Based on application of the Black-Scholes model, considering the $2.00 exercise price, the three year term and the volatility of the Company's stock since granting of the options, the Company determined that the compensation expense associated with the granting of the 400,000 options was not material to the financial statements of the Company for the three and nine months ended September 30, 2003.

ITEM 2  Managements Discussion and Analysis or Plan of Operation

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. The following discussion should be read together with our financial statements and the notes to those financial statements included elsewhere in this annual report.

Except for historical information, the materials contained in this Management's Discussion and Analysis are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and involve a number of risks and uncertainties. These include the Company's historical losses, the need to manage its growth, general economic downturns, intense competition in the emissions testing industry, seasonality of quarterly results, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. Although forward-looking statements in this Quarterly Report reflect the good faith judgment of management, such statements can only be based on facts and factors currently known by the Company. Consequently, forward-looking statements are inherently subject to risks and uncertainties, actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by the Company in this Quarterly Report, as an attempt to advise interested parties of the risks and factors that may affect the Company's business, financial condition, and results of operations and prospects.

The following analysis compares the results of operations for the three-month and nine-month periods ended September 30, 2003 to the comparable periods ended September 30, 2002.

Revenues and Expenses

Revenues during the three months ended September 30, 2003 were $146,715. During the three months ended September 30, 2002, revenues were $90,534. The 62% increase in revenues was due to the opening of a new emissions testing station, which had revenues of approximately $57,000 in the quarter ended September 30, 2003 and no revenues in the quarter ended September 30, 2002. Revenues during the nine months ended September 30, 2003 were $467,735. During the nine months ended September 30, 2002, revenues were $188,475. The 148% increase in revenues was due to the opening of three new emissions testing stations during the third quarter of 2002 and a fourth station in 2003.

Cost of emissions certificates during the three months ended September 30, 2003 was $43,581 or 30% of revenues, compared to $27,584 or 30% of revenues for the three months ended September 30, 2002. Cost of emissions certificates during the nine months ended September 30, 2003 were $130,380 or 28% of revenues, compared to $55,904 or 30% of revenues for the nine months ended September 30, 2002. Cost of emissions certificates decreased as a percent of revenues from 2002 to 2003 primarily associated with newly opened emission testing stations located in Texas.

General and administrative expenses during the three months ended September 30, 2003 were $490,962. During the three months ended September 30, 2002, general and administrative expenses were $217,551. The 126% increase in general and administrative expenses was due to increased professional fees resulting from the reverse acquisition with SKTF, the opening of additional emission testing stations and approximately $33,000 in consulting fees and expense reimbursements paid to V2R. General and administrative expenses during the nine months ended September 30, 2003 were $1,181,133. During the nine months ended September 30, 2002, general and administrative expenses were $513,280. The 130% increase in general and administrative expenses was due to a $225,000 acquisition cost resulting from the reverse acquisition with SKTF, increased professional fees resulting from the reverse acquisition with SKTF, the opening of additional emission testing stations and approximately $33,000 in consulting fees and expense reimbursements paid to V2R.

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Interest expense during the three months ended September 30, 2003 was $39,796. During the three months ended September 30, 2002, interest expense was $24,850. The 60% increase in interest expense was due to interest costs associated with an increase of $550,000 and $125,000, respectively, in convertible debentures and promissory notes from September 30, 2002 to September 30, 2003. Interest expense during the nine months ended September 30, 2003 was $103,670. During the nine months ended September 30, 2002, interest expense was $63,244. The 64% increase in interest expense was due to interest costs associated with an increase of $550,000 and $125,000, respectively, in convertible debentures and promissory notes from September 30, 2002 to September 30, 2003.

Net Loss

During the three months ended September 30, 2003, the Company had a net loss of $427,624 or $0.04 per weighted-average share. During the three months ended September 30, 2002, the Company reported a net loss of $179,451 or $0.02 per weighted-average share. The $248,173 increase in net loss for the three months ended September 30, 2003, was primarily due to increased professional fees resulting from the reverse acquisition with SKTF, the opening of additional emission testing stations and approximately $33,000 in consulting fees paid to V2R, partially offset by an increase of $40,184 in revenue less cost of emission certificates, due to the opening of new stores, for 2003 compared to 2002.

During the nine months ended September 30, 2003, the Company had a net loss of $947,448 or $0.09 per weighted-average share. During the nine months ended September 30, 2002, the Company reported a net loss of $443,953 or $0.04 per weighted-average share. The $503,495 increase in net loss for the nine months ended September 30, 2003, was primarily due to a $225,000 acquisition cost resulting from the reverse acquisition with SKTF, increased professional fees resulting from the reverse acquisition with SKTF, the opening of additional emission testing stations, an increase of approximately $68,000 in interest expense and approximately $33,000 in consulting fees and expense reimbursements paid to V2R, partially offset by an increase of $204,784 in revenue less cost of emission certificates, due to the opening of new stores, for 2003 compared to 2002.

Liquidity and Capital Resources

During the nine months ended September 30, 2003, the Company experienced negative operating cash flows of $441,927. Negative operating cash flows in the nine months ended September 30, 2003 were primarily created by a net loss from operations of $947,448, partially offset by; an increase of $158,880 in accounts payable and accrued liabilities, an acquisition fee of $125,000 which was paid with a promissory note, depreciation and amortization of $119,344 and an increase of $102,586 in accrued interest. During the nine months ended September 30, 2002, the Company experienced negative operating cash flows of $289,995. Negative operating cash flows in the nine months ended September 30, 2002 were primarily created by a net loss from operations of $443,953, partially offset by; an increase of $63,245 in accrued interest, depreciation and amortization of $60,449 and an increase of $31,557 in accounts payable and accrued liabilities.

Net cash used in investing activities was $33,747 and $198,122, respectively, for the nine-month periods ended September 30, 2003 and 2002. The investing activities involved primarily the purchase of machinery and equipment to operate new emission testing station locations.

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Net cash provided by financing activities was $370,000 and $525,000, respectively, for the nine-month periods ended September 30, 2003 and 2002. Net cash provided resulted from the proceeds from the sale of convertible debentures, net of associated financing costs.

On October 3, 2003, the Company filed a Registration Statement on Form SB-2 offering for registration 5,000,000 shares of its common stock at a price to be determined. On October 21, 2003, the Company filed a notification with the SEC withdrawing the Registration Statement due to market and economic conditions.

The Company is not generating sufficient cash flow from operations to fund growth as it continues to open new emission testing stations. Going forward the Company will seek to obtain additional commitments from GCA Strategic Investment Fund Limited, as well as other sources, to finance operations while it attempts to achieve profitability.

The Company is in the vehicle emissions testing business. It operates five emission testing stations in Atlanta, Georgia and Houston, Texas. It operates under the guidelines of the Georgia Clean Air Force (GCAF) and the Texas Department of Public Safety (DPS).

As a publicly traded company subject to ongoing reporting requirements with the Securities and Exchange Commission (SEC), SKTF will continue to incur significant expenses to maintain current status with the SEC. These expenses are likely to increase in coming periods based on more stringent reporting requirements and public oversight initiatives that have been or are being adopted by the SEC in response to corporate governance concerns and recent corporate scandals and abuses. Audit and professional fees will increase as a result of these changes and the increases will impact the profitability of the company in future periods.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with its Board of Directors, the Company has identified accounting policies related to valuation of its common stock for purposes of assessing possible beneficial conversion features associated with its convertible debt, for assessing whether any proceeds from the issuance of convertible debt should be allocated to the conversion feature and for assessing whether any value should be assigned to a warrant that it believes are key to an understanding of its financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.

ITEM 3   Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this quarterly report (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 significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.

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PART II

ITEM 1  Legal Proceedings

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

ITEM 2  Changes in Securities and Use of Proceeds

There have been no events that are required to be reported under this Item.

 

ITEM 3  Defaults Upon Senior Securities

There have been no events that are required to be reported under this Item.

ITEM 4  Submission of Matters to a Vote of Security Holders

On August 27, 2003, we held our annual meeting of shareholders. Proxies were not solicited from the shareholders.

Three individuals were elected to our Board of Directors, namely Richard A. Parlontieri, Bahram Yusefzadeh, and Bradley A. Thompson. Mr. Parlontieri was our sole director prior to the meeting. The results of the voting were as follows:

Director	Votes For	Votes Against	Votes Withheld	Abstentions	Broker Non-Votes
Richard A. Parlontieri	8,400,000	-0-	-0-	-0-	-0-
Bahram Yusefzadeh	8,400,000	-0-	-0-	-0-	-0-
Bradley A. Thompson	8,400,000	-0-	-0-	-0-	-0-

The other matters on which the shareholders voted, and the results of voting, were:

1.  Approval of an amendment to our Articles of Incorporation changing the name of the Company to Speedemissions, Inc.;

Votes For	Votes Against	Votes Withheld	Abstentions	Broker Non-Votes
8,400,000	-0-	-0-	-0-	-0-

2.  Approval of an amendment to the Company’s 2001 Stock Option Plan to increase the number of shares eligible for issuance under the Plan from 600,000 shares to 1,000,000 shares;

Votes For	Votes Against	Votes Withheld	Abstentions	Broker Non-Votes
8,400,000	-0-	-0-	-0-	-0-

 

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3.  Ratification of the appointment of Bennett Thrasher PC as independent auditors of the Company for the fiscal year ending December 31, 2003.

 

Votes For	Votes Against	Votes Withheld	Abstentions	Broker Non-Votes
8,400,000	-0-	-0-	-0-	-0-

A more detailed description of each agenda item at the annual shareholders meeting can be found in our Schedule 14C Information Statement dated and filed with the Securities and Exchange Commission on July 29, 2003.

ITEM 5  Other Information

Effective September 5, 2003, we entered into a separate indemnification agreement with each of our current directors. Under the terms of the indemnification agreements, we agreed to indemnify each director to the fullest extent permitted by law if the director was or is a party or threatened to be made a party to any action or lawsuit by reason of the fact that he is or was a director. The indemnification shall cover all expenses, penalties, fines and amounts paid in settlement, including attorneys’ fees. A director will not be indemnified for intentional misconduct for the primary purpose of his own personal benefit.

Effective September 15, 2003, we entered into a three-year employment agreement with Richard A. Parlontieri, our President and Chief Executive Officer. Under the terms of the agreement, Mr. Parlontieri will receive a salary of $180,000 per year, plus an automobile and expense allowance, and will be eligible for quarterly bonuses as set forth in the agreement. In addition, Mr. Parlontieri was granted options to purchase up to 400,000 shares of our common stock at $2.00 per share. The agreement may be terminated by us for cause, in which case Mr. Parlontieri would not be entitled to severance compensation, or without cause, in which case Mr. Parlontieri would be entitled to the balance of his salary due under the agreement, plus other compensation earned through the date of termination.

On October 9, 2003, we entered into an Acknowledgement and Assumption of Liabilities wherein we assumed the following liabilities from our wholly-owned subsdiary:

(a)  On May 2, 2002, our subsidiary entered into a securities purchase agreement (the 2002 agreement) with GCA Strategic Investment Fund Limited, our majority shareholder, pursuant to which GCA Fund agreed to purchase certain convertible debentures from us. The 2002 agreement contemplates the purchase by GCA Fund, on or before May 2, 2004, of up to an aggregate principal amount of $1,200,000 of 7% convertible debentures at a price equal to 100% of the principal amount. As of September 30, 2003, we have issued a total of $1,150,000 in convertible debentures pursuant to the 2002 agreement.

(b)  On April 24, 2001, our subsidiary entered into a securities purchase agreement (the 2001 agreement) with GCA Fund, pursuant to which GCA Fund purchased a $250,000 7% convertible debenture from us at a price equal to 100% of the principal amount. The convertible debenture had an original maturity date of April 24, 2003 but was not repaid on that date. GCA Fund has extended the maturity date to April 24, 2004.

After our assumption of the 2002 Agreement and the 2001 Agreement, the debentures issued under the agreements are convertible, at the option of GCA Fund, into shares of our common stock at a conversion price equal to the lesser of (a) $0.28 or (b) 80% of the trading price of our common stock over a ten day period. Adjustments to the conversion price, redemption provisions, registration rights, and limitations on conversion are all set forth in the agreements.

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(c)  In 2001, our subsidiary issued two promissory notes to GCA Fund, one in the amount of $300,000, and the other in the amount of $225,000. Both notes bear interest quarterly at the rate of 10%. The $300,000 note is due in April 2004, after its due date was extended by GCA in writing, while the $225,000 note is due in October 2003, and we anticipate that GCA will grant an extension on this note as well. The notes are mandatorily redeemable, at the option of GCA Fund, under certain circumstances as outlined in the note payable agreements, including but not limited to a change in control.

(d)  On June 16, 2003, our subsidiary entered into a consulting agreement with V2R, LLC, which is controlled by Bahram Yusefzadeh, who subsequent to June 16, 2003 became one of our directors. Under the terms of the agreement, we have agreed to pay V2R $8,334 per month, effective June 1, 2003 for 36 months, of which $3,334 is deferred until after the closing of an initial round of financing. In addition, we will pay to V2R a sales commission in an amount equal to 5% of any money raised as a result of their introductions. For any subsequent financings, we will pay to V2R 5% of the first $1 million, 4% of the second $1 million, 3% of the third $1 million, 2% of the fourth $1 million, and 1% of any amounts in excess of $4 million raised in the offering. V2R, LLC is also entitled to up to 130,000 warrants to acquire common stock at $0.01 per share, of which 25,000 have already vested, 35,000 will vest if we raise $1.5 million in any offering, 35,000 more will vest if we raise $3.0 million in any offering, and a final 35,000 will vest if we raise $4.5 million in any offering.

On November 7, 2003, the Company's CEO loaned the Company $200,000 on an unsecured promissory note. The note is due and payable in 180 days and carries interest at five percent annually.

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ITEM 6  Exhibits and Reports on Form 8-K

(a)  Exhibits

10.1 (1)		Form of Indemnification Agreement
10.2 (2)		Employment Agreement with Richard A. Parlontieri
10.3		Acknowledgement and Assumption of Liabilities with GCA Strategic Investment Fund Ltd.
10.4		Acknowledgement and Assumption of Liabilities with V2R, LLC
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1		Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)  Incorporated by reference as Exhibit 10.1 from our Pre-Effective Registration Statement on Form SB-2 filed with the Commission on October 3, 2003.

(2)  Incorporated by reference as Exhibit 10.2 from our Pre-Effective Registration Statement on Form SB-2 filed with the Commission on October 3, 2003.

(b)        Reports on Form 8-K

On August 28, 2003, we filed an Item 7 Current Report on Form 8-K/A dated August 27, 2003 enclosing required financial statements concerning our acquisition of SKTF Enterprises, Inc.

On August 29, 2003, we filed an Item 4 Current Report on Form 8-K dated August 28, 2003 regarding our change in certifying accountant.

On September 2, 2003, we filed an Item 5 Current Report on Form 8-K dated August 29, 2003 describing the items passed at our annual shareholders meeting.

On September 29, 2003, we filed an Item 4 First Amended Current Report on Form 8-K/A clarifying disclosure regarding our change in certifying accountant.

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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.

Dated: November 12, 2003	Speedemissions, Inc.
	By: Richard A. Parlontieri, President and Chief Financial Officer

 

 

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