Edgar Filing: SPEEDEMISSIONS INC

s81715410q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 710 Tyrone, GA	30290
(Address of principal executive offices)	(Zip Code)

Issuer’s telephone number (770) 306-7667

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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 x No o

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	o	Accelerated filer	o

Non-accelerated filer	o	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 o No x

As of October 23, 2015, there were 108,964,225 shares of common stock, par value $0.001, issued and outstanding.

Speedemissions, Inc.

TABLE OF CONTENTS

Cautionary Statement Relevant to Forward-Looking Information		3

PART I FINANCIAL INFORMATION

ITEM 1.	Financial Statements	4
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	19
ITEM 4.	Controls and Procedures	20

PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	20
ITEM 1A.	Risk Factors	20
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
ITEM 3.	Defaults Upon Senior Securities	20
ITEM 4.	Mine Safety Disclosures	20
ITEM 5.	Other Information	20
ITEM 6.	Exhibits	21

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q of Speedemissions, Inc. (references in this Report to “Speedemissions,” “Company,” “we,” “us” and “our” mean Speedemissions, Inc. and our consolidated subsidiaries) contains forward-looking statements 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 statements that look to future events and consist of, among other things, statements about our anticipated future income including the amount and mix of revenue among type of product, category of customer, geographic region and distribution method and our anticipated future expenses and tax rates. Forward-looking statements include our business strategies and objectives and include statements about the expected benefits of our strategic alliances and acquisitions, our plans for the integration of acquired businesses, our continued investment in complementary businesses, products and technologies, our expectations regarding product acceptance, product and pricing competition, cash requirements and the amounts and uses of cash and working capital that we expect to generate. The words “may,” “would,” “should,” “will,” “assume,” “believe,” “plan,” “expect,” “anticipate,” “could,” “estimate,” “predict,” “goals,” “continue,” “project,” and similar expressions or the negative of these terms or other comparable terminology are meant 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, including those described under Item 1A-Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2014, some of which are beyond the Company’s control and are difficult to predict. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. The Company’s future results and shareholder values may differ materially from those expressed or forecast 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, or to update the reasons why actual results could differ from those expressed in, or implied or projected by, the forward-looking statements.

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Speedemissions, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30, 2015			December 31, 2014
	(unaudited)
Assets
Current assets:
Cash	$	127,150		$	21,729
Notes receivable – current portion		18,343			41,679
Certificate and merchandise inventory		7,453			11,183
Other current assets		44,975			83,845
Total current assets		197,921			158,436
Notes receivable, net of current portion		48,483			52,974
Property and equipment, net		113,125			156,451
Goodwill		390,985			390,985
Other assets		70,310			69,600
Total assets	$	820,824		$	828,446
Liabilities and Shareholders’ Deficit
Current liabilities:
Line of credit	$	22,620		$	-
Notes payable		381,246			190,956
Accounts payable		785,306			696,192
Accrued liabilities		343,989			270,835
Current portion - capitalized lease obligations		39,998			25,845
Current portion - equipment financing obligations		2,770			10,292
Current portion – deferred rent		6,068			6,068
Total current liabilities		1,581,997			1,200,188
Capitalized lease obligations, net of current portion		3,650			35,396
Deferred rent		47,633			45,890
Other long term liabilities		14,709			14,709
Total liabilities		1,647,989			1,296,183
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’ deficit:
Common stock, $.001 par value, 250,000,000 shares authorized, 111,038,914 issued, with 108,964,225 shares outstanding at June 30, 2015 and December 31, 2014		110,969			110,969
Additional paid-in capital		16,259,851			16,259,851
Treasury stock at cost (2,074,689 shares)		(100,000	)		(100,000	)
Accumulated deficit		(21,677,331	)		(21,317,903	)
Total shareholders’ deficit		(5,406,511	)		(5,047,083	)
Total liabilities and shareholders’ deficit	$	820,824		$	828,446

See accompanying notes to consolidated financial statements.

Speedemissions, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)

	Three Months Ended June 30						Six Months Ended June 30
	2015			2014			2015			2014
Revenue	$	794,860		$	1,600,643		$	1,627,664		$	3,398,453
Costs of operations:
Cost of emission certificates		148,449			310,832			303,651			675,512
Store operating expenses		565,160			1,234,321			1,114,539			2,532,639
General and administrative expenses		261,068			286,571			467,461			606,956
(Gain) loss on sale of non-strategic assets		-			(200,728	)		786			(200,728	)
Goodwill impairment expense		-			365,378			-			365,378
Operating loss		(179,817	)		(395,731	)		(258,773	)		(581,304	)
Interest income (expense)
Interest income		755			1,005			1,510			2,605
Interest expense		(67,770	)		(58,516	)		(102,165	)		(116,163	)
Interest expense, net		(67,015	)		(57,511	)		(100,655	)		(113,558	)
Net loss	$	(246,832	)	$	(453,242	)	$	(359,428	)	$	(694,862	)
Basic and diluted net loss per share	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.01	)
Weighted average common shares outstanding, basic and diluted		108,964,225			77,303,463			108,964,225			63,581,102

See accompanying notes to consolidated financial statements.

Speedemissions, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(359,428	)	$	(694,862	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		39,169			151,657
Goodwill impairment expense		-			365,378
Loss (gain) on sale of non-strategic assets		786			(200,728	)
Stock issued for services		-			14,220
Share based compensation		-			15,000
Changes in operating assets and liabilities:
Certificate and merchandise inventory		3,730			2,683
Other current assets		38,871			63,210
Other assets		(2,220	)		(7,954	)
Accounts payable and accrued liabilities		162,268			41,851
Other liabilities		1,743			14,680
Net cash used in operating activities		(115,081	)		(234,865	)
Cash flows from investing activities:
Proceeds from notes receivable		31,832			26,000
Proceeds from asset sales		3,000			157,500
Purchases of property and equipment		(2,125	)		(1,123	)
Net cash provided by investing activities		32,707			182,377
Cash flows from financing activities:
Stock issued for debt		-			203,279
Proceeds from line of credit		29,000			767,759
Payments on line of credit		(6,380	)		(1,030,855	)
Proceeds from notes payable		438,148			125,000
Payments on notes payable		(247,858	)		(13,971	)
Payments on equipment financing obligations		(7,522	)		(4,210	)
Payments on capitalized leases		(17,593	)		(14,541	)
Net cash provided by financing activities		187,795			32,461
Net increase (decrease) in cash		105,421			(20,027	)
Cash at beginning of period		21,729			65,854
Cash at end of period	$	127,150		$	45,827
Supplemental Information:
Cash paid during the period for interest	$	102,165		$	116,163
Supplemental Disclosure of Non-Cash Activity:
Note receivable from sale of assets	$	2,496		$	60,000

See accompanying notes to consolidated financial statements.

Speedemissions, Inc.

Notes to Consolidated Financial Statements

June 30, 2015

(Unaudited)

Note 1. Going Concern

The accompanying consolidated financial statements of Speedemissions, Inc. have been prepared on a going concern basis which contemplates the realization of assets and liquidation of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern. References in this report to “Speedemissions,” the “Company,” “we,” “us” and “our” mean Speedemissions, Inc. and our consolidated subsidiaries.

Speedemissions has experienced recurring net losses which have caused an accumulated deficit of $21,677,331 at June 30, 2015 compared to an accumulated deficit of $21,317,903 at December 31, 2014. We had a working capital deficit of $1,384,076 at June 30, 2015 compared to a working capital deficit of $1,041,752 at December 31, 2014.

Our revenues for the six-months ended June 30, 2015 and the fiscal years ended December 31, 2014 and 2013 were below our expectations and internal forecasts primarily as a result of fewer vehicle emissions tests and safety inspections being performed at our stores. Our revenues for the six-months ended June 30, 2015 and for the fiscal years ended December 31, 2014 and 2013 have been insufficient to attain profitable operations and to provide adequate levels of cash flow from operations. Our near term liquidity and ability to continue as a going concern is dependent on our ability to generate sufficient revenues from our store operations to provide sufficient cash flow from operations to pay our current level of operating expenses, provide for inventory purchases and to reduce past due amounts owed to vendors and service providers. No assurances can be given that the Company will be able to achieve sufficient levels of revenues in the near term to provide adequate levels of cash flow from operations. Should an increase in revenues not materialize, we will seek to further reduce operating costs to bring them in line with reduced revenue levels. If the Company is unable to achieve near term profitability and generate sufficient cash flow from operations, and if the Company is unable to sufficiently reduce operating costs, we would need to raise additional capital or obtain additional borrowings beyond our existing credit facilities. We currently have very limited access to capital, including the public and private placement of equity securities and additional debt financing. No assurances can be given that additional capital or borrowings would be available or, if available, that we would be able to complete a capital raise or financing on satisfactory terms, to allow us to continue as a going concern. As a result of the Company’s history of losses and financial condition, there is substantial doubt about the ability of the Company to continue as a going concern. If the Company is unable to continue as a going concern, our shareholders will likely lose all of their investment in the Company.

On June 30, 2014, due to insufficient cash flow, we ceased making required monthly principal payments on our line of credit facility with TCA Global Credit Master Fund, LP (“TCA”) and were in default under the terms of the Credit Agreement at that time. On August 6, 2014, we received notice of Demand for Payment of $791,207 before the close of business on Monday, August 19, 2014. According to the notice, the demand was a result of failure to make timely payments. Also, demand was made of Richard Parlontieri personally, as guarantor, pursuant to the Validity Guaranty, dated June 8, 2012 and affirmed and ratified on October 23, 2013 (the “Guaranty”). Under the terms of the Guaranty, Mr. Parlontieri agreed that the Company would maintain ownership of all collateral and would refrain from disposing or encumbering any collateral without TCA’s express written consent. TCA alleged that Mr. Parlontieri had not complied with this agreement and was in default of the Guaranty. On December 8, 2014, using cash proceeds from the sale of five of our Utah stores, the Company paid all amounts due to TCA under the Credit Agreement, was released by TCA from any future claims related to previous alleged violations of the terms of the Credit Agreement and effectively terminated the Credit Agreement.

On April 16, 2015, the Company entered into a revolving loan agreement with Celtic Bank (“CB”), pursuant to which the Company initially borrowed $17,000 from CB. Under the terms of the revolving loan agreement, the Company agreed to repay the initial loan, plus interest, for a total amount of $18,955 by October 15, 2015. The Company will make six monthly payments averaging $3,160 each which yields an effective annual interest rate of 39.6%. As the Company repays the initial loan, it can borrow new funds which would create a new six-month payment cycle on the previously outstanding principal plus the new funds borrowed. At their sole discretion, CB can increase the maximum availability under the revolving loan agreement above the $17,000 amount established upon the execution of the revolving loan agreement. At October 23, 2015, the outstanding balance on our revolving loan facility was approximately $2,800 and our cash balances were approximately $11,000.

During the prior two years, we made reductions in employee headcount, the number of stores, same store operating expenses, corporate overhead and other operating expenses. At June 30, 2015, our primary source of liquidity for cash flows was cash received from our store operations. We are dependent on our revenues in the very near term to provide sufficient cash flow from operations to pay our current level of operating expenses, to provide for inventory purchases and to reduce past due amounts owed to landlords, vendors and service providers. No assurances may be given that the cash received from our store operations will be sufficient to cover our ongoing operating expenses. If the cash received from our store operations is not sufficient, we would need to obtain additional credit facilities or raise additional capital to continue as a going concern and to execute our business plan. There is no assurance that such financing or capital would be available or, if available, that we would be able to complete financing or a capital raise on satisfactory terms.

Our revenues during the years ended December 2014 and 2013, as well as the six-months ended June 30, 2015, have been insufficient to attain profitable operations and to provide adequate levels of cash flow from operations. During the years ended December 31, 2014 and 2013, as well as the six-months ended June 30, 2015, due to insufficient cash flow from operations and borrowing limitations under our line of credit facility, we have been extending payments owed to landlords and vendors beyond normal payment terms and deadlines. Until such vendors are paid within normal payment terms, no assurances can be given that required services and materials needed to support operations will continue to be provided. In addition, no assurances can be given that vendors will not pursue legal means to collect past due balances owed. Any interruption of services or materials would likely have an adverse impact on our operations and could impact our ability to continue as a going concern. Additionally, since April 1, 2015, we have been unable to make required payments to the federal government for payroll taxes withheld from employee payrolls and the associated matching employer payroll taxes. We also are in arrears during the same period to the state of Georgia for income taxes withheld from employee paychecks and sales taxes. As of October 23, 2015, we owed approximately $198,000 and $33,000 to the federal and Georgia state governments, respectively, including penalties and interest for non-payment of payroll taxes and sales taxes for the quarter ended June 30, 2015. We proposed a payment plan to the federal government and made a $10,000 payment on September 30, 2015, but have not reached an agreed payment schedule as of the date of this report. We reached a payment agreement with the state of Georgia on the quarter ended June 30, 2015, which requires four monthly payments of approximately $5,000 each, our first payment was made, in accordance with the agreement, on September 28, 2015. We have to pay the state of Georgia for withholding taxes for the quarter ended September 30, 2015, in the approximate amount of $14,500, by October 31, 2015. As of the date of this report, we are uncertain if we will have funds available to make this payment on time.

On December 13, 2013 and on January 10, 2014, the Circuit Court in the Twelfth Judicial Circuit in and for Sarasota County, Florida (the “Court”), entered an Order Granting Approval of Settlement Agreement (the “Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933 (the “Securities Act”), in accordance with a Settlement Agreement (the “Settlement Agreement”) between the Company and IBC Funds, LLC, a Nevada limited liability company (“IBC”), in the matter entitled IBC Funds, LLC, vs. SpeedEmissions, Inc., Case Nos. 2013 CA 008762 NC and 2014 CA 000153 (the “Actions”). IBC commenced the Actions against us to recover an aggregate of $205,643 of past-due accounts payable, which IBC had purchased from certain of our vendors pursuant to the terms of separate claim purchase agreements between IBC and each of the respective vendors (the “Assigned Accounts), plus fees and costs (the “Claim”). The Assigned Accounts relate to certain research, technical, development and legal services. The Order provides for the full and final settlement of the Claim and the Action. The Settlement Agreement became effective and binding on December 13, 2013 and January 10, 2014.

The Settlement Agreement provides that in no event shall the number of shares of common stock issued by the Company to IBC or its designee in connection with the Settlement Agreement, when aggregated with all other shares of common stock then beneficially owned by IBC and its affiliates (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations thereunder), result in the beneficial ownership by IBC and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and the rules and regulations thereunder) at any time of more than 9.99% of the common stock of the Company.

Furthermore, the Settlement Agreement provides that, for so long as IBC or any of its affiliates hold any shares of common stock of the Company, the Company and its affiliates are prohibited from, among other things, voting any securities of the Company in favor of: (1) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries, (2) a sale or transfer of a material amount of the Company’s assets or its subsidiaries’ assets, (3) any material change in the Company’s present capitalization or dividend policy, (4) any other material change in the Company’s business or corporate structure, (5) a change in the Company’s charter, bylaws, or instruments corresponding thereto (6) causing a class of the Company’s securities to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (7) causing a class of the Company’s equity securities to become eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act, (8) terminating the Company’s transfer agent, (9) taking any action which would impede the purposes and objects of the Settlement Agreement or (10) taking any action, intention, plan or arrangement similar to any of those enumerated above. These prohibitions may not be modified or waived without further order of the Court.

Note 2: Nature of Operations

Description of Business

The Company performs vehicle emissions testing and safety inspections in certain cities in which vehicle emissions testing is mandated by the Environmental Protection Agency (“EPA”). The federal government and a number of state and local governments in the United States mandate vehicle emissions testing as a method of improving air quality. As of June 30, 2015, the Company operated 22 vehicle emissions testing and safety inspection stations under the trade names of Speedemissions (Atlanta, Georgia and St. Louis, Missouri); Auto Emissions Express (Atlanta, Georgia); and Just Emissions (Salt Lake City, Utah). The Company also operates three mobile testing units in the Atlanta, Georgia area. The Company manages its operations based on these three regions and has one reportable segment.

We use computerized emissions testing and safety inspections equipment that test vehicles for compliance with vehicle emissions and safety standards. We purchase or lease these computerized testing systems from state approved equipment vendors. Our revenues are mainly generated from the testing or inspection fees charged to the registered owner of the vehicle. As a service to our customers, we also sell automotive parts and supplies such as windshield wipers, taillight bulbs and gas caps. In addition, we perform a limited amount of other services, including oil changes and headlight restorations, at select locations. However, we do not provide major automotive repair services.

On June 22, 2010, the Company announced the launch of its first iPhone application, Carbonga. Carbonga diagnoses an automobile’s computer system using the on board diagnostic port on vehicles that were produced since 1996. Carbonga can check over 2,000 vehicle fault codes. We launched version two of Carbonga on February 16, 2011. Version two improved the speed and performance of the application and has additional features, including the ability to receive vehicle safety recalls and Technical Service Bulletins, for an annual subscription fee.

During the quarter ended September 30, 2012, we formed a new company, SpeedEmissions Car Care, LLC, through which we will franchise our vehicle emissions and safety inspections store model. Franchises will be available to qualified store operators who have an interest in either a single- or multi-location opportunity in select cities where vehicle emissions testing/safety inspections and other automotive services are required. We signed an agreement with an Atlanta based franchise consulting company to assist with our plan to franchise our business model into a number of new U.S. markets. We believe that the franchising vehicle will increase our retail store presence. After securing approval for all the necessary disclosure documents, we began marketing franchises in the fourth quarter of 2012. However, as of June 30, 2015, we have sold no franchises.

On November 30, 2012, we completed the acquisition of certain operating assets comprising five emission testing centers owned by Auto Emissions Express, LLC (“AEE”), a Georgia corporation. At the time AEE owned and operated 12 emission testing centers in the Atlanta, Georgia area, including the five emission testing centers that we purchased.

On April 11, 2013, we sold the assets comprising three of our Texas stores for $110,000. We received $50,000 cash at closing and a note receivable for $60,000. The principal amount of the note is payable in equal monthly payments over a 12-month period plus interest at 5.0% per annum.

In June 2013, we announced an expansion in our business model pursuant to which we planned to move into a new market with the opening of up to 24 emission testing stores over the next two years, assuming we obtained the financing to do this. In 2013, we engaged an investment banking firm to assist us in acquiring up to $3,000,000 in new capital to serve as a source of financing for our planned expansion. However, we were unsuccessful in raising the necessary capital and the expansion model was abandoned during 2014.

On October 25, 2013, we completed the acquisition of certain operating assets comprising the remaining seven emission testing centers owned by AEE. AEE originally owned and operated 12 emission testing centers in the Atlanta, Georgia area, consisting of the seven emission testing centers that we purchased in October 2013 and the five emission testing centers that we purchased in November 2012 as discussed above.

During the three months ended June 30, 2014, we sold the assets comprising six of our Houston, Texas stores for a combined amount of $220,000, consisting of $152,500 in cash and notes receivable for $67,500. The principal amount of the note is payable in equal monthly payments over a 12-month period with no interest.

On December 5, 2014, we sold the assets comprising five of our six Salt Lake City, Utah stores for $1,350,000 in cash. After taking into consideration the sale of these five emissions testing centers and a Georgia store closed in January 2015, we now operate 22 emission testing centers in Atlanta, Georgia, St. Louis, Missouri and Salt Lake City, Utah metropolitan areas, plus three mobile testing units in the Atlanta, Georgia area.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as codified in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification. 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 GAAP 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, 2014.

The Company has evaluated subsequent events through the date of the filing its Form 10-Q with the Securities and Exchange Commission. The Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Company’s Consolidated Financial Statements.

The accompanying consolidated financial statements include the accounts of Speedemissions and its non-operating subsidiaries, which are 100% owned by the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

Note 3: Significant Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 periods. Significant estimates included in these financial statements relate to useful lives of property and equipment, the valuation allowance provided against deferred tax assets and the valuation of long-lived assets and goodwill. Actual results could differ from those estimates. For a description of Speedemissions’ critical accounting policies see the Company’s annual report on Form 10-K for the year ended December 31, 2014.

Fair Value Measurements

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•

Level 1 – Quoted prices in active markets for identical assets or liabilities. The Company has no Level 1 assets or liabilities.

•

Level 2 – Observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active; or other inputs that are observable or can be corroborated by observable market data. The Company has no Level 2 assets or liabilities.

•

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The Company has no Level 3 assets or liabilities.

Fair Value of Financial Instruments

The carrying amounts of cash, other current assets, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these accounts. Fair value of the equipment financing agreements and capital lease obligations approximate carrying value based upon current borrowing rates. The fair value of the Company’s note receivable and note payable also approximates the carrying value because outstanding balances can be repaid at any time.

Note 4: Inventory

Inventory at June 30, 2015 consisted of certificate and merchandise inventory and was $6,323 and $1,130, respectively. Inventory at December 31, 2014 consisted of certificate and merchandise inventory and was $10,193 and $990, respectively.

Note 5: Notes Receivable

On September 14, 2010, the Company settled a lawsuit originally filed in 2006 against a former manager. The Company alleged the manager, while employed by the Company, breached his fiduciary duty by purchasing property in Texas where one of the Company’s testing facilities he managed was located.

Under the provisions of the settlement agreement, the Company will receive the sum of $125,000 payable in monthly installments of $1,000 per month for seventy-two months. The balance of $53,000 will be due and payable to the Company on June 1, 2016. The note receivable is collateralized by a second lien on property owned by the former manager. The note receivable and gain from the settlement was computed and recorded at its present value of $106,881 using an interest rate equal to prime rate, which was 3.75%, plus 0.5%, which approximates rates offered in the market for notes receivable with similar terms and conditions. The Company recognized a gain from the legal settlement in the amount of $106,881 during 2010.

On April 11, 2013, the Company sold the assets comprising three of its Texas stores for $110,000. The Company received $50,000 cash at closing and a note receivable for $60,000. The principal amount of the note is payable in equal monthly payments over a 12-month period plus interest at 5.0% per annum.

During March 2015, we sold equipment for $2,000 in cash plus a note receivable of $2,496. The principal amount of the note is payable in equal monthly payments over a 12-month period with no interest.

The balance of notes receivable was $66,826 and $94,653 at June 30, 2015 and December 31, 2014, respectively.

Note 6: Property and Equipment

Property and equipment at June 30, 2015 and December 31, 2014 consisted of the following:

	June 30, 2015		December 31, 2014
Buildings	$	30,754	$	30,754
Emission testing and safety inspection equipment		950,595		957,035
Furniture, fixtures and office equipment		56,326		56,326
Vehicles		20,291		26,827
Leasehold improvements		158,757		158,757
		1,216,723		1,229,699
Less: accumulated depreciation and amortization		1,103,598		1,073,248
	$	113,125	$	156,451

Note 7: Accrued Liabilities

Accrued liabilities at June 30, 2015 and December 31, 2014 consisted of the following:

	June 30, 2015		December 31, 2014
Professional fees	$	56,042	$	86,640
Accrued payroll		168,258		42,459
Accrued property taxes		72,836		79,585
Other		46,853		62,151
	$	343,989	$	270,835

Note 8: Equipment Financing Agreements

The balance outstanding under equipment financing agreements as of June 30, 2015 and December 31, 2014 was $2,770 and $10,292, respectively.

Note 9: Notes Payable

Bridge Note Agreement

On November 11, 2010, the Company entered into a $55,000 bridge note agreement (the “Note”) with an affiliate, GCA Strategic Investment Fund, Limited (“GCA”). The funds received from the Note were used for general working capital purposes. The Note bore 0% interest and was due in full on November 11, 2012. The Note is subject to mandatory prepayment upon a change of control, as defined in the Note. In consideration for the receipt of the Note, the Company issued GCA 4,000,000 warrants to purchase the Company’s common stock at $0.50 per share. On April 15, 2011, the Board of Directors of the Company and GCA agreed to amend GCA’s 4,000,000 warrants whereby the exercise price of the warrants would be reduced to $0.016 from $0.50. The closing price of the Company’s common stock was $0.013 on April 14, 2011. The warrants were exercised on April 18, 2011 at the reduced exercise price of $0.016 per share. The Note was extended on November 6, 2012, establishing a new maturity date of November 6, 2013, and a maturity value of $60,000. The Note was extended again on November 6, 2013, establishing a new maturity date of November 6, 2014. In consideration for the 2014 date extension, the Company issued 800,000 shares of its common stock to GCA on August 14, 2014 and expensed the agreed value of the shares, or $20,000, during the quarter ended September 30, 2014. The Note had a balance due of $60,000 on June 30, 2015 and December 31, 2014.

Promissory Note Agreements

On May 29, 2014, the Company entered into a promissory note agreement with Thomas Chorba, pursuant to which Thomas Chorba loaned the Company $50,000 for working capital purposes. Under the terms of the promissory note, the Company agreed to repay the loan, plus interest, for a total amount of $56,000 by December 31, 2015. Under the terms of the note, the Company will make 18 monthly payments of $3,111 each which yields an effective annual interest rate of 7.9%. The Note had a balance due of $16,667 and $33,333 on June 30, 2015 and December 31, 2014, respectively.

On November 5, 2014, the Company entered into a promissory note agreement with Dianna Parlontieri, wife of the Company’s President, Chief Executive Officer and Chief Financial Officer, pursuant to which Mrs. Parlontieri loaned the Company $20,000 for working capital purposes. Under the terms of the promissory note, the Company agreed to repay the loan, plus interest, for a total amount of $20,400 by December 15, 2014. Because the Company did not repay the loan in full by December 15, 2014, the Company is required to repay $1,700 on the 15th of each month, starting December 15, 2014, until the loan is re-paid in full. If any of the monthly payments are not paid on the respective due date then the monthly payment amount is subject to a default interest rate of 10% per annum. The Company is currently in default of the terms of this promissory note as it did not make the required repayment on December 15, 2014 and has not made any of the required monthly payments as of the date of this report. The Note had principal balance due of $20,000 on June 30, 2015 and December 31, 2014.

Daily Payment Note Agreements

On May 30, 2014, the Company entered into a repayment agreement with TVT Capital, LLC (“TVT”), pursuant to which the Company agreed to repay TVT $75,000 from a loan made by TVT to the Company, plus a fixed fee which the Company recorded as interest expense, for a total amount of $112,425 by October 27, 2014. Under the terms of the agreement, TVT was authorized to make daily bank debits of $1,099 on each available banking day during the term of the agreement which represented a fee rate of 49.9%. On September 16, 2014, the Company re-negotiated its agreement with TVT to obtain additional funding totaling $67,077. Under the terms of the amended agreement, the Company agreed to repay the remaining balance from the June 3, 2014 funding, plus the current funding, for a total of $100,000, plus a fixed fee which the Company recorded as interest expense, representing a total amount of $149,000 by April 30, 2015. Under the terms of the amended agreement, TVT was authorized to make daily bank debits of $1,199 on each available banking day during the term of the agreement. The Company repaid the remaining balance on May 1, 2015 and, as a result, there was no outstanding balance as of June 30, 2015. The agreement had a balance due of $37,894 on December 31, 2014.

On October 24, 2014, the Company entered into a merchant sales agreement with Entrepreneur Now, LLC (“EN”), pursuant to which the Company agreed to repay EN $50,000 from a loan made by EN to the Company, plus a fixed fee which the Company recorded as interest expense, for a total amount of $72,000 by March 2, 2015. Under the terms of the agreement, EN was authorized to make daily bank debits of $1,000 on each available banking day during the term of the agreement which represented a fee rate of 44.0%. The Company repaid the remaining balance on March 2, 2015 and, as a result, there was no outstanding balance as of June 30, 2015. The agreement had a balance due of $21,528 on December 31, 2014.

On November 18, 2014, the Company entered into a revenue-based factoring agreement with Samson Partners, LLC (“SP”), pursuant to which the Company agreed to repay SP $35,000 from a loan made by SP to the Company, plus a fixed fee which the Company recorded as interest expense, for a total repayment amount of $43,750 by February 9, 2015. Under the terms of the agreement, SP was authorized to make daily bank debits of $875 on each available banking day during the term of the agreement which represented a fee rate of 25.0%. The Company repaid the remaining balance on January 22, 2015 and, as a result, there was no outstanding balance of June 30, 2015. The agreement had a balance due of $18,200 on December 31, 2014.

On January 19, 2015, the Company entered into another revenue-based factoring agreement SP, pursuant to which the Company agreed to repay SP $60,000 from a loan made by SP to the Company, plus a fixed fee which the Company recorded as interest expense, for a total repayment amount of $75,000 by May 1, 2015. Under the terms of the agreement, SP was authorized to make daily bank debits of $1,169 on each available banking day during the term of the agreement which represented a fee rate of 25.0%. The Company repaid the remaining balance on June 16, 2015 and, as a result, there was no outstanding balance as of June 30, 2015.

On March 6, 2015, the Company entered into another revenue-based factoring agreement with SP, pursuant to which the Company agreed to repay SP $60,000 from a loan made by SP to the Company, plus a fixed fee which the Company recorded as interest expense, for a total repayment amount of $76,800 by June 16, 2015. Under the terms of the agreement, SP was authorized to make daily bank debits of $1,169 on each available banking day during the term of the agreement which represented a fee rate of 28.0%. The Company repaid the remaining balance on June 16, 2015 and, as a result, there was no outstanding balance as of June 30, 2015.

On April 16, 2015, the Company entered into another revenue-based factoring agreement with SP, pursuant to which the Company agreed to repay SP $75,000 from a loan made by SP to the Company, plus a fixed fee which the Company will record as interest expense, for a total repayment amount of $104,175 by October 19, 2015. Under the terms of the agreement, SP is authorized to make daily bank debits of $827 on each available banking day during the term of the agreement which represents a fee rate of 38.9%. The agreement had a balance due of $46,419 on June 30, 2015.

On June 8, 2015, the Company entered into another revenue-based factoring agreement with SP, pursuant to which the Company agreed to repay SP $250,000 from a loan made by SP to the Company, plus a fixed fee which the Company will record as interest expense, for a total repayment amount of $337,500 by April 14, 2016. A portion of the proceeds were used to pay off the March 6, 2015 SP revenue-based factoring agreement described above. Under the terms of the agreement, SP is authorized to make daily bank debits of $1,600 on each available banking day during the term of the agreement which represents a fee rate of 34.8%. The agreement had a balance due of $238,160 on June 30, 2015.

Revolving Credit Facility

On June 8, 2012, the Company entered into a revolving line of credit agreement (the “Credit Agreement”) with TCA, pursuant to which TCA agreed to loan the Company up to a maximum of $2,000,000 for working capital purposes. In June 2012, the Company obtained a loan from TCA in the amount of $350,000 to use for working capital purposes and, in October 2012, the Company entered into the First Amendment to Credit Agreement with TCA (the “Amended Credit Agreement”) pursuant to which the Company received an additional loan in the amount of $550,000 to use for the purchase of five emissions testing stores owned by Auto Emissions Express, LLC, a Georgia corporation (“AEE”). On October 23, 2013, the Company entered into the Second Amendment to Credit Agreement with TCA (the “Second Amended Credit Agreement”), pursuant to which TCA agreed to increase the revolving loan from $900,000 to $1,300,000 and, in connection therewith, the Company received an additional loan in the amount of $400,000 to finance the acquisition of the remaining seven emission testing centers owned by AEE and to provide working capital.

On June 30, 2014, due to insufficient cash flow, we ceased making required monthly principal payments on our line of credit facility with TCA and were in default under the terms of the Credit Agreement at that time. On August 6, 2014, we received notice of Demand for Payment of $791,207 before the close of business on Monday, August 19, 2014. According to the notice, the demand was a result of failure to make timely payments. Also, demand was made of Richard Parlontieri personally, as guarantor, pursuant to the Validity Guaranty, dated June 8, 2012 and affirmed and ratified on October 23, 2013 (the “Guaranty”). Under the terms of the Guaranty, Mr. Parlontieri agreed that the Company would maintain ownership of all collateral and would refrain from disposing or encumbering any collateral without TCA’s express written consent. TCA alleged that Mr. Parlontieri had not complied with this agreement and was in default of the Guaranty. On December 8, 2014, using cash proceeds from the sale of five of our Utah stores, the Company paid all amounts due to TCA under the Credit Agreement and was released by TCA from any future claims related to previous alleged violations of the terms of the Credit Agreement and effectively terminated the Credit Agreement.

As previously discussed, on April 16, 2015, the Company entered into a revolving loan agreement with CB, pursuant to which the Company initially borrowed $17,000 from CB. Under the terms of the revolving loan agreement, the Company agreed to repay the initial loan, plus interest, for a total amount of $18,955 by October 15, 2015. The Company will make six monthly payments averaging $3,160 each which yields an effective annual interest rate of 39.6%. As the Company repays the initial loan, it can borrow new funds which create a new six month payment cycle comprised of the previously outstanding principal plus the new funds borrowed. At their sole discretion, CB can increase the maximum availability under the revolving loan agreement above the $17,000 amount established upon the execution of the revolving loan agreement. The revolving loan agreement had a balance due of $22,620 on June 30, 2015.

Note 10: Net Loss Per Share

Basic earnings per share (“EPS”) or net loss per share represents net 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 loss per share for the three and six-month periods ended June 30, 2015 and 2014, respectively:

	Three Months Ended June 30						Six Months Ended June 30
	2015			2014			2015			2014
Net loss (A)	$	(246,832	)	$	(453,242	)	$	(359,428	)	$	(694,862	)

Weighted average common shares - basic (B)		108,964,225			77,303,463			108,964,225			63,581,102
Effect of dilutive securities
Diluted effect of stock options (1)		—			—			—			—
Diluted effect of stock warrants (1)		—			—			—			—
Diluted effect of unrestricted Preferred Series A Shares (2)		—			—			—			—

Weighted average common shares - diluted (C)		108,964,225			77,303,463			108,964,225			63,581,102
Net loss per share - basic (A/B)	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.01	)
Net loss per share - diluted (A/C)	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.01	)

(1)

As a result of the Company’s net loss for the three and six-month periods ended June 30, 2015 and 2014, aggregate Common Stock Equivalents of 431,000 and 431,000 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-month periods ended June 30, 2015 and 2014, respectively. These Common Stock Equivalents could be dilutive in future periods.

(2)

As a result of the Company’s net loss in the three and six-month periods ended June 30, 2015 and 2014, 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-month periods ended June 30, 2015 and 2014. These Common Stock Equivalents could be dilutive in future periods.

Note 11: Preferred and Common Stock

Preferred Stock

There were 5,133 shares of Series A convertible redeemable preferred stock (“Preferred A Stock”) issued and outstanding as of June 30, 2015 and December 31, 2014. For financial statement purposes, the Preferred A Stock has been presented outside of stockholders’ deficit on the Company’s consolidated balance sheets as a result of certain conditions that are outside the control of the Company that could trigger redemption of the securities.

Common Stock

The Company issued no common shares during the three or six month period ended June 30, 2015. The Company had 108,964,225 common shares outstanding as of June 30, 2015.

Note 12: Share-Based Compensation

The Company has several share-based compensation plans under which employees and non-employee directors receive stock options. Additionally, the Company has issued shares of its common stock as compensation to employees and payments of services rendered by third parties. Share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). Fair value of the award is calculated using the Black-Scholes model or based on the fair value of the shares issued for the services provided, whichever is more accurately determinable. Such value is recognized as an 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 are 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.

Share-based compensation expense was $0 during the three months ended June 30, 2015 and 2014 and $0 and $42,105 during the six months ended June 30, 2015 and 2014, respectively. Share-based compensation, when recorded, is included in general and administrative expenses in the consolidated statements of operations.

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.

The following table sets forth the options outstanding under the Company’s stock option plans during the six-month period ended June 30, 2015:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Grant-date Fair Value
Options outstanding at December 31, 2014		59,000	$	0.61
Granted		—		—		—
Expired		—		—
Options outstanding at June 30, 2015		59,000	$	0.61

The aggregate intrinsic value of options outstanding and exercisable at June 30, 2015 was $0. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options.

The Company estimates the fair value for stock options at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions. Expected volatility is based on comparable company data. The Company bases 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 uses an expected dividend yield of 0%. The Company did not grant stock options during the six months ended June 30, 2015.

As of June 30, 2015, there was no unrecognized share-based compensation expense related to non-vested stock options. There were no options that vested during the six months ended June 30, 2015 and 2014.

There were 59,000 options issued and outstanding under the Company’s 2001 Stock Option Plan, the Amended and Restated 2005 Omnibus Stock Grant and Option Plan, Speedemissions Inc. 2006 Stock Grant and Option Plan and the 2008 Stock Grant and Option Plan (collectively, the “Option Plans”) as of June 30, 2015 and December 31, 2014. There were no options granted under these plans during the six-month period ended June 30, 2015. There were no options exercised during the six-month periods ended June 30, 2015 and 2014.

Stock Warrants

There were 372,000 common stock warrants outstanding as of June 30, 2015, and there were no warrants granted or exercised during the six-month period ended June 30, 2015.

Note 13: Income Taxes

No provision for income taxes has been reflected for the three- and six-month periods ended June 30, 2015 and 2014 as the Company has sufficient net operating loss carry forwards to offset taxable income.

Note 14: Contingencies

From time to time, the Company may be involved in claims that arise out of the normal course of its business. In the opinion of management, we are not currently involved in any legal proceedings which would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three Months Ended June 30, 2015 and 2014

Our revenue, cost of emission certificates, store operating expenses, general and administrative expenses, gain from disposal of non-strategic assets and operating loss for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014 were as follows:

	Three Months Ended June 30						Percentage
	2015			2014			Change
Revenue	$	794,860		$	1,600,643			(50.3	%)
Cost of emission certificates		148,449			310,832			(52.2	%)
Store operating expenses		565,160			1,234,321			(54.2	%)
General and administrative expenses		261,068			286,571			(8.9	%)
Gain from sale of non-strategic assets		-			(200,728	)		(100.0	%)
Goodwill impairment expense		-			365,378			(100.0%)
Operating loss	$	(179,817	)	$	(395,731	)		(54.6	%)

Revenue. Revenue decreased $805,783, or 50.3%, to $794,860 in the three-month period ended June 30, 2015 compared to $1,600,643 in the three month period ended June 30, 2014. The $805,783 decrease in revenue was primarily due to the sale of 11 stores during 2014, the closing of another 10 stores during 2014 and the closing of a single store in January 2015. The combined sale and closing of these 22 stores resulted in a decrease of $753,659 in revenue for the three months ended June 30, 2015 compared to June 30, 2014. The remainder of the decrease in revenue over the comparable period was due to a decrease in same store revenue of $52,124 or 6.2% during the three months ended June 30, 2015.

Cost of emission certificates. Cost of emission certificates decreased $162,383, or 52.2%, in the three month period ended June 30, 2015 and was $148,449, or 18.7% of revenues, compared to $310,832, or 19.4% of revenues, in the three month period ended June 30, 2014. The $162,383 decrease in cost of emission certificates was primarily due to the sale of 11 stores during 2014, the closing of another 10 stores during 2014 and the closing of a single store in January 2015. The decrease in cost of emission certificates percentage over the comparable period was due primarily to the sale of six and closing of one Texas stores during 2014 where cost of emission certificates was approximately 34% of revenue.

Store operating expenses. Store operating expenses decreased $669,161 or 54.2%, in the three-month period ended June 30, 2015 and was $565,160, or 77.1% of revenues, compared to $1,234,321, also 77.1% of revenues, in the three month period ended June 30, 2014. The $669,161 decrease in store operating expenses was primarily due to the sale of 11 stores during 2014, the closing of another 10 stores during 2014 and the closing of a single store in January 2015. The combined sale and closing of these 22 stores resulted in a decrease of $585,847 in store operating expenses for the three months ended June 30, 2015 compared to June 30, 2014. The remainder of the decrease in store operating expenses over the comparable period was due to a decrease in same store operating expenses of $83,314 or (13.2%) during the three months ended June 30, 2015. Same store operating expenses decreased during the three months ended June 30, 2015 primarily due to declines in wages, telephone expenses and bonus expenses of $41,761, $11,298 and $7,164, respectively.

General and administrative expenses. Our general and administrative expenses decreased $25,503 or 8.9% to $261,068 in the three month period ended June 30, 2015 from $286,571 in the three month period ended June 30, 2014. The decrease in general and administrative expenses during the three month period June 30, 2015 was primarily due to decreases of $42,450 in employee compensation, $10,627 in shareholder related expenses,$8,805 in rent on the corporate office and $7,500 in professional fees, partially offset by an increase of $42,070 in legal and accounting fees.

Gain from disposal of non-strategic assets. During the three months ended June 30, 2015, we recorded no asset sales. During the three months ended June 30, 2014, we sold the assets comprising six of our Texas stores for a combined amount of $220,000. We received $152,500 cash and a note receivable for $67,500. The principal amount of the note is payable in equal monthly payments over a 12-month period with no interest. The net book value of the assets sold was $19,272 resulting in a recorded gain of $200,728 on the asset sale.

Goodwill impairment expense. We determined that goodwill was not impaired as of June 30, 2015. We determined that goodwill recorded from the acquisition of the following business was impaired as of June 30, 2014.

2014 Goodwill Impairment:

		Acquisition Date				Goodwill Impairment Expense
Just, Inc.			September 8, 2005			$	365,378

The estimated fair value of goodwill was determined using discounted cash flow models. Due to an overall decline in the financial performance and anticipated future performance of these seven Utah stores acquired from Just, Inc., it is estimated that future cash flows from these seven stores would not be sufficient to cover the carrying value of their goodwill. The amount of goodwill impaired in 2014 was $365,378 and is recorded in the accompanying consolidated statements of operations for the three months ended June 30, 2014.

Operating loss. Our operating loss decreased by $215,915 in the three-month period ended June 30, 2015 and was ($179,817) compared to an operating loss of ($395,731) in the three month period ended June 30, 2014. The decrease in our operating loss was primarily due to the net effect of goodwill impairment expense of $365,378 reduced by a gain of $200,728 from the sale of non-strategic assets, both occurring in the three months ended June 30, 2014.

Interest income, interest expense, net loss and basic and diluted net loss per share. Our interest income, interest expense, net loss and basic and diluted net loss per share for the three-month period ended June 30, 2015 as compared to the three month period ended June 30, 2014 is as follows:

	Three Months Ended June 30,
	2015			2014
Operating loss	$	(179,817	)	$	(395,731	)
Interest income		755			1,005
Interest expense		(67,770	)		(58,516	)
Net loss	$	(246,832	)	$	(453,242	)
Basic and diluted net loss per share	$	(0.00	)	$	(0.01	)
Weighted average shares outstanding, basic and diluted		108,964,225			77,303,463

The Company incurred net interest expense of $67,015 and $57,511 during the three month periods ended June 30, 2015 and 2014, respectively. The increase of $9,504 in net interest expense during the quarter ended June 30, 2015, compared to 2014, was primarily the result of increased interest costs associated with the daily pay agreement loans.

Net loss and basic and diluted loss per share. Net loss was ($246,832) and ($453,242) in the three month period ended June 30, 2015 and 2014, respectively. Basic and diluted net loss per share was ($0.00) and ($0.01) in the three month periods ended June 30, 2015 and 2014, respectively.

Six Months Ended June 30, 2015 and 2014

Our revenue, cost of emission certificates, store operating expenses, general and administrative expenses, gain from disposal of non-strategic assets and operating loss for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 were as follows:

	Six Months Ended June 30						Percentage Change
	2015			2014			Percentage Change
Revenue	$	1,627,664		$	3,398,453			(52.1%)
Cost of emission certificates		303,651			675,512			(55.0%)
Store operating expenses		1,114,539			2,532,639			(56.0%)
General and administrative expenses		467,461			606,956			(23.0%)
Loss (gain) from sale of non-strategic assets		786			(200,728	)		(100.4%)
Goodwill Impairment expense		-			365,378			(100.0%)
Operating loss	$	(258,773	)	$	(581,304	)		(55.5%)

Revenue. Revenue decreased $1,770,789, or 52.1%, to $1,627,664 in the six-month period ended June 30, 2015 compared to $3,398,453 in the six-month period ended June 30, 2014. The $1,770,789 decrease in revenue was primarily due to the sale of 11 stores during 2014, the closing of another 10 stores during 2014 and the closing of a single store in January 2015. The combined sale and closing of these 22 stores resulted in a decrease of $1,710,422 in revenue for the six months ended June 30, 2015 compared to June 30, 2014. The remainder of the decrease in revenue over the comparable period was due to a decrease in same store revenue of $60,367 or 3.6% during the six months ended June 30, 2015.

Cost of emission certificates. Cost of emission certificates decreased $371,861 or 55.0%, in the six-month period ended June 30, 2015 and was $303,651, or 18.7% of revenues, compared to $675,512, or 19.9% of revenues, in the six-month period ended June 30, 2014. The $371,861 decrease in cost of emission certificates was primarily due to the sale of 11 stores during 2014, the closing of another 10 stores during 2014 and the closing of a single store in January 2015. The decrease in cost of emission certificates percentage over the comparable period was due primarily to the sale of six and closing of one Texas stores during 2014 where cost of emission certificates was approximately 34% of revenue.

Store operating expenses. Store operating expenses decreased $1,418,100 or 56.0%, in the six-month period ended June 30, 2015 and was $1,114,539, or 68.5% of revenues, compared to $2,532,639, or 74.5% of revenues, in the six-month period ended June 30, 2014. The $1,418,100 decrease in store operating expenses was primarily due to the sale of 11 stores during 2014, the closing of another 10 stores during 2014 and the closing of a single store in January 2015. The combined sale and closing of these 22 stores resulted in a decrease of $1,296,225 in store operating expenses for the six months ended June 30, 2015 compared to June 30, 2014. The remainder of the decrease in store operating expenses over the comparable period was due to a decrease in same store operating expenses of $121,875 or 10.1% during the six months ended June 30, 2015. Same store operating expenses decreased during the six months ended June 30, 2015 primarily due to declines in wages, bonus expenses, telephone expenses and payroll taxes of $70,050, $13,877, $12,681 and $6,795, respectively.

General and administrative expenses. Our general and administrative expenses decreased $139,495, or 23.0%, to $467,461 in the six-month period ended June 30, 2015 from $606,956 in the six-month period ended June 30, 2014. The decrease in general and administrative expenses during the six month period ending June 30, 2015 was primarily due to decreases of $79,952 in employee compensation, $34,062 in finance charges, $31,673 in shareholder related expenses and $17,610 in rent on the corporate office, partially offset by an increase of $67,838 in legal and accounting fees.

Gain from sale of non-strategic assets. During the six months ended June 30, 2015, we recorded a loss of $786 from asset sales. During the six months ended June 30, 2014, we sold the assets comprising six of our Texas stores for a combined amount of $220,000. We received $152,500 cash and a note receivable for $67,500. The principal amount of the note is payable in equal monthly payments over a 12-month period with no interest. The net book value of the assets sold was $19,272 resulting in a recorded gain of $200,728 on the asset sale.

2014 Goodwill Impairment:

		Acquisition Date				Goodwill Impairment Expense
Just, Inc.			September 8, 2005			$	365,378

Operating loss. Our operating loss decreased by $322,531 in the six-month period ended June 30, 2015 and was ($258,773) compared to an operating loss of ($581,304) in the six-month period ended June 30, 2014. The decrease in our operating loss was primarily due to the net effect of goodwill impairment expense of $365,378 reduced by a gain of $200,728 from the sale of non-strategic assets, both occurring in the six months ended June 30, 2014, plus the decrease in general and administrative expenses during the six months ended June 30, 2015.

Interest income, interest expense, net loss and basic and diluted net loss per share. Our interest income, interest expense, net loss and basic and diluted net loss per share for the six-month period ended June 30, 2015 as compared to the six-month period ended June 30, 2014 are as follows:

	Six Months Ended June 30,
	2015			2014
Operating loss	$	(258,773	)	$	(581,304	)
Interest income		1,510			2,605
Interest expense		(102,165	)		(116,163	)
Net loss	$	(359,428	)	$	(694,862	)
Basic and diluted net loss per share	$	(0.00	)	$	(0.01	)
Weighted average shares outstanding, basic and diluted		108,964,225			63,581,102

The Company incurred net interest expense of $100,655 and $113,558 during the six-month periods ended June 30, 2015 and 2014, respectively. The decrease of $12,903 in net interest expense during the six months ended June 30, 2015, compared to 2014, was primarily the result of a decrease in the amortization of loan origination costs associated with our line of credit.

Net loss and basic and diluted net loss per share. Net loss was ($359,428) and ($694,862) in the six-month periods ended June 30, 2015 and 2014, respectively. Basic and diluted net loss per share was ($0.00) and ($0.01) in the six month periods ended June 30, 2015 and 2014, respectively.

Liquidity and Capital Resources

Introduction

Our net cash position increased by $105,421 during the six months ended June 30, 2015, primarily due to net cash provided by financing activities while our total liabilities increased by $351,806. Our total liabilities increased primarily due to increases of $190,290 in notes payable, $89,114 in accounts payable and $73,154 in accrued liabilities. Net cash used in operating activities was $115,081 during the six months ended June 30, 2015. We hope to achieve an increase in our net operating cash flows on a long-term basis, but we may not achieve positive operating cash flows on a consistent basis during 2015.

As described previously, on June 30, 2014, due to insufficient cash flow, we ceased making required monthly principal payments on our line of credit facility with TCA and were in default under the terms of the Credit Agreement at that time. However, on December 8, 2014, using cash proceeds from the sale of five of our Utah stores, the Company paid all amounts due to TCA under the Credit Agreement. Due to the Company’s financial position, it must rely primarily on cash flow from operations to fund working capital needs. For the six months ended June 30, 2015, our net cash used in operating activities was $115,081. October 23, 2015, the outstanding balance on our revolving loan facility was approximately $2,800 and our cash balances were approximately $11,000. Our near term liquidity and ability to continue as a going concern is dependent on our ability to generate sufficient revenues from our store operations to provide sufficient cash flow from operations to pay our current level of operating expenses, to provide for inventory purchases and to reduce past due amounts owed to vendors and service providers. No assurances may be given that the Company will be able to achieve sufficient levels of revenues in the near term to provide adequate levels of cash flow from operations. If the Company is unable to achieve near term profitability and generate sufficient cash flow from operations, we would need to raise additional capital or obtain additional borrowings beyond our existing credit facilities. We currently have very limited access to capital, including the public and private placement of equity securities and additional debt financing. No assurances can be given that additional capital or borrowings would be available to allow us to continue as a going concern. If the Company is unable to continue as a going concern, our shareholders will likely lose all of their investment in the Company.

Cash Requirements

For the six months ended June 30, 2015, our net cash used in operating activities was $115,081 compared to net used in operating activities was $234,865 in the six months ended June 30, 2014. Negative operating cash flows during the six months ended June 30, 2015 were primarily created by a $359,428 operating loss partially offset by a $162,268 increase in accounts payable and accrued liabilities, a $38,871 decrease in other current assets plus depreciation and amortization of $39,169.

Negative operating cash flows during the six months ended June 30, 2014 were primarily created by a net loss of $694,862 and a $200,728 gain on sale of non-strategic assets reduced by goodwill impairment expense of $365,378, depreciation and amortization of $151,657, a decrease in other assets of $63,210 and an increase of $41,851 in accounts payable and accrued liabilities.

Sources and Uses of Cash

Net cash provided by investing activities was $32,707 for the six months ended June 30, 2015 compared to net cash provided by investing activities of $182,377 for the six months ended June 30, 2014. The net cash provided by investing activities during the six months ended June 30, 2015 was primarily the result of $31,832 in proceeds from notes receivable. The net cash provided by investing activities during the six months ended June 30, 2014 was related to proceeds from non-strategic asset sales of $157,500 and proceeds from a notes receivable of $26,000.

Net cash provided by financing activities for the six months ended June 30, 2015 was $187,795 compared to net cash provided by financing activities of $32,461 for the six months ended June 30, 2014. During the six months ended June 30, 2015, we had net proceeds of $190,280 from notes payable reduced by principal payments of $7,522 and $17,593 on equipment financing obligations and capital leases, respectively. During the six months ended June 30, 2014, we issued 52,108,059 shares of our common stock in exchange for $203,279 of vendor debt and received $125,000 from an increase in notes payable. We made a net reduction of $263,096 in our line of credit and made principal payments of $13,971 and $14,541 on notes payable 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 equity instruments, valuation of long-lived assets and goodwill, created as the result of business acquisitions, and valuation of the allowance provided against deferred tax assets as key to an understanding of our financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item, pursuant to 305(e) of Regulation S-K.

ITEM 4. Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer, 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, 2015 (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 three months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the internal controls and procedures 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 end 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.

(B) Changes in Internal Control Over Financial Reporting

In connection with the evaluation of the Company’s internal controls during the six months ended June 30, 2015, the Company’s Chief Executive Officer and Chief Financial Officer have determined that there are no changes to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially effect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1

Legal Proceedings

ITEM 1A

Risk Factors

As a smaller reporting company, we are not required to provide the information required by this Item.

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

Mine safety disclosures

The disclosures under this Item are not applicable to the Company.

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.

101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, (ii) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014, (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014, and (iv) the notes to the Condensed Consolidated Financial Statements.

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: October 28, 2015	By:	/s/ Richard A. Parlontieri
		Richard A. Parlontieri President, Chief Executive Officer (Principal Executive Officer)

Date: October 28, 2015	By:	/s/ Richard A. Parlontieri
		Richard A. Parlontieri