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SPMI > SEC Filings for SPMI > Form 10-Q on 13-Nov-2013All Recent SEC Filings

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Form 10-Q for SPEEDEMISSIONS INC


13-Nov-2013

Quarterly Report


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

Results of Operations

Three Months Ended September 30, 2013, and 2012

Our revenue, cost of emission certificates, store operating expenses, general
and administrative expenses, gain from disposal of assets and operating loss for
the three months ended September 30, 2013 as compared to the three months ended
September 30, 2012 were as follows:

                                               Three Months Ended
                                                  September 30              Percentage
                                             2013             2012            Change
 Revenue                                  $ 1,807,072      $ 2,047,458            (11.7 %)
 Cost of emission certificates                371,367          452,375            (17.9 %)
 Store operating expenses                   1,241,578        1,310,257             (5.2 %)
 General and administrative expenses          251,781          365,386            (31.1 %)
 Gain from sale of non-strategic assets        (4,940 )              -              100.0%
 Operating loss                           $   (52,714 )    $   (80,560 )          (34.6 %)

Revenue. Revenue decreased $240,386, or 11.7%, to $1,807,072, in the three-month period ended September 30, 2013, compared to $2,047,458, in the three month period ended September 30, 2012. The decrease in revenue over the comparable period was primarily due to a net loss in revenues of $371,463 related to six Texas stores permanently closed during late 2012 and early 2013 plus temporary closings of three other stores due to non-renewal of leases in 2013. Additionally, same store revenue decreased by $25,443, or 1.6%. The decrease in same store revenue is mainly attributable to fewer emission tests being performed during the three month period ended September 30, 2013, compared to the prior comparable period. This combined $396,906 decrease in store revenue during the three month period ended September 30, 2013, was partially mitigated by a $156,520, increase in revenue resulting from five Georgia stores acquired in November 2012.

Cost of emission certificates. Cost of emission certificates decreased $81,008, or 17.9%, in the three month period ended September 30, 2013, and was $371,367, or 20.6% of revenues, compared to $452,375, or 22.1% of revenues, in the three month period ended September 30, 2012. The decrease in cost of emission certificates over the comparable period was primarily due to the previously discussed store closings and decrease in same store sales partially offset by increased cost of sales from the five stores acquired in November 2012. The decrease in cost of emissions certificates as a percent of sales is due to the majority of the store closings occurring in Texas where emission certificates cost approximately 35% of sales.

Store operating expenses. Store operating expenses decreased $68,679, or 5.2%, in the three-month period ended September 30, 2013, and was $1,241,578, or 68.7% of revenues, compared to $1,310,257, or 64.0% of revenues, in the three month period ended September 30, 2012. The decrease in store operating expenses over the comparable period was primarily due to the previously discussed store closings and decrease in same store sales partially offset by increased store operating expenses from the five stores acquired in November 2012.

General and administrative expenses. Our general and administrative expenses decreased $113,605, or 31.1%, to $251,781 in the three month period ended September 30, 2013, from $365,386 in the three month period ended September 30, 2012. The decrease in general and administrative expenses during the three month period September 30, 2013 was primarily due to lower shareholder-related expenses (which include investment banking fees), financing expenses, legal and accounting fees and travel expenses.


Gain from sales of non-strategic assets. We recorded a gain of $4,940 from sales of non-strategic assets in the three month period ended September 30, 2013, and no sales of non-strategic assets occurred during the three month period ended September 30, 2012.

Operating loss. Our operating loss decreased by $27,846 in the three-month period ended September 30, 2013, and was $52,714 compared to an operating loss of $80,560 in the three month period ended September 30, 2012. The decrease in our operating loss was primarily due to the reduction in general and administrative 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 September 30, 2013 as compared to the three month period ended September 30, 2012 is as follows:

                                                                Three Months Ended
                                                                   September 30,
                                                               2013             2012
Operating loss                                             $    (52,714 )   $    (80,560 )
Interest income                                                   1,505              756
Interest expense                                                (23,279 )         (9,170 )
Net loss                                                   $    (74,488 )   $    (88,974 )
Basic and diluted net loss per share                       $       0.00     $       0.00
Weighted average shares outstanding, basic and diluted       35,078,329       34,688,166

The Company incurred net interest expense of $21,774, and $8,414, during the three month periods ended September 30, 2013, and 2012, respectively. The net increase of $13,360 in interest expense during the quarter ended September 30, 2013, compared to 2012, was primarily the result of increased interest costs on our line of credit, which had a balance of $581,272 as of September 30, 2013, compared to a balance of $282,965 as of September 30, 2012.

Net loss and basic and diluted loss per common share. Net loss was $74,488 and $88,974 in the three month period ended September 30, 2013, and 2012, respectively. Basic and diluted net loss per common share was $0.00 in the three month periods ended September 30, 2013 and 2012.

Nine Months Ended September 30, 2013, and 2012

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 nine months ended September 30, 2013, as compared to the
nine months ended September 30, 2012, were as follows:

                                                Nine Months Ended
                                                  September 30              Percentage
                                              2013            2012            Change
  Revenue                                  $ 5,466,793     $ 5,955,326             (8.2 %)
  Cost of emission certificates              1,151,970       1,321,871            (12.9 %)
  Store operating expenses                   3,829,307       3,904,588             (1.9 %)
  General and administrative expenses          843,240         997,433            (15.5 %)
  Gain from sale of non-strategic assets       (77,206 )        (2,458 )        3,041.0 %
  Operating loss                           $  (280,518 )   $  (266,108 )            5.4 %

Revenue. Revenue decreased $488,533, or 8.2%, to $5,466,793, in the nine month period ended September 30, 2013, compared to $5,955,326, in the nine month period ended September 30, 2012. The decrease in revenue over the comparable period was primarily due a net loss in revenues of $880,294, related to six Texas stores permanently closed during late 2012 and early 2013 plus temporary closings of three other stores due to non-renewal of leases in 2013. Additionally, same store revenue decreased by $41,138, or 0.9%. The decrease in same store revenue is mainly attributable to fewer emission tests being performed during the nine month period ended September 30, 2013, compared to the prior comparable period. The combined $921,432, decrease in store revenue during the nine months ended September 30, 2013, was partially mitigated by a $432,899, increase in revenue resulting from five Georgia stores acquired in November 2012.


Cost of emission certificates. Cost of emission certificates decreased $169,901, or 12.9%, in the nine month period ended September 30, 2013, and was $1,151,970, or 21.1% of revenues, compared to $1,321,871, or 22.2% of revenues, in the nine month period ended September 30, 2012. The decrease in cost of emission certificates over the comparable period was primarily due to the previously discussed store closings and decrease in same store sales partially offset by increased cost of sales from the five stores acquired in November 2012. The decrease in cost of emission certificates as a percentage of sales is due to the majority of the store closings occurring in Texas where emission certificates cost approximately 35% of sales.

Store operating expenses. Store operating expenses decreased $75,281, or 1.9%, in the nine month period ended September 30, 2013, and was $3,829,307, or 70.0% of revenues, compared to $3,904,588, or 65.6% of revenues, in the nine month period ended September 30, 2012. The decrease in store operating expenses over the comparable period was primarily due to the previously discussed store closings and decrease in same store sales partially offset by increased store operating expenses from the five stores acquired November 2012.

General and administrative expenses. Our general and administrative expenses decreased $154,193, or 15.5%, to $843,240, in the nine month period ended September 30, 2013, from $997,433, in the nine month period ended September 30, 2012. The decrease in general and administrative expenses during the nine month period September 30, 2012, was primarily due to lower shareholder related expenses (which include investment banking fees), property taxes, legal and accounting fees and travel expenses.

Gain from sales of non-strategic assets. We recorded a gain of $77,206 from sales of non-strategic assets in the nine month period ended September 30, 2013, and a gain of $2,458, from sales of non-strategic assets in the nine month period ended September 30, 2012.

Operating loss. Our operating loss increased by $14,410, in the nine month period ended September 30, 2013, and was $280,518 compared to an operating loss of $266,108, in the nine month period ended September 30, 2012. The increase in our operating loss was primarily due to the $488,533, decrease in sales, partially offset by a net $77,206 gain from disposal of non-strategic assets. Without the asset sales, our loss actually increased by $91,616.

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 nine month period ended September 30, 2013, as compared to the nine month period ended September 30, 2012, is as follows:

                                                                 Nine Months Ended
                                                                   September 30,
                                                               2013             2012
Operating loss                                             $   (280,518 )   $   (266,108 )
Interest income                                                   3,515            2,265
Interest expense                                               (179,748 )        (17,880 )
Net loss                                                   $   (456,751 )   $   (281,723 )
Basic and diluted net loss per share                       $      (0.01 )   $      (0.01 )
Weighted average shares outstanding, basic and diluted       34,819,650       34,688,166

The Company incurred net interest expense of $176,233, and $15,615, during the nine month periods ended September 30, 2013, and 2012, respectively. The net increase of $160,618 in interest expense during the nine months ended September 30, 2013, compared to 2012 was primarily the result of the amortization of $99,856, loan origination costs associated with the second loan taken under the new line of credit acquired during October, 2012, plus increased interest costs on our line of credit, which had a balance of $581,272, as of September 30, 2013 compared to a balance of $282,965 as of September 30, 2012.

Net loss and basic and diluted net loss per common share. Net loss was $456,751 and $281,723 in the nine month periods ended September 30, 2013, and 2012, respectively. Basic and diluted net loss per common share was $0.01 in the nine month periods ended September 30, 2013, and 2012.


Liquidity and Capital Resources

Introduction

Our net cash position remained relatively unchanged during the nine months ended September 30, 2013. Our total liabilities increased by $234,022, primarily as a result a $328,092 increase in accounts payable partially offset by a $162,328 decrease in our line of credit balance. We hope to achieve an increase in our net operating cash flows on a long-term basis, but we will not achieve positive operating cash flows during 2013.

Cash Requirements

For the nine months ended September 30, 2013, our net cash provided by operating activities was $112,165, compared to net cash used in operations of $147,754, in the nine months ended September 30, 2012. Positive operating cash flows during the nine months ended September 30, 2013, were primarily created by an increase in accounts payable and accrued liabilities of $389,473, and depreciation and amortization of $97,513 offset by a net loss of $456,751, and an increase in other current assets of $12,128.

Negative operating cash flows during the nine months ended September 30, 2012, were primarily created by a net loss of $281,723, an increase in other current assets of $61,557, offset by depreciation and amortization of $136,666 and an increase in accounts payable and accrued liabilities of $60,358.

Sources and Uses of Cash

Net cash provided by investing activities was $70,251, for the nine months ended September 30, 2013, compared to net cash provided by investing activities of $12,762, for the nine months ended September 30, 2012. The net cash provided by investing activities during the nine months ended September 30, 2013, was related to proceeds from notes receivable of $34,000, and proceeds from asset sales of $69,590, offset by capital expenditures of $33,339. The net cash provided by investing activities during the nine months ended September 30, 2012, was related to proceeds from a note receivable of $15,860, and proceeds from asset sales of $3,100, offset by capital expenditures of $6,198.

Net cash used in financing activities was $183,884 for the nine months ended September 30, 2013, while net cash of $139,585 was provided by financing activities in the nine months ended September 30, 2012. During the nine months ended September 30, 2013, we paid down our line of credit by a net amount of $162,328 and made principal payments of $2,277 and $21,079 on equipment financing obligations and capital leases, respectively. During the nine months ended September 30, 2012, we received a net $192,965 from our line of credit and made principal payments of $18,529 and $34,851 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 consolidated 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 goodwill created as the result of business acquisitions, as key to an understanding of our consolidated financial statements. These are important accounting policies that require management's most difficult, subjective judgments.

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