through CFO-ON-CALL of Georgia, Inc., Mr. Cobb uses his expertise in accounting
to consult with companies regarding their internal accounting processes and
preparation of financial statements to assist the companies with a variety
of
transactions, including reorganizations, sale of the business, mergers and
acquisitions, and Securities Act of 1933 and Securities Exchange Act of 1934
compliance. Mr. Cobb has consulted and worked with numerous private and public
companies, including industries ranging from automotive services, hardware
and
construction, healthcare advertising, and electronics manufacturing. Mr.
Cobb
received a Bachelor of Science in Accounting from Mississippi State University,
and a Master of Professional Accountancy from Georgia State
University.
Erik
Sander
was
appointed to fill a vacancy on our Board of Directors effective on May 26,
2005.
Mr. Sander is currently the Director of Industry Programs at the University
of
Florida College of Engineering, a position he has held since 2000, and he
is a
member of the faculty and a frequent lecturer there as well as at the College
of
Business. He also has, since 1997, provided consulting services in the areas
of
university/government/industry collaborations, technology transfer, and business
start-up and growth for a wide variety of industrial, academic and federal
government clients. Finally, Mr. Sander is currently a technical advisor
and one
of the co-founders of Diversified Mobility, Inc., a designer and marketer
of
mobilized powerlift platforms. His past positions include Associate Director
for
Industrial Collaboration and Technology Transfer at the University of Florida
Engineering Research Center and Director of Business Development and Principal
at Cenetec Ventures, LLC. Mr. Sander received a Bachelor of Science in
Mechanical Engineering from the University of Florida and a Master of Science
in
Management of Technology from the University of Alabama in
Huntsville.
Ernest
A. Childs, PhD.
joined
our Board of Directors at our annual shareholders meeting in August 2005.
Mr.
Childs is currently the Chief Executive Officer of ArcheaSolutions, Inc.,
a
position he has held since 2000. ArcheaSolutions is a privately held
environmental company that specializes in solutions for wastewater processing
problems. Prior to joining ArcheaSolutions, Dr. Childs was the Chief Executive
Officer of Benesys, Inc. and Equity Development, Inc. Benesys was a benefit
consulting company for companies in the health care industry and Equity
Development was a consulting company that specialized in assisting people
injured in major work and traffic accidents. Dr. Childs received his Bachelor
of
Science from the University of Tennessee in 1968, his Masters of Science
from
the University of Tennessee in 1969, and his Doctorate from the University
of
Georgia in 1971.
Board
Committees
On
August
26, 2003, an Audit Committee, established in accordance with section 3(a)(58)(A)
of the Exchange Act, of the Board of Directors was formed. The Audit Committee
has held two meetings in 2003 and one meeting in 2004. In accordance with
a
written charter adopted by the Company’s Board of Directors, the Audit Committee
assists the Board of Directors in fulfilling its responsibility for oversight
of
the quality and integrity of the Company’s financial reporting process,
including the system of internal controls. The directors who are currently
members of the Audit Committee are Bradley A. Thompson, Bahram Yusefzadeh,
and
Erik Sander, with Mr. Thompson and Mr. Yusefzadeh considered audit committee
financial experts, and with Mr. Thompson and Mr. Sander considered independent
directors under Section 121(A) of the AMEX listing standards.
On
August
26, 2003, a Compensation Committee of the Board of Directors was formed.
The
Compensation Committee currently consists of Bradley A. Thompson, Bahram
Yusefzadeh, and Erik Sander. The Compensation Committee has held one meeting
in
2003 and one meeting in 2004, and has approved the employment agreement and
other compensation of Richard Parlontieri.
The
following table sets forth, as of November 15, 2005, certain information
with
respect to the Company’s equity securities owned of record or beneficially by
(i) each Officer and Director of the Company; (ii) each person who owns
beneficially more than 5% of each class of the Company’s outstanding equity
securities; and (iii) all Directors and Executive Officers as a
group.
|
Common
Stock
|
||||||||||
|
Title
of Class
|
Name
and Address of Beneficial
Owner
|
Amount
and Nature of
Beneficial
Ownership
|
Percent
of
Class (1)
|
|||||||
|
Common
Stock
|
GCA
Strategic Investment Fund Ltd (2)
c/o
Prime Management Ltd
Mechanics
Bldg 12 Church St. HM11
Hamilton,
Bermuda HM 11
|
64,203,940
(3
|
)
|
84.0
% (3
|
)
|
|||||
|
Common
Stock
|
Global
Capital Funding Group, LP
106
Colony Park Drive, Suite 900
Cumming,
GA 30040
|
36,364,547
(10
|
)
|
58.1
% (10
|
)
|
|||||
|
Common
Stock
|
Richard
A. Parlontieri (4)
1029
Peachtree Parkway North
Suite
310
Peachtree
City, GA 30269
|
2,639,996
(5
|
)
|
9.2
% (5
|
)
|
|||||
|
Common
Stock
|
Bahram
Yusefzadeh (4)
2180
West State Road
Suite
6184
Longwood,
FL 32779
|
311,000
(6
|
)
|
1.2
% (6
|
)
|
|||||
|
Common
Stock
|
Bradley
A. Thompson (4)(7)
227
King Street
Frederiksted,
USVI 00840
|
103,500
(7)(8
|
)
|
<1
% (8
|
)
|
|||||
|
Common
Stock
|
Erik
Sander (4)
c/o
Speedemissions, Inc.
1134
Senoia Road, Suite B2
Tyrone,
GA 30290
|
25,000
(9
|
)
|
<1
% (9
|
)
|
|||||
|
Common
Stock
|
Larry
C. Cobb
c/o
Speedemissions, Inc.
1134
Senoia Road, Suite B2
Tyrone,
GA 30290
|
-0-
|
-0-
|
|||||||
|
Common
Stock
|
Ernest
A. Childs, PhD (4)
c/o
Speedemissions, Inc.
1134
Senoia Road, Suite B2
Tyrone,
GA 30290
|
25,000
(9
|
)
|
<1
% (9
|
)
|
|||||
|
All
Officers and Directors as
a Group
(6
Persons)
|
3,104,496
(5)(6)(7)(8)(9
|
)
|
10.6
%
(5)(6)(8)(9
|
)
|
||||||
|
(1)
|
Unless
otherwise indicated, based on 26,835,808 shares of common stock
outstanding. Shares of common stock subject to options or warrants
currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person
holding
such options or warrants, but are not deemed outstanding for purposes
of
computing the percentage of any other
person.
|
|
(2)
|
Global
Capital Advisors, LLC (“Global”), the investment advisor to GCA Strategic
Investment Fund Limited (“GCA”), has sole investment and voting control
over shares held by GCA. Mr. Lewis Lester is the sole voting member
of
Global.
|
|
(3)
|
Includes
31,033,321 shares of common stock which may be acquired upon conversion
of
3,724 shares of Series A Convertible Preferred Stock. Also includes
18,600,000 shares of common stock which may be acquired upon the
exercise
of warrants at $0.12 per share.
|
| (4) |
Indicates
a Director of the Company.
|
|
(5)
|
Includes
10,000 shares of common stock which may be acquired upon the exercise
of
options at $0.25 per share. Includes 300,000 shares of common stock
which
may be acquired upon the exercise of options at $0.25 per share,
which are
part of a grant of 400,000 options, with 100,000 options vesting
on
October 1, 2004 and the remaining 200,000 options vesting equally
on
October 1, 2005, and 2006. Includes 300,000 shares which may be
acquired
upon the exercise of warrants at $0.75 per share, which are part
of a
grant of 450,000 warrants, with the remaining 150,000 warrants
vesting on
January 1, 2006. Includes 300,000 shares which may be acquired
upon the
exercise of warrants at $1.05 per share, which are part of a grant
of
450,000 warrants, with the remaining 150,000 warrants vesting on
January
1, 2006. Includes 250,000 shares which may be acquired upon the
exercise
of warrants at $0.25 per share. Includes 30,000 shares of common
stock
which may be acquired upon the exercise of options at $0.25 per
share.
Includes 924,996 shares of common stock owned of record by Calabria
Advisors, LLC, an entity controlled by Mr.
Parlontieri.
|
|
(6)
|
Includes
85,000 shares of common stock which may be acquired upon the exercise
of
options at $0.25 per share. Includes 25,000 shares which may be
acquired
upon the exercise of warrants at $0.01 per share and 100,000 shares
which
may be acquired upon the exercise of warrants at $0.25 per
share.
|
|
(7)
|
Mr.
Thompson is a director of GCA Strategic Investment Fund Limited,
and
disclaims beneficial ownership of the shares held by
them.
|
|
(8)
|
Includes
85,000 shares of common stock which may be acquired upon the exercise
of
options at $0.25 per share.
|
|
(9)
|
Includes
25,000 shares of common stock which may be acquired upon the exercise
of
options at $0.20 per share.
|
|
(10)
|
Includes
11,741,662 shares of common stock which may be acquired upon conversion
of
1,409 shares of Series A Convertible Preferred Stock. Also includes
24,000,000 shares of common stock which may be acquired upon the
exercise
of warrants at $0.12 per share.
|
There
are
no current arrangements that will result in a change in control.
|
Preferred
Stock
|
||||||||||
|
Title
of Class
|
Name
and Address of Beneficial
Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of
Class
|
|||||||
|
Series
A Convertible Preferred Stock
|
GCA
Strategic Investment Fund Ltd
c/o
Prime Management Ltd
Mechanics
Bldg 12 Church St. HM11
Hamilton,
Bermuda HM 11
|
3,724
|
72.5
|
%
|
||||||
|
Series
A Convertible Preferred Stock
|
Global
Capital Funding Group, LP
106
Colony Park Drive, Suite 900
Cumming,
GA 30040
|
1,409
|
27.5
|
%
|
||||||
|
Series
B Convertible Preferred Stock
|
Barron
Partners LP
c/o
Barron Capital Advisors, LLC
Managing
Partner
Attn:
Andrew Barron Worden
730
Fifth Avenue, 9th Floor
New
York, NY 10019
|
2,500,000
|
100
|
%
|
||||||
Our
authorized capital stock consists of 250,000,000 shares of common stock,
par
value $0.001, and 5,000,000 shares of preferred stock, par value $0.001.
As of
November 15, 2005, there are 26,835,808 shares of our common stock issued
and
outstanding, and 2,502,500 shares of our preferred stock issued and
outstanding.
On
August
23, 2005, our shareholders approved an increase in our authorized common
stock
from 100,000,000 shares to 250,000,000 shares, however, this is not enough
to
allow for the conversion of all of our outstanding preferred stock and the
exercise of all of our outstanding options and warrants. We are contractually
obligated to increase our authorized common stock to an amount sufficient
to
allow for all conversions and exercises by March 31, 2006, and intend to
do
so.
Common
Stock.
Each
shareholder of our common stock is entitled to a pro rata share of cash
distributions made to shareholders, including dividend payments. The holders
of
our common stock are entitled to one vote for each share of record on all
matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of our directors or any other matter. Therefore,
the
holders of more than 50% of the shares voted for the election of those directors
can elect all of the directors. The holders of our common stock are entitled
to
receive dividends when and if declared by our Board of Directors from funds
legally available therefore. Cash dividends are at the sole discretion of
our
Board of Directors. In the event of our liquidation, dissolution or winding
up,
the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of our liabilities
and after provision has been made for each class of stock, if any, having
any
preference in relation to our common stock. Holders of shares of our common
stock have no conversion, preemptive or other subscription rights, and there
are
no redemption provisions applicable to our common stock.
Dividend
Policy.
We have
never declared or paid a cash dividend on our common stock and we do not
expect
to pay cash dividends on our common stock in the foreseeable future. We
currently intend to retain our earnings, if any, for use in our business.
Any
dividends declared on our common stock in the future will be at the discretion
of our Board of Directors and subject to any restrictions that may be imposed
by
our lenders.
Neither
our Series A Convertible Preferred Stock nor our Series B Preferred Stock
pays a
dividend.
Preferred
Stock.
We are
authorized to issue 5,000,000 shares of preferred stock, par value $0.001.
In
January 2004, we designated 3,500 shares as Series A Convertible Preferred
Stock. In November 2005, we increased the designation of our Series A
Convertible Preferred Stock to 6,000 shares. There are 5,133 shares of Series
A
Convertible Preferred Stock issued and outstanding. Each share of Series
A
Convertible Preferred Stock is convertible into 8,333.33 shares of our common
stock. Upon certain changes in control, we could be required to redeem the
Series A preferred stock at its original issue price of $1,000 per
share.
In
July
2005, we designated 3,000,000 shares of Series B Convertible Preferred Stock,
of
which 2,500,000 are issued and outstanding. Each share is convertible into
75.6
shares of our common stock, or 189,000,000 shares of common stock in the
aggregate. The Series B Convertible Preferred Stock does not pay a
dividend.
The
availability or issuance of preferred shares in the future could delay, defer,
discourage or prevent a change in control.
Stock
Option Plans.
On
May
15, 2001, our directors and shareholders approved the SKTF, Inc. 2001 Stock
Option Plan, effective June 1, 2001. At our annual shareholders meeting on
August 27, 2003, our shareholders approved an amendment to the plan, changing
its name to the Speedemissions, Inc. 2001 Stock Option Plan, and increasing
the
number of shares of our common stock available for issuance under the plan
from
600,000 shares to 1,000,000 shares. The plan offers selected employees,
directors, and consultants an opportunity to acquire our common stock, and
serves to encourage such persons to remain employed by us and to attract
new
employees. As of November 15, 2005, we have issued 50,000 shares of stock
and
options to acquire another 816,750 shares under the plan.
On
July
8, 2005, our directors and shareholders approved the Speedemissions, Inc.
2005
Omnibus Stock Grant and Option Plan. There are 2,500,000 shares of our common
stock available for issuance under the plan. On September 1 of each year,
the
number of shares in the Plan shall automatically be adjusted to an amount
equal
to ten percent (10%) of the outstanding stock of the Company on August 31
of the
immediately preceding year. The plan offers selected employees, directors,
and
consultants an opportunity to acquire our common stock, and serves to encourage
such persons to remain employed by us and to attract new employees. As of
November 15, 2005, we have not issued any shares or options under the
plan.
Transfer
Agent.
The
transfer agent for our common stock is Interwest Transfer Company, Inc.,
1981 -
4800 South, Suite 100, Salt Lake City, Utah 84117, telephone number (801)
272-9294.
The
Lebrecht Group, APLC serves as our legal counsel in connection with this
offering. As of November 15, 2005, The Lebrecht Group is the owner of 832,530
shares of our common stock.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Article
X
of our Articles of Incorporation provides that, to the fullest extent permitted
by law, no director or officer shall be personally liable to us or our
shareholders for damages for breach of any duty owed to us or our shareholders.
In addition, we have the power, in our bylaws or in any resolution of our
stockholders or directors, to indemnify our officers and directors against
any
liability as may be determined to be in our best interest, and in conjunction
therewith, to buy, at our expense, policies of insurance. Our bylaws do not
further address indemnification.
We
have
entered into separate indemnification agreements with each of our current
directors.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
“Act”) may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise,
the
small business issuer has been advised that in the opinion of the Securities
and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Introduction
We
were
incorporated as SKTF Enterprises, Inc. in the State of Florida on March 27,
2001. Effective September 5, 2003, after our acquisition of our wholly owned
subsidiary, we changed our name to Speedemissions, Inc.
Our
original business plan was to develop, market and distribute branded and
licensed hats and clothing at major events such as sporting events, concerts,
and conventions. However, our management abandoned our original business
plan,
and on June 16, 2003, we acquired Speedemissions, Inc., a Georgia
corporation.
Our
Principal Services and Markets
We
currently operate thirty-five vehicle emissions testing centers in three
separate markets, greater Atlanta, Georgia, Houston, Texas, and Salt Lake
City,
Utah. In addition, we operate four mobile testing units in the greater Atlanta
area.
Recent
Acquisitions
On
January 21, 2004, we acquired all of the assets of the businesses known and
operated as NRH Enterprises/Procam Emissions and Georgia Emissions, which
consisted primarily of five emissions testing centers in the Atlanta, Georgia
area.
On
January 30, 2004, we acquired all of the assets of the businesses known and
operated as $20 Emission, which consisted primarily of seven emissions testing
centers in the Atlanta, Georgia area.
On
June
11, 2004, we acquired all of the assets of BB&S Emissions, LLC, consisting
of one emissions testing center in the Atlanta, Georgia area.
On
December 2, 2004, we acquired five mobile testing units from State Inspections
of Texas, Inc., and on December 30, 2004, we acquired the remainder of their
assets, consisting of six emissions testing centers in the Houston, Texas
area.
On
June
30, 2005, we acquired six emissions testing centers in the Houston, Texas
area
when we acquired Mr. Sticker, Inc., a Texas corporation and now our wholly-owned
subsidiary.
On
September 8, 2005, we acquired eight emissions testing centers in the Salt
Lake
City, Utah area when we acquired Just, Inc., a Utah corporation and now our
wholly-owned subsidiary.
Our
Typical Site
The
typical testing site is located inside of a structure similar to a typical
lube
or tire change garage with doors at both ends so vehicles can “drive-through”
the facility. We also have structures that resemble a bank drive-through
facility. A computerized testing system is located in the building. There
are
two types of primary tests that are performed, the Accelerated Simulated
Model
(ASM) and the On-Board Diagnostic (OBD). In selected markets a vehicle safety
inspection must also be performed. These tests apply to vehicles generally
manufactured from 1980 through 2001, depending on the state. The ASM test
is
done on vehicles 1995 and older, while the OBD test is conducted on vehicles
1996 and newer. In all new sites, we expect to operate two testing lanes.
The
cost of equipment for operating one ASM and two OBD machines is approximately
$50,000. The cost of facilities varies, depending on location and market
rates
in that area. Generally, we do not expect to own any land or buildings. Instead,
although we own the land and building at one of our sites, in the future
we
intend to lease or sublease all of the land and the buildings that we use
in our
business. We expect the total cost for a new emissions testing site will
be
approximately $150,000, including emission testing equipment and related
installation, deposits and prepaid items such as certificates, furniture
and
office equipment, renovations if necessary, signage, and capital necessary
to
fund operations during the first year. Such amount does not include future
years’ costs, such as rent and utilities or other operating costs.
Under
the
guidelines of the Georgia Clean Air Force program, the mobile vehicle emission
testing units are only permitted to conduct the OBD test on 1996 and newer
vehicles. We currently have five units and they serve the automobile fleets
of
the federal, state, and local governments. Also, all used cars, prior to
being
re-sold, must have a vehicle emission test, and thus we serve both the new
and
used car dealers throughout the greater Atlanta market. Finally, these units
serve the fleets of major corporate customers as well. The start-up cost
for the
mobile testing unit is about 60% less than the cost of a typical
brick-and-mortar location. As a result, they are a more profitable operating
unit.
Our
Growth Strategy
Our
objective is to become a national provider of vehicle emissions tests and
safety
inspections where applicable.
We
intend
to grow using three methods. First, we intend to continue opening and operating
company-owned testing stations. Second, we intend to continue acquiring
competitors in favorable markets. Third, we intend to offer franchises in
selected markets. Currently, in addition to the Atlanta, Houston and Salt
Lake
City areas, we have targeted the following areas for application of our three
growth strategies: Dallas, Texas; Charlotte, North Carolina; Northern Virginia;
Pittsburgh and Philadelphia, Pennsylvania; Southern California; New York
City;
and Boston, Massachusetts. We intend to create brand awareness in each of
these
areas through a standard building style and facade, consistent color schemes,
signs, employee uniforms, and limited local advertising.
Industry
Background - Government and Regulatory Overview
Presently,
the American Automobile Motor Vehicle Association reports that 34 states
and the
District of Columbia are required by the United States Environmental Protection
Agency to have vehicle emissions testing. According to the 2000 census, these
states constitute 72% of the U.S. population, or about 206 million citizens.
The
major metropolitan areas of these states represent 141 million citizens and
87.1
million vehicles. Each state, in turn, has its own regulatory structure for
emissions testing with which we must comply.
Public
awareness of air pollution and its hazardous effects on human health and
the
environment has increased in recent years. The U.S. Environmental Protection
Agency estimates that in the United States alone approximately 46 million
persons live in areas where air quality levels fail to meet the EPA’s national
air quality standards. Increased awareness of air pollution and its hazardous
effects on human health and the environment has led many governmental
authorities to pass more stringent pollution control measures. One especially
effective measure that many governmental authorities have adopted is vehicle
emissions testing. Vehicle emissions produce approximately 35% to 70% of
the
ozone air pollution and nearly all of the carbon monoxide air pollution in
metropolitan areas. The EPA estimates that enhanced emissions testing on
motor
vehicles is approximately 10 times more cost-effective in reducing air pollution
than increasing controls on stationary pollution sources such as factories
and
utilities. Consequently, the EPA has made emissions testing an integral part
of
its overall effort to reduce air pollution by ensuring that vehicles meet
emissions standards.
In
general, these vehicle emissions tests are performed either in a centralized
program or in a decentralized program. In a centralized program, a select
number
of emissions testing operators are licensed by the state or are operated
by
certain states to perform vehicle emissions testing. These operators are
authorized to perform emissions tests, but generally they are prohibited
from
repairing vehicles that fail to pass an emissions test.
On
the
other hand, in a decentralized program, a wider range of persons may perform
emissions tests, including those engaged primarily in other businesses, such
as
automotive repair shops, automobile dealers and others. For many of these
operators, performing emissions tests is not their primary
business.
The
EPA
has granted state governmental authorities the discretion to determine how
best
to establish and operate a network of emissions testing facilities, including
the flexibility to choose either a centralized or a decentralized program.
Nineteen states have implemented decentralized programs and twelve states
and
the District of Columbia have implemented centralized programs. There are
three
states that have implemented a hybrid program, whereby there are both
decentralized and centralized testing stations. The percentage of programs
that
are either centralized or decentralized has remained relatively constant
since
1991.
Vehicle
emissions control requirements have become progressively more stringent since
the passage of the Clean Air Act in 1970. The 1990 Amendments, in particular,
emphasized the need for effective emissions control programs and, in 1992,
the
EPA adopted regulations that required areas across the United States to
implement certain types of emissions control programs by certain dates,
depending on the area's population and their respective levels of air pollution.
The EPA has the authority under the Clean Air Act to withhold non-safety
related
federal highway funds from states that fail to implement such mandated programs
by prescribed deadlines. To date, the EPA has been willing, in certain
circumstances, to grant extensions of these deadlines. However, there are
also
examples where it has withheld non-safety related highway funding. This occurred
for a period of two years in Georgia because of Atlanta’s high vehicle emissions
(New York Times, January 4, 2001).
More
recently, on July 31, 1998, the EPA issued a final study that concluded that
more stringent air quality standards for motor vehicle emissions are needed,
and
that such standards should be implemented as it becomes technologically feasible
and cost-effective to do so. We believe that the setting of such standards
will
be the most important EPA regulatory initiative affecting motor vehicles
since
the passage of the 1990 Amendments. We believe that the EPA study is likely
to
result in more stringent standards that will have the effect of increasing
the
number of areas that must implement emissions testing programs and thereby
potentially increasing the market for our service.
Since
1977, when federal legislation first required states to comply with emissions
standards through the use of testing programs, California has been a leader
in
testing procedures and technical standards. California has approximately
23
million vehicles subject to emissions testing, more than two times that of
any
other state. California’s testing program is overseen by the California Bureau
of Automotive Repair. The Bureau has revised its emissions testing standards
three times: in 1984, 1990 and, most recently, in 1997. With each of these
revisions, the Bureau has required the use of new, more sophisticated and
more
accurate emissions testing and analysis equipment, which must be certified
by
the Bureau. California’s testing standards have become the benchmark for
emissions testing in the United States. All states with decentralized programs
and many states with centralized programs require emissions testing and analysis
equipment used in their programs to be either BAR-84, BAR-90, or BAR-97
certified, with all newly implemented enhanced programs requiring BAR-97
certification.
As
emissions testing equipment has become more technologically advanced, government
regulators have required that testing facilities use this more advanced
equipment. The most significant technological advance that has occurred in
the
emissions testing industry over the past decade is the development of enhanced
testing systems. Prior to 1990, the EPA required government agencies to test
vehicles only for emissions of carbon monoxide and hydrocarbons, which form
smog. During this “basic” test, a technician inserts a probe in the vehicle’s
tailpipe while the vehicle is idling and emissions analyzers then measure
pollution levels in the exhaust. These basic tests worked well for pre-1981,
non-computerized vehicles containing carburetors because typical emission
control problems involved incorrect air/fuel mixtures and such problems increase
pollution levels in the exhaust even when the vehicle is idling.
However,
today's vehicles have different emissions problems. For tests on modern vehicles
to be effective, the equipment must measure nitrogen oxide emissions that
also
cause smog and must test the vehicle under simulated driving conditions.
The EPA
now requires these enhanced tests in the major metropolitan areas of the
34
states and the District of Columbia. A technician conducts these Accelerated
Simulated Mode (ASM) tests on a dynamometer, a treadmill-type device that
simulates actual driving conditions, including periods of acceleration,
deceleration and cruising, or the On Board Diagnostic (OBD) by plugging into
the
vehicles computerized operation system.
Emissions
Testing in the State of Georgia
As
a
result of a rapidly increasing population, which has caused the levels of
smog
to escalate sharply, the 13 counties that make up the metro Atlanta area
have
been identified by the EPA as target sites for a mandatory vehicle inspection
and maintenance program. In 1996, the Environmental Protection Division of
the
State of Georgia initiated “Georgia's Clean Air Force” program that requires
testing of certain vehicles in a 13 county area surrounding Atlanta, Georgia,
for certain emission levels. These rules are set forth in Sections 391-3-20-.01
through .22 of the Rules of the Georgia Department of Natural Resources,
Environmental Protection Division.
Georgia's
program is a decentralized program. All operators performing emissions testing
in Georgia must have their technicians attend and complete certain state
certified training, and report to the state on their emissions testing
activities every month. Testing stations may be licensed to test all vehicles,
which is known as an ALL VEHICLES WELCOME station, or only vehicles not more
than five years old, known as a NEW VEHICLES ONLY station. All the stations
we
currently operate in Georgia, are “ALL VEHICLES WELCOME” stations.
The
Georgia Clean Air Force Program initially required a basic test of exhaust
gases
every two years. In 1997, the program was changed to include enhanced testing,
which combines the simple exhaust test with a simulated road test using a
dynamometer. Prior to January 1, 2000, Georgia required that vehicles in
the 13
covered counties undergo an emissions test once every two years. In December
1999, however, Georgia amended this rule so as to require testing on an annual
basis, with an annual exemption for the three most recent model
years.
The
market for emissions testing in Georgia is highly fragmented and generally
consists of services provided by independent auto repair service providers,
service stations, oil and tire repair stores, and independent test-only
facilities. According to the State of Georgia, there were approximately 700
licensed test sites, and approximately 2,137,000 tests were performed in
Georgia
under the Georgia Clean Air Force Program during the calendar year
2004.
Under
Georgia law, the price that a testing station may charge per test may not
be
less than $10 nor more than $25. A fee of $6.95 must be paid by the station
operator to the state. The balance of the current charge, or $18.05 assuming
the
maximum price of $25 is charged, is retained by the station operator. If
a
vehicle fails an emissions test, it may be retested at no additional charge
for
up to 30 days after the initial test, so long as the subsequent test is
performed at the same facility.
If
a
vehicle fails to pass an emissions test, the owner of the vehicle must have
repair work performed to correct the deficiency, up to a total cost of $689
under current law. If a vehicle fails a re-inspection despite the maximum
expenditure required by law, the owner must apply for a compliance waiver
from
the state.
Georgia
law mandates compliance with its vehicle emissions testing program. For vehicles
subject to the state's emissions law, a successful test, or a waiver from
the
state, is required to obtain a vehicle registration in Georgia.
Emissions
Testing in the State of Texas
The
market in Texas is highly fragmented and consists of testing services
implemented under the current guidelines in May 2002. The Texas Department
of
Public Safety manages the vehicle emissions testing and safety inspection
for
the state. The emissions tests conducted are the same as in Georgia. The
fee is
set at a maximum of $39.50 for both the emissions test and the safety
inspection. The operator is charged $8.00 for the ASM sticker, and $14.00
for
the OBD sticker. The safety inspection cost is included in these amounts.
Vehicles are required to be tested on an annual basis, with an annual exemption
for the two most recent model years. According to the American Automobile
Motor
Vehicle Association, there are 4.6 million eligible vehicles in the
state.
If
a
vehicle fails, the operator must provide a free re-test at the same facility
within 15 days. Texas also has provisions for those vehicles that cannot
pass an
emissions test, with no limit on the amount of repairs. The owner may apply
to
the state for a compliance waiver.
Texas
law
mandates compliance with its vehicle emissions and safety inspection program.
For a vehicle to obtain a sticker for yearly registration the owner must
have a
successful emissions and safety inspection, or a waiver.
Emissions
Testing in the State of Utah
The
vehicle emission testing law in Utah applies to the counties of Davis, Utah,
Salt Lake and Weber. Each county conducts its own inspection & maintenance
program. The first year is exempt from testing. The types of vehicles tested
are
gasoline in all four counties, light duty and heavy duty diesel in Davis,
Salt
Lake and Utah counties. Tests are conducted on an annual basis and due at
the
time of vehicle registration. Fees vary depending on the county with no maximum
fee set by the county. There is also a safety inspection required at the
time of
the emissions test.
Operating
Strategy
Our
operating strategy focuses on (a) increasing the number of sites we operate
in a
given market, (b) increasing the volume of business at each site, (c) creating
brand awareness for our services, and (d) creating repeat customer sales,
all of
which are designed to enhance our revenue and cash flow. To achieve these
goals,
we:
| · |
Seek
to secure and maintain multiple stations at well-traveled intersections
and other locations that are easily reachable by our
customers;
|
| · |
Coordinate
operations, training and a local outreach program in each market
to
enhance revenue and maximize cost efficiencies within each
market;
|
| · |
Implement
regional management and marketing initiatives in each of our
markets;
|
| · |
Seek
to acquire existing testing sites where significant volume potential
exists;
|
| · |
Tailor
each facility, utilize limited local advertising and the services
we offer
to appeal to the broadest range of consumers;
and
|
| · |
Recently
expanded the use of our mobile vehicle testing units by adding
a sales
manager to call on federal, state, and local governments for
their fleets,
as well as corporate accounts and car
dealers.
|
Most
of
our emissions testing stations are open for business during weekdays between
the
hours of 8:00 am and 6:00 pm, and from 8:30 am to 5:00 pm on Saturdays, for
a
total of 58.5 hours per week. Our stations are closed on Sundays. The average
emissions test in Georgia takes approximately 8 to 12 minutes to complete.
In
Texas and Utah, because of the safety inspection, the completion time is
slightly longer. Therefore, each of our stations with one testing bay can
test
anywhere from three to four vehicles per hour. Assuming steady demand throughout
the day, six days a week, each of our stations would have the capacity to
test
approximately 234 vehicles per week (58.5 hours times 4 vehicles per hour),
or
936 vehicles per month (234 vehicles per week times 4 weeks). Based upon
our
calculations involving our existing emissions stations, stations with one
testing bay need to receive payment for 450 emissions tests per month to
cover
the costs associated with its operation, while stations with two testing
bays
need 475 tests per month to break even. In addition, we do a limited (about
10%)
oil change business in six of our Texas locations.
We
currently purchase our raw materials, such as filters, hoses, etc., from
2
suppliers, and because these raw materials are readily available from a variety
of suppliers, we do not rely upon any one supplier for a material portion
of our
materials. Certificates of Emission Inspection are purchased from the Georgia
Clean Air Force, and emission and safety inspection stickers are purchased
from
the Texas Department of Public Safety and the Salt Lake Valley Health
Department.
Intellectual
Property
We
have
registered the trade name “Speedemissions” in Fulton County, Georgia, and
Austin, Texas, and are thereby authorized to conduct our business in Georgia
and
Texas under the name
“Speedemissions.” We have filed a Federal Service Mark Registration for the name
and logo of Speedemissions, Inc., and for the tag line “The Fastest Way to Keep
Your Air Clean.”
Competition
The
emissions testing industry is full of small owner-operators. Auto repair
shops,
tire stores, oil change stores, muffler shops, service stations, and other
emissions testing stations all offer the service. Competition is fierce,
and we
expect competition from local operators at all of our locations. There are
no
national competitors at this time. Our market share is too small to measure.
We
intend to compete by creating brand awareness through advertising, a standard
building style and facade, and consistent color schemes and uniforms. Because
most families own more than one vehicle, and they are required to have their
vehicle tested on a regular basis, we anticipate that we can retain repeat
customers.
Research
and Development
We
have
not spent any material amount of time or money on research and development,
and
do not anticipate doing so in the future.
Compliance
with Environmental Laws
There
are
no environmental laws applicable to the vehicle emissions and safety inspection
business.
Employees
We
currently employ 113 individuals. Of these 113 employees, eight are employed
in
administrative positions at our headquarters, including our Chief Executive
Officer, Richard A. Parlontieri, and our Chief Financial Officer, Larry C.
Cobb,
while 106 are employed on-site at our testing locations. 109 of our employees
are full-time, while four are employed on a part-time basis.
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 prospectus 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
We
currently operate 35 vehicle emissions testing centers in three separate
markets, greater Atlanta, Georgia, Houston, Texas, and Salt Lake City, Utah.
In
addition, we operate four mobile testing units in the greater Atlanta area.
Our
35 stations reflect the following changes: (a) the closing of four stations,
(b)
the acquisition of Mr. Sticker, with its six stations, (c) the acquisition
of
Just, Inc., with its eight stations, and (d) the consolidation of our mobile
testing units from seven to four units. These changes were made 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
Utah, we charge $55.00 for combined emissions and vehicle safety inspections
tests, with a slightly reduced fee of $44.00 for commercial vehicles. Fees
paid
to the county range from $4.27 to $5.60 depending on the minimum certificates
purchased in a month. In some cases, in response to competitive situations,
we
have 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, and we have completed two acquisitions
in 2005 which added fourteen testing centers. We intend to close more
acquisitions, and to open company-owned stations, throughout 2005 and
2006.
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.
Year
ended December 31, 2004 compared to the year ended December 31,
2003
Results
of Operations
Introduction
Our
operations reflect a significantly different company in 2004 versus 2003.
At the
beginning of 2003 we were a privately held company operating two emissions
testing stations in Georgia and three stations in Texas. During 2003 we were
acquired by a public company in a reverse acquisition, but our number of
emissions testing stations remained at five as of December 31, 2003. During
2004
we made four acquisitions (adding 19 stations), opened two new stations and
closed one existing station, increasing our emissions testing stations to
twenty-five plus seven mobile units as of December 31, 2004. Of the net twenty
stations added during 2004, only fourteen had a significant impact on revenues
and expenses as six of the acquired stations were purchased on December 30,
2004. As a result, our revenues and operating expenses increased significantly
in 2004 compared to 2003. Additionally, our acquisition and capital raising
activities during 2004 added significant expenses associated with common
stock
issued at discounts from the trading values for our common stock.
Revenue
and Loss from Operations
Our
revenue, cost of emission certificates (our cost of goods sold), general
and
administrative expenses, and loss from operations for the year ended December
31, 2004 as compared to the year ended December 31, 2003 are as
follows:
|
Year
Ended
December
31, 2004
|
Year
Ended
December
31, 2003
|
Percentage
Change
|
||||||||
|
Revenue
|
$
|
2,867,921
|
$
|
612,948
|
368
|
%
|
||||
|
Cost
of Emission Certificates
|
874,507
|
173,495
|
404
|
%
|
||||||
|
General
& Administrative Expenses
|
4,901,360
|
1,781,370
|
175
|
%
|
||||||
|
Loss
from Operations
|
(2,907,946
|
)
|
(1,341,917
|
)
|
117
|
%
|
||||
Our
revenues increased 368% in 2004 because of the fourteen stations added through
acquisition and new stations openings, while combined revenues from existing
stations increased by approximately 3% when compared to 2003.
Our
cost
of emission certificates increased $701,012 during 2004 and was $874,507,
or 30%
of revenues, compared to $173,495 or 28% of revenues, during 2003. This increase
was largely attributable to revenues at the seven stations acquired in the
$20
Emissions acquisition providing emission testing services at a rate of $20
per
test rather than the maximum $25 per test fee allowed in the state of Georgia
and charged by the Company's other Georgia emission testing
stations.
Our
general and administrative expenses during 2004 were $4,901,360, an increase
of
$3,119,990, or 175% as compared to 2003. The 175% increase in general and
administrative expenses from 2003 to 2004 compares favorably with the 368%
increase in revenues during the same period and 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 do general
and administrative expenses and these efficiencies will result in more
profitable operations. The primary causes of the increased expenses were
as
follows:
|
Increased
wages and rent expense associated with fourteen additional emissions
testing stations
|
$
|
969,700
|
||
|
Excess
of purchase price over fair market value of assets
purchased
|
559,514
|
|||
|
Expense
associated with common stock issued in conversion of promissory
notes
|
489,812
|
|||
|
Increased
legal, accounting and consulting expenses due to acquisitions and
public
company issues
|
435,351
|
|||
|
Increased
depreciation and maintenance expense associated with fourteen additional
emissions testing stations
|
189,628
|
|||
|
$
|
2,644,005
|
Interest
Expense, Taxes, and Net Loss
Our
interest expense, income tax benefit, and net loss for the year ended December
31, 2004 as compared to the year ended December 31, 2003 are as
follows:
|
Year
Ended
December
31, 2004
|
Year
Ended
December
31, 2003
|
Percentage
Change
|
||||||||
|
Interest
Expense
|
$
|
64,110
|
$
|
137,276
|
(53
|
)%
|
||||
|
Net
Loss
|
(2,972,056
|
)
|
(1,479,193
|
)
|
101
|
%
|
||||
|
Basic
and Diluted Loss per Share
|
(0.14
|
)
|
(0.16
|
)
|
(13
|
)%
|
||||
Our
interest expense during 2004 was $64,110, a $73,166, or 53% decrease compared
to
$137,276 for 2003. The decrease was due to reductions in the Company's
outstanding debt; a total of $540,000 in promissory notes were converted
to the
Company's common stock during 2004 and $1,450,000 in convertible debentures
was
converted to the Company's common stock in December 2003.
During
2004, we had a net loss of $2,972,056 or $0.14 per weighted-average share.
During 2003, we reported a net loss of $1,479,193 or $0.16 per weighted-average
share. The $1,492,863 increase in net loss for 2004 was primarily due to
the
$2,644,005 in additional expenses as detailed above, partially offset by
an
increase of $1,554,207 in revenue less cost of emission certificates, due
to the
fourteen additional stations, for 2004 compared to 2003. The 101% increase
in
net loss from 2003 to 2004 compares favorably with the 368% increase in revenues
during the same period and 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.
The
following analysis compares the results of operations for the three and nine
month periods ended September 30, 2005 to the comparable periods ended September
30, 2004.
Results
of Operations
Introduction
Our
operations reflect a significantly different company as of September 30,
2005
versus September 30, 2004. As of September 30, 2004 we operated 19 emissions
testing stations versus 36 stations and four mobile units as of September
30,
2005. Therefore, our operating expenses and revenues during the three and
nine
months ended September 30, 2005 were significantly greater than the three
and
nine months ended September 30, 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 September 30, 2005 as compared
to the three months ended September 30, 2004 and June 30, 2005 were as
follows:
|
3
Months Ended
|
3
Months Ended
|
3
Months Ended
|
|||||||||||
|
September
30,
2005
|
September
30,
2004
|
Percentage
Change
|
June
30,
2005
|
||||||||||
|
Revenue
|
$
|
2,084,061
|
$
|
758,008
|
175
|
%
|
$
|
1,255,586
|
|||||
|
Cost
of Emission Certificates
|
615,745
|
233,681
|
163
|
%
|
391,677
|
||||||||
|
General
& Administrative Expenses
|
2,000,243
|
970,855
|
106
|
%
|
1,263,803
|
||||||||
|
Loss
from Operations
|
$
|
(531,927
|
)
|
$
|
(446,528
|
)
|
19
|
%
|
$
|
(399,894
|
)
|
||
Our
revenues increased in the three months ended September 30, 2005 primarily
because of the twenty stations we acquired from December 2004 through September
2005. For the third quarter of 2004, our weighted average per-station revenue
was $42,000, compared to approximately $54,000 for the second quarter of
2005
and $65,000 for the third quarter of 2005, an increase of over $23,000 per
station from a year ago. Revenues from mobile units were not considered in
the
calculation of average per-station revenue. Contributing to the increase
in
revenues from the second quarter of 2005 to the third quarter of 2005 was
the
addition of the higher revenue volume Mr. Sticker stations during the three
months ended September 30, 2005. Our cost of emission certificates increased
in
the three months ended September 30, 2005 as compared to the same period
in 2004
primarily because of the twenty stations we acquired from December 2004 through
September 2005.
On
a
fully comparable station basis our revenue for the three months ended September
30, 2005 as compared to the three months ended September 30, 2004 and the
three
months ended June 30, 2005 were as follows:
|
3
Months Ended
|
3
Months Ended
|
3
Months Ended
|
|||||||||||
|
September
30,
2005
|
September
30,
2004
|
Percentage
Change
|
June
30,
2005
|
||||||||||
|
Existing
stations
|
$
|
743,155
|
$
|
708,727
|
4.9
|
%
|
$
|
745,446
|
|||||
|
SIT
acquisition
|
365,402
|
N/A
|
409,770
|
||||||||||
|
Mr.
Sticker acquisition
|
656,318
|
N/A
|
|||||||||||
|
Just
Inc. acquisition (a)
|
219,713
|
N/A
|
|||||||||||
|
Mobile
units
|
92,966
|
N/A
|
68,914
|
||||||||||
|
Closed
units
|
6,507
|
49,281
|
N/A
|
31,456
|
|||||||||
|
Total
Revenue
|
$
|
2,084,061
|
$
|
758,008
|
175.0
|
%
|
$
|
1,255,586
|
|||||
| (a) |
Just
Inc. revenues are only for the one month ended September 30,
2005.
|
As
the
above schedule illustrates, our revenues from stations which were open for
each
of the three months ended, respectively, September 30, 2005 and 2004 increased
by 4.9%. The above schedule also shows that $1,334,399 or 64% of our total
revenue for the three months ended September 30, 2005 came from our 20 stations
acquired after September 30, 2004 plus our mobile units.
On
a
fully comparable station basis our cost of emission certificates for the
three
months ended September 30, 2005 as compared to the three months ended September
30, 2004 and the three months ended June 30, 2005 were as follows:
|
3
Months Ended
|
3
Months Ended
|
3
Months Ended
|
|||||||||||
|
September
30,
2005
|
September
30,
2004
|
Percentage
Change
|
June
30,
2005
|
||||||||||
|
Existing
stations
|
$
|
241,286
|
$
|
216,887
|
11.2
|
%
|
$
|
236,537
|
|||||
|
SIT
acquisition
|
126,350
|
N/A
|
128,730
|
||||||||||
|
Mr.
Sticker acquisition
|
206,979
|
N/A
|
|||||||||||
|
Just
Inc. acquisition (a)
|
18,779
|
N/A
|
|||||||||||
|
Mobile
units
|
21,670
|
N/A
|
22,504
|
||||||||||
|
Closed
units
|
681
|
16,794
|
N/A
|
3,906
|
|||||||||
|
Total
Cost of Emission Certificates
|
$
|
615,745
|
$
|
233,681
|
163.5
|
%
|
$
|
391,677
|
|||||
| (a) |
Just
Inc. cost of emission certificates are only for the one month ended
September 30, 2005.
|
As
the
above schedule illustrates, our cost of emission certificates for stations
which
were open for each of the three months ended, respectively, September 30,
2005
and 2004 increased by 11.2%. The above schedule also shows that $373,778
or 61%
of our total cost of emission certificates for the three months ended September
30, 2005 came from our 20 stations acquired after September 30, 2004 plus
our
mobile units.
Our
general and administrative expenses during the three months ended September
30,
2005 were $2,000,243, an increase of $1,029,388, or 106% as compared to the
three months ended September 30, 2004. The primary causes of the increased
general and administrative expenses were the following differences in expenses
recorded between the three months ended September 30, 2004, and the three
months
ended September 30, 2005 which respectively increased expenses recorded in
the
three months ended September 30, 2005 when compared to the three months ended
September 30, 2004:
|
Financing
expenses associated with efforts to raise capital for future
acquisitions
|
$
|
305,000
|
||
|
General
and administrative expenses associated with the six SIT stations
purchased
in December 2004
|
261,000
|
|||
|
General
and administrative expenses associated with the six Mr. Sticker
stations
purchased in June 2005
|
240,000
|
|||
|
General
and administrative expenses associated with the eight Just Inc.
stations
purchased in September 2005
|
141,000
|
|||
|
Increase
in legal and accounting fees from 2004 to 2005
|
83,000
|
|||
|
$
|
1,030,000
|
On
a
fully comparable station basis our general and administrative expenses for
the
three months ended September 30, 2005 as compared to the three months ended
September 30, 2004 and the three months ended June 30, 2005 were as
follows:
|
3
Months Ended
|
3
Months Ended
|
3
Months Ended
|
|||||||||||
|
September
30,
2005
|
September
30,
2004
|
Percentage
Change
|
June
30,
2005
|
||||||||||
|
Existing
stations
|
$
|
413,075
|
$
|
439,026
|
(5.9
|
)%
|
$
|
388,951
|
|||||
|
Corporate
|
864,547
|
424,243
|
103.8
|
%
|
478,892
|
||||||||
|
SIT
acquisition
|
261,377
|
N/A
|
241,433
|
||||||||||
|
Mr.
Sticker acquisition
|
240,247
|
N/A
|
|||||||||||
|
Just
Inc. acquisition (a)
|
140,706
|
N/A
|
|||||||||||
|
Mobile
units
|
46,112
|
N/A
|
31,484
|
||||||||||
|
Closed
units
|
34,179
|
107,586
|
N/A
|
123,043
|
|||||||||
|
Total
General and Administrative Expenses
|
$
|
2,000,243
|
$
|
970,855
|
106.0
|
%
|
$
|
1,263,803
|
|||||
| (a) |
Just
Inc. general and administrative expenses are only for the one month
ended
September 30, 2005.
|
As
the
above schedule illustrates, our general and administrative expenses for stations
which were open for the each of the three months ended, respectively, September
30, 2005 and 2004 decreased by 5.9%. Our corporate general and administrative
expenses, during the same period, increased by approximately $440,000 or
103.8%.
The primary components of the increase in corporate general and administrative
expenses were; financing expenses for capital raise efforts approximately
$305,000, increased legal and accounting expenses approximately $83,000 and
a
finder’s fee paid on the Just, Inc. acquisition approximately $55,000. The above
schedule also shows that $688,442 or 34% of our total general and administrative
expenses for the three months ended September 30, 2005 came from our 20 stations
acquired after September 30, 2004 plus our mobile units.
Our
revenue, cost of emission certificates, general and administrative expenses
and
loss from operations for the nine months ended September 30, 2005 as compared
to
the nine months ended September 30, 2004 are as follows:
|
9
Months Ended
|
9
Months Ended
|
|||||||||
|
September
30,
2005
|
September
30,
2004
|
Percentage
Change
|
||||||||
|
Revenue
|
$
|
4,617,932
|
$
|
2,122,138
|
118
|
%
|
||||
|
Cost
of Emission Certificates
|
1,436,546
|
649,432
|
121
|
%
|
||||||
|
General
& Administrative Expenses
|
4,410,927
|
3,955,626
|
12
|
%
|
||||||
|
Loss
from Operations
|
$
|
(1,229,541
|
)
|
$
|
(2,482,920
|
)
|
(50
|
)%
|
||
Our
revenues increased in the nine months ended September 30, 2005 primarily
because
of the twenty stations we acquired via acquisition from December 2004 through
September 2005. For the nine months ended December 31, 2004, our weighted
average per-station revenue was $118,000, compared to over $178,000 for the
nine
months ended September 30, 2005, an increase of over $60,000 per station.
Contributing to the increase in revenues from the nine months ended December
31,
2004 to the nine months ended September 30, 2005 was the closing of two
unprofitable stations during January 2005 and one unprofitable station during
April 2005, plus the addition of the higher revenue volume Mr. Sticker stations
for the three months ended September 30, 2005. Our cost of emission certificates
increased in the nine months ended September 30, 2005 as compared to the
same
period in 2004 primarily because of the twenty stations we acquired via
acquisition from December 2004 through September 2005.
Our
general and administrative expenses during the nine months ended September
30,
2005 were $4,410,927 an increase of $455,301, or 12% as compared to the nine
months ended September 30, 2004. The primary causes of the increased general
and
administrative expenses were the following differences in expenses recorded
between the nine months ended September 30, 2004, and the nine months ended
September 30, 2005 which respectively increased or (decreased) expenses recorded
in the nine months ended September 30, 2005 when compared to the nine months
ended September 30, 2004:
|
General
& administrative expenses associated with the six Texas stations
purchased in December 2004
|
$
|
800,000
|
||
|
Financing
expenses associated with efforts to raise capital for future
acquisitions
|
341,000
|
|||
|
General
and administrative expenses associated with the six Mr. Sticker
stations
purchased in June 2005
|
240,000
|
|||
|
General
and administrative expenses associated with the eight Just Inc.
stations
purchased in September 2005
|
141,000
|
|||
|
Excess
of purchase price over fair market value of assets purchased -
expensed
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
|
)
|
||
|
$
|
500,000
|
Interest
Expense and Net Loss
Our
interest expense and net loss for the three months ended September 30, 2005
as
compared to the three months ended September 30, 2004 and the three months
ended
June 30, 2005 were as follows:
|
3
Months Ended September 30, 2005
|
3
Months Ended September 30, 2004
|
%
Change
|
3
Months Ended
June
30, 2005
|
||||||||||
|
Interest
Expense
|
$
|
70,291
|
$
|
13,793
|
409
|
%
|
$
|
65,293
|
|||||
|
Net
Loss
|
(602,218
|
)
|
(460,321
|
)
|
31
|
%
|
(465,187
|
)
|
|||||
|
Preferred
stock dividends on Series A convertible preferred stock
(undeclared)
|
44,110
|
44,110
|
0
|
%
|
44,110
|
||||||||
|
Beneficial
conversion feature on Series B convertible preferred stock
|
–
|
–
|
4,577,632
|
||||||||||
|
Net
loss attributable to common shareholders
|
(646,328
|
)
|
(504,431
|
)
|
28
|
%
|
(5,086,929
|
)
|
|||||
|
Basic
and Diluted Loss per Share
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
0
|
%
|
$
|
(0.20
|
)
|
||
Our
interest expense during the three months ended September 30, 2005 was $ 70,291,
a $56,498, or 409% increase compared to $13,793 for the three months ended
September 30, 2004. The increase was due to interest costs associated with
an
increase of debt of approximately $1,736,000 from September 30, 2004 to
September 30, 2005. Total debt, as of September 30, 2005 was approximately
$2,119,000.
During
the three months ended September 30, 2005, we had a net loss of $602,218.
During
the three months ended September 30, 2004, we reported a net loss of $460,321.
The $141,897 increase in net loss for the three months ended September 30,
2005
was primarily due to approximately $1,030,000 in net general and administrative
cost increases, as detailed above, plus approximately $56,000 in increased
interest expense, favorably offset by an increase of approximately $944,000
in
revenue, less cost of emission certificates, for the three months ended
September 30, 2005 compared to the three months ended September 30,
2004.
Our
basic
and diluted net loss per share for the three months ended September 30, 2005
was
$(0.02), which was unchanged from the three months ended September 30,
2004.
Interest
Expense and Net Loss
Our
interest expense and net loss for the nine months ended September 30, 2005
as
compared to the nine months ended September 30, 2004 is as follows:
|
Nine
months ended September 30, 2005
|
Nine
months ended September 30, 2004
|
%
Change
|
||||||||
|
Interest
Expense
|
$
|
199,679
|
$
|
49,633
|
302
|
%
|
||||
|
Net
Loss
|
(1,429,220
|
)
|
(2,532,553
|
)
|
(44
|
)%
|
||||
|
Preferred
stock dividends on Series A convertible preferred stock
(undeclared)
|
132,330
|
121,782
|
9
|
%
|
||||||
|
Beneficial
conversion feature on Series B convertible preferred stock
|
4,577,632
|
–
|
100
|
%
|
||||||
|
Net
loss attributable to common shareholders
|
(6,139,182
|
)
|
(2,654,335
|
)
|
131
|
%
|
||||
|
Basic
and Diluted Loss per Share
|
$
|
(0.24
|
)
|
$
|
(0.13
|
)
|
85
|
%
|
||
Our
interest expense during the nine months ended September 30, 2005 was $199,679,
a
$150,046, or 302% increase compared to $49,633 for the nine months ended
September 30, 2004. The increase was due to interest costs associated with
an
increase of debt of approximately $1,736,000 from September 30, 2004 to
September 30, 2005. Total debt, as of September 30, 2005 was approximately
$2,119,000.
During
the nine months ended September 30, 2005, we had a net loss of $1,429,220.
During the nine months ended September 30, 2004, we reported a net loss of
$2,532,553. The $1,103,333 decrease in net loss for the nine months ended
September 30, 2005 was primarily due to approximately $500,000 in net general
and administrative cost increases, as detailed above, plus approximately
$150,000 in increased interest expense, less an increase of approximately
$1,708,000 in revenue, less cost of emission certificates, for the nine months
ended September 30, 2005 compared to the nine months ended September 30,
2004.
During
the nine months ended September 30, 2005, we recorded a charge to accumulated
deficit of $4,577,632 as a result of a beneficial conversion feature associated
with the 2,500,000 shares of Series B convertible preferred stock and 43,900,000
warrants issued in the June 30, 2005 capital raise (see Note 5). Primarily
as a
result of this beneficial conversion feature, our basic and diluted loss
per
share for the nine months ended September 30, 2005 increased from $(0.13)
to
$(0.24), when compared to the nine months ended September 30, 2004.
Liquidity
and Capital Resources
Introduction
During
the nine months ended September 30, 2005, we did not generate positive operating
cash flows. With six acquisitions completed during 2004 and 2005, 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 nine months ended September 30, 2005, we raised
$350,000 from the issuance of a promissory note to GCA Strategic Investment
Fund
Limited, and $126,000, net of expenses, from the issuance of a convertible
debenture, to be used for working capital purposes and $6,101,400, net of
expenses, 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 raising additional capital during
the fourth 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 September
30,
2005 as
compared to September 30, 2004 and June 30, 2005 were:
|
September
30,
|
September
30,
|
June
30,
|
||||||||
|
2005
|
2004
|
2005
|
||||||||
|
Cash
|
$
|
299,118
|
$
|
76,138
|
$
|
87,777
|
||||
|
Total
current assets
|
602,360
|
121,563
|
272,455
|
|||||||
|
Total
assets
|
10,302,587
|
3,109,950
|
7,428,844
|
|||||||
|
Total
current liabilities
|
2,528,201
|
1,118,741
|
2,033,920
|
|||||||
|
Total
liabilities
|
3,590,661
|
1,152,838
|
3,246,352
|
|||||||
Cash
Requirements
For
the
nine months ended September
30,
2005
our net cash used by operating activities was ($1,078,955), as compared to
($600,032) for the nine months ended September
30,
2004.
Negative operating cash flows during the nine months ended September
30,
2005
were primarily created by a net loss from operations of $1,429,220 plus a
decrease of $307,599 in accounts payable and accrued liabilities and an increase
of $185,407 in other current assets, partially reduced by non-cash stock
related
expenses of $341,614, depreciation and amortization of $333,692 and an increase
in interest payable to related parties of $163,948. Because of our rapid
growth,
we do not have an opinion as to how indicative these results will be of future
results.
For
the
nine months ended September
30, 2004
our net cash used in operating activities was ($600,032). Negative operating
cash flows during the nine months ended September
30, 2004
were primarily created by a net loss from operations of $2,532,553, partially
offset by non-cash stock related expenses of $1,371,827, an increase of 319,298
in accounts payable and accrued liabilities and depreciation and amortization
of
$174,231.
The
following table shows net loss as a percentage of revenues decreasing from
119%
for the nine months ended September 30, 2004 compared to 31% for the nine
months
ended September 30, 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
|
||||||||
|
Nine
months ended September
30, 2005
|
$
|
4,617,932
|
$
|
(1,429,220
|
)
|
31
|
%
|
|||
|
Nine
months ended September
30, 2004
|
2,122,138
|
(2,532,553
|
)
|
119
|
%
|
|||||
Sources
and Uses of Cash
Net
cash
used by investing activities was $5,011,339 and $2,524,876, respectively,
for
the nine months ended September
30, 2005
and 2004. The investing activities during the nine months ended September
30, 2005
and September
30, 2004
involved primarily $5,012,486 and $2,376,015, respectively, used in the
acquisition of businesses.
Net
cash
provided by financing activities was $6,372,981 and $3,191,815, respectively,
for the nine months ended September
30, 2005
and 2004. Net cash provided during the nine months ended September
30, 2005
resulted primarily from $6,101,400 in net proceeds from the issuance of the
Series B convertible preferred stock, $350,000 in promissory note proceeds
from
a related party and $126,000 in net proceeds from the sale of a convertible
debenture. Net cash provided during the nine months ended September
30, 2004
resulted primarily from $2,234,000 in net proceeds from the issuance of Series
A
convertible preferred stock and an increase of $987,550 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.
On
July
25, 2005, the combined principal amount of $140,000 and accrued interest
amount
of approximately $1,900 outstanding under a convertible debenture converted
into
709,398 shares of our common stock at an exchange rate of $0.20 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.
Corporate
Office
We
rent
our general corporate offices located at 1134 Senoia Road, Suite B2, Tyrone,
Georgia, which consists of 2,000 square feet of office space. The rent for
our
office space is $1,250 per month, including utilities, with a term that expires
on February 1, 2007, with a 2-year renewal option. We believe that this space
is
adequate for our current needs.
Testing
Facilities
We
lease
the land and buildings we use in connection with 34 of our existing emissions
testing facilities, and we own one building and the associated land. In
addition, we have one testing facility under construction. All of our facilities
are believed to be in adequate condition for their intended purposes and
adequately covered by insurance.
|
Site
|
City
|
State
|
Monthly
Rent
|
Lease
Expiration
|
||||
|
Georgia
Facilities
|
||||||||
|
27
East Crogan Street
|
Lawrenceville
|
GA
|
Company
owned
|
N/A
|
||||
|
100
Peachtree Parkway
|
Peachtree
City
|
GA
|
$1,705
|
May
2006
|
||||
|
8405
Tara Boulevard
|
Jonesboro
|
GA
|
$1,500
|
January
2008
|
||||
|
Highway
85*
|
Riverdale
|
GA
|
$2,250
|
January
2008
|
||||
|
4853
Canton Road
|
Marietta
|
GA
|
$1,000
|
September
2008
|
||||
|
2720
Sandy Plains Road
|
Marietta
|
GA
|
$3,031
|
March
2009
|
||||
|
8437
Roswell Road
|
Atlanta
|
GA
|
$2,750
|
November
2007
|
||||
|
9072
Highway 92
|
Woodstock
|
GA
|
$1,800
|
April
2007
|
||||
|
2887
Canton Road
|
Marietta
|
GA
|
$2,500
|
July
2008
|
||||
|
213
Riverstone Parkway
|
Canton
|
GA
|
$1,300
|
November
2007
|
||||
|
731
Powder Springs Street
|
Marietta
|
GA
|
$2,700
|
month
to month
|
||||
|
1869
Cobb Parkway
|
Marietta
|
GA
|
$2,756
|
month
to month
|
||||
|
2625
S. Cobb Drive
|
Smyrna
|
GA
|
$2,800
|
March
2008
|
||||
|
2909
N. Druid Hills
|
Decatur
|
GA
|
$1,500
|
month
to month
|
||||
|
5300
Roswell Road
|
Atlanta
|
GA
|
$1,800
|
January
2008
|
||||
|
*
Under construction
|
||||||||
|
Texas
Facilities
|
||||||||
|
11831
Jones Road
|
Houston
|
TX
|
$2,500
|
month
to month
|
||||
|
7710
W. Bellfort
|
Houston
|
TX
|
$3,120
|
November
2009
|
||||
|
1531
Gessner
|
Houston
|
TX
|
$3,000
|
August
2007
|
||||
|
11125
Briar Forest
|
Houston
|
TX
|
$4,500
|
August
2007
|
||||
|
4494
Highway 6
|
Houston
|
TX
|
$4,882
|
August
2007
|
||||
|
108
Bellaire
|
Houston
|
TX
|
$4,500
|
November
2009
|
||||
|
12340
Bissonnet
|
Houston
|
TX
|
$2,400
|
November
2009
|
||||
|
15113
Welcome Lane
|
Houston
|
TX
|
$3,250
|
June
2008
|
||||
|
2690
FM 1960
|
Houston
|
TX
|
$3,250
|
June
2008
|
||||
|
12265
Veterans Memorial
|
Houston
|
TX
|
$1,400
|
April
2006
|
||||
|
18115
Kuykendahl Road
|
Houston
|
TX
|
$3,338
|
June
2008
|
||||
|
6005
FM 1960 West
|
Houston
|
TX
|
$3,200
|
June
2010
|
||||
|
7120
Louetta Road
|
Houston
|
TX
|
$5,500
|
June
2013
|
||||
|
Utah
Facilities
|
||||||||
|
7735
S. State Street
|
Midvale
|
UT
|
$2,150
|
June
2011
|
||||
|
757
Washington Blvd.
|
Ogden
|
UT
|
$2,500
|
June
2009
|
||||
|
8610
S. 700 E.
|
Sandy
|
UT
|
$3,543
|
September
2011
|
||||
|
1706
S. 900 E.
|
Salt
Lake City
|
UT
|
$2,485
|
July
2011
|
||||
|
865
S. State Street
|
Salt
Lake City
|
UT
|
$1,394
|
October
2005
|
||||
|
1835
W. 9000 S.
|
West
Jordan
|
UT
|
$3,770
|
May
2009
|
||||
|
4098
S. Redwood Rd.
|
West
Valley City
|
UT
|
$3,350
|
October
2011
|
||||
|
5983
S. 900 E.
|
Murray
|
UT
|
$4,000
|
September
2006
|
Acquisition
of Subsidiary
On
June
13, 2003, while we were still named SKTF Enterprises, Inc., we entered into
an
acquisition agreement with Speedemissions, Inc., a Georgia corporation now
our
wholly owned subsidiary, and its shareholders, which resulted in a change
of the
Company’s management, Board of Directors, and ownership. Mr. Parlontieri was an
officer, director, and material shareholder of Speedemissions, Inc. Pursuant
to
the terms of the agreement, effective on June 16, 2003, the following
occurred:
| · |
in
exchange for 100% of the stock of Speedemissions, we issued 9,000,000
shares of our common stock to the Speedemissions shareholders,
which after
giving effect to the redemption of our stock from our previous
officer and
director described below, represented 90% of our outstanding stock.
Mr.
Parlontieri received 600,000 shares of our common stock, representing
6%
of the outstanding stock, in this
transaction;
|
| · |
5,044,750
shares of our common stock held by our sole officer and director
prior to
the effectiveness of the agreement, were redeemed by us, and
he resigned
as our officer;
|
| · |
our
sole director prior to the effectiveness of the agreement tendered
his
resignation as our director, which was effective 10 days following
the
mailing of an Information Statement to our shareholders. His resignation
was effective on June 27, 2003.
|
Financing
Transactions with Shareholders
On
May 2,
2002, our subsidiary entered into a securities purchase agreement (the 2002
agreement) with GCA Strategic Investment Fund Limited (“GCA Fund”), our majority
shareholder, pursuant to which GCA Fund agreed to purchase certain convertible
debentures from us. The 2002 agreement contemplated the purchase by GCA Fund,
on
or before May 2, 2004, of up to an aggregate principal amount of $1,200,000
of
7% convertible debentures at a price equal to 100% of the principal amount.
On
April 24, 2001, our subsidiary entered into a securities purchase agreement
(the
2001 agreement) with GCA Fund, pursuant to which GCA Fund purchased a $250,000
7% convertible debenture from us at a price equal to 100% of the principal
amount. On October 9, 2003, we assumed the debentures from our subsidiary.
On
December 18, 2003, GCA Fund elected to convert the outstanding principal
amount
of the debentures, plus accrued interest, for a total of $1,587,770, into
5,670,619 shares of our common stock at a conversion price of $.028 per
share.
In
2001,
our subsidiary issued two promissory notes to GCA Fund, one in the amount
of
$300,000, and the other in the amount of $225,000. Both notes bear interest
quarterly at the rate of 10%. The $300,000 note was due in October 2004,
after
its due date was extended by GCA in writing, while the $225,000 note was
due in
October 2003. On October 9, 2003, we assumed the notes from our subsidiary.
In
January 2004, we agreed to convert the $225,000 note, plus accrued interest,
into 1,100,000 shares of common stock. Effective on October 14, 2005, in
connection with the settlement discussed below, we converted the $300,000
note,
plus accrued interest, into 126 shares of our Series A Convertible Preferred
Stock.
On
January 21, 2004, we completed a private placement of 2,500 shares of our
Series
A Convertible Preferred Stock and 2,500,000 common stock purchase warrants
to
GCA Fund, in exchange for gross proceeds to us of $2,500,000. Net proceeds
to us
after the payment of an advisors fee to Global Capital Advisors, LLC, the
investment advisor to GCA Fund, was $2,234,000. The Preferred stock originally
paid a dividend of seven percent (7%) per annum, but effective on October
14,
2005, in connection with the settlement discussed below, we converted the
accrued dividends into 303 shares of our Series A Convertible Preferred Stock
and eliminated the dividend going forward. Each share of Series A Convertible
Preferred Stock is convertible into 8333.33 shares of our common stock,.
The
Warrants are exercisable for a period of five (5) years at an original exercise
price of $1.25 per share of common stock to be acquired upon exercise, which
exercise price has been adjusted to $0.12 as part of the settlement
agreement.
On
December 30, 2004, we executed a secured promissory note in favor of State
Inspections of Texas, Inc. in the principal amount of $1,285,000 in exchange
for
the purchase of certain assets. Payment terms of the note were 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. Effective
on October 14, 2005, in connection with the settlement discussed below, we
converted the outstanding balance plus accrued interest into 1,409 shares
of our
Series A Convertible Preferred Stock.
On
December 30, 2004, we executed a secured promissory note in favor of State
Inspections of Texas, Inc. in the principal amount of $110,000 in exchange
for
the purchase of certain assets. State Inspections of Texas, Inc. is owned
by
Global Capital Funding Group, LP. Payment terms of the note were interest
only
(12.5% annually) payable monthly from February 2005 through June 2008 and
a
final payment of $110,000 in July 2008. Effective on October 14, 2005, in
connection with the settlement discussed below, we converted the outstanding
balance plus accrued interest into 126 shares of our Series A Convertible
Preferred Stock.
On
January 26, 2005, we executed a promissory note in favor of GCA Strategic
Investment Fund Limited in the principal amount of $350,000, and on that
date we
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. Effective on October 14, 2005, in connection
with
the settlement discussed below, we converted the outstanding balance plus
accrued interest into 369 shares of our Series A Convertible Preferred Stock.
In
connection with the transaction, 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, which exercise price has been
adjusted to $0.12 as part of the settlement agreement. 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.
Employment
Agreements and Compensation of Officers and Directors
Our
directors receive $250 for each meeting attended, including meetings of the
committees, and are entitled to reimbursement for their travel
expenses.
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. We are currently in default on this note.
On
June
16, 2003, our subsidiary entered into a consulting agreement with V2R, LLC,
which is controlled by Bahram Yusefzadeh, who subsequent to June 16, 2003
became
one of our directors. On October 19, 2003 we assumed the obligations under
this
agreement. Under the terms of the agreement, we agreed to pay V2R $8,334
per
month, effective June 1, 2003 for 36 months, of which $3,334 was deferred
until
after the closing of an initial round of financing. In addition, we agreed
to
pay to V2R a sales commission on any money raised as a result of their
introductions. V2R, LLC was entitled to receive 130,000 warrants to acquire
common stock at $0.01 per share, of which 25,000 vested immediately, 35,000
would vest if we raised $1.5 million in any offering, 35,000 more would vest
if
we raised $3.0 million in any offering, and a final 35,000 would vest if
we
raised $4.5 million in any offering. On January 1, 2004, we terminated this
consulting agreement and entered into a new consulting agreement with V2R.
Under
the terms of the new consulting agreement, we agreed to pay V2R $8,334 per
month, effective January 1, 2004, for 30 months, plus a success fee for any
closed acquisitions arranged by the V2R. We also issued to V2R warrants to
acquire 100,000 shares of common stock at $0.25 per share, of which one-half
vest on January 1, 2005 and the other half vest on January 1, 2006. Effective
on
June 30, 2005, we terminated the new consulting agreement with V2R.
In
October 2003, we issued 300,000 shares of common stock to the designees of
V2R,
LLC as a bonus for services rendered not in connection with any consulting
agreement. The shares were never beneficially owned by V2R or Mr.
Yusefzadeh.
Effective
September 5, 2003, we entered into a separate indemnification agreement with
each of our then-current directors. Under the terms of the indemnification
agreements, we agreed to indemnify each director to the fullest extent permitted
by law if the director was or is a party or threatened to be made a party
to any
action or lawsuit by reason of the fact that he is or was a director. The
indemnification shall cover all expenses, penalties, fines and amounts paid
in
settlement, including attorneys’ fees. A director will not be indemnified for
intentional misconduct for the primary purpose of his own personal benefit.
On
July 8, 2005, and August 23, 2005, respectively, we entered into identical
agreements with our newly appointed directors, Mr. Sander and Mr.
Childs.
Effective
September 15, 2003, we entered into a three-year employment agreement with
Richard A. Parlontieri, our President and Chief Executive Officer. This
employment agreement was amended on December 19, 2003. Under the terms of
the
agreement, as amended, Mr. Parlontieri will receive a salary of $180,000
per
year, plus an automobile and expense allowance, and will be eligible for
quarterly bonuses as set forth in the agreement. In addition, Mr. Parlontieri
was granted options to purchase up to 400,000 shares of our common stock
at
$0.25 per share. The agreement may be terminated by us for cause, in which
case
Mr. Parlontieri would not be entitled to severance compensation, or without
cause, in which case Mr. Parlontieri would be entitled to the balance of
his
salary due under the agreement, plus other compensation earned through the
date
of termination.
The
Compensation Committee of our Board of Directors originally agreed to issue
to
Mr. Parlontieri, pursuant to the terms of his employment agreement, options
to
purchase up to 400,000 shares of our common stock at an exercise price of
$2.00
per share. The exercise price was determined based on conversations with
our
independent auditors about the deemed fair market value if we subsequently
file
a registration statement for a primary offering at $2.00 per share. However,
after we withdrew the registration statement, and the proposed primary offering
was cancelled, the Committee decided to reprice Mr. Parlontieri’s options at
$0.25 per share, which was at or close to the fair market value of our common
stock based on the closing bid price on the date of repricing, and within
the
parameters of our Speedemissions, Inc. 2001 Stock Option Plan.
On
April
20 and November 17, 2004, we issued options to acquire 50,000 and 100,000
shares, respectively, of common stock under our 2001Stock Option Plan to
William
Klenk, our Chief Financial Officer. The options vested immediately and are
exercisable at $0.515 and $0.30 per share, respectively, for a period of
ten
years. In addition, in March 2005, we issued options to Mr. Klenk to acquire
25,000 shares of common stock under the plan, exercisable at $0.25 per share
for
ten years. All of these options expired unexercised in May 2005.
On
February 22, 2005, and again on April 11, 2005, we issued 250,000 shares
of our
common stock to Calabria Advisors, LLC, an entity controlled by Mr. Parlontieri,
for services rendered.
On
February 22, 2005, the Compensation Committee of our Board of Directors issued
to Mr. Parlontieri warrants to acquire 250,000 shares of our common stock
at
$0.25 per share, the fair market value of our common stock based on the closing
bid price on the date of grant.
On
June
29, 2005 and August 26, 2005, we issued options to acquire 25,000 shares
of our
common stock under our 2001 Stock Option Plan to Erik Sander and Ernest A.
Childs, respectively, our directors. The options vested immediately and are
exercisable at $0.20 per share for a period of ten years.
Loans
from Officers and Directors
Calabria
Loans - 2003 and 2004
Between
October 24, 2003 and January 30, 2004, Calabria Advisors, LLC, an entity
controlled by Mr. Parlontieri loaned the Company a total of $315,000 pursuant
to
the terms of seven identical unsecured promissory notes. The notes were each
due
and payable as set forth below and carry interest at five percent
annually:
|
Date
|
Principal
Amount
|
Due
Date
|
|||||
|
October
24, 2003
|
$
|
40,000
|
April
21, 2004
|
||||
|
October
30, 2003
|
$
|
50,000
|
April
27, 2004
|
||||
|
November
7, 2003
|
$
|
100,000
|
May
5, 2004
|
||||
|
December
26, 2003
|
$
|
75,000
|
June
24, 2004
|
||||
|
January
2, 2004
|
$
|
25,000
|
June
30, 2004
|
||||
|
January
4, 2004
|
$
|
10,000
|
July
2, 2004
|
||||
|
January
30, 2004
|
$
|
15,000
|
July
28, 2004
|
||||
On
June
16, 2004, we converted all of the notes, plus accrued interest, into 924,996
shares of our common stock.
Calabria
Loans - 2004
From
September to December 2004, Calabria Advisors, LLC loaned the Company a total
of
$25,600 pursuant to the terms of three unsecured promissory notes, identical
to
the notes listed above. The notes were due and payable as follows:
|
Date
|
Principal
Amount
|
Due
Date
|
|||||
|
September
29, 2004
|
$
|
5,900
|
March
29, 2005
|
||||
|
October
28, 2004
|
$
|
9,900
|
April
28, 2005
|
||||
|
December
17, 2004
|
$
|
9,800
|
June
17, 2005
|
||||
On
June
25, 2005, we converted all of the notes, plus accrued interest, into 112,415
shares of our common stock.
Settlement
Agreement
On
November 17, 2005, we received a signed Settlement
Agreement and General Release (the
“Settlement Agreement”) by and between Speedemissions, Global Capital Funding
Group, LP, a Delaware limited partnership (“GCFG”), GCA Strategic Investment
Fund Limited (“GCA”), Barron Partners, LP, a Delaware limited partnership
(“Barron”) (collectively, GCFG, GCA, Barron shall be referred to as the
“Investors”), to resolve a dispute that arose between us and the Investors as to
whether the convertibility terms of our Series B Preferred Stock altered
the
convertibility terms of our Series A Preferred Stock (the “Dispute”). Pursuant
to the Settlement Agreement, in full settlement of the Dispute, we agreed
to do
the following:
|
(1)
|
issue
GCFG 1,409 shares of Series A Preferred Stock (the “GCFG Stock”) with the
rights and preferences outlined in the Amended Certificate of Designation
of
our Series A Convertible Preferred Stock (the “Amended Certificate
of Designation”),
and a warrant to purchase 24,000,000 shares of our common stock
at an
exercise price of $0.12 per share (the “GCFG Warrant”), in exchange for
GCFG agreeing to convert all amounts due and owing under that certain
Speedemissions, Inc. Secured Promissory Note dated December 30,
2004, in
the principal amount of $1,285,000 and in the name of State Inspections
of
Texas, Inc. (the “GCFG Note”);
|
|
(2)
|
i)
issue GCA 1,224 shares of Series A Preferred Stock (the “GCA Stock”) with
the rights and preferences outlined in the Amended Certificate
of
Designation, ii) issue GCA a warrant to purchase 16,000,000 shares
of our
common stock with an exercise price of $0.12 per share (the “GCA
Warrant”); and iii) amend the terms of that certain warrant to purchase
2,500,000 shares of our common stock dated January 26, 2005, to
change the exercise price from $0.24 per share to $0.12 per share,
in
exchange for GCA agreeing to the amended rights and preferences
of the
Series A Preferred Stock as set forth in the Amended Certificate
of
Designation, and to convert all amounts due and owing, including
accrued
interest, under the $350,000 principal amount promissory note dated
January 26, 2005 (the “$350,000 Note”), the $300,000 principal amount
promissory note dated August 2, 2001 (the “$300,000 Note”) and the
$110,000 principal amount promissory note dated August 7, 2004
(the
“$110,000 Note”);
|
|
(3)
|
issue
Barron a warrant to purchase 40,000,000 shares of our common stock
with an
exercise price of $0.12 per share (the “Barron Warrant”), in exchange for
Barron agreeing to the issuance of the GCA Stock, the GCA Warrant,
the
GCFG Stock and the GCFG Warrant, and to the amended rights and
preferences
of the Series A Preferred Stock as set forth in the Amended Certificate
of
Designation;
|
|
(4)
|
Speedemissions,
GCFG, GCA, and Barron agreed to release each other of all claims,
agreements, contracts, covenants, representations, obligations,
losses,
liabilities, demands and causes of action which it may now or hereafter
have or claim to have against each other, as a result of the
Dispute.
|
Amendment
to Barron Purchase
Warrant “A” and Barron
Purchase
Warrant “B”
On
June
30, 2005, we entered into a Preferred Stock Purchase Agreement (the “Barron
Agreement”) with Barron pursuant to which Barron purchased $6,420,000 worth of
our Series B Convertible Preferred Stock, 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 “Barron
Amendment”) which modified the Barron Agreement to, among other things, increase
the warrants to 26,214,953 shares at $0.24 per share (“Restated
Common Stock Purchase Warrant “A”) and
19,659,346 shares at $0.48 per share (“Restated
Common Stock Purchase Warrant “B”),
respectively.
On
November 17, 2005, in connection with the above-referenced Settlement Agreement,
we received a signed Amendment No. 1 to Restated Common Stock Purchase Warrant
“A”dated
effective as of October 14, 2005,
by and
between Speedemissions
and
Barron
(“Barron Warrant “A” Amendment”), wherein we modified the Restated
Common Stock Purchase Warrant “A” by reducing the exercise
price from $0.24 per share to $0.12 per share.
On
November 17, 2005, in connection with the above-referenced Settlement Agreement,
we received a signed Amendment
No. 1 to Restated Common Stock Purchase Warrant “B” dated effective as of
October 14, 2005, by
and
between Speedemissions
and
Barron (“Barron
Warrant “B” Amendment”),
wherein
we modified
the Restated
Common Stock Purchase Warrant “B” by reducing the exercise
price from $0.48 per share to $0.12 per share.
Amendments
to GCA Common Stock Purchase Warrants
On
November 17, 2005, in connection with the above-referenced Settlement Agreement,
we received a signed Amendment
No. 1 to Common Stock Purchase Warrant dated effective as of October 14,
2005,
by
and
between Speedemissions
and GCA
(“GCA
2.5
Million Warrant Amendment”),
wherein
we reduced
the exercise price from $1.25 per share to $0.12 per share.
On
November 17, 2005, in connection with the above-referenced settlement, we
received a signed Amendment
No. 1 to Common Stock Purchase Warrant dated effective as of October 14,
2005,
by
and
between Speedemissions
and GCA
(“GCA
100K Warrant Amendment”),
wherein
we reduced
the exercise price from $0.357 per share to $0.12 per share.
GCFG
Exchange
Agreement and Registration Rights Agreement
On
November 17, 2005, in connection with the above-referenced Settlement Agreement,
we received a signed Exchange
Agreement with GCFG
dated
effective as of October 14, 2005, by and between Speedemissions and GCFG
(the
“GCFG Exchange
Agreement”), whereby
we will exchange the GCFG Stock and the GCFG Warrant for the GCFG
Note.
On
November 17, 2005, in connection with the above-referenced GCFG Exchange
Agreement, we received a signed Registration
Rights Agreement with GCFG
dated
effective as of October 14, 2005, by and between Speedemissions and GCFG,
whereby we agreed to register the resale of the number of shares of common
stock
which would be issuable to GCFG upon the conversion of the GCFG Stock and/or
exercise of the GCFG Warrant.
GCA
Exchange
Agreement and Registration Rights Agreement
On
November 17, 2005, in connection with the above-referenced Settlement Agreement,
we received a signed Exchange
Agreement with GCA dated effective as of October 14, 2005, by and between
Speedemissions and GCA
(the
“GCA Exchange
Agreement”), whereby
we will exchange the GCA Stock and the GCA Warrant for the following debt
and
rights held by GCA: (i) the $300,000 Note; (ii) the $110,000 Note; (iii)
the
$350,000 Note and (iv) $302,847.53 in cumulative dividends due and owing
under
the existing 2,500 shares of the Company’s Series A Convertible Preferred
Stock.
On
November 17, 2005, in connection with the above-referenced GCA Exchange
Agreement, we received a signed Registration
Rights Agreement with GCA dated effective as of October 14, 2005, by and
between
Speedemissions and GCA,
whereby we agreed to register the resale of the number of shares of common
stock
which would be issuable to GCA upon the conversion of the GCA Stock and/or
exercise of the GCA Warrant.
Market
Information
Our
common stock became eligible for trading on the Over the Counter Bulletin
Board
on December 19, 2002 under the symbol “SKTE.” Beginning September 5, 2003, in
connection with our name change to Speedemissions, Inc., our common stock
was
eligible for trading under the symbol “SPEM.” There have been a limited number
of trades in our common stock.
The
following table sets forth the high and low bid information for each quarter
since we first became eligible for trading, as provided by the Nasdaq Stock
Markets, Inc. The information reflects prices between dealers, and does not
include retail markup, markdown, or commission, and may not represent actual
transactions.
|
High
|
Low
|
||||||
|
Fiscal
year ended December 31, 2002:
|
|||||||
|
Fourth
Quarter
|
$
|
0.00
|
$
|
0.00
|
|||
|
Fiscal
year ended December 31, 2003:
|
|||||||
|
First
Quarter
|
$
|
0.00
|
$
|
0.00
|
|||
|
Second
Quarter
|
$
|
0.00
|
$
|
0.00
|
|||
|
Third
Quarter
|
$
|
0.25
|
$
|
0.00
|
|||
|
Fourth
Quarter
|
$
|
0.60
|
$
|
0.20
|
|||
|
Fiscal
year ended December 31, 2004:
|
|||||||
|
First
Quarter
|
$
|
1.01
|
$
|
0.30
|
|||
|
Second
Quarter
|
$
|
0.60
|
$
|
0.41
|
|||
|
Third
Quarter
|
$
|
0.62
|
$
|
0.45
|
|||
|
Fourth
Quarter
|
$
|
0.50
|
$
|
0.17
|
|||
|
Fiscal
year ended December 31, 2005:
|
|||||||
|
First
Quarter
|
$
|
0.48
|
$
|
0.20
|
|||
|
Second
Quarter
|
$
|
0.30
|
$
|
0.14
|
|||
|
Third
Quarter
|
$
|
0.27
|
$
|
0.065
|
|||
|
Fourth
Quarter (through November 15, 2005)
|
$
|
0.122
|
$
|
0.082
|
|||
The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for penny stocks in connection with trades
in
any stock defined as a penny stock. The Commission has adopted regulations
that
generally define a penny stock to be any equity security that has a market
price
of less than $5.00 per share, subject to a few exceptions which we do not
meet.
Unless an exception is available, the regulations require the delivery, prior
to
any transaction involving a penny stock, of a disclosure schedule explaining
the
penny stock market and the risks associated therewith.
Holders
As
of
December 31, 2004 and November 15, 2005, there were 24,541,594 and 26,835,808
shares, respectively, of our common stock issued and outstanding and held
by
approximately 102 and 114 shareholders of record. As of December 31, 2004
and
November 15, 2005, there were 2,500 and 2,502,500 shares, respectively, of
our
preferred stock issued and outstanding and held of record by one and two
shareholders of record.
Dividends
We
have
not paid any dividends on our common stock and do not expect to do so in
the
foreseeable future. We intend to apply our earnings, if any, in expanding
our
operations and related activities. The payment of cash dividends on our common
stock in the future will be at the discretion of the Board of Directors and
will
depend upon such factors as earnings levels, capital requirements, our financial
condition and other factors deemed relevant by the Board of
Directors.
Neither
our Series A Convertible Preferred Stock nor our Series B Preferred Stock
pays a
dividend.
Securities
Authorized for Issuance Under Equity Compensation Plans
On
May
15, 2001, our directors and shareholders approved the SKTF, Inc. 2001 Stock
Option Plan, effective June 1, 2001. At our annual shareholders meeting on
August 27, 2003, our shareholders approved an amendment to the plan, changing
its name to the Speedemissions, Inc. 2001 Stock Option Plan, and increasing
the
number of shares of our common stock available for issuance under the plan
from
600,000 shares to 1,000,000 shares. The plan offers selected employees,
directors, and consultants an opportunity to acquire our common stock, and
serves to encourage such persons to remain employed by us and to attract
new
employees. As of November 15, 2005, we have issued options to acquire 816,750
shares of our common stock under the plan at prices ranging from $0.235 to
$0.51
per share, and we have issued 50,000 shares of common stock under the
plan.
As
of
December 31, 2004, the plan information is as follows:
|
Plan
Category
|
Number
of Securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
Equity
compensation plans approved by security holders
|
686,750
|
$0.30
|
263,250
|
|
Equity
compensation plans not approved by security
holders
|
1,525,000
|
$0.63
|
N/A
|
|
Total
|
2,211,750
|
$0.53
|
263,250
|
On
July
8, 2005, our directors and shareholders approved the Speedemissions, Inc.
2005
Omnibus Stock Grant and Option Plan. There are 2,500,000 shares of our common
stock available for issuance under the plan. On September 1 of each year,
the
number of shares in the Plan shall automatically be adjusted to an amount
equal
to ten percent (10%) of the outstanding stock of the Company on August 31
of the
immediately preceding year. The plan offers selected employees, directors,
and
consultants an opportunity to acquire our common stock, and serves to encourage
such persons to remain employed by us and to attract new employees. As of
November 15, 2005, we have not issued any shares or options under the
plan.
The
Summary Compensation Table shows certain compensation information for services
rendered in all capacities for the fiscal years ended December 31, 2004 and
2003. In addition, the table shows compensation for our current executive
officers. Other than as set forth herein, no executive officer's salary and
bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the
number
of stock options granted and certain other compensation, if any, whether
paid or
deferred.
|
Annual
Compensation
|
Long
Term Compensation
|
||||||||||||||||||||||||
|
Awards
|
Payouts
|
||||||||||||||||||||||||
|
Name
and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual
Compensation
($)
|
Restricted
Stock
Awards
($)
|
Securities
Underlying Options SARs
(#)
|
LTIP
Payouts
($)
|
All
Other
Compensation
($)
|
|||||||||||||||||
|
Richard
A. Parlontieri
|
2004
|
180,000
|
-0-
|
7,200
|
-0-
|
900,000
|
-0-
|
-0-
|
|||||||||||||||||
|
Chmn,
Pres, Secretary
|
2003
|
180,000
|
-0-
|
5,400
|
-0-
|
410,000
|
-0-
|
-0-
|
|||||||||||||||||
|
William
Klenk (1)
|
2004
|
57,000
|
-0-
|
-0-
|
-0-
|
150,000
|
-0-
|
-0-
|
|||||||||||||||||
|
CFO,
Secretary
|
|||||||||||||||||||||||||
|
Larry
C. Cobb (2)
|
2005
|
-0-
|
-0-
|
48,415
|
-0-
|
-0-
|
-0-
|
-0-
|
|||||||||||||||||
|
CFO
|
|||||||||||||||||||||||||
| (1) |
Mr.
Klenk’s employment with us started in April, 2004 and ended in April,
2005.
|
| (2) |
Mr.
Cobb’s employment with us started in April, 2005. Prior to his employment
with us, Mr. Cobb served as a consultant to us on certain financial
matters. Compensation disclosed is for the time period from January
1,
2005 through June 30, 2005.
|
|
OPTION/SAR
GRANTS IN LAST FISCAL YEAR
(Individual
Grants)
|
|||||||||||||
|
Name
|
Number
of Securities
Underlying
Options/SARs
Granted
(#)
|
Percent
of Total
Options/SARs
Granted
to
Employees In Fiscal
Year
|
Exercise
or Base Price
($/Sh)
|
Expiration
Date
|
|||||||||
|
Richard
A. Parlontieri
|
450,000
|
36
|
%
|
$
|
0.75
|
2/18/09
|
|||||||
|
450,000
|
36
|
%
|
$
|
1.05
|
2/18/09
|
||||||||
|
William
Klenk
|
50,000
|
4
|
%
|
$
|
0.515
|
4/20/14
|
|||||||
|
100,000
|
8
|
%
|
$
|
0.30
|
11/17/14
|
||||||||
|
AGGREGATED
OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND
FY-END OPTION/SAR VALUES
|
|||||||||||||
|
Name
|
Shares
Acquired On
Exercise
(#)
|
Value
Realized
($)
|
Number
of Unexercised
Securities
Underlying
Options/SARs
at FY-End
(#)
Exercisable/Unexercisable
|
Value
of Unexercised
In-The-Money
Option/SARs
at
FY-End
($)
Exercisable/Unexercisable
|
|||||||||
|
Richard
A. Parlontieri
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||
|
William
Klenk
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||
Our
Directors receive $250 for each meeting attended, including meetings of the
committees. They are also entitled to reimbursement for their travel expenses.
In addition, in December 2003, we issued to each of our Directors options
to
acquire 10,000 shares of our common stock at an exercise price of $0.25 per
share, exercisable for a period of ten years, and in March 2005 we issued
to Mr.
Thompson and Mr. Yusefzadeh options to acquire 75,000 shares of our common
stock
at an exercise price of $0.25 per share, exercisable for a period of ten
years.
Effective
September 15, 2003, we entered into a three-year employment agreement with
Richard A. Parlontieri, our President and Chief Executive Officer. This
employment agreement was amended on December 19, 2003. Under the terms of
the
agreement, as amended, Mr. Parlontieri will receive a salary of $180,000
per
year, plus an automobile and expense allowance, and will be eligible for
quarterly bonuses as set forth in the agreement. In addition, Mr. Parlontieri
was granted options to purchase up to 400,000 shares of our common stock
at
$0.25 per share. The agreement may be terminated by us for cause, in which
case
Mr. Parlontieri would not be entitled to severance compensation, or without
cause, in which case Mr. Parlontieri would be entitled to the balance of
his
salary due under the agreement, plus other compensation earned through the
date
of termination.
The
Compensation Committee of our Board of Directors originally agreed to issue
to
Mr. Parlontieri, pursuant to the terms of his employment agreement, options
to
purchase up to 400,000 shares of our common stock at an exercise price of
$2.00
per share. The exercise price was determined based on conversations with
our
independent auditors about the deemed fair market value if we subsequently
file
a registration statement for a primary offering at $2.00 per share. However,
after we withdrew the registration statement, and the proposed primary offering
was cancelled, the Committee decided to reprice Mr. Parlontieri’s options at
$0.25 per share, which was at or close to the fair market value of our common
stock based on the closing bid price on the date of repricing, and within
the
parameters of our Speedemissions, Inc. 2001 Stock Option Plan.
On
April
20 and November 17, 2004, we issued options to acquire 50,000 and 100,000
shares, respectively, of common stock under our 2001 Stock Option Plan to
William Klenk, our then-Chief Financial Officer. The options vested immediately
and are exercisable at $0.515 and $0.30 per share, respectively, for a period
of
ten years. In addition, in March 2005, we issued options to Mr. Klenk to
acquire
25,000 shares of common stock under the plan, exercisable at $0.25 per share
for
ten years. All of these options expired unexercised in May 2005.
On
March
15, 2005, the Compensation Committee of our Board of Directors issued to
Mr.
Parlontieri warrants to acquire 250,000 shares of our common stock at $0.25
per
share, the fair market value of our common stock based on the closing bid
price
on the date of grant.
2003
Change in Independent Auditors
We
acquired Speedemissions, Inc., now our wholly owned subsidiary, in a transaction
accounted for as a reverse acquisition, with Speedemissions viewed as the
acquiring and surviving entity for accounting and management purposes, effective
June 16, 2003. On August 25, 2003, Ramirez International, the independent
accountant previously engaged since the Company’s inception as the principal
accountant to audit our financial statements, was formally dismissed as our
auditors. The decision to dismiss Ramirez International was made on or about
August 18, 2003, and approved by our Board of Directors on August 25, 2003,
after it was determined, in discussions with Ramirez International, that
because
Speedemissions was viewed as the surviving entity for accounting and management
purposes, it would be most appropriate for Speedemissions’ existing independent
accountants to serve in that capacity for us.
Following
Ramirez International’s dismissal, effective as of August 25, 2003, we engaged
Bennett Thrasher PC, who has been historically engaged as the principal
accountant to audit the financial statements of Speedemissions, Inc., as
the
principal accountant to audit our financial statements.
Notwithstanding
the decision to dismiss Ramirez International as the auditor for the Company,
we
originally intended to retain the services of Ramirez International for the
limited purpose of conducting the required review of our unaudited financial
statements for the period ended June 30, 2003; however, after the discussions
with Ramirez International described above, wherein it was determined that
because Ramirez had not audited Speedemissions’ historical financial statements,
professional standards would not allow Ramirez to perform the review, we
engaged
Bennett Thrasher PC for this purpose as well. The engagement of Bennett Thrasher
for this purpose was effective upon receipt of communications from Ramirez
International on August 18, 2003, in accordance with GAAS.
The
audit
report of Ramirez International on the Company's financial statements as
of
December 31, 2002 and 2001, and for the year ended December 31, 2002 and
the
period from inception (March 27, 2001) to December 31, 2001 (the “Audit Period”)
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to audit scope or accounting principles, except
the
reports were modified to include an explanatory paragraph wherein they expressed
substantial doubt about our ability to continue as a going concern. During
the
Audit Period, and during the period up to the dismissal of Ramirez International
and through the appointment of Bennett Thrasher PC as our new independent
accountants, there were no disagreements with Ramirez International on any
matter of accounting principles or practices, financial statement disclosure,
or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former accountants, would have caused it to make reference
to the subject matter of the disagreements in connection with its report.
We
provided a copy of this disclosure to Ramirez International, and requested
that
they furnish us with a letter addressed to the Securities and Exchange
Commission stating whether they agree with the statements made by us and,
if
not, stating the respects in which they do not agree. They provided such
a
letter, disclosing that they agree with our statements.
2005
Change in Independent Auditors
On
January 28, 2005, Bennett Thrasher PC, the independent accountants previously
engaged as the principal accountants to audit our financial statements, resigned
as our auditors because they have decided to no longer provide audit services
to
entities registered with the Securities and Exchange Commission.
Effective
on February 2, 2005, we engaged Tauber & Balser, P.C., as our independent
certified public accountants. The decision to change accountants was approved
by
our Board of Directors.
The
audit
report of Bennett Thrasher PC on our financial statements as of December
31,
2003 and for each of the two years in the period ended December 31, 2003
(the
“Audit Period”) did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope or accounting
principles, except the reports were modified to include an explanatory paragraph
wherein they expressed substantial doubt about our ability to continue as
a
going concern. During the Audit Period, and through January 28, 2005, there
were
no disagreements with Bennett Thrasher PC on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of the former
accountants, would have caused it to make reference to the subject matter
of the
disagreements in connection with its report, and there were no reportable
events
as described in Item 304(a)(1)(v) of Regulation S-K.
We
provided a copy of this disclosure to Bennett Thrasher PC and requested that
they furnish us with a letter addressed to the Securities and Exchange
Commission stating whether they agree with the statements made herein, and,
if
not, stating the respects in which they do not agree. They provided such
a
letter, disclosing that they agree with our statements.
During
the two most recent fiscal years, or any subsequent interim period prior
to
engaging Tauber & Balser, P.C., neither we nor anyone acting on our behalf
consulted with Tauber & Balser, P.C. regarding (i) the application of
accounting principles to a specific completed or contemplated transaction,
or
(ii) the type of audit opinion that might be rendered on our financial
statements where either written or oral advice was provided that was an
important factor considered by us in reaching a decision as to the accounting,
auditing, or financial reporting issue, or (iii) any matter that was the
subject
of a disagreement with our former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or
procedure, which disagreements, if not resolved to the satisfaction of the
former accountant, would have caused it to make reference to the subject
matter
of the disagreements in connection with its audit report.
The
validity of the securities offered hereby will be passed upon for
Speedemissions, Inc. by The Lebrecht Group, APLC. As of November 15, 2005,
The
Lebrecht Group is the owner of 832,530 shares of our common stock.
We
are
subject to the reporting requirements of the Securities Exchange Act of 1934.
We
have filed with the Securities and Exchange Commission a registration statement
on Form SB-2, together with all amendments and exhibits thereto, under the
Securities Act of 1933 with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. Statements contained in
this
prospectus as to the contents of any contract or other document referred
to are
not necessarily complete and in each instance reference is made to the copy
of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
Copies
of
all or any part of the registration statement may be inspected without charge
or
obtained from the Public Reference Room of the Commission at Headquarters
Office, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, upon the payment
of the fees prescribed by the Commission. The registration statement is also
available through the Commission’s web site at the following address:
http://www.sec.gov.
The
financial statements of Speedemissions, Inc. (accounting and reporting successor
to SKTF Enterprises, Inc.) as of December 31, 2004 and 2003 and for the years
then ended appearing in this prospectus which is part of a registration
statement have been so included in reliance on the report of Tauber &
Balser, P.C., , and Bennett Thrasher PC, respectively, independent auditors,
given on the authority of such firm as experts in accounting and auditing.
|
Index
to Financial Statements
|
||
|
F-1
|
||
|
F-3
|
||
|
F-4
|
||
|
F-5
|
||
|
F-6
|
||
|
F-7
- F-25
|
||
|
F-26
|
||
|
F-27
|
||
|
F-28
|
||
|
F-29
- F-42
|
Speedemissions,
Inc.
(Accounting
and Reporting Successor to SKTF Enterprises,
Inc.)
Consolidated
Financial Statements
December
31, 2004 and 2003
To
the
Board of Directors and Stockholders
Speedemissions,
Inc.
We
have
audited the accompanying consolidated balance sheet of Speedemissions
Inc. (the
“Company”) as of December 31, 2004, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements
based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit
of its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the
purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An
audit
also includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall financial statement presentation. We believe
that our
audit provides a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Speedemissions, Inc.
as of
December 31, 2004, and the results of their operations and their cash
flows for
the year then ended in conformity with accounting principles generally
accepted
in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2
to the
financial statements, the Company's recurring losses from operations,
operating
cash flow deficiencies and its limited capital resources raise substantial
doubt
about its ability to continue as a going concern. Management's plans
in regard
to these matters are also described in Note 2. The financial statements
do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/
Tauber & Balser, P. C.
Atlanta,
Georgia
March
21,
2005
Independent
Auditors’ Report
To
the
Board of Directors and Stockholders of
Speedemissions,
Inc.
We
have
audited the accompanying consolidated balance sheets of Speedemissions,
Inc. and
subsidiary as of December
31,
2003
and the related consolidated statements of operations, stockholders’ deficit and
cash flows for the year then ended. These consolidated financial statements
are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with auditing standards generally
accepted in
the United States of America. Those standards require that we plan and
perform
the audit to obtain reasonable assurance about whether the financial
statements
are free of material misstatement. An audit includes examining, on a
test basis,
evidence supporting the amounts and disclosures in the financial statements.
An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis
for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Speedemissions, Inc.
and
subsidiary as of December
31,
2003
and the results of their operations and their cash flows for the years
then
ended in conformity with accounting principles generally accepted in
the United
States of America.
As
discussed in Note 1 to the consolidated financial statements, effective
as of
June 16, 2003, Speedemissions, Inc. entered into an acquisition agreement
with
SKTF Enterprises, Inc. pursuant to which Speedemissions, Inc. became
a wholly
owned subsidiary of SKTF Enterprises, Inc. For accounting purposes,
Speedemissions, Inc. is viewed as the acquiring entity and has accounted
for the
transaction as a reverse acquisition.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 3
to the
consolidated financial statements, Speedemissions, Inc. is a start-up
enterprise
with limited operations and has not generated significant amounts of
revenue.
The Company incurred net losses in 2003 and 2002 and had a deficit in
working
capital and a deficit in stockholders’ equity at December 31, 2003. These
factors, among others, raise substantial doubt about the Company’s ability to
continue as a going concern. The accompanying consolidated financial
statements
do not include any adjustments that might result from the outcome of
these
uncertainties.
Bennett
Thrasher PC
Atlanta,
Georgia
February
20, 2004
|
Speedemissions,
Inc.
|
|||||||||||||
|
(Accounting
and Reporting Successor to SKTF Enterprises, Inc. - see Note
1)
|
|||||||||||||
|
December
31, 2004
|
|
Assets
|
||||
|
Current
assets:
|
||||
|
Cash
|
$
|
16,431
|
||
|
Other
current assets
|
71,924
|
|||
|
Total
current assets
|
88,355
|
|||
|
Property
and equipment, at cost less accumulated
|
||||
|
depreciation
and amortization
|
1,201,289
|
|||
|
Goodwill
|
2,991,040
|
|||
|
Other
assets
|
63,354
|
|||
|
$
|
4,344,038
|
|||
|
Liabilities
and Stockholders' Equity
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable and accrued liabilities
|
$
|
800,220
|
||
|
Debt
payable to related parties
|
540,934
|
|||
|
Accrued
interest on debt payable to related parties
|
113,178
|
|||
|
Current
portion of capitalized lease obligation
|
50,601
|
|||
|
Total
current liabilities
|
1,504,933
|
|||
|
Long-term
liabilities:
|
||||
|
Debt
payable to related parties less current portion
|
1,309,000
|
|||
|
Capitalized
lease obligation less current portion
|
23,302
|
|||
|
Total
long-term liabilities
|
1,332,302
|
|||
|
Total
liabilities
|
2,837,235
|
|||
|
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,
24,541,594 shares
|
||||
|
issued
and outstanding
|
24,541
|
|||
|
Additional
paid-in capital
|
8,431,137
|
|||
|
Deferred
compensation
|
(66,139
|
)
|
||
|
Accumulated
deficit
|
(6,882,739
|
)
|
||
|
Total
stockholders' equity
|
1,506,803
|
|||
|
$
|
4,344,038
|
|||
|
See
accompanying notes to consolidated financial
statements.
|
||||
|
Speedemissions,
Inc.
|
|||||||
|
(Accounting
and Reporting Successor to SKTF Enterprises, Inc. - see Note
1)
|
|||||||
|
For
the Years Ended December 31, 2004 and
2003
|
|
2004
|
2003
|
||||||
|
Revenue
|
$
|
2,867,921
|
$
|
612,948
|
|||
|
Costs
and expenses:
|
|||||||
|
Cost
of emissions certificates
|
874,507
|
173,495
|
|||||
|
General
and administrative expenses
|
4,901,360
|
1,781,370
|
|||||
|
Loss
from operations
|
(2,907,946
|
)
|
(1,341,917
|
)
|
|||
|
Interest
expense
|
64,110
|
137,276
|
|||||
|
Net
loss
|
$
|
(2,972,056
|
)
|
$
|
(1,479,193
|
)
|
|
|
Basic
and diluted net loss per share
|
$
|
(0.14
|
)
|
$
|
(0.16
|
)
|
|
|
Weighted
average shares outstanding, basic and diluted
|
21,893,637
|
9,009,795
|
|||||
|
See
accompanying notes to consolidated financial
statements.
|
|
Speedemissions,
Inc.
|
|||||||||||||||||||||||||
|
(Accounting
and Reporting Successor to SKTF Enterprises, Inc. - see Note
1)
|
|||||||||||||||||||||||||
|
For
the Years Ended December 31, 2004 and
2003
|
|
Preferred
Stock
|
Common
Stock
|
Additional
|
|
|
|||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Paid-In
Capital
|
Deferred Compensation |
Accumulated
Deficit |
Total
|
||||||||||||||||||
|
Balance
at December 31, 2002
|
7,142,857
|
$
|
71,429
|
$
|
1,432,692
|
$
|
—
|
$
|
(2,431,490
|
)
|
$
|
(927,369
|
)
|
||||||||||||
|
Recapitalization
due to reverse acquisition
|
2,857,143
|
(61,429
|
)
|
61,429
|
—
|
—
|
|||||||||||||||||||
|
Stock
issued for services
|
600,000
|
600
|
119,400
|
—
|
120,000
|
||||||||||||||||||||
|
Conversion
of debentures
|
5,670,619
|
5,671
|
1,579,740
|
—
|
1,585,411
|
||||||||||||||||||||
|
Compensation
due to stock option grant
|
—
|
—
|
5,360
|
—
|
5,360
|
||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
(1,479,193
|
)
|
(1,479,193
|
)
|
||||||||||||||||||
|
Balance
at December 31, 2003
|
—
|
$
|
—
|
16,270,619
|
$
|
16,271
|
$
|
3,198,621
|
$
|
—
|
$
|
(3,910,683
|
)
|
$
|
(695,791
|
)
|
|||||||||
|
Common
stock issued for cash
|
3,310,144
|
3,310
|
984,240
|
—
|
987,550
|
||||||||||||||||||||
|
Common
stock issued for services
|
1,124,517
|
1,124
|
500,669
|
—
|
501,793
|
||||||||||||||||||||
|
Conversion
of notes payable
|
2,024,996
|
2,025
|
1,091,973
|
—
|
1,093,998
|
||||||||||||||||||||
|
Compensation
due to stock option grant
|
—
|
—
|
—
|
—
|
14,588
|
—
|
14,588
|
||||||||||||||||||
|
Preferred
stock issued for cash, net of expenses
|
2,500
|
3
|
2,233,999
|
2,234,002
|
|||||||||||||||||||||
|
Preferred
stock dividend
|
(164,932
|
)
|
(164,932
|
)
|
|||||||||||||||||||||
|
Common
stock issued for antidilution agreement
|
855,000
|
855
|
(855
|
)
|
—
|
||||||||||||||||||||
|
Common
stock issued for business acquisition
|
956,318
|
956
|
572,834
|
573,790
|
|||||||||||||||||||||
|
Compensation
due to stock issued
|
(66,139
|
)
|
(66,139
|
)
|
|||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(2,972,056
|
)
|
(2,972,056
|
)
|
||||||||||||||||
|
Balance
at December 31, 2004
|
2,500
|
$
|
3
|
24,541,594
|
$
|
24,541
|
$
|
8,431,137
|
$
|
(66,139
|
)
|
$
|
(6,882,739
|
)
|
$
|
1,506,803
|
|||||||||
|
See
accompanying notes to consolidated financial
statements.
|
|
Speedemissions,
Inc.
|
|||||||
|
(Accounting
and Reporting Successor to SKTF Enterprises, Inc. - see Note
1)
|
|||||||
|
For
the Years Ended December 31, 2004 and
2003
|
|
2004
|
2003
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(2,972,056
|
)
|
$
|
(1,479,193
|
)
|
|
|
Adjustments
to reconcile net loss to
net cash used in operating activities:
|
|||||||
|
Depreciation
and amortization
|
251,103
|
207,476
|
|||||
|
Stock
expense incurred in payment of promissory notes
|
489,812
|
—
|
|||||
|
Stock
expense incurred in business acquisition
|
559,514
|
—
|
|||||
|
Acquisition
fee
|
—
|
125,000
|
|||||
|
Stock
issued for services
|
404,352
|
120,000
|
|||||
|
Changes
in assets and liabilities, net of acquisitions:
|
|||||||
|
Other
current assets
|
(53,526
|
)
|
(7,060
|
)
|
|||
|
Other
assets
|
(52,029
|
)
|
(5,225
|
)
|
|||
|
Accrued
interest on long-term debt payable to related parties
|
(8,768
|
)
|
136,815
|
||||
|
Accounts
payable and accrued liabilities
|
593,169
|
140,421
|
|||||
|
Net
cash used in operating activities
|
(788,429
|
)
|
(761,766
|
)
|
|||
|
Cash
flows from investing activities:
|
|||||||
|
Acquisition
of businesses
|
(2,376,015
|
)
|
—
|
||||
|
Net
purchases of property and equipment
|
(184,861
|
)
|
(47,809
|
)
|
|||
|
Net
cash used in investing activities
|
(2,560,876
|
)
|
(47,809
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from issuance of convertible preferred stock
|
|||||||
|
to
related party, net of expenses
|
2,234,002
|
—
|
|||||
|
Proceeds
from issuance of convertible debt to related party, net
of expenses
|
—
|
417,000
|
|||||
|
Proceeds
from issuance of common stock and warrants
|
987,550
|
—
|
|||||
|
Proceeds
from promissory note payable to related party
|
231,600
|
265,000
|
|||||
|
Payments
on promissory notes
|
(41,666
|
)
|
—
|
||||
|
Payments
on capitalized leases
|
(54,981
|
)
|
—
|
||||
|
Net
cash provided by financing activities
|
3,356,505
|
682,000
|
|||||
|
Net
increase (decrease) in cash
|
7,200
|
(127,575
|
)
|
||||
|
Cash
at beginning of year
|
9,231
|
136,806
|
|||||
|
Cash
at end of year
|
$
|
16,431
|
$
|
9,231
|
|||
|
Supplemental
Information:
|
|||||||
|
Cash
paid during the year for interest
|
$
|
14,043
|
$
|
—
|
|||
|
Cash
paid during the year for income taxes
|
$
|
—
|
$
|
—
|
|||
|
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 conversion of debentures
|
$
|
—
|
$
|
1,585,411
|
|||
|
Equity
securities issued in payment of notes payable
|
$
|
1,093,998
|
$
|
—
|
|||
|
Promissory
notes issued in connection with the acquisition of SIT
|
$
|
1,321,000
|
$
|
—
|
|||
|
|
|||||||
|
See
accompanying notes to consolidated financial
statements.
|
Speedemissions,
Inc.
(Accounting
and Reporting Successor to SKTF Enterprises, Inc.)
December
31, 2004 and 2003
Note
1: Organization
and Summary of Significant Accounting Policies
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 emission 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.
Consolidation
The
accompanying 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.
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
December 31, 2004 the Company operated, twenty-five (25) emissions testing
stations and seven (7) mobile units in Georgia and Texas. As of December
31,
2003 the Company operated five (5) emissions testing stations, including
two (2)
stations in the metropolitan Atlanta, Georgia area and three (3) stations
in the
metropolitan Houston, Texas area. 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
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. 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 emission test is limited to $25.00 per vehicle,
which is recorded by the Company as gross revenue. The cost of emissions
certificates due to the state of Georgia is approximately $6.95 per certificate
and is shown separately in the accompanying consolidated statements of
operations. Under current state of Texas law, the charge for an emission
test is
generally limited to $39.50 per vehicle, which is recorded by the Company
as
gross revenue. The cost of emissions certificates due 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 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 December
31,
2004 and 2003, the allowance for retest costs was not material.
Property
and Equipment
Property
and equipment are recorded at cost and depreciated on a straight-line basis
over
the estimated useful lives, as follows: building, fifteen years; emission
testing equipment, five years; and furniture, fixtures and office equipment,
five years.
Leasehold
improvements are amortized using the straight-line method over the lesser
of the
remaining lease terms or the estimated useful lives of the
improvements.
Repair
and maintenance costs are charged to expense as incurred. Gains or losses
on
disposals are reflected in operations.
Impairment
of Long-Lived Assets
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 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 December
31,
2004
or 2003.
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 December 31, 2004
and
2003.
Income Taxes
Deferred
income taxes are provided principally for the tax effect of net operating
loss
carryforwards.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising expense totaled $27,551 in
2004 and
$11,584 in 2003.
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 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.
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 loss per
share.
Cash
At
times,
cash balances may exceed federally insured amounts. The Company believes
it
mitigates risks by depositing cash with major financial
institutions.
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 7). 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.
|
2004
|
2003
|
||||||
|
Net
loss, as reported
|
$
|
(2,972,056
|
)
|
$
|
(1,479,193
|
)
|
|
|
Deduct:
Total stock-based employee compensation expense
|
|||||||
|
determined
under the fair value method for all awards, net of
|
|||||||
|
related
tax effects
|
144,905
|
1,507
|
|||||
|
Pro
forma net loss
|
$
|
(3,116,961
|
)
|
$
|
(1,480,700
|
)
|
|
|
Loss
per share:
|
|||||||
|
Basic
and diluted, as reported
|
$
|
(0.14
|
)
|
$
|
(0.16
|
)
|
|
|
Basic
and diluted, pro forma
|
$
|
(0.14
|
)
|
$
|
(0.16
|
)
|
|
The
fair
value of stock options issued during 2004 and 2003 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 Standards
Recent
pronouncements that potentially affect these or future financial statements
include:
FASB
Statement No. 123R - Share Based Payment On December 16, 2004, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised
2004),
Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion
No.
25, Accounting for Stock Issued to Employees, and amends FASB Statement
No. 95,
Statement of Cash Flows. The approach to accounting for share-based
payments in Statement 123(R) is similar to the approach described in Statement
123. However, Statement 123(R) requires all share-based payments
to
employees, including grants of employee stock options, to be recognized
in the
financial statements based on their fair values and no longer allows pro
forma
disclosure as an alternative to financial statement recognition. The
Company will be required to adopt Statement 123(R) at the beginning of
its
quarter ending March 31, 2006.
Note
2: Going Concern
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 2004 and 2003 and had a deficit in working capital
of
$1,416,578 (including $540,934 in current portion of long-term debt payable
to
related parties) at December 31, 2004. 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 3: Property and Equipment
Property
and equipment at December 31, 2004 was as follows:
|
Land
|
$
|
240,000
|
||
|
Building
|
10,000
|
|||
|
Emission
testing equipment
|
928,563
|
|||
|
Furniture,
fixtures and office equipment
|
30,764
|
|||
|
Vehicles
|
10,548
|
|||
|
Leasehold
improvements
|
448,586
|
|||
|
1,668,461
|
||||
|
Less
accumulated depreciation and amortization
|
467,172
|
|||
|
$
|
1,201,289
|
|||
Depreciation
and amortization expense associated with property and equipment totaled
$251,103
in 2004 and $95,963 in 2003.
At
December 31, 2004, approximately $86,000 of emission testing equipment
represented equipment held for use in future emission testing
stations.
Note
4: Long-Term Debt Payable to Related Parties
Long-term
debt payable to related parties at December 31, 2004 was as
follows:
|
GCA
Fund 10% note
(a)
|
$
|
300,000
|
||
|
V2R
10% note (b)
|
83,334
|
|||
|
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
|
|||
|
1,849,934
|
||||
|
Less
current portion
|
540,934
|
|||
|
$
|
1,309,000
|
(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
December 31, 2004, 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 one payment of $41,666, leaving an unpaid
balance of principal and interest of approximately $92,400 as of December
31,
2004.
(c)
The
president and chief executive officer of the Company had advanced the Company
$25,600 as of December 31, 2004, on several unsecured promissory notes.
Principal and interest on the notes are due and payable in 180 days, from
their
respective date of issuance, and carry interest at 5%.
(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.
(e)
On
December 1, 2004, SIT sold
the
Company certain assets for $36,000 on an unsecured promissory note. The
note is
due and payable in 36 equal monthly installments, starting January 2005
and
ending December 2008 and carries no interest.
(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.
Future
minimum debt payments required were as follows at December
31,
2004:
|
2005
|
$
|
540,934
|
||
|
2006
|
353,897
|
|||
|
2007
|
432,726
|
|||
|
2008
|
522,377
|
|||
|
2009
and later
|
—
|
|||
|
$
|
1,849,934
|
|||
Note
5: Income Taxes
As
of
December 31, 2004, the Company had net operating loss (NOL) carryforwards
of
approximately $6,046,000 that may be used to offset future taxable income.
If
not utilized, the NOL carryforwards will expire at various dates through
2024.
Differences
between the income tax benefit reported in the statements of operations
for 2004
and 2003 and the amount determined by applying the statutory federal income
tax
rate (34%) to the loss before income taxes were as follows:
|
2004
|
2003
|
||||||
|
Statutory
rate
|
(34.0
|
)%
|
(34.0
|
)%
|
|||
|
State
income taxes, net of federal deduction
|
(4.0
|
)
|
(4.0
|
)
|
|||
|
Valuation
allowance
|
38.0
|
38.0
|
|||||
|
|
—
|
% |
—
|
%
|
|||
Noncurrent deferred income tax assets at December 31, 2004 and 2003 consisted of the following:
|
2004
|
2003
|
||||||
|
Net
operating loss carryforwards
|
$
|
2,298,000
|
$
|
1,213,000
|
|||
|
Less
valuation allowance
|
(2,298,000
|
)
|
(1,213,000
|
)
|
|||
|
Net
deferred tax asset
|
$
|
—
|
$
|
—
|
|||
A
valuation allowance was established for the tax benefit of the NOL carryforwards
for which realization was not considered more likely than not. At December
31,
2004 and 2003, the valuation allowance was adjusted such that no net deferred
tax assets were recognized. The valuation allowance totaled $2,298,000
at
December 31, 2004.
Note
6: Leasing Activities
Operating
Leases
The
Company leases office space and land and buildings for certain of its emission
testing stations. The leases generally require that the Company pay taxes,
maintenance and insurance. The leases for the emission testing stations
are
renewable, at the option of the Company, for specified periods. Management
expects that, in the normal course of business, leases that expire will
be
renewed or replaced by other leases. Certain of the leases have been personally
guaranteed by the president of the Company.
Certain
of the above leases contain scheduled base rent increases over the terms
of the
leases. The total amount of base rent payments is charged to expense on
a
straight-line basis over the lease terms. At December 31, 2004 and 2003,
the
excess of rent expense over cash payments was approximately $40,000 and
$13,000,
respectively. Such amount is included in accounts payable and accrued
liabilities in the accompanying 2004 consolidated balance sheet.
Future
minimum rental payments required under the noncancelable operating leases
were
as follows at December
31,
2004:
|
2005
|
$
|
857,174
|
||
|
2006
|
562,396
|
|||
|
2007
|
434,419
|
|||
|
2008
|
334,978
|
|||
|
2009
and later
|
993,324
|
|||
|
$
|
3,182,291
|
|||
Rent
expense under all operating leases totaled $534,032 in 2004 and $167,457
in
2003.
Note
7: Equity Transactions
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 a 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
Effective
as of June 16, 2003, the closing date of the reverse acquisition (see Note
1),
SKTF redeemed 5,044,750 shares at a cost of approximately $500 and issued
9,000,000 shares of common stock to the stockholders of Speedemissions
(see Note
1).
On
December 18, 2003, the combined principal amount of $1,450,000 and accrued
interest amount of approximately $135,000 outstanding under convertible
debenture agreements, with a related party, were converted into 5,670,619
shares
of the Company's common stock at an exchange rate of $0.28 per common
share.
In
2004
and 2003, the Company issued 1,124,517 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 expense
of
$404,352 and $120,000 in 2004 and 2003, respectively. (see note 8).
On
January 18, 2004, the Company and GCA Fund agreed to convert the principal
amount of a $225,000 promissory note) and accrued interest amount of
approximately $55,000 outstanding into 1,100,000 shares of the Company’s common
stock at an exchange rate of $0.25 per common share. As a result of the
conversion, the Company recorded an expense of approximately $231,000 during
the
quarter ended March 31, 2004. The expense was recorded as a result of the
difference between the $0.25 per share conversion price and the closing
bid
price for the Company’s common stock on the date of the conversion agreement.
During
the quarter ended March 31, 2004, the Company sold to qualified investors
855,000 security units. Each security unit consisted of two shares of the
Company’s common stock and a warrant to purchase a share of the Company’s common
stock at the closing bid price for the Company’s common stock on the
subscription date. The Company received $.50 for each unit subscribed.
The
Company received subscriptions for 855,000 units, which represents $427,500
in
proceeds to the Company, less consulting fees of approximately $21,000.
Upon
completion of these subscriptions the Company issued a total of 1,710,000
shares
of its common stock and 855,000 warrants.
As
of
March 31, 2004, the president and chief executive officer of the Company
had
advanced the Company $315,000 on several unsecured promissory notes. The
notes
were due and payable in 180 days, from their respective date of issuance,
and
carried interest at 5%. On June 16, 2004, the Company and its president
and
chief executive officer agreed to convert the principal amount of the $315,000
promissory note and accrued interest amount of approximately $8,700 outstanding
into 924,996 shares of the Company’s common stock representing an exchange rate
of $0.35 per common share. As a result of the conversion, the Company recorded
an expense of approximately $259,000 during the quarter ended June 30,
2004. The
expense was recorded as a result of the difference between the $0.35 per
share
conversion price and the closing bid price for the Company’s common stock on the
date of the conversion agreement.
During
the quarter ended June 30, 2004, the Company sold to qualified investors
814,286
security units. Each security unit consisted of one share of the Company’s
common stock and a warrant to purchase a share of the Company’s common stock at
$.75 per warrant for every two common shares purchased. The Company received
$.35 for each common share sold, which represents $285,000 in proceeds
to the
Company during the quarter ended June 30, 2004. Upon completion of these
subscriptions the Company issued a total of 814,286 shares of its common
stock
and 407,143 warrants.
On
August
24, 2004, the Company issued 855,000 shares of common stock, restricted
in
accordance with Rule 14, to thirteen (13) existing accredited investors
in a
private placement exempt from registration pursuant to Rule 506 of Regulation
D
promulgated under the Securities Act of 1933, as consideration under
anti-dilution provisions of their securities purchase agreements.
During
the quarter ended September 30, 2004, the Company sold to qualified investors
785,858 security units. Each security unit consisted of one share of the
Company’s common stock and a warrant to purchase a share of the Company’s common
stock at $.75 per warrant for every two common shares purchased. The Company
received $.35 for each common share sold, which represents approximately
$275,000 in proceeds to the Company during the quarter ended September
30, 2004.
Upon completion of these subscriptions the Company issued a total of 785,858
shares of its common stock and 392,929 warrants.
Speedemissions
had reserved 10,000,000 shares of common stock for issuance to GCA Fund
upon
conversion of the convertible debentures issued to GCA Fund pursuant to
the 2002
agreement (see Note 4). Effective with the June 16, 2003 reverse acquisition
with SKTF, this conversion obligation was assumed by SKTF and accordingly
5,670,619 of SKTF common stock was issued in the December 18, 2003 debenture
conversion.
Stock
Option Plan and Warrants
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.
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 $14,589 and $5,360 in compensation
expense, respectively, during 2004 and 2003.
On
December 19, 2003, the Company granted 30,000 options to its directors
for
services provided with an exercise price of $.25 per share and an expiration
date of December 18, 2013. All of the 30,000 options vested immediately.
No
stock-based employee compensation cost has been recorded in the accompanying
2003 consolidated statement of operations related to these options as the
options granted had an exercise price equal to the fair value of the underlying
common stock on the date of grant.
On
January 5, 2004, the Company granted 55,000 stock options to three of its
employees. All of the options carried an exercise price of $.40, vested
as of
the date of the grant and expire January 4, 2014. 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
April
20, 2004, the Company granted 75,000 stock options to two of its employees.
All
of the options carried an exercise price of $.515, vested as of the date
of the
grant and expire April 19, 2014. 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 equal to
the fair
value of the underlying common stock on the date of grant.
On
November 17, 2004, the Company granted 126,750 stock options to five of
its
employees. All of the options carried an exercise price of $.30, vested
as of
the date of the grant and expire November 17, 2014. 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 equal to the fair value of the underlying common stock on the date
of
grant.
As
of
December 31, 2004, options to purchase a total of 686,750 shares had been
granted under this plan and options to purchase 486,750 shares were exercisable.
The weighted-average remaining contractual life in years was 9.18 at December
31, 2004.
The
fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2003 and 2004:
|
2003
|
2004
|
||||||
|
Risk
free interest rate
|
3.00
|
%
|
3.00
|
%
|
|||
|
Expected
life
|
3
years
|
3
years
|
|||||
|
Expected
volatility
|
45
|
%
|
45
|
%
|
|||
|
Expected
dividend yield
|
—
|
—
|
|||||
The
following table sets forth the options granted under the Speedemissions
Stock
Option Plan as of December 31, 2004:
|
|
2003
|
2004
|
|||||||||||
|
|
Options
|
Weighted
Average
Exercise
Price
|
Options
|
Weighted
Average
Exercise
Price
|
|||||||||
|
Outstanding
at beginning of year
|
0
|
$
|
0.00
|
430,000
|
$
|
0.25
|
|||||||
|
Granted
|
830,000
|
1.09
|
256,750
|
0.38
|
|||||||||
|
Cancelled
|
(400,000
|
)
|
2.00
|
(—
|
)
|
0.00
|
|||||||
|
ExExercised
|
—
|
—
|
(—
|
)
|
0.00
|
||||||||
|
Outstanding
at end of year
|
430,000
|
$
|
0.25
|
686,750
|
$
|
0.30
|
|||||||
|
Options
exerciseable at end of year
|
130,000
|
0.25
|
486,750
|
$
|
0.32
|
||||||||
The
following table summarizes information about stock options outstanding
at
December 31, 2004:
|
Options
Outstanding
|
|||||||
|
Options
Outstanding
|
Weighted
Average
Remaining
Life
|
Exercise
Price
|
|||||
|
430,000
|
8.97
years
|
$
|
0.25
|
||||
|
55,000
|
9.02
years
|
0.40
|
|||||
|
75,000
|
9.30
years
|
0.52
|
|||||
|
126,750
|
9.88
years
|
0.30
|
|||||
|
686,750
|
|||||||
The
following table summarizes information about stock warrants issued in 2003
and
2004, also the amount outstanding at December 31, 2004:
|
Warrants
Outstanding
|
Warrants
Exercisable
|
||||||||||||
|
Warrants
Outstanding
|
Weighted
Average
Remaining
Life
|
Exercise
Price
|
Warrants
Exercisable
|
Exercise
Price
|
|||||||||
|
25,000
|
3.46
years
|
$
|
0.01
|
25,000
|
$
|
0.01
|
|||||||
|
275,000
|
5.08
years
|
$
|
0.25
|
275,000
|
$
|
0.25
|
|||||||
|
1,905,073
|
3.60
years
|
$
|
0.75
|
1,905,073
|
$
|
0.75
|
|||||||
|
450,000
|
4.14
years
|
$
|
1.05
|
450,000
|
$
|
1.05
|
|||||||
|
2,500,000
|
4.06
years
|
$
|
1.25
|
2,500,000
|
$
|
1.25
|
|||||||
|
5,155,073
|
5,155,073
|
||||||||||||
Additional
Warrants
As
discussed in Note 1, 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 is exerciseable.
On
February 18, 2004, in accordance with authorization by the board of directors
on
January 21, 2004, the Company issued 900,000 warrants to purchase shares
of the
Company’s common stock to its president. Each warrant entitles the president to
purchase one share of common stock. The exercise price for 450,000 of the
warrants is $0.75, with the remaining 450,000 having an exercise price
of $1.05.
Each of the two separately priced warrant issues expire on February 17,
2009 and
each vest 150,000 warrants as immediately exercisable with the remaining
300,000
vesting in two equal parts of 150,000 warrants on January 1, 2005 and January
1,
2006. The Company did not assign a value to the warrants upon issuance
as the
value was deemed immaterial.
Note
8: Consulting Agreements
In
connection with the 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 years ended December
31, 2004 and 2003, the Company paid a total of approximately $29,900 and
$70,100, respectively, under the consulting agreement.
Pursuant
to the consulting agreement, Speedemissions agreed to pay V2R a consulting
fee
of $8,334 per month, effective June 1, 2003. Additionally, Speedemissions
agreed
to pay the entity a transaction fee generally equal to 5% of the gross
transaction amount of an equity transaction, as defined in the agreement.
The
agreement has a thirty-six month term, which term relies on the ability
of
Speedemissions to raise additional capital, and will automatically renew
for
successive twelve-month periods unless terminated by either party. If
Speedemissions terminates the agreement, it will nevertheless be subject
to a
minimum consulting fee of $150,000. During the year ended December 31,
2003, the
Company paid a total of approximately $44,000 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. During 2003, the Company recognized $18,750 in general and administrative expenses related to this agreement. 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 a public relations firm. During the year ended December 31, 2004, the Company recognized approximately $218,000 in general and administrative expenses related to this agreement.
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 and August 24, 2004, a
total of
180,000 shares of its common stock, under the terms of this agreement.
During
the year ended December 31, 2004, the Company recognized $93,400 in general
and
administrative expenses related to this agreement.
On
October 8, 2004, the Company issued a total of 90,000 shares of its common
stock, to a financial consulting firm in exchange for consulting services
rendered. During the year ended December 31, 2004, the Company recognized
$37,800 in general and administrative expenses related to these
services.
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 year ended December 31, 2004, the Company recognized approximately
$12,000 in general and administrative expenses related to this
agreement.
Note
9: Related Party Transactions
The
Company has a $300,000 promissory note payable to the GCA Fund, which 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 December 31, 2004, 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.
As
of
December 31, 2003, the Company had a $225,000 promissory note payable to
GCA
Fund with terms of: interest payable quarterly at 10%, principal payable
in a
single installment at maturity date of April 24, 2004 and secured by certain
assets of the Company. On January 18, 2004, the Company and GCA Fund agreed
to
convert the principal amount of the $225,000 promissory note and accrued
interest amount of approximately $55,000 outstanding into 1,100,000 shares
of
the Company’s common stock representing an exchange rate of $0.25 per common
share.
The $300,000 promissory note payable is mandatorily redeemable, at the option of GCA Fund, under certain circumstances as outlined in the note payable agreements, including but not limited to a change in control, as defined. The promissory note payable agreements contain certain financial and nonfinancial covenants to which the Company must adhere.
In
connection with the June 16, 2003, acquisition of Speedemissions, the Company
agreed to pay an acquisition fee of $225,000 to V2R, LLC (V2R), an entity
controlled by an existing minority stockholder of SKTF. Such amount is
included
in general and administrative expenses in the accompanying 2003 consolidated
statements of operations. Of this amount, $100,000 was paid in cash at
the
closing of the acquisition, with the balance due pursuant to the terms
of a
promissory note (see Note 4). Additionally, Speedemissions agreed to issue
a
warrant (see Note 7) to V2R to purchase 130,000 shares of Speedemissions
common
stock at an exercise price of $.01 per share (see Note 7) and entered into
a
consulting agreement with V2R that, among other things, provides for a
monthly
consulting fee and provides for a transaction fee generally equal to 5%
of the
gross transaction amount of an equity transaction, as defined in the agreement.
Subsequent to December 31, 2003, this agreement was cancelled and replaced
by a
new agreement (see Note 8).
In
2003,
SKTF issued stock in exchange for legal and consulting services rendered
in the
form of 600,000 shares of common stock. Of such amount, 300,000 shares
were
issued to The Lebrecht Group, APLC, an existing minority stockholder, and
300,000 shares were issued to designees of V2R. The shares were issued
at no
cost to the recipients and the Company recognized approximately $120,000
in
general and administrative expense related to the issuance.
The
president and chief executive officer of the Company had advanced the Company
$265,000 as of December 31, 2003. During 2004 this amount increased to
$315,000
documented on several unsecured promissory notes. The notes were due and
payable
in 180 days, from their respective date of issuance, and carried interest
at 5%.
On June 16, 2004, the Company and its president and chief executive officer
agreed to convert the principal amount of the $315,000 promissory note
and
accrued interest amount of approximately $8,700 outstanding into 924,996
shares
of the Company’s common stock representing an exchange rate of $0.35 per common
share.
The
president and chief executive officer of the Company had advanced the Company
$25,600 as of December 31, 2004, on several unsecured promissory notes.
Principal and interest on the notes are due and payable in 180 days, from
their
respective date of issuance, and carry interest at 5%.
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 a 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 January 30, 2004, the Company completed the acquisition of all of the assets of the businesses known and operated as $20 Emission (the $20 Acquired Assets). The $20 Acquired Assets constitute all of the business assets of seven emissions testing stations in the Atlanta, Georgia area, which the Company intends to continue to operate under the Speedemissions name. In exchange for the $20 Acquired Assets, the Company paid the purchase price of $1,001,000 in cash (the Cash Purchase Amount) and issued an aggregate of 956,318 shares of Company common stock (the Stock Purchase Shares) and, together with the Cash Purchase Amount, (the $20 Purchase Price) to the sellers, Twenty Dollar Emission, Inc. and Kenneth Cameron (each a Seller and collectively the Sellers), and the Sellers’ designee. The Cash Purchase Amount and 622,985 of the Stock Purchase Shares were paid to the Sellers’ lender, Global Capital Funding Group, LP (Global), who is an affiliate of the Company and Kenneth Cameron who is a former employee of the Company, whose services were retained by the Company after the purchase of $20 Emission. The Cash Purchase Amount was paid by the Company using funds raised in its $2,500,000 private placement of its Series A Convertible Preferred Stock.
Note
10: Business Acquisitions
Holbrook
Effective
January 21, 2004, the Company purchased, for $1,250,000 in cash, substantially
all the assets of Holbrook Texaco, Inc. and NRH Enterprises, Inc. (Holbrook).
The assets purchased included the business assets of five emissions testing
stations, which the Company intends to continue to operate under the
Speedemissions name. The Company made the acquisition to increase its market
share in the Atlanta, Georgia, area and reduce average overhead costs per
station by acquiring 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.
The
acquisition was accounted for using the purchase method of accounting,
whereby a
new basis of accounting and reporting for the assets acquired was established.
The purchase price allocation was based on the estimated fair values of
the
assets acquired. Such fair values were estimated by management.
The
purchase price allocation was as follows:
|
Assets
acquired
|
||||
|
Current
assets
|
$
|
29,824
|
||
|
Property
and equipment
|
167,012
|
|||
|
Goodwill
|
1,053,164
|
|||
|
$
|
1,250,000
|
|||
|
Purchase
price
|
||||
|
Cash
|
$
|
1,250,000
|
||
The
following pro-forma condensed statement of operations has been prepared
as if
the acquisition of Holbrook was consummated as of the beginning of the
period
presented herein. The pro-forma results of operations are not necessarily
indicative of the results that would have been achieved had the acquisition
occurred at the beginning of the period, nor is it necessarily indicative
of the
results of operations that may occur in the future:
|
|
2004
|
|||
|
|
(unaudited)
|
|||
|
Revenue
|
$
|
2,982,822
|
||
|
Net
(loss)
|
$
|
(2,976,472
|
)
|
|
|
Net
(loss) per share, basic and diluted
|
$
|
(0.14
|
)
|
|
|
Weighted
average common shares outstanding
|
21,893,637
|
|||
$20
Emissions
Effective
January 30, 2004, the Company purchased, for approximately $1,574,000 in
cash
and stock, substantially all the assets and assumed specified liabilities
of
Twenty
Dollar Emission, Inc. ($20 Emissions).
The
Cash Purchase Amount and 622,985 of the Stock Purchase Shares were paid
to the
sellers’ lender, Global Capital Funding Group, LP (Global), who is an affiliate
of the Company and Kenneth Cameron who is a former employee of the Company,
whose services were retained by the Company after the purchase of $20 Emission.
The assets purchased included the business assets of seven emissions testing
stations, which the Company intends to continue to operate under the
Speedemissions name. The Company made the acquisition to increase its market
share in the Atlanta, Georgia, area and reduce average overhead costs per
station by acquiring 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. The assets and liabilities of $20 Emissions were recorded
at
historical cost on the acquisition date as $20 Emissions and the Company
were
deemed to be under common control. A loss of $559,514 resulting from the
acquisition is included in general and administrative expenses.
The
acquisition was accounted for using the purchase method of accounting,
whereby a
new basis of accounting and reporting for the assets acquired and liabilities
assumed was established. The purchase price allocation was based on the
estimated fair values of the assets acquired and liabilities assumed. Such
fair
values were estimated by management.
The
purchase price allocation was as follows:
|
Current
assets
|
$
|
42,469
|
||
|
Property
and equipment
|
335,596
|
|||
|
Other
assets
|
10,530
|
|||
|
Goodwill
|
767,760
|
|||
|
Acquisition
expenses
|
559,514
|
|||
|
$
|
1,715,869
|
|||
Purchase
price
|
Cash
|
$
|
1,001,000
|
||
|
Common
Stock
|
573,790
|
|||
|
Capital
lease obligation
|
124,166
|
|||
|
Accrued
expenses
|
16,913
|
|||
|
$
|
1,715,869
|
|||
The
following pro-forma condensed statement of operations has been prepared
as if
the acquisition of $20 Emissions was consummated as of the beginning of
the
period presented herein. The pro-forma results of operations are not necessarily
indicative of the results that would have been achieved had the acquisition
occurred at the beginning of the period, nor is it necessarily indicative
of the
results of operations that may occur in the future:
|
|
2004
|
|||
|
|
(unaudited)
|
|||
|
Revenue
|
$
|
2,950,116
|
||
|
Net
(loss)
|
$
|
(3,000,783
|
)
|
|
|
Net
(loss) per share, basic and diluted
|
$
|
(0.14
|
)
|
|
|
Weighted
average common shares outstanding
|
21,893,637
|
|||
SIT
On
December 30, 2004, the Company completed the acquisition of substantially
all of
the assets of State Inspections of Texas, Inc. (SIT). The SIT assets constitute
all of the business assets of six operating emission testing stations in
the
Houston, Texas area, which the Company intends to continue to operate under
the
State Inspections of Texas name. The Company made the acquisition to increase
its market share in the Houston, Texas, area and reduce average overhead
costs
per station by acquiring 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.
The
purchase price of $1,285,000 was paid in the form of a promissory note
to SIT.
SIT is an unrelated party to the Company and its affiliates.
The
acquisition was accounted for using the purchase method of accounting,
whereby a
new basis of accounting and reporting for the assets acquired was established.
The purchase price allocation was based on the estimated fair values of
the
assets acquired. Such fair values were estimated by management.
The
purchase price allocation was as follows:
Assets
acquired
|
Property
and equipment
|
$
|
196,550
|
||
|
Goodwill
|
1,088,450
|
|||
|
$
|
1,285,000
|
|||
|
Purchase
price
|
||||
|
Promissory
note
|
$
|
1,285,000
|
||
The
following pro-forma condensed statement of operations has been prepared
as if
the acquisition of SIT was consummated as of the beginning of the period
presented herein. The pro-forma results of operations are not necessarily
indicative of the results that would have been achieved had the acquisition
occurred at the beginning of the period, nor is it necessarily indicative
of the
results of operations that may occur in the future:
|
|
2004
|
|||
|
|
(unaudited)
|
|||
|
Revenue
|
$
|
4,378,503
|
||
|
Net
(loss)
|
$
|
(2,837,006
|
)
|
|
|
Net
(loss) per share, basic and diluted
|
$
|
(0.13
|
)
|
|
|
Weighted
average common shares outstanding
|
21,893,637
|
|||
BB&S
On
June
16, 2004, the Company completed the acquisition of all of the assets of
the
business known and operated as BB&S Emissions, LLC (the BB&S Acquired
Assets). The Company paid the purchase price of $125,015 in cash and assumed
$4,716 in a capitalized lease obligation. The BB&S Acquired Assets
constitute all of the business assets of an emissions testing station in
the
Atlanta, Georgia area, which the Company intends to continue to operate
under
the Speedemissions name.
As
a
result of the acquisitions mentioned above, plus the opening of two new
stations
and the closing of an existing station, the Company increased its number
of
emissions testing stations from five, as of December 31, 2003, to twenty-five
(25) emissions testing stations plus seven (7) mobile units, as of December
31,
2004.
For
all
of the acquisitions, the acquired companies' results of operations are
included
in the Company's financial statements beginning with the acquisition date.
Note
11: Risk and Uncertainties
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.
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 or
operations.
Note
12: Subsequent Events
On
January 18, 2005, the Company issued 250,000 shares of its common stock
to two
consultants for services rendered.
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 are obligated to repay the entire principal amount, plus interest
at
the rate of 8% per year, on April 26, 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
13- Significant Fourth Quarter Adjustments
During
the fourth quarter, we recorded the following adjustments:
During
the second and third quarters, sales of our common stock under private
placement
offerings were recorded incorrectly. The result of the correction in the
fourth
quarter resulted in the reduction of general and administrative expenses
of
$332,883.
During
the third quarter, common stock issued pursuant to an anti-dilution clause
was
recorded incorrectly. The result of the correction in the fourth quarter
resulted in the reduction of general and administrative expenses of
$453,150.
******
-25-
SPEEDEMISSIONS,
INC.
(Accounting
and Reporting Successor to SKTF Enterprises, Inc. - see Note
1)
September
30, 2005
(Unaudited)
|
Assets
|
||||
|
Current
assets:
|
||||
|
Cash
|
$
|
299,118
|
||
|
Other
current assets
|
303,242
|
|||
|
Total
current assets
|
602,360
|
|||
|
Property
and equipment, at cost less accumulated
|
||||
|
depreciation
and amortization
|
1,452,941
|
|||
|
Goodwill
|
8,182,177
|
|||
|
Other
assets
|
65,109
|
|||
|
Total
assets
|
$
|
10,302,587
|
||
|
Liabilities
and Stockholders' Equity
|
||||
|
Current
liabilities:
|
||||
|
Accounts
payable and accrued liabilities
|
$
|
1,162,152
|
||
|
Debt
payable to related parties
|
1,064,050
|
|||
|
Accrued
interest on debt payable to related parties
|
274,691
|
|||
|
Current
portion of capitalized lease obligation
|
27,308
|
|||
|
Total
current liabilities
|
2,528,201
|
|||
|
Long-term
liabilities:
|
||||
|
Debt
payable to related parties less current portion
|
1,055,284
|
|||
|
Capitalized
lease obligation less current portion
|
7,176
|
|||
|
Total
long-term liabilities
|
1,062,460
|
|||
|
Total
liabilities
|
3,590,661
|
|||
|
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, 250,000,000 shares authorized,
|
||||
|
26,585,808
shares issued and outstanding
|
26,586
|
|||
|
Additional
paid-in capital
|
19,605,293
|
|||
|
Deferred
compensation
|
(32,864
|
)
|
||
|
Accumulated
deficit
|
(12,889,592
|
)
|
||
|
Total
stockholders' equity
|
6,711,926
|
|||
|
Total
liabilities and stockholders' equity
|
$
|
10,302,587
|
||
|
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)
(Unaudited)
|
Three
Months Ended
September
30
|
Nine
Months Ended
September
30
|
||||||||||||
|
2005
|
2004
|
2005
|
2004
|
||||||||||
|
Revenue
|
$
|
2,084,061
|
$
|
758,008
|
$
|
4,617,932
|
$
|
2,122,138
|
|||||
|
Costs
and expenses:
|
|||||||||||||
|
Cost
of emission certificates
|
615,745
|
233,681
|
1,436,546
|
649,432
|
|||||||||
|
General
and administrative expenses
|
2,000,243
|
970,855
|
4,410,927
|
3,955,626
|
|||||||||
|
Loss
from operations
|
(531,927
|
)
|
(446,528
|
)
|
(1,229,541
|
)
|
(2,482,920
|
)
|
|||||
|
Interest
expense
|
70,291
|
13,793
|
199,679
|
49,633
|
|||||||||
|
Net
loss
|
$
|
(602,218
|
)
|
$
|
(460,321
|
)
|
$
|
(1,429,220
|
)
|
$
|
(2,532,553
|
)
|
|
|
Less
preferred dividends - undeclared
|
44,110
|
44,110
|
132,330
|
121,782
|
|||||||||
|
Benefical
conversion feature on Series B convertible preferred stock
|
—
|
—
|
4,577,632
|
—
|
|||||||||
|
Net
loss attributable to common shareholders
|
$
|
(646,328
|
)
|
$
|
(504,431
|
)
|
$
|
(6,139,182
|
)
|
$
|
(2,654,335
|
)
|
|
|
Basic
and diluted net loss per share
|
(0.02
|
)
|
$
|
(0.02
|
)
|
(0.24
|
)
|
$
|
(0.13
|
)
|
|||
|
Weighted
average shares outstanding, basic and diluted
|
26,355,296
|
23,282,096
|
25,437,145
|
21,048,228
|
|||||||||
|
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)
For
the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
|
Consolidated
|
|||||||
|
2005
|
2004
|
||||||
|
Operating
activities:
|
|||||||
|
Net
loss
|
$
|
(1,429,220
|
)
|
$
|
(2,532,553
|
)
|
|
|
Adjustments
to reconcile net (loss)
|
|||||||
|
to
net cash used by operating activities:
|
|||||||
|
Depreciation
and amortization
|
333,692
|
174,231
|
|||||
|
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
|
341,614
|
291,431
|
|||||
|
Changes
in operating assets and liabilities, net of acquisitions:
|
|||||||
|
Net
cash (to) from subsidiaries
|
—
|
—
|
|||||
|
Other
current assets
|
(185,407
|
)
|
65,664
|
||||
|
Other
assets
|
9,920
|
(37,009
|
)
|
||||
|
Accrued
interest on long-term debt payable to related parties
|
163,948
|
38,510
|
|||||
|
Accounts
payable and accrued liabilities
|
(307,599
|
)
|
319,298
|
||||
|
Net
cash used by operating activities
|
(1,078,955
|
)
|
(600,032
|
)
|
|||
|
Cash
flows from investing activities:
|
|||||||
|
Acquisition
of businesses
|
(5,012,486
|
)
|
(2,376,015
|
)
|
|||
|
Proceeds
from asset sales
|
34,000
|
—
|
|||||
|
Net
purchases of property and equipment
|
(35,955
|
)
|
(148,861
|
)
|
|||
|
Cash
acquired in acquisitions
|
3,102
|
—
|
|||||
|
Net
cash used by investing activities
|
(5,011,339
|
)
|
(2,524,876
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from issuance of convertible preferred stock
|
|||||||
|
to
related party, net of expenses
|
6,101,400
|
2,234,000
|
|||||
|
Proceeds
from issuance of common stock and warrants
|
—
|
987,550
|
|||||
|
Proceeds
from promissory note payable to related party
|
350,000
|
50,000
|
|||||
|
Payments
on promissory notes
|
(165,000
|
)
|
(41,666
|
)
|
|||
|
Proceeds
from convertible debenture, net of expenses
|
126,000
|
—
|
|||||
|
Payments
on capitalized leases
|
(39,419
|
)
|
(38,069
|
)
|
|||
|
Net
cash provided by financing activities
|
6,372,981
|
3,191,815
|
|||||
|
Net
increase in cash
|
282,687
|
66,907
|
|||||
|
Cash
at beginning of period, December 31
|
16,431
|
9,231
|
|||||
|
Cash
at end of period, September 30
|
$
|
299,118
|
$
|
76,138
|
|||
|
Supplemental
Information:
|
|||||||
|
Cash
paid during the period for interest
|
$
|
25,613
|
$
|
6,876
|
|||
|
Non-cash
Investing and Financing activities:
|
|||||||
|
Equity
securities issued in connection with the acquisition of
|
$
|
43,000
|
$
|
—
|
|||
|
Mr.
Sticker, Inc.
|
|||||||
|
Equity
securities issued in connection with the acquisition of
|
$
|
—
|
$
|
573,790
|
|||
|
Twenty
Dollar Emission, Inc.
|
|||||||
|
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.
|
Speedemissions,
Inc.
September
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
September 8, 2005, the Company purchased all of the outstanding common
stock of
Just, Inc., (JI) a Salt Lake City, Utah, company that operates eight (8)
emissions testing stations in the Salt Lake City, Utah, area. The purchase
price
was $2,300,000 in cash plus shares of the Company’s common stock, valued at
$200,000. JI’s financial statements have been consolidated, as a wholly owned
subsidiary, with the Company’s financial statements as of September 30,
2005.
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, Mr. Sticker and JI 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 September 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
September 30, 2005 the Company operated, thirty-five (35) emissions testing
stations and four (4) mobile units in Georgia, Texas and Utah. The Company
does
business under the trade names Speedemissions,
Mr. Sticker and Just Emissions & Inspections.
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
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
Utah, we charge $55.00 for combined emissions and vehicle safety inspections
tests, with a slightly reduced fee of $44.00 for commercial vehicles. Fees
paid
to the county range from $4.27 to $5.60 depending on the minimum certificates
purchased in a month. In some cases, in response to competitive situations,
we
have 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, Texas and Utah 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, Texas and Utah, which is comprised mainly of the labor
cost
associated with performing a retest.
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 September
30,
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 September 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.
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.
|
Nine
months ended September 30
|
|||||||
|
2005
|
2004
|
||||||
|
Net
loss, attributable to common shareholders
|
$
|
(6,139,182
|
)
|
$
|
(2,654,335
|
)
|
|
|
Deduct:
Total stock based employee
compensation expense determined under the fair value method for all awards |
45,965
|
236,410
|
|||||
|
Pro
forma net loss
|
$
|
(6,185,147
|
)
|
$
|
(2,890,745
|
)
|
|
|
Loss
per share:
|
|||||||
|
Basic
and diluted, as reported
|
$
|
(0.24
|
)
|
$
|
(0.13
|
)
|
|
|
Basic
and diluted, pro forma
|
$
|
(0.24
|
)
|
$
|
(0.14
|
)
|
|
The
fair
value of stock options issued during the nine months ended September 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 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 September
30,
2005
was as follows:
|
GCA
Fund 10% note
(a)
|
$
|
300,000
|
||
|
V2R
10% note (b)
|
38,334
|
|||
|
State
inspections of Texas non-interest bearing note (c)
|
36,000
|
|||
|
State
Inspections of Texas 12.5% note
(d)
|
1,285,000
|
|||
|
State
Inspections of Texas 12.5% note
(e)
|
110,000
|
|||
|
GCA
Fund 8% note
(f)
|
350,000
|
|||
|
2,119,334
|
||||
|
Less
current portion
|
1,064,050
|
|||
|
$
|
1,055,284
|
(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 24, 2005, the Company
and GCA
Fund agreed to extend the maturity date to April 24, 2006. At September
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
September 30, 2005 we had only made three payments totaling $86,666, leaving
an
unpaid balance of principal and interest of approximately $51,809 as of
September 30, 2005.
(c)
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 have been made
on this
note. Effective March 31, 2005 the starting date for the monthly payments
was
extended to August 2005. Effective as of October 24, 2005, the Company
and SIT
agreed to extend the starting date for monthly payments to April 24,
2006.
(d)
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. As of September
30,
2005, two interest payments, totaling approximately $23,200, have been
made on
this note, leaving interest payments of approximately $97,300 accrued and
unpaid
as of September 30, 2005. Effective March 31, 2005 the starting date for
the
monthly payments was extended to September 2005. Effective as of October
24,
2005, the Company and SIT agreed to extend the starting date for monthly
payments to April 24, 2006.
(e)
On
December 30, 2004, SIT sold
the
Company certain assets for $110,000 on a secured promissory note. Payment
terms
of the note are; interest only (12.5% annually) payable monthly from February
2005 through June 2008 and a final payment of $110,000 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 have been made on this note, leaving
interest payments of approximately $10,300 accrued and unpaid as of September
30, 2005. Effective as of October 24, 2005, the Company and SIT agreed
to extend
the starting date for monthly payments to April 24, 2006.
(f)
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. Effective as of October 24, 2005,
the
Company and GCA Strategic Investment Fund Limited agreed to extend the
maturity date to April 24, 2006. 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
September 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, 250,000,000 shares authorized, 26,585,808
shares
issued and outstanding
|
26,586
|
|||
|
Additional
paid in capital
|
19,605,293
|
|||
|
Deferred
compensation
|
(32,864
|
)
|
||
|
Accumulated
deficit
|
(12,889,592
|
)
|
||
|
|
||||
|
Total
stockholders’ equity
|
$
|
6,711,926
|
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 be acquired upon exercise. The Company
also
issued 500,000 common stock purchase warrants (the Finder’s Warrants) to
Strasbourger, LLC as a finder’s fee. The 500,000 Finder’s Warrants are
exercisable for a period of three years at an exercise price of $0.20 per
share
of common stock to 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. On September 8, 2005, the
Company
used or committed to pay at a future date, in accordance with the terms
of the
purchase agreement, $2,300,000 of the net proceeds from the Preferred B
placement to purchase all of the outstanding common stock of JI. The remainder
of the net proceeds, or $446,400, was retained, by the Company for current
working capital.
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.
On
August
4, 2005, we entered into an Amendment to the Series B Preferred Stock Purchase
Agreement (the “Amendment”), and received an additional $195,000 in cash, 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.
Common
Stock
The
Company is authorized to issue 250,000,000 shares of $0.001 par value common
stock, of which 26,585,808 and 24,541,594 shares were issued and outstanding
as
of September 30, 2005 and December 31, 2004, respectively.
In
the
nine months ended September 30, 2005 and 2004, the Company issued 1,039,422
and
722,017 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 $341,614 and $291,431 in the nine months
ended
September 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 816,750
and 686,750 stock options issued and outstanding as of September 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 nine months ended September
30, 2005
and 2004.
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 25,000 stock options to one of its employees.
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.
On
August
26, 2005, the Company granted 25,000 stock options to one of its employees.
The
options carried an exercise price of $.20, vested as of the date of the
grant
and expire August 26, 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 95,104,372
and 5,180,073 common stock warrants issued and outstanding as of September
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 Company also issued 500,000 common stock purchase warrants
(the
Finder’s Warrants) to Strasbourger, LLC as a finder’s fee. The 500,000 Finder’s
Warrants are exercisable for a period of three years at an exercise price
of
$0.20 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 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.
On
August
4, 2005, we entered into an Amendment to the Series B Preferred Stock Purchase
Agreement (the “Amendment”), and received an additional $195,000 in cash, 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.
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
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 nine months ended September
30, 2004,
the Company recognized approximately $142,000 in general and administrative
expenses related to this agreement.
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 nine
months
ended September 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 nine months ended September 30, 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 nine months ended September 30, 2005, the Company recognized
approximately $57,800 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.
On
July
25, 2005, 2005, we issued a total of 138,888 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 September 30, 2005, the Company recognized
$27,778
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
September 30, 2005. The acquisition all of the outstanding common stock
of Just,
Inc. (JI) resulted in the recording of goodwill of $2,279,186. The following
table provides details of the acquisition:
|
Assets
acquired
|
||||
|
Current
assets
|
$
|
21,386
|
||
|
Equipment
|
232,000
|
|||
|
Goodwill
|
2,279,186
|
|||
|
$
|
2,532,572
|
|||
|
|
||||
|
Purchase
price
|
||||
|
Cash
|
$
|
2,300,000
|
||
|
Current
liabilities
|
32,572
|
|||
|
Common
stock
|
200,000
|
|||
|
$
|
2,532,572
|
|||
The
Company made the above acquisition to increase its profitability and develop
a
market share in the Salt Lake City, Utah area. 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
November 2, 2005, we issued a total of 250,000 shares
of our common stock, restricted in accordance with Rule 144, to an individual
who 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.
|
YOU
MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED
IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE
OF
COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS
IS
CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT
AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THESE SHARES OF THE
COMMON
STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION
IS
UNLAWFUL.
|
359,272,585
SHARES
SPEEDEMISSIONS,
INC.
|
||
|
|
|
||
|
Page
|
|||
|
2
|
|||
|
3
|
|||
|
8
|
|||
|
9
|
|||
|
10
|
|||
|
11
|
|||
|
11
|
|
||
|
16
|
PROSPECTUS
|
||
|
18
|
|
||
|
19
|
|||
|
20
|
|||
|
27
|
|||
|
38
|
|||
|
39
|
|||
|
45
|
|||
|
47
|
|||
|
49
|
__________
__, 2005
|
||
|
50
|
|||
|
50
|
|||
|
51
|
|||
|
51
|
|||
PART
II - INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification
of Directors and Officers
Article
X
of our Articles of Incorporation provides that, to the fullest extent permitted
by law, no director or officer shall be personally liable to the Corporation
or
its shareholders for damages for breach of any duty owed to the Corporation
or
its shareholders. In addition, the Corporation shall have the power, in its
Bylaws or in any resolution of its stockholders or directors, to indemnify
the
officers and directors of this Corporation against any liability as may be
determined to be in the best interests of this Corporation, and in conjunction
therewith, to buy, at this Corporation’s expense, policies of
insurance.
Our
bylaws do not further address indemnification. Effective September 5, 2003,
we
entered into a separate indemnification agreement with each of our then-current
directors, and we have subsequently entered into a separate indemnification
agreement with Mr. Sander and Mr. Childs.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
“Act”) may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise,
the
small business issuer has been advised that in the opinion of the Securities
and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Other
Expenses of Issuance and Distribution
We
will
pay all expenses in connection with the registration and sale of the common
stock by the selling security holders. The estimated expenses of issuance
and
distribution are set forth below:
|
Registration
Fees
|
Approximately
|
$
|
3,300.00
|
||||
|
Transfer
Agent Fees
|
Approximately
|
$
|
1,000.00
|
||||
|
Costs
of Printing and Engraving
|
Approximately
|
$
|
1,000.00
|
||||
|
Legal
Fee
|
Approximately
|
$
|
50,000.00
|
||||
|
Accounting
Fees
|
Approximately
|
$
|
5,000.00
|
||||
|
Total
|
$
|
60,300.00
|
Recent
Sales of Unregistered Securities
On
April
20, 2001, we issued 5,550,000 shares of our common stock, restricted in
accordance with Rule 144 of the Securities Act of 1933, to Carl M. Berg,
our
founder and an accredited investor, in exchange for consideration of $555.
The
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act.
On
April
20, 2001, we issued 450,000 shares of our common stock, restricted in accordance
with Rule 144 of the Securities Act of 1933, to Brian A. Lebrecht, an accredited
investor, in exchange for consideration of $45. The issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act.
In
August
of 2001, we issued an aggregate of 13,000 shares of our common stock, restricted
in accordance with Rule 144 of the Securities Act of 1933, to twelve (12)
non-accredited investors, in exchange for total consideration of $1,300.
The
issuances were exempt from registration pursuant to Rule 4(2) of the Securities
Act.
On
May
15, 2001, our directors and shareholders approved the SKTF, Inc. 2001 Stock
Option Plan, effective June 1, 2001. At our annual shareholders meeting on
August 27, 2003, our shareholders approved an amendment to the plan, changing
its name to the Speedemissions, Inc. 2001 Stock Option Plan, and increasing
the
number of shares of our common stock available for issuance under the plan
from
600,000 shares to 1,000,000 shares. The plan offers selected employees,
directors, and consultants an opportunity to acquire our common stock, and
serves to encourage such persons to remain employed by us and to attract
new
employees. The plan was adopted under, and awards and issuances thereunder
will
be exempt from registration pursuant to, Rule 701 of the Securities Act of
1933.
We have not issued any options or stock awards under the plan.
On
September 30, 2002, SKTF’s offering as registered on Form SB-2 automatically
terminated. On October 3, 2002, Post-Effective Amendment No. 1 was filed
with
the SEC terminating the offering and de-registering the 968,250 unsold shares
in
the offering. SKTF sold 31,750 shares in the offering at $1.00 per share,
resulting in net proceeds to SKTF of $31,750, all of which was used for general
working capital purposes and to pay legal and accounting expenses.
On
June
16, 2003, we issued 9,000,000 shares of common stock, restricted in accordance
with Rule 144 promulgated under the Securities Act of 1933, to four accredited
investors. The investors exchanged their interest in Speedemissions, Inc.,
representing in the aggregate 100% of the issued and outstanding stock of
Speedemissions, Inc., for the shares. The issuances were exempt from
registration pursuant to Section 4(2) of the Act.
In
October 2003, we issued 300,000 shares of common stock, restricted in accordance
with Rule 144, to The Lebrecht Group, APLC, our securities counsel, for services
rendered. The issuance was exempt from registration pursuant to Section 4(2)
of
the Securities Act of 1933, and the shareholder was an accredited
investor.
In
October 2003, we issued 300,000 shares of common stock, restricted in accordance
with Rule 144, to the designees of V2R, LLC, a consulting firm owned by one
of
our directors, Bahram Yusefzadah, for services rendered. The issuance was
exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933,
and
the shareholder was an accredited investor.
In
December 2003, we issued 5,670,619 shares of our common stock, restricted
in
accordance with Rule 144, to GCA Strategic Investment Fund Ltd., our principal
shareholder, upon the conversion of $1,587,770 in outstanding convertible
debentures and accrued interest. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder
was
an accredited investor.
In
January 2004, we issued 180,000 shares of our common stock, restricted in
accordance with Rule 144, to a consultant for services rendered. The issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act
of
1933, and the shareholder was a sophisticated purchaser.
In
January 2004, as part of the consideration paid for our acquisition of $20
Emission, we issued 956,318 shares of our common stock, restricted in accordance
with Rule 144, to the sellers, Twenty Dollar Emission, Inc. and Kenneth Cameron,
and the sellers’ designee. The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, and the shareholders were accredited
investors.
In
January 2004, we agreed to issue 1,100,000 shares of our common stock,
restricted in accordance with Rule 144, to GCA Strategic Investment Fund
Ltd.,
our principal shareholder, upon the conversion of a $280,437.50 promissory
note,
plus accrued interest. The issuance was exempt from registration pursuant
to
Section 4(2) of the Securities Act of 1933, and the shareholder was an
accredited investor.
In
January 2004, we issued 2,500 shares of our Series A Convertible Preferred
Stock, along with warrants to purchase 2,500,000 shares of our common stock
at
$1.25 per share, to GCA Strategic Investment Fund Ltd., our principal
shareholder, for consideration equal to $2,500,000. The issuance was exempt
from
registration pursuant to Section 4(2) of the Securities Act of 1933, and
the
shareholder was an accredited investor. The proceeds were used for the
acqusition of businesses.
In
January 2004, we issued to Richard A. Parlontieri, an officer and director,
warrants to purchase 900,000 shares of our common stock as compensation.
One-half of the warrants are exercisable at $0.75 per share, and the other
half
are exercisable at $1.05 per share. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder
was
an accredited investor.
In
January 2004, we issued to V2R, LLC, an entity controlled by our director,
Bahram Yusefzadeh, warrants to purchase 100,000 shares of our common stock
at
$0.25 per share, of which one-half vest on January 1, 2005 and the other
half
vest on January 1, 2006. The issuance was exempt from registration pursuant
to
Section 4(2) of the Securities Act of 1933, and the shareholder was an
accredited investor.
In
March
2004, we issued 1,710,000 shares of our common stock, along with warrants
to
purchase a total of 855,000 shares of our common stock at $0.75 per share,
to
thirteen (13) accredited investors in a private placement exempt from
registration pursuant to Rule 506 of Regulation D promulgated under the
Securities Act of 1933. In August 2004, we issued an additional 855,000 shares
of common stock, restricted in accordance with Rule 144, to the investors
as
consideration under anti-dilution provisions of their securities purchase
agreements.
In
March
2004, we issued 180,000 shares of our common stock, restricted in accordance
with Rule 144, to a consultant for services rendered. The issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933,
and
the shareholder was a sophisticated purchaser.
On
May
24, 2004, we issued 100,000 shares of common stock, restricted in accordance
with Rule 144, to a consultant as consideration for services related to raising
capital. The issuance was exempt from registration pursuant to Section 4(2)
of
the Securities Act of 1933, and the shareholder is accredited.
On
May 7,
2004, we issued 90,000 shares of our common stock, restricted in accordance
with
Rule 144, to a consultant for services rendered. The issuance was exempt
from
registration pursuant to Section 4(2) of the Securities Act of 1933, and
the
shareholder was a sophisticated purchaser.
On
June
16, 2004, we issued 924,996 shares of our common stock, restricted in accordance
with Rule 144, to Calabria Advisors, LLC, an entity controlled by Richard
Parlontieri, an officer and director, upon conversion of outstanding principal
and interest in the amounts of $315,000 and $8,748.61, respectively, due
under
seven (7) promissory notes. The issuance was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, and the shareholder is
accredited.
On
June
30, 2004, we issued 814,286 shares of our common stock, restricted in accordance
with Rule 144, along with warrants to purchase a total of 407,143 shares
of our
common stock at $0.75 per share, to two (2) accredited investors in a private
placement exempt from registration pursuant to Rule 506 of Regulation D
promulgated under the Securities Act of 1933.
In
June,
July, and August 2004, we issued a total of 785,718 shares of our common
stock,
restricted in accordance with Rule 144, along with warrants to purchase a
total
of 392,859 shares of our common stock at $0.75 per share, to seven (7)
accredited investors in a private placement exempt from registration pursuant
to
Rule 506 of Regulation D promulgated under the Securities Act of 1933.
In
August
2004, we issued 122,017 shares of our common stock, restricted in accordance
with Rule 144, to our legal counsel and two consultants for services rendered.
The issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, and all the investors were accredited.
On
October 8, 2004, we issued 90,000 shares of our common stock, restricted
in
accordance with Rule 144, to a consultant for services rendered. The issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act
of
1933, and the shareholder was a sophisticated purchaser.
On
November 18, 2004, in connection with a contract to provide equity research
services, we issued a total of 312,500 shares of common stock, restricted
in
accordance with Rule 144, to three unrelated companies, as payment for services
performed for us by one of the payees. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, and the investors
were
accredited investors.
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.
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
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.
On
July
25, 2005, we issued a total of 25,533 shares of our common stock, restricted
in
accordance with Rule 144, to two individuals for services rendered. The
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, and the shareholders were sophisticated
purchasers.
On
July
25, 2005, we issued a total of 182,979 shares of our common stock, restricted
in
accordance with Rule 144, to two individuals as additional consideration
related
to the purchase of Mr. Sticker, Inc., a Texas corporation. The issuances
were
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933,
and the shareholders were accredited.
On
July
25, 2005, we issued a total of 709,398 shares of our common stock, restricted
in
accordance with Rule 144, to one shareholder upon the conversion of $140,000
in
outstanding principal amount and $1,879.45 in accrued but unpaid interest
on one
outstanding convertible promissory note. The issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, and
the
shareholder was accredited.
On
July
25, 2005, we issued a total of 112,415
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, upon the conversion of outstanding principal amounts and accrued
but
unpaid interest of $26,417.51 in outstanding convertible promissory notes.
Calabria Advisers, LLC provides us with consulting services. The issuance
was
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933,
and the shareholder was accredited and familiar with our
operations.
On
July
25, 2005, we issued a total of 138,888 shares of our common stock, restricted
in
accordance with Rule 144, to legal counsel for services rendered. The issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act
of
1933, and the shareholder was accredited.
On
August
4, 2005, in connection with an amendment to the June 30, 2005 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.
On
August
11, 2005, we issued warrants to acquire 500,000 shares of our common stock
at
$0.20 per share to six individuals for services rendered in connection with
the
June 30, 2005 financing transaction. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders
were accredited.
On
November 2, 2005, we issued a total of 250,000 shares of our common stock,
restricted in accordance with Rule 144, to an individual who 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
November 17, 2005, 2005, in conjunction with a settlement agreement, we issued
warrants to acquire 40,000,000 shares of our common stock at $0.12 per share,
to
Barron Capital Partners, LP, as consideration under the Settlement Agreement,
in
settlement of the Dispute. The issuance was exempt from registration pursuant
to
Section 4(2) of the Securities Act of 1933, and the shareholder is
accredited.
On
November 17, 2005, 2005, in conjunction with a settlement agreement, we issued
warrants to acquire 24,000,000 shares of our common stock at $0.12 per share,
to
Global Capital Funding Group, LP as consideration under the Settlement
Agreement, in settlement of the Dispute. We also issued 1,409 shares of our
Series A Convertible Preferred Stock to this investor in exchange for the
conversion of $1,409,288 in principal and accrued interest on a note. The
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, and the shareholder is accredited.
On
November 17, 2005, 2005, in conjunction with the above-referenced Settlement
Agreement, we issued warrants to acquire 16,000,000 shares of our common
stock
at $0.12 per share, to GCA Strategic Investment Fund Limited, as consideration
under the Settlement Agreement, in settlement of the Dispute. We also issued
1,224 shares of our Series A Convertible Preferred Stock to this investor
in
exchange for the conversion of $1,223,552 in accrued dividends and principal
and
accrued interest on a note. The issuance was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, and the shareholder is
accredited.
Exhibits
|
2.1
(1)
|
Acquisition
Agreement dated June 13, 2003 with Speedemissions, Inc.
|
|
2.2
(8)
|
Asset
Purchase Agreement dated January 21, 2004
|
|
2.3
(9)
|
Asset
Purchase Agreement dated January 30, 2004
|
|
2.4
(15)
|
Asset
Purchase Agreement dated December 2, 2004
|
|
2.5
(16)
|
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
(7)
|
Certificate
of Designation of Series A Convertible Preferred Stock
|
|
4.2
(21)
|
Certificate
of Designation of Series B Convertible Preferred Stock
|
|
4.3
(22)
|
First
Amendment to Certificate of Designation for Series B Convertible
Preferred
Stock
|
|
4.4
(26)
|
First
Amendment to Certificate of Designation for Series A Convertible
Preferred
Stock
|
|
5.1
(25)
|
Legal
Opinion of The Lebrecht Group, APLC
|
|
10.1
(2)
|
SKTF,
Inc. 2001 Stock Option Plan
|
|
10.2
(10)
|
Form
of Incentive Stock Option Agreement relating to options granted
under the
2001 Stock Option Plan
|
|
10.3
(10)
|
Form
of Non Statutory Stock Option Agreement relating to options granted
under
the 2001 Stock Option Plan
|
|
10.4
(10)
|
Form
of Common Stock Purchase Agreement relating to restricted stock
granted
under the 2001 Stock Option Plan
|
|
10.5
(4)
|
Consulting
Agreement with V2R, LLC dated June 16, 2003
|
|
10.6
(4)
|
Consulting
Agreement with V2R, Inc. dated June 13,
2003
|
|
10.7
(4)
|
Warrant
Agreement issued to V2R, LLC dated June 16, 2003
|
|
10.8
(3)
|
First
Amendment to SKTF, Inc. 2001 Stock Option Plan dated August
27,
2003
|
|
10.9
(5)
|
Form
of Indemnification Agreement
|
|
10.10
(5)
|
Employment
Agreement with Richard A. Parlontieri dated September 15,
2003
|
|
10.11
(6)
|
Acknowledgement
and Assumption of Liabilities with GCA Strategic Investment
Fund Ltd.
dated October 9, 2003
|
|
10.12
(6)
|
Acknowledgement
and Assumption of Liabilities with V2R, LLC dated October 9,
2003
|
|
10.13
(5)
|
Form
of Promissory Note to GCA Strategic Investment Fund
Limited
|
|
10.14
(5)
|
Form
of 7% Convertible Debenture to GCA Strategic Investment Fund
Limited
|
|
10.15
(11)
|
Form
of Unsecured Promissory Note issued to Calabria Advisers,
LLC
|
|
10.16
(11)
|
First
Amendment to Employment Agreement for Richard A. Parlontieri
dated
December 19, 2003
|
|
10.17
(11)
|
First
Amendment to Secured Promissory Note dated December 30,
2003
|
|
10.18
(11)
|
Consulting
Agreement with V2R, LLC dated January 1, 2004
|
|
10.19
(11)
|
Form
of Warrant issued to V2R, LLC dated January 1, 2004
|
|
10.20
(7)
|
Subscription
and Securities Purchase Agreement dated as of January 21,
2004
|
|
10.21
(7)
|
Common
Stock Purchase Warrant issued to GCA dated January 21,
2004
|
|
10.22
(7)
|
Registration
Rights Agreement dated January 21, 2004
|
|
10.23
(11)
|
Warrant
issued to Richard A. Parlontieri dated February 18,
2004
|
|
10.24
(11)
|
Warrant
issued to Richard A. Parlontieri dated February 18,
2004
|
|
10.25
(9)
|
Registration
Rights Agreement dated January 30, 2004
|
|
10.26
(9)
|
Bill
of Sale and Assignment dated January 30, 2004
|
|
10.27
(12)
|
Consulting
Agreement with Benchmark Consulting Inc.
|
|
10.28
(12)
|
Consulting
Agreement with Black Diamond Advisors dated January 1,
2004
|
|
10.29
(13)
|
Amendment
No. 1 dated May 5, 2004 to Consulting Agreement with Black
Diamond
Advisors dated January 1, 2004.
|
|
10.30
(13)
|
Conversion
Notice and Agreement with Calabria Advisors, LLC dated June
16,
2004
|
|
10.31
(13)
|
Form
of Subscription Agreement
|
|
10.32
(13)
|
Form
of Warrant Agreement
|
|
10.33
(14)
|
Equity
Research Agreement with The Research Works, Inc., dated as
of October 29,
2004
|
|
10.34
(16)
|
Promissory
Note dated December 30, 2004
|
|
10.35
(17)
|
Promissory
Note dated January 26, 2005
|
|
10.36
(17)
|
Common
Stock Purchase Warrant issued to GCA Strategic Investment
Fund
Limited
|
|
10.37
(17)
|
Common
Stock Purchase Warrant issued to Global Capital Advisors,
LLC
|
|
10.38
(17)
|
Registration
Rights Agreement dated January 26, 2005
|
|
10.39
(18)
|
Form
of Speedemissions, Inc. Warrant dated February 22, 2005
|
|
10.40
(19)
|
Letter
Agreement Extending Note dated March 1, 2005
|
|
10.41
(20)
|
Note
Extension Agreement with Calabria Advisors dated March 29,
2005
|
|
10.42
(20)
|
Letter
Agreement Extending Note dated March 31, 2005 with GCA
|
|
10.43
(20)
|
Letter
Agreement Extending Note dated March 31, 2005 with State
Inspections of
Texas, Inc.
|
|
10.44
(20)
|
Letter
Agreement Extending Note dated March 31, 2005 with State
Inspections of
Texas, Inc.
|
|
10.45
(20)
|
Letter
Agreement Extending Note dated March 31, 2005 with State
Inspections of
Texas, Inc.
|
|
10.46
(21)
|
Common
Stock Purchase Warrant “A” issued to Barron Partners dated June 30,
2005
|
|
10.47
(21)
|
Common
Stock Purchase Warrant “B” issued to Barron Partners dated June 30,
2005
|
|
10.48
(21)
|
Common
Stock Purchase Warrant issued to Prospect Financial Advisors,
LLC dated
June 30, 2005
|
|
10.49
(21)
|
Stock
Purchase Agreement dated June 30, 2005 for the acquisition
of Mr. Sticker,
Inc.
|
|
10.50
(21)
|
Preferred
Stock Purchase Agreement with Barron Partners LP dated
June 30,
2005
|
|
10.51
(21)
|
Registration
Rights Agreement dated June 30, 2005
|
|
10.52
(22)
|
Restated
Common Stock Purchase Warrant “A” issued to Barron Partners dated June 30,
2005
|
|
10.53
(22)
|
Restated
Common Stock Purchase Warrant “B” issued to Barron Partners dated June 30,
2005
|
|
10.54
(22)
|
Common
Stock Purchase Warrant “C” issued to Barron Partners dated August 4,
2005
|
|
10.55
(22)
|
Amendment
to Preferred Stock Purchase Agreement with Barron Partners
LP dated August
4, 2005
|
|
10.56
(23)
|
Form
of Common Stock Purchase Warrant, dated August 11, 2005
|
|
10.57
(24)
|
Stock
Purchase Agreement dated September 7, 2005 for the acquisition
of Just,
Inc.
|
|
10.58
(26)
|
Settlement
Agreement and General Release dated effective as of October
14,
2005
|
|
10.59
(26)
|
Amendment
No. 1 to Restated Common Stock Purchase Warrant “A” issued to Barron
Partners
|
|
10.60
(26)
|
Amendment
No. 1 to Restated Common Stock Purchase Warrant “B” issued to Barron
Partners
|
|
10.61
(26)
|
Common
Stock Purchase Warrant issued to Barron Partners effective
as of October
14, 2005
|
|
10.62
(26)
|
Amendment
No. 1 to Common Stock Purchase Warrant issued to GCA Strategic
Investment
Fund Limited, effective as of October 14, 2005
|
|
10.63
(26)
|
Amendment
No. 1 to Common Stock Purchase Warrant issued to GCA Strategic
Investment
Fund Limited, effective as of October 14, 2005
|
|
10.64
(26)
|
Common
Stock Purchase Warrant issued to Global Capital Funding
Group, LP
effective as of October 14, 2005
|
|
10.65
(26)
|
Common
Stock Purchase Warrant issued to GCA Strategic Investment
Fund Limited
effective as of October 14, 2005
|
|
10.66
(26)
|
Exchange
Agreement with Global Capital Funding Group, LP dated effective
as of
October 14, 2005
|
|
10.67
(26)
|
Registration
Rights Agreement with Global Capital Funding Group, LP
dated effective as
of October 14, 2005
|
|
10.68
(26)
|
Exchange
Agreement with GCA Strategic Investment Fund Limited dated
effective as of
October 14, 2005
|
|
10.69
(26)
|
Registration
Rights Agreement with GCA Strategic Investment Fund Limited
dated
effective as of October 14, 2005
|
|
21
|
Subsidiaries
of Speedemissions, Inc.
|
|
23.1
|
Consent
of Tauber & Balser, P.C.
|
|
23.2
|
Consent
of Bennett Thrasher PC
|
|
(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 Quarterly Report on Form 10-QSB/A dated September
26, 2003 and filed with the Commission on October 2,
2003
|
| (5) |
Incorporated
by reference from our Pre-Effective Registration Statement on Form
SB-2
filed with the Commission on October 3,
2003.
|
| (6) |
Incorporated
by reference from our Quarterly Report for the quarter ended September
30,
2003 dated November 12, 2003 and filed with the Commission on November
14,
2003.
|
| (7) |
Incorporated
by reference from our Current Report on Form 8-K dated January
26, 2004
and filed with the Commission on January 29,
2004.
|
| (8) |
Incorporated
by reference from our Current Report on Form 8-K dated and filed
with the
Commission on February 3, 2004.
|
| (9) |
Incorporated
by reference from our Current Report on Form 8-K dated February
4, 2004
and filed with the Commission on February 5,
2004.
|
| (10) |
Incorporated
by reference from our Registration Statement on Form S-8 dated
December
12, 2003 and filed with the Commission on December 19,
2003.
|
| (11) |
Incorporated
by reference from our Annual Report on Form 10-KSB dated March
29, 2004
and filed with the Commission on March 30,
2004.
|
| (12) |
Incorporated
by reference from our Quarterly Report on Form 10-QSB dated May
14, 2004
and filed with the Commission on May 17,
2004.
|
| (13) |
Incorporated
by reference from our Quarterly Report on Form 10-QSB dated August
12,
2004 and filed with the Commission on August 16,
2004.
|
| (14) |
Incorporated
by reference from our Current Report on Form 8-K dated November
8, 2004
and filed with the Commission on November 12,
2004.
|
| (15) |
Incorporated
by reference from our Current Report on Form 8-K dated December
7, 2004
and filed with the Commission on December 8,
2004.
|
| (16) |
Incorporated
by reference from our Current Report on Form 8-K dated January
3, 2005 and
filed with the Commission on January 7,
2005.
|
| (17) |
Incorporated
by reference from our Current Report on Form 8-K dated February
2, 2005
and filed with the Commission on February 3,
2005.
|
| (18) |
Incorporated
by reference from our Current Report on Form 8-K dated March 10,
2005 and
filed with the Commission on March 17,
2005.
|
| (19) |
Incorporated
by reference form our Annual Report on Form 10-KSB dated and filed
with
the Commission on April 15, 2005.
|
| (20) |
Incorporated
by reference from our Quarterly Report on Form 10-QSB dated May
11, 2005
and filed with the Commission on May 13,
2005.
|
| (21) |
Incorporated
by reference from our Current Report on Form 8-K dated July 6,
2005 and
filed with the Commission on July 7,
2005.
|
| (22) |
Incorporated
by reference from our Current Report on Form 8-K dated August 8,
2005 and
filed with the Commission on August 9,
2005.
|
| (23) |
Incorporated
by reference from our Current report on Form 8-K dated August 12,
2005 and
filed August 12, 2005.
|
| (24) |
Incorporated
by reference from our Current Report on Form 8-K dated September
12, 2005
and filed with the Commission on September 13,
2005.
|
| (25) |
Incorporated
by reference from our First Amended Form SB-2/A dated September
27, 2004
and filed with the Commission on September 28,
2004.
|
| (26) |
Incorporated
by reference from our Current Report on Form 8-K dated November
21, 2005
and filed with the Commission on November 22,
2005.
|
Undertakings
A. Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to our directors, officers and controlling persons pursuant
to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by
our
director, officer or controlling person in the successful defense of any
action,
suit or proceeding) is asserted by such director, officer or controlling
person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such
issue.
B. We
hereby
undertake:
|
(1)
|
To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration statement
to:
|
|
(i)
|
Include
any prospectus required by Section 10(a)(3) of the Securities Act
of
1933;
|
|
(ii)
|
Reflect
in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) any deviation
from the
low or high end of the estimated maximum offering range may be
reflected
in the form of prospectus filed with the Commission pursuant to
Rule
424(b) (Section 230.424(b) of Regulation S-B) if, in the aggregate,
the
changes in volume and price represent no more than a 20% change
in the
maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective Registration Statement;
and
|
|
(iii)
|
Include
any additional or changed material information on the plan of
distribution.
|
|
(2)
|
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered,
and
the offering of the securities at that time to be the initial bona
fide
offering.
|
|
(3)
|
File
a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the
offering.
|
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that is has reasonable grounds to believe that it meets all of
the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the
City of Tyrone, State of Georgia, on November 29, 2005.
| SPEEDEMISSIONS, INC. | ||
| |
|
|
| By: | /s/ Richard A. Parlontieri | |
|
|
||
| Richard A. Parlontieri, President and Chief Executive Officer | ||
| By: | /s/ Larry C. Cobb | |
|
|
||
| Larry C. Cobb, Chief Financial Officer and Chief Accounting Officer | ||
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
|
/s/
Richard A. Parlontieri
|
Dated:
November 29, 2005
|
|
By: Richard
A. Parlontieri, Director, President, Chief Executive Officer, and
Secretary
|
|
|
/s/
Bahram Yusefzadeh
|
Dated:
November 29, 2005
|
|
By: Bahram
Yusefzadeh, Director
|
|
|
/s/
Bradley A. Thompson
|
Dated:
November 29, 2005
|
|
By: Bradley
A. Thompson, Director
|
|
|
/s/
Erik Sander
|
Dated:
November 29, 2005
|
|
By: Erik
Sander, Director
|
|
|
/s/
Ernest A. Childs, PhD.
|
Dated:
November 29, 2005
|
|
By: Ernest
A. Childs, PhD., Director
|
|
II-11