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SPMI > SEC Filings for SPMI > Form 10-Q on 14-May-2013All Recent SEC Filings

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Form 10-Q for SPEEDEMISSIONS INC


14-May-2013

Quarterly Report


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

Results of Operations

Three Months Ended March 31, 2013 and 2012

Our revenue, cost of emission certificates, store operating expenses, general
and administrative expenses, (gain) loss from disposal of non-strategic assets
and operating loss for the three months ended March 31, 2013 as compared to the
three months ended March 31, 2012 were as follows:

                                                 Three Months Ended March 31         Percentage
                                                    2013               2012            Change
Revenue                                        $     1,889,013      $ 1,921,005         (1.7%)
Cost of emission certificates                          422,941          425,747         (0.7%)
Store operating expenses                             1,358,208        1,312,551          3.5%
General and administrative expenses                    291,495          299,042         (2.5%)
Gain from disposal of non-strategic assets                   -           (2,458 )           -%
Operating loss                                 $      (183,631 )    $  (113,877 )       (61.3%)

Revenue. Revenue decreased $31,992 or (1.7%) to $1,889,013 in the three month period ended March 31, 2013 compared to $1,921,005 in the three month period ended March 31, 2012. The decrease in revenue over the comparable period was primarily due to a decrease from same store revenue of $106,968 or (5.7%). The decrease in same store revenue is mainly attributable to promotion discounts that increased discounts issued by $45,415 to a total of $85,031 during the three month period ended March 31, 2013 compared to $39,616 the prior comparable period. The $106,968 decrease in same store revenue was mitigated by a net $74,977 offsetting increase in revenue resulting from $133,559 in 2013 revenue from five stores acquired in November 2012 less the effect of $58,582 in revenue lost from two stores closed in December 2012.

Cost of emission certificates. Cost of emission certificates decreased $2,806 or (0.7%) in the three month period ended March 31, 2013 and was $422,941 or 22.4% of revenues, compared to $425,747 or 22.2% of revenues in the three month period ended March 31, 2012. The decrease in cost of emission certificates over the comparable period was primarily due to the decrease in same store sales.

Store operating expenses. Store operating expenses increased $45,657 or 3.5% in the three month period ended March 31, 2013 and was $1,358,208 or 71.9% of revenues, compared to $1,321,551 or 68.3% of revenues in the three month period ended March 31, 2012. The $45,657 increase was mainly attributable to a net increase of approximately $27,000 in operating expenses for five stores acquired in November 2012 compared to operating expenses of two stores closed in 2012 plus increases in same store rent and maintenance expenses. Approximately half of the 3.6% difference between store operating expenses, as a percent of revenue, for the three months ended March 31, 2013 compared to March 31, 2012 can be attributed to the decline in 2013 revenue caused by the previously mentioned $45,415 increase in promotional discounts during the quarter ended March 31, 2013.

General and administrative expenses. Our general and administrative expenses decreased $7,547, or (2.5%) to $291,495 in the three month period ended March 31, 2013 from $299,042 in the three month period ended March 31, 2012. The decrease in general and administrative expenses during the three month period March 31, 2013 was primarily due to a decrease in staffing compared to the prior year comparable period.

Gain from disposal of non-strategic assets. We recognized a gain on the disposal of non-strategic assets of $2,458 in the three month period ended March 31, 2012, while we did not dispose of any assets in the three month period ended March 31, 2013.

Operating loss. Our operating loss increased by $69,754 in the three month period ended March 31, 2013 and was ($183,631) compared to an operating loss of ($113,877) in the three month period ended March 31, 2012. The increase in operating loss was primarily due to the previously discussed increases in sales discounts and store operating expenses.

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 March 31, 2013 as compared to the three month period ended March 31, 2012 is as follows:


                                                      Three Months Ended
                                                           March 31,
                                                     2013             2012
Operating loss                                   $   (183,631 )   $   (113,877 )
Interest income                                           755              755
Interest expense                                      (87,896 )         (3,660 )
Net loss                                         $   (270,772 )   $   (116,782 )
Basic and diluted net loss per common share      $      (0.01 )   $      (0.00 )
Weighted average shares outstanding, basic and
   diluted                                         34,688,166       34,688,166

The Company incurred net interest expense of $87,141 and $2,905 during the three month periods ended March 31, 2013 and 2012, respectively. The increase of $84,236 in interest expense during the quarter ended March 31, 2013, compared to 2012, was primarily the result of the amortization of $59,914 loan origination costs associated with the second loan taken under the new line of credit acquired during October 2012 plus increases interest costs on our line of credit, which had a balance of $698,095 as of March 31, 2013 compared to a balance of $95,000 as of March 31, 2012.

Net loss and basic and diluted loss per common share. Net loss was ($270,772) and ($116,782) in the three month periods ended March 31, 2013 and 2012, respectively. Basic and diluted net loss per share was ($0.01) and ($0.00), respectively in the three month period ended March 31, 2013 and 2012.

Liquidity and Capital Resources

Introduction

Our net cash position increased by $26,116 during the three months ended March 31, 2013 from cash provided by operations while our total liabilities increased by a net $188,500. Our current liabilities increased mainly due to a $152,298 increase in our accounts payable. 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 2013.

On June 8, 2012, the Company entered into a revolving line of credit loan agreement (the "Loan Agreement") with TCA Global Credit Master Fund, LP ("Lender"), pursuant to which the Company may borrow up to $2,000,000, subject to certain conditions stipulated in the Loan Agreement, in order to pay trade payables and for working capital purposes. Under the new loan agreement we have taken two separate loans, as evidenced by two separate revolving note agreements with two separate maturity dates. On June 8, 2012, we obtained a six-month loan for $350,000 to use for working capital purposes. Subject to terms and conditions contained in the loan agreement, the $350,000 loan's original maturity date of December 8, 2012 was automatically extended for six-months creating a new maturity date of June 8, 2013. On October 9, 2012, we obtained a second six-month loan for $550,000 to use for the purchase of five emissions testing stores. Subject to terms and conditions contained in the loan agreement, the $550,000 loan's original maturity date of April 9, 2013 was automatically extended for six-months creating a new maturity date of October 9, 2013. While our line of credit facility of $2,000,000 is currently 36% of the maximum limit with an outstanding balance at May 9, 2013 of approximately $719,000, our line of credit matures on June 8, 2013 and we have no assurance it will be extended beyond that date. As a result, we do not anticipate taking additional advances from our line of credit between March 31, 2013 and June 8, 2013. Therefore, our very near term liquidity is dependent on our working capital and primarily on the revenues generated from our store operations. If we are unable to achieve near term profitability and generate sufficient cash flow from operations, and if we are unable to sufficiently reduce operating costs, we would need to raise additional capital or obtain additional borrowings under this existing line of credit. 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. During the quarter ended March 31, 2013, our line of credit net borrowings decreased $45,515 to the outstanding balance of $698,085 at March 31, 2013 from $743,600 at December 31, 2012. At May 9, 2013, the outstanding balance on the loan facility was approximately $719,000 and our cash balances were approximately $34,000. Net cash provided by operating activities in the quarter ended March 31, 2013 was $84,548 as compared to net cash used in operating activities of $8,436 in the quarter ended March 31, 2012.

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 line of credit facility. 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 three months ended March 31, 2013, our net cash provided by operating activities was $84,548 compared to net cash used in operations of $8,436 in the three months ended March 31, 2012. Positive operating cash flows during the three months ended March 31, 2013 were primarily created by a $228,332 increase in accounts payable and accrued liabilities plus depreciation and amortization of $108,678, partially offset by a net loss of $270,772.

Negative operating cash flows during the three months ended March 31, 2012 were primarily created by a net loss of $116,782, an increase in other current assets of $12,800, an increase in certificate and merchandise inventory of $10,993, partially offset by an $88,307 increase in accounts payable and accrued liabilities. The decrease in net cash used in operating activities was also offset by depreciation and amortization of $45,890.

Sources and Uses of Cash

Net cash used in investing activities was $5,095 for the three months ended March 31, 2013 compared to net cash provided by investing activities of $14,470 for the three months ended March 31, 2012. The net cash used in investing activities during the three months ended March 31, 2013 was the result of $7,340 used for purchases of property and equipment partially offset by $2,245 in proceeds from a note receivable. The net cash provided by investing activities during the three months ended March 31, 2012 was related to proceeds from a note receivable of $11,370 and proceeds from an asset sale of $3,100.

Net cash used in financing activities was $53,337 and $12,943 for the three months ended March 31, 2013 and 2012, respectively. During the three months ended March 31, 2013, we made net payments of $45,515 on our line of credit and made principal payments of $709 and $7,113 on equipment financing obligations and capital leases, respectively. During the three months ended March 31, 2012, we received net proceeds of $5,000 from our line of credit and made principal payments of $5,954 and $11,989 on equipment financing obligations 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.

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