UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to .
Commission file number: 000-49688
Speedemissions, Inc.
(Exact name of registrant as specified in its charter)
| Florida | 33-0961488 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 1015 Tyrone Road Suite 220 Tyrone, GA |
30290 | |
| (Address of principal executive offices) | (Zip Code) | |
Issuer’s telephone number (770) 306-7667
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 3, 2009, there were 5,162,108 shares of common stock, par value $0.001, issued and outstanding.
Table of Contents
Speedemissions, Inc.
| Cautionary Statement Relevant to Forward-Looking Information for the Purpose of “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995 |
3 | |
| PART I Financial Information |
||
| 4 | ||
| ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | |
| ITEM 3 Quantitative and Qualitative Disclosures About Market Risk |
16 | |
| ITEM 4T Controls and Procedures |
16 | |
| PART II Other Information |
||
| ITEM 1 Legal Proceedings |
18 | |
| ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds |
18 | |
| 18 | ||
| 18 | ||
| ITEM 5 Other Information |
18 | |
| ITEM 6 Exhibits |
18 | |
2
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report on Form 10-Q of Speedemissions, Inc. contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s current expecatations, estimates and projections about the emissions and safety testing industry. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “considers” and similar expressions are intended to identify such forward-looking statements.
Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, and other factors, some of which are beyond the company’s control and are difficult to predict. The Company’s future results and shareholder values may differ materially from those expressed or forecasted in these forward-looking statements. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, Speedemissions undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
3
PART I - FINANCIAL INFORMATION
| Item 1. | Consolidated Financial Statements |
Speedemissions, Inc. and Subsidiaries
Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2009 | 2008 | |||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash |
$ | 604,332 | $ | 512,492 | ||||
| Other current assets |
138,583 | 137,691 | ||||||
| Total current assets |
742,915 | 650,183 | ||||||
| Property and equipment, at cost less accumulated depreciation and amortization |
1,098,889 | 1,214,737 | ||||||
| Goodwill |
7,100,572 | 7,100,572 | ||||||
| Other assets |
101,687 | 100,937 | ||||||
| Total assets |
$ | 9,044,063 | $ | 9,066,429 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 274,001 | $ | 498,554 | ||||
| Accrued liabilities |
300,366 | 237,127 | ||||||
| Current portion of capitalized lease obligations |
44,545 | 41,962 | ||||||
| Current portion of equipment financing obligations |
17,567 | 16,362 | ||||||
| Current portion - deferred rent |
17,949 | 17,949 | ||||||
| Total current liabilities |
654,428 | 811,954 | ||||||
| Capitalized lease obligations, net of current portion |
117,959 | 140,897 | ||||||
| Equipment financing obligations, net of current portion |
55,335 | 64,431 | ||||||
| Deferred rent |
228,973 | 230,521 | ||||||
| Other long term liabilities |
7,350 | 7,350 | ||||||
| Total liabilities |
1,064,045 | 1,255,153 | ||||||
| Commitments and contingencies |
||||||||
| Series A convertible, redeemable preferred stock, $.001 par value, 5,000,000 shares authorized, 5,133 shares issued and outstanding; liquidation preference: $5,133,000 |
4,579,346 | 4,579,346 | ||||||
| Shareholders’ equity: |
||||||||
| Series B convertible preferred stock, $.001 par value, 3,000,000 shares authorized, 2,481,482 shares issued and outstanding; liquidation preference: $6,372,446 |
2,481 | 2,481 | ||||||
| Common stock, $.001 par value, 250,000,000 shares authorized, 5,162,108 shares issued and outstanding |
5,162 | 5,162 | ||||||
| Additional paid-in capital |
15,773,629 | 15,749,955 | ||||||
| Accumulated deficit |
(12,380,600 | ) | (12,525,668 | ) | ||||
| Total shareholders’ equity |
3,400,672 | 3,231,930 | ||||||
| Total liabilities and shareholders’ equity |
$ | 9,044,063 | $ | 9,066,429 | ||||
See accompanying notes to consolidated financial statements.
4
Speedemissions, Inc. and Subsidiaries
Consolidated Statements of Operations
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| Revenue |
$ | 2,586,308 | $ | 2,518,719 | $ | 5,058,250 | $ | 4,948,474 | ||||||||
| Costs of operations: |
||||||||||||||||
| Cost of emission certificates |
564,666 | 539,058 | 1,113,243 | 1,063,847 | ||||||||||||
| Store operating expenses |
1,574,762 | 1,522,703 | 3,147,591 | 3,009,772 | ||||||||||||
| General and administrative expenses |
361,053 | 502,637 | 662,419 | 988,083 | ||||||||||||
| (Gain) loss on disposal of non-strategic assets |
(24,830 | ) | — | (24,830 | ) | — | ||||||||||
| Operating income (loss) |
110,657 | (45,679 | ) | 159,827 | (113,228 | ) | ||||||||||
| Interest income (expense) |
||||||||||||||||
| Interest income |
26 | 256 | 51 | 1,120 | ||||||||||||
| Interest expense |
(7,767 | ) | (9,443 | ) | (14,810 | ) | (18,977 | ) | ||||||||
| Interest expense, net |
(7,741 | ) | (9,187 | ) | (14,759 | ) | (17,857 | ) | ||||||||
| Income (loss) from continuing operations |
102,916 | (54,866 | ) | 145,068 | (131,085 | ) | ||||||||||
| Income (loss) from discontinued operations |
— | (118,780 | ) | — | (218,193 | ) | ||||||||||
| Net income (loss) |
$ | 102,916 | $ | (173,646 | ) | $ | 145,068 | $ | (349,278 | ) | ||||||
| Basic net income (loss) per share from continuing operations |
$ | 0.02 | $ | (0.01 | ) | $ | 0.03 | $ | (0.03 | ) | ||||||
| Diluted net income (loss) per share from continuing operations |
$ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.03 | ) | ||||||
| Basic net income (loss) per share from discontinued operations |
$ | — | $ | (0.02 | ) | $ | — | $ | (0.04 | ) | ||||||
| Diluted net income (loss) per share from discontinued operations |
$ | — | (0.02 | ) | $ | — | (0.04 | ) | ||||||||
| Basic net income (loss) per share |
$ | 0.02 | $ | (0.03 | ) | $ | 0.03 | $ | (0.07 | ) | ||||||
| Diluted net income (loss) per share |
$ | 0.01 | $ | (0.03 | ) | $ | 0.02 | $ | (0.07 | ) | ||||||
| Weighted average common shares outstanding, basic |
5,162,108 | 5,162,108 | 5,162,108 | 5,162,108 | ||||||||||||
| Weighted average common shares outstanding, diluted |
9,439,606 | 5,162,108 | 9,439,606 | 5,162,108 | ||||||||||||
See accompanying notes to consolidated financial statements.
5
Speedemissions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| Six Months Ended June 30, |
||||||||
| 2009 | 2008 | |||||||
| Operating activities: |
||||||||
| Net income (loss) |
$ | 145,068 | $ | (349,278 | ) | |||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
159,841 | 173,123 | ||||||
| Gain on disposal of assets |
(24,830 | ) | — | |||||
| Share based compensation expenses |
23,674 | 103,710 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Other current assets |
(892 | ) | (25,589 | ) | ||||
| Other assets |
(750 | ) | (3,750 | ) | ||||
| Accounts payable and accrued liabilities |
(161,314 | ) | (66,849 | ) | ||||
| Other liabilities |
(1,548 | ) | (4,243 | ) | ||||
| Net cash (used in) provided by operating activities |
139,249 | (172,876 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Proceeds from disposal of assets |
24,830 | — | ||||||
| Purchases of property and equipment |
(43,992 | ) | (168,003 | ) | ||||
| Net cash used in investing activities |
(19,162 | ) | (168,003 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payments on financing obligations |
(7,892 | ) | (6,854 | ) | ||||
| Payments on capitalized leases |
(20,355 | ) | (17,677 | ) | ||||
| Net cash used in financing activities |
(28,247 | ) | (24,531 | ) | ||||
| Net increase (decrease) in cash |
91,840 | (365,410 | ) | |||||
| Cash at beginning of period |
512,492 | 804,662 | ||||||
| Cash at end of period |
$ | 604,332 | $ | 439,252 | ||||
| Supplemental Information: |
||||||||
| Cash paid during the period for interest |
$ | 10,385 | $ | 18,922 | ||||
| Non-cash Investing and Financing activities: |
||||||||
| Non-cash asset additions for financed and capital leases |
$ | — | $ | 31,425 | ||||
See accompanying notes to consolidated financial statements.
6
Speedemissions, Inc.
Notes to Consolidated Financial Statements
June 30, 2009
(Unaudited)
Note 1: Basis of Presentation
Speedemissions, Inc. (“the Company”), a Florida corporation, operates vehicle emissions testing and safety inspection centers in four separate markets, greater Atlanta, Georgia; Houston, Texas; St. Louis, Missouri and Salt Lake City, Utah. The Company manages its operations based on these four regions and has one reportable segment. Throughout this report, the terms “we,” “us,” “our,” “Speedemissions,” and “Company” refer to Speedemissions, Inc., including its wholly-owned subsidiaries. As of August 3, 2009, we operated 40 vehicle emissions testing and safety inspection centers in these regions and four mobile units in the Atlanta, Georgia area.
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.
The Statement of Financial Accounting Standards No. 165, Subsequent Events, (“SFAS 165”) is effective for financial statements ending after June 15, 2009. SFAS 165 establishes general standards of accounting for and disclosure of subsequent events that occur after the balance sheet date. Entities are also required to disclose the date through which subsequent events have been evaluated and the basis for that date. The Company has evaluated subsequent events through the date of filing its Form 10-Q with the Securities and Exchange Commission, August 11, 2009.
Note 2: Summary of Significant Accounting Policies
Nature of Operations
Speedemissions performs vehicle emissions testing and safety inspections in certain cities in which vehicle emissions testing is mandated by the Environmental Protection Agency (EPA). We use computerized emissions testing and safety inspections equipment that test vehicles for compliance with vehicle emissions and safety standards. Our revenues are generated from the test or inspection fee charged to the registered owner of the vehicle. We do not provide automotive repair services.
The Company’s 40 emissions testing and safety inspection stations operate under the trade names Speedemissions (Georgia and Missouri), Mr. Sticker (Texas) and Just Inc. (Utah). At its emissions testing and safety inspection stations, the Company uses computerized emissions testing equipment and safety inspection equipment that test vehicles for compliance with emissions and safety standards. In the emissions testing and safety inspection 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.
Revenue Recognition
Revenue is recognized as the testing services are performed. The cost of emission certificates is shown separately in the accompanying consolidated statements of income.
Under current Georgia, Missouri, Texas, and Utah laws, if a vehicle fails an emissions test or safety inspection, 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. The costs of such retests and the number of retests are not material. Accordingly, no allowance for retest is recorded by the Company.
7
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 141R, Business Combinations (SFAS 141R), which changes the way we account for business acquisitions. SFAS 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of SFAS 141R will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. SFAS 141R became effective for us on January 1, 2009 and the adoption did not have an impact on our financial statements.
Note 3: Discontinued Operations
Discontinued operations include results attributable to 12 emissions testing and safety inspection centers that were located within Sears Auto Centers in the Dallas, Texas area. Eight of these stores were closed in July 2008 and the remaining four were closed on January 5, 2009. Loss from discontinued operations includes the historical loss from these operations.
Loss from discontinued operations:
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||
| Revenues |
$ | — | $ | 90,722 | $ | — | $ | 144,387 | ||||||
| Loss from discontinued operations |
$ | — | ($118,780 | ) | $ | — | ($218,193 | ) | ||||||
Note 4: Property and Equipment
Property and equipment at June 30, 2009 and December 31, 2008 consisted of the following:
| June 30, 2009 | December 31, 2008 | |||||
| Buildings |
$ | 485,667 | $ | 485,667 | ||
| Emission testing and safety inspection equipment |
1,790,587 | 1,816,579 | ||||
| Furniture, fixtures and office equipment |
140,276 | 128,519 | ||||
| Vehicles |
3,664 | 13,165 | ||||
| Leasehold improvements |
279,130 | 254,820 | ||||
| 2,699,324 | 2,698,750 | |||||
| Less: accumulated depreciation and amortization |
1,600,435 | 1,484,013 | ||||
| $ | 1,098,889 | $ | 1,214,737 | |||
8
Note 5: Accrued Liabilities
Accrued liabilities at June 30, 2009 and December 31, 2008 consisted of the following:
| June 30, 2009 |
December 31, 2008 | |||||
| Professional fees |
$ | 110,277 | $ | 83,724 | ||
| Accrued payroll |
94,127 | 60,669 | ||||
| Accrued store closing expenses |
— | 46,473 | ||||
| Other |
90,692 | 40,991 | ||||
| Emissions testing equipment |
5,270 | 5,270 | ||||
| $ | 300,366 | $ | 237,127 | |||
Note 6: Equipment Financing Agreements
In December 2007, the Company entered into sixty-month equipment financing agreements with two financing companies in the amounts of $55,124 and $40,458, respectively. The financing agreements are secured by the related equipment and are personally guaranteed by the President of the Company.
Note 7: Net Income (loss) Per Common Share
Net income (loss) per share has been computed according to SFAS No. 128, “Earnings per Share,” which requires a dual presentation of basic and diluted earnings per share (“EPS”). Basic EPS represents net income (loss) divided by the weighted average number of common shares outstanding during a reported period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, including stock options, warrants, and contingently issuable shares such as the Company’s Series A and Series B preferred stock (commonly and hereinafter referred to as “Common Stock Equivalents”), were exercised or converted into common stock.
The following table sets forth the computation for basic and diluted net income (loss) per share for the three and six month periods ended June 30, 2009 and 2008, respectively:
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||
| Income (loss) from continuing operations (A) |
$ | 102,916 | $ | (54,866 | ) | $ | 145,068 | $ | (131,085 | ) | ||||
| Income (loss) from discontinued operations (B) |
— | (118,780 | ) | — | (218,193 | ) | ||||||||
| Net income (loss) (C) |
$ | 102,916 | $ | (173,646 | ) | $ | 145,068 | $ | (349,278 | ) | ||||
| Weighted average common shares - basic (D) |
5,162,108 | 5,162,108 | 5,162,108 | 5,162,108 | ||||||||||
| Effect of dilutive securities: |
||||||||||||||
| Diluted effect of stock options (1, 2) |
— | — | — | — | ||||||||||
| Diluted effect of stock warrants (1, 2) |
— | — | — | — | ||||||||||
| Diluted effect of unrestricted Preferred Series A Shares (3) |
4,277,498 | — | 4,277,498 | — | ||||||||||
| Diluted effect of unrestricted Preferred Series B Shares (4) |
||||||||||||||
| Weighted average common shares - diluted (E) |
9,439,606 | 5,162,108 | 9,439,606 | 5,162,108 | ||||||||||
| Income (loss) per share from continuing operations - basic (A/D) |
$ | 0.02 | $ | (0.01 | ) | $ | 0.03 | $ | (0.03 | ) | ||||
| Income (loss) per share from continuing operations - diluted (A/E) |
$ | 0.01 | $ | (0.01 | ) | $ | 0.02 | $ | (0.03 | ) | ||||
| Income (loss) per share from discontinued operations - basic (B/D) |
$ | — | $ | (0.02 | ) | $ | — | $ | (0.04 | ) | ||||
| Income (loss) per share from discontinued operations - diluted (B/E) |
$ | — | $ | (0.02 | ) | $ | — | $ | (0.04 | ) | ||||
| Net income (loss) per share - basic (C/D) |
$ | 0.02 | $ | (0.03 | ) | $ | 0.03 | $ | (0.07 | ) | ||||
| Net income (loss) per share - diluted (C/E) |
$ | 0.01 | $ | (0.03 | ) | $ | 0.02 | $ | (0.07 | ) | ||||
| (1) | Because their effects are anti-dilutive, Common Stock Equivalents of 21,099,239 issuable under stock option plans and stock warrants whose grant price is greater than the average market price of Common Shares outstanding at the end of the relevant period have been excluded from the computation of weighted average common shares diluted for the three and six months ended June 30, 2009. |
9
| (2) | As a result of the Company’s net loss in the three and six months ended June 30, 2008, aggregate Common Stock Equivalents of 21,635,512 issuable under stock option plans and stock warrants that were potentially dilutive securities are anti-dilutive and have been excluded from the computation of weighted average common shares diluted for the three and six months ended June 30, 2008. These Common Stock Equivalents could be dilutive in future periods. |
| (3) | As a result of the Company’s net loss in the three and six months ended June 30, 2008, aggregate Common Stock Equivalents of 4,277,498 issuable under Series A convertible, redeemable preferred stock that were potentially dilutive securities are anti-dilutive and have been excluded from the computation of weighted average common shares diluted for the three and six months ended June 30, 2008. The Company reported net income in the three and six months ended June 30, 2009 and as a result, the 4,277,498 Common Stock Equivalents were dilutive in the three and six months ended June 30, 2009. These Common Stock Equivalents could be dilutive in future periods. |
| (4) | Series B convertible preferred stock held by Barron Partners, LP (“Barron”) do not have voting rights and are subject to a maximum ownership percentage by Barron at any time of 4.9% of the Company’s outstanding common stock. As a result, Common Share Equivalents of the Series B convertible preferred stock of 18,760,000 are anti-dilutive and have been excluded from the weighted average common shares diluted calculation for the three and six months ended June 30, 2009 and 2008. |
Note 8: Preferred Stock
Preferred Stock
There were 5,133 shares of Series A convertible redeemable preferred stock issued and outstanding as of June 30, 2009 and December 31, 2008. For financial statement purposes, the Series A convertible redeemable preferred stock has been presented outside of stockholders’ equity on the Company’s balance sheets as a result of certain conditions that are outside the control of the Company that could trigger redemption of the securities.
There were 2,481,482 shares of Series B convertible preferred stock issued and outstanding as of June 30, 2009 and December 31, 2008.
Note 9: Share-Based Compensation
The Company estimates the fair value of stock options using the Black-Scholes valuation model, and determines the fair value of restricted stock units based on the number of shares granted and the quoted price of the Company’s common stock on the date of grant. Such value is recognized as expense over the requisite service period, net of estimated forfeitures, using the straight-line attribution method. The estimate of awards that will ultimately vest requires significant judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical employee attrition rates. Actual results, and future changes in estimates, may differ substantially from the Company’s current estimates.
Stock-based compensation expense was $11,837 and $76,604 during the three months ended June 30, 2009 and 2008, respectively and $23,674 and $103,710 during the six months ended June 30, 2009 and 2008, respectively.
Stock Incentive Plans
The Company has granted options to employees and directors to purchase the Company’s common stock under various stock incentive plans. Under the plans, employees and non-employee directors are eligible to receive awards of various forms of equity-based incentive compensation, including stock options, restricted stock, restricted stock units and performance awards, among others. The plans are administered by the Compensation Committee of the Board of Directors, which determines the terms of the awards granted. Stock options are generally granted with an exercise price equal to the market value of the Company’s common stock on the date of grant, have a term of ten years or less, and generally vest over three years from the date of grant.
10
The following table sets forth the options granted under the Company’s Stock Option Plans during the six-month period ended June 30, 2009:
| Number of Shares |
Weighted Average Exercise Price |
Weighted Average Grant-date Fair Value | |||||||
| Options outstanding at December 31, 2008 |
5,781,558 | $ | 0.69 | ||||||
| Granted |
13,000 | 0.07 | $ | 0.02 | |||||
| Expired |
(12,750 | ) | 0.34 | ||||||
| Options outstanding at June 30, 2009 |
5,781,808 | $ | 0.35 | ||||||
| Options exercisable at June 30, 2009 |
4,606,975 | $ | 0.40 | ||||||
The aggregate intrinsic value of options outstanding and exercisable at June 30, 2009 was $0. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options.
The fair value for stock options was estimated at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions. Expected volatility was based on the comparable company data. The Company based the risk-free interest rate on U.S. Treasury note rates. The expected term is based on the vesting period and an expected exercise term. The Company does not anticipate paying cash dividends in the foreseeable future and therefore use an expected dividend yield of 0%. The Company used the following assumptions in using the Black-Scholes option pricing model for the January 30, 2009 grant of 13,000 stock options:
| Risk free interest rate |
1.27 | % | |
| Expected term of stock awards |
2 years | ||
| Expected volatility in stock price |
45.00 | % | |
| Expected dividend yield |
None |
As of June 30, 2009, there was $37,761 of unrecognized stock-based compensation expense related to non-vested stock options. This amount is expected to be recognized over a weighted average period of twelve months. There were 1,131,750 and 1,266,666 shares that vested during the six months ended June 30, 2009 and 2008, respectively.
There were 5,721,058 and 5,721,058 shares issued and outstanding under the Company’s SKTF, Inc. 2001 Stock Option Plan, the 2005 Omnibus Stock Grant and Option Plan, Speedemissions’ Inc. 2006 Stock Grant and Option Plan and 2008 Stock Grant and Option Plan as of June 30, 2009 and December 31, 2008, respectively. There were 13,000 options granted under these plans during the six-month period ended June 30, 2009. There were no options exercised during the six month periods ended June 30, 2009 and 2008.
Stock Warrants
There were no common stock warrants granted or exercised during the six-month period ended June 30, 2009. The following table represents our warrant activity for the six month period ended June 30, 2009:
| Number of Options/Warrants |
Weighted Average Grant Date Fair Value | |||||
| Outstanding warrants at December 31, 2008 |
15,445,287 | $ | 1.40 | |||
| Granted |
— | — | ||||
| Exercised |
— | — | ||||
| Forfeited |
(127,856 | ) | $ | 0.70 | ||
| Outstanding warrants at June 30, 2009 |
15,317,431 | $ | 1.41 | |||
Note 10: Income Taxes
No provision for income taxes has been reflected for the three and six-month periods ended June 30, 2009 and 2008 as the Company has sufficient net operating loss carry forwards to offset taxable income.
11
Note 11: Contingencies
The Company may from time to time be 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 may be pending or threatened, or all of them combined, will not have a material adverse effect on its consolidated financial position or results of operations.
| ITEM 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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. Forward-looking statements are statements we make based on our management’s expectations, estimates, projections and assumptions and are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
The Company assumes no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made. Since our common stock is considered a “penny stock,” we are not eligible to rely on the safe harbor for forward looking statements provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and any references to these sections are for informational purposes only.
Overview
As of June 30, 2009 we operated 40 vehicle emissions testing stations and four mobile units in four separate markets, Atlanta, Georgia; Houston, Texas; St. Louis, Missouri; and Salt Lake City, Utah.
We perform vehicle emissions testing and safety inspections in certain cities in which vehicle emissions testing is mandated by the Environmental Protection Agency (EPA). We use computerized emissions testing and safety inspections equipment that test vehicles for compliance with vehicle emissions and safety standards. Our revenues are generated from the test or inspection fee charged to the registered owner of the vehicle. We do not provide automotive repair services.
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Results of Operations
Three Months Ended June 30, 2009 and 2008
Our revenue, cost of emission certificates, store operating expenses, general and administrative expenses and operating income (loss) for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008 were as follows:
| Three Months Ended June 30 |
Percentage | ||||||||||
| 2009 | 2008 | Change | |||||||||
| Revenue |
$ | 2,586,308 | $ | 2,518,719 | 2.7 | % | |||||
| Cost of emission certificates |
564,666 | 539,058 | 4.8 | % | |||||||
| Store operating expenses |
1,574,762 | 1,522,703 | 3.4 | % | |||||||
| General and administrative expenses |
361,053 | 502,637 | (28.2 | %) | |||||||
| Gain from disposal of non-strategic assets |
(24,830 | ) | — | N/A | |||||||
| Operating income (loss) |
$ | 110,657 | $ | (45,679 | ) | 342.2 | % | ||||
Revenue. Revenue increased $67,589 or 2.7% to $2,586,308 in the three–month period ended June 30, 2009 compared to $2,518,719 in the three–month period ended June 30, 2008. The increase in revenue over the comparable period was primarily due to an increase in same store sales of $135,862 or 5.5%, offset by a decrease of $68,275 from a store closed in September 2008. The increase in same store sales is mainly attributable to revenue growth from newer stores that have been open for less than two years in Houston and St. Louis.
Cost of emission certificates. Cost of emission certificates increased $25,608 or 4.8% in the three-month period ended June 30, 2009 and was $564,666 or 21.8% of revenues, compared to $539,058 or 21.4% of revenues in the three-month period ended June 30, 2008. The increase in the cost of emission certificates was primarily due to a $39,309 increase in same store certificate costs resulting from increased sales, offset by a decrease of $13,700 in the cost of emission certificates from a store closed in September 2008.
Store operating expenses. Store operating expenses increased $52,059 or 3.4% in the three-month period ended June 30, 2009 and was $1,574,762 or 60.9% of revenues, compared to $1,522,703 or 60.5% of revenues in the three-month period ended June 30, 2008. The increase was mainly attributable to an increase of $64,120 in same store operating expenses, offset by a decrease of $13,917 in store operating expenses from a store closed in September 2008.
General and administrative expenses. Our general and administrative expenses decreased $141,584 or 28.2% to $361,053 in the three-month period ended June 30, 2009 from $502,637 in the three-month period ended June 30, 2008. The decrease in general and administrative expenses was primarily due to decreases in legal and accounting fees, lower personnel costs and a reduction in stock option compensation expense.
Gain from disposal of non-strategic assets. We recorded a gain of $24,830 on the sale of older emissions testing equipment in the three-month period ended June 30, 2009. The older emissions testing equipment was replaced by newer equipment transferred from our closed Dallas stores.
Operating income (loss) Our operating income increased $156,336 in the three-month period ended June 30, 2009 and was $110,657 compared to an operating loss of $45,679 in the three-month period ended June 30, 2008.
Interest income, interest expense, income (loss) from continuing operations and basic and diluted earnings per share. Our interest income, interest expense, income (loss) from continuing operations and basic and diluted earnings per share for the three–month period ended June 30, 2009 as compared to the three–month period ended June 30, 2008 is as follows:
| Three Months Ended June 30, |
||||||||
| 2009 | 2008 | |||||||
| Operating income (loss) |
$ | 110,657 | $ | (45,679 | ) | |||
| Interest income |
26 | 256 | ||||||
| Interest expense |
(7,767 | ) | (9,443 | ) | ||||
| Income (loss) from continuing operations |
$ | 102,916 | $ | (54,866 | ) | |||
| Basic income (loss) per share from continuing operations |
$ | 0.02 | $ | (0.01 | ) | |||
| Diluted income (loss) per share from continuing operations |
$ | 0.01 | $ | (0.01 | ) | |||
| Weighted average shares outstanding, basic |
5,162,108 | 5,162,108 | ||||||
| Weighted average shares outstanding, diluted |
9,439,606 | 5,162,108 | ||||||
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The Company incurred lower interest expense during the three–month period ended June 30, 2009 as a result of lower average debt under equipment financing agreements and capital leases outstanding than the comparable period ending June 30, 2008.
Income (loss) from discontinued operations and loss per share from discontinued operations. On December 31, 2008, we decided to close our last 4 vehicle emissions testing and safety inspection stations located within Sears Auto Centers in the Dallas-Ft. Worth, Texas trade area. These stores were closed on January 5, 2009. We had previously announced the closing of 8 similar stores in the Dallas-Ft. Worth, Texas trade area on July 18, 2008. Discontinued operations for the three-month period ended June 30, 2009 and 2008 consists of the operating results for these 12 stores. Revenue in the three-month period ended June 30, 2009 and 2008 from these stores was $0 and $90,722, respectively. Income (loss) from discontinued operations was $0 and ($118,780) in the three-month period ended June 30, 2009 and 2008, respectively. Basic and diluted income (loss) per share from discontinued operations was $0.00 and ($0.02) in the three-month period ended June 30, 2009 and 2008, respectively.
Six Months Ended June 30, 2009 and 2008
Our revenue, cost of emission certificates, store operating expenses, general and administrative expenses and operating income (loss) for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008 were as follows:
| Six Months Ended June 30 |
Percentage | ||||||||||
| 2009 | 2008 | Change | |||||||||
| Revenue |
$ | 5,058,250 | $ | 4,948,474 | 2.2 | % | |||||
| Cost of emission certificates |
1,113,243 | 1,063,847 | 4.6 | % | |||||||
| Store operating expenses |
3,147,591 | 3,009,772 | 4.6 | % | |||||||
| General and administrative expenses |
662,419 | 988,083 | (33.0 | %) | |||||||
| Gain from disposal of non-strategic assets |
(24,830 | ) | — | N/A | |||||||
| Operating income (loss) |
$ | 159,827 | $ | (113,228 | ) | 241.2 | % | ||||
Revenue. Revenue increased $109,776 or 2.2% to $5,058,250 in the six–month period ended June 30, 2009 compared to $4,948,474 in the six–month period ended June 30, 2008. The increase in revenue over the comparable period was primarily due to an increase in same store sales of $187,298 or 3.9% and revenue from new stores of $61,414, offset by a decrease of $138,935 from a store closed in September 2008. The increase in same store sales is mainly attributable to revenue growth from newer stores that have been open for less than two years in Houston and St. Louis.
Cost of emission certificates. Cost of emission certificates increased $49,396 or 4.6% in the six-month period ended June 30, 2009 and was $1,113,243 or 22.0% of revenues, compared to $1,063,847 or 21.5% of revenues in the six-month period ended June 30, 2008. The increase in the cost of emission certificates was primarily due to a $65,269 increase in same store certificate costs resulting from increased sales and from $12,276 in certificates used at new stores, offset by a decrease of $28,149 in the cost of emission certificates from a store closed in September 2008.
Store operating expenses. Store operating expenses increased $137,819 or 4.6% in the six-month period ended June 30, 2009 and was $3,147,591 or 62.2% of revenues, compared to $3,009,722 or 60.8% of revenues in the six-month period ended June 30, 2008. The increase was mainly attributable to an increase of $121,218 in same store operating expenses and from new store operating expenses of $50,765, offset by a decrease of $53,605 in store operating expenses from a store closed in September 2008.
General and administrative expenses. Our general and administrative expenses decreased $325,664 or 33.0% to $662,419 in the six-month period ended June 30, 2009 from $988,083 in the six-month period ended June 30, 2008. The decrease in general and administrative expenses was primarily due to decreases in legal and accounting fees, lower personnel costs and a reduction in stock option compensation expense.
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Gain from disposal of non-strategic assets. We recorded a gain of $24,830 on the sale of older emissions testing equipment in the six-month period ended June 30, 2009. The older emissions testing equipment was replaced by newer equipment transferred from our closed Dallas stores.
Operating income (loss). Our operating income increased $273,055 in the six-month period ended June 30, 2009 and was $159,827 compared to an operating loss of $113,228 in the six-month period ended June 30, 2008.
Interest income, interest expense, income loss) from continuing operations and basic and diluted earnings per share. Our interest income, interest expense, income (loss) from continuing operations and basic and diluted earnings per share for the six–month period ended June 30, 2009 as compared to the six–month period ended June 30, 2008 is as follows:
| Six Months Ended June 30, |
||||||||
| 2009 | 2008 | |||||||
| Operating income (loss) |
$ | 159,827 | $ | (113,228 | ) | |||
| Interest income |
51 | 1,120 | ||||||
| Interest expense |
(14,810 | ) | (18,977 | ) | ||||
| Income (loss) from continuing operations |
$ | 145,068 | $ | (131,085 | ) | |||
| Basic income (loss) per share from continuing operations |
$ | 0.03 | $ | (0.03 | ) | |||
| Diluted income (loss) per share from continuing operations |
$ | 0.02 | $ | (0.03 | ) | |||
| Weighted average shares outstanding, basic |
5,162,108 | 5,162,108 | ||||||
| Weighted average shares outstanding, diluted |
9,439,606 | 5,162,108 | ||||||
The Company incurred lower interest expense during the six–month period ended June 30, 2009 as a result of lower average debt under equipment financing agreements and capital leases outstanding than the comparable period ending June 30, 2008.
Income (loss) from discontinued operations and loss per share from discontinued operations. On December 31, 2008, we decided to close our last 4 vehicle emissions testing and safety inspection stations located within Sears Auto Centers in the Dallas-Ft. Worth, Texas trade area. These stores were closed on January 5, 2009. We had previously announced the closing of 8 similar stores in the Dallas-Ft. Worth, Texas trade area on July 18, 2008. Discontinued operations for the six-month period ended June 30, 2009 and 2008 consists of the operating results for these 12 stores. Revenue in the six-month period ended June 30, 2009 and 2008 from these stores was $0 and $144,387, respectively. Income (loss) from discontinued operations was $0 and ($218,193) in the six-month period ended June 30, 2009 and 2008, respectively. Basic and diluted income (loss) per share from discontinued operations was $0.00 and ($0.04) in the six-month period ended June 30, 2009 and 2008, respectively.
Liquidity and Capital Resources
Introduction
Our net cash position increased by $91,840 and our current liabilities decreased by $157,526 during the six months ended June 30, 2009 primarily from cash provided by operations. We anticipate an increase in our net operating cash flow on a long-term basis, but we may not achieve positive operating cash flows on a consistent basis during 2009. The Company has funded operations and our investment in new stores primarily through the issuance of equity securities, equipment leases and cash provided by operations. In the future, we may raise additional capital by issuing our equity securities to fund expansion and working capital needs. If we are unsuccessful in obtaining additional sources of debt or capital and if the new stores do not reach sufficient levels of tests to achieve profitability in the short-term, we may have to curtail our growth strategy. We continually assess store profitability and may close non-profitable or poor performing stores.
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Cash Requirements
For the six months ended June 30, 2009, our net cash provided by operating activities was $139,249 compared to net cash used in operations of $172,876 in the six months ended June 30, 2008. Positive operating cash flows during the six months ended June 30, 2009 were primarily created by net income of $145,068, depreciation and amortization of $159,841, share-based compensation expenses of $23,674 and increases in other assets and other current assets of $750 and $892 respectively. The increase in net cash provided by operating activities was offset by a decrease of $161,314 in accounts payable and accrued liabilities, a gain on disposal of assets of $24,830 and a decrease in other liabilities of $1,548.
Negative operating cash flows during the six months ended June 30, 2008 were primarily created by a net loss of $349,278, a decrease of $66,849 in accounts payable and accrued liabilities, increases in other assets and other current assets of $3,750 and $25,589, respectively and a decrease in other liabilities of $4,243, offset by depreciation and amortization of $173,123, and share-based compensation expenses of $103,710.
Sources and Uses of Cash
Net cash used in investing activities was $19,162 for the six months ended June 30, 2009 compared to net cash used in investing activities of $168,003 for the six months ended June 30, 2008. The net cash used in investing activities during the six months ended June 30, 2009 consisted of capital expenditures of $43,992, offset by proceeds from disposal of assets of $24,830. The net cash used in investing activities during the six months ended June 30, 2008 was related to capital expenditures.
Net cash used in financing activities was $28,247 and $24,531 for the six months ended June 30, 2009 and 2008, respectively. During the six months ended June 30, 2009 we made payments of $7,892 and $20,355 on debt and capital leases, respectively. During the six months ended June 30, 2008 we made payments of $6,854 and $17,677 on debt and capital leases, respectively.
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 our Board of Directors, the Company has identified accounting policies related to valuation of our common stock and for assessing whether any value should be assigned to a warrant that we believe 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 key to an understanding of its financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.
| ITEM 3 | Quantitative and Qualitative Disclosures About Market Risk |
There have been no events that are required to be reported under this Item.
| ITEM 4T | Controls and Procedures |
The Company’s Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2009 (the “Evaluation Date”), have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no changes in the Company’s internal controls over financial reporting during the six months ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, the internal controls as of the Evaluation Date.
(A) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving the Company’s disclosure control objectives. The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, in fact, effective at this reasonable assurance level as of the period covered. In addition, the Company reviewed its internal controls, and there have been no significant changes in its internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation or from the end of the reporting period to the date of this Form 10-Q.
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(B) Changes in Internal Controls Over Financial Reporting
In connection with the evaluation of the Company’s internal controls during the three months ended June 30, 2009, the Company’s Chief Executive Officer and Chief Financial Officer has determined that there are no changes to the Company’s internal controls over financial reporting that has materially affected, or is reasonably likely to materially effect, the Company’s internal controls over financial reporting.
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PART II - OTHER INFORMATION
| ITEM 1 | Legal Proceedings |
As of June 30, 2009, neither the Company nor its subsidiaries is a party to nor is any of our property subject to any material or other pending legal proceedings that would materially adversely affect our operations.
| ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds |
There have been no events that are required to be reported under this Item.
| ITEM 3 | Defaults Upon Senior Securities |
There have been no events that are required to be reported under this Item.
| ITEM 4 | Submission of Matters to a Vote of Security Holders |
There have been no events that are required to be reported under this Item.
| ITEM 5 | Other Information |
There have been no events that are required to be reported under this Item.
| ITEM 6 | Exhibits |
| (a) | Exhibits |
| 31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SPEEDEMISSIONS, INC. | ||||||||
| Date: August 12, 2009 | By: | /s/ Richard A. Parlontieri | ||||||
| Richard A. Parlontieri President | ||||||||
| Date: August 12, 2009 | By: | /s/ Michael S. Shanahan | ||||||
| Michael S. Shanahan Chief Financial Officer | ||||||||
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