**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 **Form
10-KSB**
 
 x
    ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 **For
the fiscal year ended December 31, 2004**
 
 o
    TRANSITION
      REPORT UNDER 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.**
 (Name of
small business issuer in its charter)
 
 **Florida**
      (State
      or other jurisdiction of
      incorporation
      or organization)
    **33-0961488**
      (I.R.S.
      Employer
      Identification
      No.)**1134
      Senoia Road, Suite B2**
      **Tyrone,
      Georgia**
      (Address
      of principal executive offices)
    **30290**
      (Zip
      Code)
 
 **Issuer’s
telephone number (770) 306-7667**
 
 Securities
registered under Section 12(g) of the Exchange Act:
 
 **Common
stock, par value $0.001**
 (Title of
class)
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 .
 
 Check if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. o
 
 State
issuer’s revenues for its most recent fiscal year.  The
issuer’s revenues for the year ended December 31, 2004 were
$2,867,921.
 
 State the
aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of a
specified date within
the past 60 days. (See definition of affiliate in rule 12b-2 of the Exchange
Act.) $2,570,993, based on the closing price of $0.30 for our common stock on
March 30, 2005.
 
 State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date. As of March 30, 2005, there were 25,041,594
shares of common stock, par value $0.001, issued and outstanding.
 
 **DOCUMENTS
INCORPORATED BY REFERENCE**
 
 If the
following documents are incorporated by reference, briefly describe them and
identify the part of the form 10-KSB (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and (3) any prospectus filed pursuant to rule
424(b) or (c) of the Securities Act of 1933 (“Securities Act”). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
None.
 
 Transitional
Small Business Disclosure Format (check one): Yes oNo x
 
   
  **Speedemissions,
Inc.**
 
 **TABLE
OF CONTENTS**
  PART
      I
    3ITEM
      1 - DESCRIPTION OF BUSINESS
    3ITEM
      2 - DESCRIPTION OF PROPERTY
    9ITEM
      3 - LEGAL PROCEEDINGS
    10ITEM
      4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    10PART
      II
    11ITEM
      5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS
    11ITEM
      6 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
    OPERATION
    13ITEM
      7 - FINANCIAL STATEMENTS
    20ITEM
      8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE
    20ITEM
      8A - DISCLOSURE CONTROLS AND PROCEDURES
    20ITEM
      8B - OTHER INFORMATION
    20PART
      III
    21ITEM
      9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
    21ITEM
      10 - EXECUTIVE COMPENSATION
    24ITEM
      11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT
    27ITEM
      12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    28ITEM
      13 - EXHIBITS
    32ITEM
      14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
    35
 
 
 
 
  2
  **PART
I**
 
 
 This
Annual Report includes forward-looking statements within the meaning of the
Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based
on management's beliefs and assumptions, and on information currently available
to management. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company set forth under
the heading “Management's Discussion and Analysis of Financial Condition or Plan
of Operation.” Forward-looking statements also include statements in which words
such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,”
“consider” or similar expressions are used.
 
 Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions. The Company's future results and shareholder
values may differ materially from those expressed in these forward-looking
statements. Readers are cautioned not to put undue reliance on any
forward-looking statements.
 
 **ITEM
1 - DESCRIPTION OF BUSINESS**
 
 **Introduction**
 
 We were
incorporated as SKTF Enterprises, Inc. in the State of Florida on March 27,
2001. Effective September 5, 2003, after our acquisition of our wholly owned
subsidiary, we changed our name to Speedemissions, Inc.
 
 Our
original business plan was to develop, market and distribute branded and
licensed hats and clothing at major events such as sporting events, concerts,
and conventions. However, our management abandoned our original business plan,
and on June 16, 2003, we acquired Speedemissions, Inc., a Georgia
corporation.
 
 **Our
Principal Services and Markets**
 
 We
currently operate 24 vehicle emissions testing centers in two separate markets,
greater Atlanta, Georgia and Houston, Texas. In addition, we operate five mobile
units in the Atlanta, Georgia area.
 
 **2004
Acquisitions**
 
 On
January 21, 2004, we acquired all of the assets of the businesses known and
operated as NRH Enterprises/Procam Emissions and Georgia Emissions, which
consisted primarily of five emissions testing centers in the Atlanta, Georgia
area.
 
 On
January 30, 2004, we acquired all of the assets of the businesses known and
operated as $20 Emission, which consisted primarily of seven emissions testing
centers in the Atlanta, Georgia area.
 
 On June
11, 2004, we acquired all of the assets of BB&S Emissions, LLC, consisting
of one emissions testing center in the Atlanta, Georgia area.
  3
  On
December 2, 2004, we acquired five mobile testing units from State Inspections
of Texas, Inc., and on December 30, 2004, we acquired the remainder of their
assets, consisting of six emissions testing centers in the Houston, Texas area.
 
 We intend
to operate all of the recently acquired centers and mobile units under the
Speedemissions name.
 
 **Our
Typical Site**
 
 The
typical testing site is located inside of a structure similar to a typical lube
or tire change garage with doors at both ends so vehicles can “drive-through”
the facility. We also have structures that resemble a bank drive-through
facility. A computerized testing system is located in the building. There are
two types of primary tests that are performed, the Accelerated Simulated Model
(ASM) and the On-Board Diagnostic (OBD). In selected markets a vehicle safety
inspection must also be performed. These tests apply to vehicles generally
manufactured from 1980 through 2001, depending on the state. The ASM test is
done on vehicles 1995 and older, while the OBD test is conducted on vehicles
1996 and newer. In all new sites, we expect to operate two testing lanes. The
cost of equipment for operating one ASM and two OBD machines is approximately
$50,000. The cost of facilities varies, depending on location and market rates
in that area. Generally, we do not expect to own any land or buildings. Instead,
although we own the land and building at one of our sites, in the future we
intend to lease or sublease all of the land and the buildings that we use in our
business. We expect the total cost for a new emissions testing site will be
approximately $150,000, including emission testing equipment and related
installation, deposits and prepaid items such as certificates, furniture and
office equipment, renovations if necessary, signage, and capital necessary to
fund operations during the first year. Such amount does not include future
years’ costs, such as rent and utilities or other operating costs.
 
 Under the
guidelines of the Georgia Clean Air Force program, the mobile vehicle emission
testing units are only permitted to conduct the OBD test on 1996 and newer
vehicles. We currently have five units and they serve the automobile fleets of
the federal, state, and local governments. Also, all used cars, prior to being
re-sold, must have a vehicle emission test, and thus we serve both the new and
used car dealers throughout the greater Atlanta market. Finally, these units
serve the fleets of major corporate customers as well. The start-up cost for the
mobile testing unit is about 60% less than the cost of a typical
brick-and-mortar location. As a result, they are a more profitable operating
unit.
 
 **Our
Growth Strategy**
 
 Our
objective is to become a national provider of vehicle emissions tests and safety
inspections where applicable.
 
 We intend
to grow using three methods. First, we intend to continue opening and operating
company-owned testing stations. Second, we intend to continue acquiring
competitors in favorable markets. Third, we intend to offer franchises in
selected markets. Currently, in addition to the Atlanta and Houston areas, we
have targeted the following areas for application of our three growth
strategies: Dallas, Texas; Charlotte, North Carolina; Northern Virginia;
Pittsburgh and Philadelphia, Pennsylvania; Southern California; New York City;
and Boston, Massachusetts. We intend to create brand awareness in each of these
areas through a standard building style and facade, consistent color schemes,
signs, employee uniforms, and limited local advertising.
  4
  **Industry
Background - Government and Regulatory Overview**
 
 Presently,
the American Automobile Motor Vehicle Association reports that 34 states and the
District of Columbia are required by the United States Environmental Protection
Agency to have vehicle emissions testing. According to the 2000 census, these
states constitute 72% of the U.S. population, or about 206 million citizens. The
major metropolitan areas of these states represent 141 million citizens and 87.1
million vehicles. Each state, in turn, has its own regulatory structure for
emissions testing with which we must comply.
 
 Public
awareness of air pollution and its hazardous effects on human health and the
environment has increased in recent years. The U.S. Environmental Protection
Agency estimates that in the United States alone approximately 46 million
persons live in areas where air quality levels fail to meet the EPA’s national
air quality standards. Increased awareness of air pollution and its hazardous
effects on human health and the environment has led many governmental
authorities to pass more stringent pollution control measures. One especially
effective measure that many governmental authorities have adopted is vehicle
emissions testing. Vehicle emissions produce approximately 35% to 70% of the
ozone air pollution and nearly all of the carbon monoxide air pollution in
metropolitan areas. The EPA estimates that enhanced emissions testing on motor
vehicles is approximately 10 times more cost-effective in reducing air pollution
than increasing controls on stationary pollution sources such as factories and
utilities. Consequently, the EPA has made emissions testing an integral part of
its overall effort to reduce air pollution by ensuring that vehicles meet
emissions standards.
 
 In
general, these vehicle emissions tests are performed either in a centralized
program or in a decentralized program. In a centralized program, a select number
of emissions testing operators are licensed by the state or are operated by
certain states to perform vehicle emissions testing. These operators are
authorized to perform emissions tests, but generally they are prohibited from
repairing vehicles that fail to pass an emissions test.
 
 On the
other hand, in a decentralized program, a wider range of persons may perform
emissions tests, including those engaged primarily in other businesses, such as
automotive repair shops, automobile dealers and others. For many of these
operators, performing emissions tests is not their primary
business.
 
 The EPA
has granted state governmental authorities the discretion to determine how best
to establish and operate a network of emissions testing facilities, including
the flexibility to choose either a centralized or a decentralized program.
Nineteen states have implemented decentralized programs and twelve states and
the District of Columbia have implemented centralized programs. There are three
states that have implemented a hybrid program, whereby there are both
decentralized and centralized testing stations. The percentage of programs that
are either centralized or decentralized has remained relatively constant since
1991.
 
 Vehicle
emissions control requirements have become progressively more stringent since
the passage of the Clean Air Act in 1970. The 1990 Amendments, in particular,
emphasized the need for effective emissions control programs and, in 1992, the
EPA adopted regulations that required areas across the United States to
implement certain types of emissions control programs by certain dates,
depending on the area's population and their respective levels of air pollution.
The EPA has the authority under the Clean Air Act to withhold non-safety related
federal highway funds from states that fail to implement such mandated programs
by prescribed deadlines. To date, the EPA has been willing, in certain
circumstances, to grant extensions of these deadlines. However, there are also
examples where it has withheld non-safety related highway funding. This occurred
for a period of two years in Georgia because of Atlanta’s high vehicle emissions
(New York Times, January 4, 2001).
  5
  More
recently, on July 31, 1998, the EPA issued a final study that concluded that
more stringent air quality standards for motor vehicle emissions are needed, and
that such standards should be implemented as it becomes technologically feasible
and cost-effective to do so. We believe that the setting of such standards will
be the most important EPA regulatory initiative affecting motor vehicles since
the passage of the 1990 Amendments. We believe that the EPA study is likely to
result in more stringent standards that will have the effect of increasing the
number of areas that must implement emissions testing programs and thereby
potentially increasing the market for our service.
 
 Since
1977, when federal legislation first required states to comply with emissions
standards through the use of testing programs, California has been a leader in
testing procedures and technical standards. California has approximately 23
million vehicles subject to emissions testing, more than two times that of any
other state. California’s testing program is overseen by the California Bureau
of Automotive Repair. The Bureau has revised its emissions testing standards
three times: in 1984, 1990 and, most recently, in 1997. With each of these
revisions, the Bureau has required the use of new, more sophisticated and more
accurate emissions testing and analysis equipment, which must be certified by
the Bureau. California’s testing standards have become the benchmark for
emissions testing in the United States. All states with decentralized programs
and many states with centralized programs require emissions testing and analysis
equipment used in their programs to be either BAR-84, BAR-90, or BAR-97
certified, with all newly implemented enhanced programs requiring BAR-97
certification.
 
 As
emissions testing equipment has become more technologically advanced, government
regulators have required that testing facilities use this more advanced
equipment. The most significant technological advance that has occurred in the
emissions testing industry over the past decade is the development of enhanced
testing systems. Prior to 1990, the EPA required government agencies to test
vehicles only for emissions of carbon monoxide and hydrocarbons, which form
smog. During this “basic” test, a technician inserts a probe in the vehicle’s
tailpipe while the vehicle is idling and emissions analyzers then measure
pollution levels in the exhaust. These basic tests worked well for pre-1981,
non-computerized vehicles containing carburetors because typical emission
control problems involved incorrect air/fuel mixtures and such problems increase
pollution levels in the exhaust even when the vehicle is idling.
 
 However,
today's vehicles have different emissions problems. For tests on modern vehicles
to be effective, the equipment must measure nitrogen oxide emissions that also
cause smog and must test the vehicle under simulated driving conditions. The EPA
now requires these enhanced tests in the major metropolitan areas of the 34
states and the District of Columbia. A technician conducts these Accelerated
Simulated Mode (ASM) tests on a dynamometer, a treadmill-type device that
simulates actual driving conditions, including periods of acceleration,
deceleration and cruising, or the On Board Diagnostic (OBD) by plugging into the
vehicles computerized operation system.
 
 *Emissions
Testing in the State of Georgia*
 
 As a
result of a rapidly increasing population, which has caused the levels of smog
to escalate sharply, the 13 counties that make up the metro Atlanta area have
been identified by the EPA as target sites for a mandatory vehicle inspection
and maintenance program. In 1996, the Environmental Protection Division of the
State of Georgia initiated “Georgia's Clean Air Force” program that requires
testing of certain vehicles in a 13 county area surrounding Atlanta, Georgia,
for certain emission levels. These rules are set forth in Sections 391-3-20-.01
through .22 of the Rules of the Georgia Department of Natural Resources,
Environmental Protection Division.
  6
  Georgia's
program is a decentralized program. All operators performing emissions testing
in Georgia must have their technicians attend and complete certain state
certified training, and report to the state on their emissions testing
activities every month. Testing stations may be licensed to test all vehicles,
which is known as an ALL VEHICLES WELCOME station, or only vehicles not more
than five years old, known as a NEW VEHICLES ONLY station. All the stations we
currently operate in Georgia, are “ALL VEHICLES WELCOME” stations.
 
 The
Georgia Clean Air Force Program initially required a basic test of exhaust gases
every two years. In 1997, the program was changed to include enhanced testing,
which combines the simple exhaust test with a simulated road test using a
dynamometer. Prior to January 1, 2000, Georgia required that vehicles in the 13
covered counties undergo an emissions test once every two years. In December
1999, however, Georgia amended this rule so as to require testing on an annual
basis, with an annual exemption for the three most recent model
years.
 
 The
market for emissions testing in Georgia is highly fragmented and generally
consists of services provided by independent auto repair service providers,
service stations, oil and tire repair stores, and independent test-only
facilities. According to the State of Georgia, there were approximately 700
licensed test sites, and 1,983,327 tests were performed in Georgia under the
Georgia Clean Air Force Program during the calendar year 2002.
 
 Under
Georgia law, the price that a testing station may charge per test may not be
less than $10 nor more than $25. A fee of $6.95 must be paid by the station
operator to the state. The balance of the current charge, or $18.05 assuming the
maximum price of $25 is charged, is retained by the station operator. If a
vehicle fails an emissions test, it may be retested at no additional charge for
up to 30 days after the initial test, so long as the subsequent test is
performed at the same facility.
 
 If a
vehicle fails to pass an emissions test, the owner of the vehicle must have
repair work performed to correct the deficiency, up to a total cost of $689
under current law. If a vehicle fails a re-inspection despite the maximum
expenditure required by law, the owner must apply for a compliance waiver from
the state.
 
 Georgia
law mandates compliance with its vehicle emissions testing program. For vehicles
subject to the state's emissions law, a successful test, or a waiver from the
state, is required to obtain a vehicle registration in Georgia.
 
 *Emissions
Testing in the State of Texas*
 
 The
market in Texas is highly fragmented and consists of testing services
implemented under the current guidelines in May 2002. The Texas Department of
Public Safety manages the vehicle emissions testing and safety inspection for
the state. The emissions tests conducted are the same as in Georgia. The fee is
set at a maximum of $39.50 for both the emissions test and the safety
inspection. The operator is charged $8.00 for the ASM sticker, and $14.00 for
the OBD sticker. The safety inspection cost is included in these amounts.
Vehicles are required to be tested on an annual basis, with an annual exemption
for the two most recent model years. According to the American Automobile Motor
Vehicle Association, there are 4.6 million eligible vehicles in the
state.
 
 7
 
 If a
vehicle fails, the operator must provide a free re-test at the same facility
within 15 days. Texas also has provisions for those vehicles that cannot pass an
emissions test, with no limit on the amount of repairs. The owner may apply to
the state for a compliance waiver.
 
 Texas law
mandates compliance with its vehicle emissions and safety inspection program.
For a vehicle to obtain a sticker for yearly registration the owner must have a
successful emissions and safety inspection, or a waiver.
 
 **Operating
Strategy**
 
 Our
operating strategy focuses on (a) increasing the number of sites we operate in a
given market, (b) increasing the volume of business at each site, (c) creating
brand awareness for our services, and (d) creating repeat customer sales, all of
which are designed to enhance our revenue and cash flow. To achieve these goals,
we:
 
 ·
    Seek
      to secure and maintain multiple stations at well-traveled intersections
      and other locations that are easily reachable by our
      customers;
 ·
    Coordinate
      operations, training and advertising in each market to enhance revenue and
      maximize cost efficiencies within each
market;
 ·
    Implement
      regional management and marketing initiatives in each of our
      markets;
 ·
    Seek
      to acquire existing testing sites where significant volume potential
      exists;
 ·
    Tailor
      each facility, utilize limited local advertising and the services we offer
      to appeal to the broadest range of consumers;
and
 ·
    Recently
      expanded the use of our mobile vehicle testing units by adding a sales
      manager to call on federal, state, and local governments for their fleets,
      as well as corporate accounts and car
dealers.
 
 Most of
our emissions testing stations are open for business during weekdays between the
hours of 8:00 am and 6:00 pm, and from 8:30 am to 5:00 pm on Saturdays, for a
total of 58.5 hours per week. Our stations are closed on Sundays. The average
emissions test in Georgia takes approximately 8 to 12 minutes to complete. In
Texas, because of the safety inspection, the completion time is slightly longer.
Therefore, each of our stations with one testing bay can test anywhere from
three to four vehicles per hour. Assuming steady demand throughout the day, six
days a week, each of our stations would have the capacity to test approximately
234 vehicles per week (58.5 hours times 4 vehicles per hour), or 936 vehicles
per month (234 vehicles per week times 4 weeks). Based upon our calculations
involving our existing emissions stations, stations with one testing bay need to
receive payment for 450 emissions tests per month to cover the costs associated
with its operation, while stations with two testing bays need 475 tests per
month to break even. In addition, we do a limited (about 10%) oil change
business in six of our Texas locations.
 
 We
currently purchase our raw materials, such as filters, hoses, etc., from 2
suppliers, and because these raw materials are readily available from a variety
of suppliers, we do not rely upon any one supplier for a material portion of our
materials. Certificates of Emission Inspection are purchased from the Georgia
Clean Air Force, and emission and safety inspection stickers are purchased from
the Texas Department of Public Safety.
  8
 **Intellectual
Property**
 
 We have
registered the trade name “Speedemissions” in Fulton County, Georgia, and
Austin, Texas, and are thereby authorized to conduct our business in Georgia and
Texas under the name “Speedemissions.” We have filed a Federal Service Mark
Registration for the name and logo of Speedemissions, Inc., and for the tag line
“The Fastest Way to Keep Your Air Clean.”
 
 **Competition**
 
 The
emissions testing industry is full of small owner-operators. Auto repair shops,
tire stores, oil change stores, muffler shops, service stations, and other
emissions testing stations all offer the service. Competition is fierce, and we
expect competition from local operators at all of our locations. There are no
national competitors at this time. Our market share is too small to measure. We
intend to compete by creating brand awareness through advertising, a standard
building style and facade, and consistent color schemes and uniforms. Because
most families own more than one vehicle, and they are required to have their
vehicle tested on a regular basis, we anticipate that we can retain repeat
customers.
 
 **Research
and Development**
 
 We have
not spent any material amount of time or money on research and development, and
do not anticipate doing so in the future.
 
 **Compliance
with Environmental Laws**
 
 There are
no environmental laws applicable to the vehicle emissions and safety inspection
business.
 
 **Employees**
 
 We
currently employ 58 individuals. Of these 58 employees, six are employed in
administrative positions at our headquarters, including our Chief Executive
Officer, Richard A. Parlontieri, and our Chief Financial Officer, William Klenk,
while 52 are employed on-site at our testing locations. 57 of our employees are
full-time, while one is employed on a part-time basis.
 
 **ITEM
2 - DESCRIPTION OF PROPERTY**
 
 **Corporate
Office**
 
 We rent
our general corporate offices located at 1134 Senoia Road, Suite B2, Tyrone,
Georgia, which consists of 2,000 square feet of office space. The rent for our
office space is $1,250 per month, including utilities, with a term that expires
on February 1, 2007, with a 2-year renewal option. We believe that this space is
adequate for our current needs.
 
 **Testing
Facilities**
 
 We lease
the land and buildings we use in connection with 24 of our existing emissions
testing facilities, and we own one building and the associated land. In
addition, we have one testing facility under construction. All of our facilities
are believed to be in adequate condition for their intended purposes and
adequately covered by insurance.
  9
 
 **Site**
    
    **City**
    
    **State**
    
    **Monthly
      Rent**
    
    **Lease
      Expiration****Georgia
      Facilities**27
      East Crogan Street
    
    Lawrenceville
    
    GA
    
    Company
      owned
    
    N/A100
      Peachtree Parkway
    
    Peachtree
      City
    
    GA
    
    $1,705
    
    May
      20068405
      Tara Boulevard
    
    Jonesboro
    
    GA
    
    $1,500
    
    January
      2008Highway
      85*
    
    Riverdale
    
    GA
    
    $2,250
    
    January
      20084853
      Canton Road
    
    Marietta
    
    GA
    
    $1,000
    
    September
      20082720
      Sandy Plains Road
    
    Marietta
    
    GA
    
    $3,031
    
    December
      20048437
      Roswell Road
    
    Atlanta
    
    GA
    
    $2,750
    
    November
      20039072
      Highway 92
    
    Woodstock
    
    GA
    
    $1,800
    
    April
      200714865
      Highway 92
    
    Woodstock
    
    GA
    
    $1,700
    
    April
      20082887
      Canton Road
    
    Marietta
    
    GA
    
    $2,500
    
    July
      2008213
      Riverstone Parkway
    
    Canton
    
    GA
    
    $1,300
    
    November
      2007731
      Powder Springs Street
    
    Marietta
    
    GA
    
    $2,700
    
    month
      to month1869
      Cobb Parkway
    
    Marietta
    
    GA
    
    $2,756
    
    August
      20042625
      S. Cobb Drive
    
    Smyrna
    
    GA
    
    $2,800
    
    March
      20052909
      N. Druid Hills
    
    Decatur
    
    GA
    
    $1,500
    
    month
      to month3826
      Clairmont Road
    
    Chamblee
    
    GA
    
    $3,500
    
    March
      20055300
      Roswell Road
    
    Atlanta
    
    GA
    
    $1,800
    
    January
      20087000
      North Point Pkwy
    
    Alpharetta
    
    GA
    
    $1,500
    
    August
      2008*
      Under construction**Texas
      Facilities**11831
      Jones Road
    
    Houston
    
    TX
    
    $2,500
    
    June
      20041580
      W. Main Street
    
    Houston
    
    TX
    
    $4,500
    
    March
      20247710
      W. Bellfort
    
    Houston
    
    TX
    
    $3,120
    
    November
      20091531
      Gessner
    
    Houston
    
    TX
    
    $3,000
    
    August
      200711125
      Briar Forest
    
    Houston
    
    TX
    
    $4,500
    
    August
      20074494
      Highway 6
    
    Houston
    
    TX
    
    $4,882
    
    August
      2007108
      Bellaire
    
    Houston
    
    TX
    
    $4,500
    
    November
      200912340
      Bissonnet
    
    Houston
    
    TX
    
    $2,400
    
    2009
 
 
 **ITEM
3 - LEGAL PROCEEDINGS**
 
 In the
ordinary course of business, we may be 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
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 There
have been no events that are required to be reported under this
Item.
 
  10
  **PART
II**
 
 **ITEM
5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS**
 
 **Market
Information**
 
 Our
common stock became eligible for trading on the Over the Counter Bulletin Board
on December 19, 2002 under the symbol “SKTE.” Beginning September 5, 2003, in
connection with our name change to Speedemissions, Inc., our common stock was
eligible for trading under the symbol “SPEM.” There have been a limited number
of trades in our common stock.
 
 The
following table sets forth the high and low bid information for each quarter
since we first became eligible for trading, as provided by the Nasdaq Stock
Markets, Inc. The information reflects prices between dealers, and does not
include retail markup, markdown, or commission, and may not represent actual
transactions.
 
 High
    
    Low**Fiscal
      year ended December 31, 2002:**Fourth
      Quarter
    
    $
    0.00
    
    $
    0.00**Fiscal
      year ended December 31, 2003:**First
      Quarter
    
    $
    0.00
    
    $
    0.00Second
      Quarter
    
    $
    0.00
    
    $
    0.00Third
      Quarter
    
    $
    0.25
    
    $
    0.00Fourth
      Quarter
    
    $
    0.60
    
    $
    0.20**Fiscal
      year ended December 31, 2004:**First
      Quarter
    
    $
    1.01
    
    $
    0.30Second
      Quarter
    
    $
    0.60
    
    $
    0.41Third
      Quarter
    
    $
    0.62
    
    $
    0.45Fourth
      Quarter
    
    $
    0.50
    
    $
    0.17**Fiscal
      year ended December 31, 2005:**First
      Quarter (through February 28, 2005)
    
    $
    0.48
    
    $
    0.20
 
 The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a penny stock. The Commission has adopted regulations that
generally define a penny stock to be any equity security that has a market price
of less than $5.00 per share, subject to a few exceptions which we do not meet.
Unless an exception is available, the regulations require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
 
 **Holders**
 
 As of
December 31, 2004 and March 11, 2005, there were 24,541,594 and 25,041,594
shares, respectively, of our common stock issued and outstanding and held by
approximately 102 shareholders of record. As of December 31, 2004 and March 11,
2005, there 2,500,000 shares of our preferred stock issued and outstanding and
held of record by one shareholder.
 
 11
 ****
 **Dividends**
 
 We have
not paid any dividends on our common stock and do not expect to do so in the
foreseeable future. We intend to apply our earnings, if any, in expanding our
operations and related activities. The payment of cash dividends on our common
stock in the future will be at the discretion of the Board of Directors and will
depend upon such factors as earnings levels, capital requirements, our financial
condition and other factors deemed relevant by the Board of
Directors.
 
 We are
obligated to pay cumulative quarterly dividends on our Series A Convertible
Preferred Stock in amount equal to seven percent (7%) per annum. The dividends
are to be paid, in our discretion, in either additional shares of Series A
Convertible Preferred Stock, or in common stock based on the market price.
 
 **Securities
Authorized for Issuance Under Equity Compensation Plans**
 
 On May
15, 2001, our directors and shareholders approved the SKTF, Inc. 2001 Stock
Option Plan, effective June 1, 2001. At our annual shareholders meeting on
August 27, 2003, our shareholders approved an amendment to the plan, changing
its name to the Speedemissions, Inc. 2001 Stock Option Plan, and increasing the
number of shares of our common stock available for issuance under the plan from
600,000 shares to 1,000,000 shares. The plan offers selected employees,
directors, and consultants an opportunity to acquire our common stock, and
serves to encourage such persons to remain employed by us and to attract new
employees. As of March 11, 2005, we have issued options to acquire 921,750
shares of our common stock under the plan at prices ranging from $0.25 to $0.51
per share, and we have issued 50,000 shares of common stock under the
plan.
 
 As of
December 31, 2004, the plan information is as follows:
 
 **Plan
      Category**
    
    **Number
      of Securities to be issued upon exercise of outstanding options, warrants
      and rights**
      **(a)**
    
    **Weighted-average
      exercise price of outstanding options, warrants and
      rights**
      **(b)**
    
    **Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))**
      **(c)****Equity
      compensation plans approved by security holders**
    
    
    686,750
    
    $
    0.30
    
    
    263,250**Equity
      compensation plans not approved by security
    holders**
    
    
    1,525,000
    
    $
    0.63
    
    
    N/A**Total**
    
    
    2,211,750
    
    $
    0.53
    
    
    263,250
 
 **Recent
Sales of Unregistered Securities**
 
 On
October 8, 2004, we issued 90,000 shares of our common stock, restricted in
accordance with Rule 144, to a consultant for services rendered. The issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, and the shareholder was a sophisticated purchaser.
 
 12
 
 On
November 18, 2004, in connection with a contract to provide equity research
services, we issued a total of 312,500 shares of common stock, restricted in
accordance with Rule 144, to three unrelated companies, as payment for services
performed for us by one of the payees. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, and the investors were
accredited investors.
 
 **ITEM
6 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION**
 
 **Disclaimer
Regarding Forward Looking Statements**
 
 Our
Management’s Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (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, by their very
nature, uncertain and risky. These risks and uncertainties include
international, national and local general economic and market conditions;
demographic changes; our ability to sustain, manage, or forecast growth; our
ability to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other risks that might be detailed from time to time in our
filings with the Securities and Exchange Commission.
 
 Although
the forward-looking statements in this Annual Report reflect the good faith
judgment of our management, such statements can only be based on facts and
factors currently known by them. Consequently, and because forward-looking
statements are inherently subject to risks and uncertainties, the actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. You are urged to carefully review and consider
the various disclosures made by us in this report and in our other reports as we
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, and results of operations and
prospects.
 
 **Overview**
 
 As of
December 31, 2004 we operated twenty-five (25) vehicle emissions testing
stations and seven (7) mobile units in two separate markets, greater Atlanta,
Georgia and Houston, Texas. Due to a station closing and a consolidation of
mobile unit routes in February 2005, we currently operate twenty-four (24)
vehicle emissions testing stations and five (5) mobile units in these markets.
We do not provide automotive repair services at our centers because we believe
that it inhibits our ability to provide timely customer service and creates a
perception that our test results might be compromised.
 
 We charge
a fee for each test, whether it passes or not, and a portion of that fee is
passed on to the state governing agency. In Georgia, the maximum fee that we can
charge is $25, and a fee of $6.95 is paid to the State of Georgia. In Texas, the
maximum fee that we can charge is $39.50, for both an emissions test and a
safety inspection, and a fee varying between approximately $5.50 and $14.00 per
certificate, depending on the type of test is paid to the State of
Texas.
 
 13
 
 We want
to grow. We completed four acquisitions during 2004, which added nineteen
testing centers and seven mobile units. We intend to close more acquisitions,
and to open company-owned stations, in 2005.
 
 As a
result of our growth plans, our biggest challenge will be managing our growth
and integrating our acquisitions. We have tried to attract qualified personnel
to assist us with this growth, while keeping our overhead expenses manageable.
We have not operated at a profit, nor have we operated on a break-even cash flow
basis. However, if we are successful in implementing our growth strategy, we
believe that both of these financial goals are achievable in the next 12 months.
Until that time, we will have to continue to fund our operations, and our
acquisitions, with capital raised from selling our stock.
 
 Explanatory
Paragraph in Report of Our Independent Certified Public
Accountants
 
 Our
independent accountants have included an explanatory paragraph in their most
recent report, stating that our audited financial statements for the period
ending December 31, 2004 were prepared assuming that we will continue as a going
concern. However, they note that we have not yet generated significant revenues,
that we have a large accumulated working capital deficit, and that there are no
assurances that we will be able to meet our financial obligations in the
future.
 
 Our
independent accountants included the explanatory paragraph based primarily on an
objective test of our historical financial results. Although we agree that this
explanatory paragraph is applicable when the objective test is applied, we
believe that if we can successfully implement our business plan in the next
fiscal year, future audit reports might be issued without this explanatory
paragraph. Until such time, however, our going concern paragraph may be viewed
by some shareholders and investors as an indication of financial instability,
and it may impair our ability to raise capital.
 
 **Year
ended December 31, 2004 compared to the year ended December 31,
2003**
 
 **Results
of Operations**
 
 
 Introduction
  Our
operations reflect a significantly different company in 2004 versus 2003. At the
beginning of 2003 we were a privately held company operating two emissions
testing stations in Georgia and three stations in Texas. During 2003 we were
acquired by a public company in a reverse acquisition, but our number of
emissions testing stations remained at five as of December 31, 2003. During 2004
we made four acquisitions (adding 19 stations), opened two new stations and
closed one existing station, increasing our emissions testing stations to
twenty-five plus seven mobile units as of December 31, 2004. Of the net twenty
stations added during 2004, only fourteen had a significant impact on revenues
and expenses as six of the acquired stations were purchased on December 30,
2004. As a result, our revenues and operating expenses increased significantly
in 2004 compared to 2003. Additionally, our acquisition and capital raising
activities during 2004 added significant expenses associated with common stock
issued at discounts from the trading values for our common stock.
  14
 Revenues
and Loss from Operations
  Our
revenue, cost of emission certificates (our cost of goods sold), general and
administrative expenses, and loss from operations for the year ended December
31, 2004 as compared to the year ended December 31, 2003 are as
follows:
 
 Year
      Ended
      December
      31, 2004
    
    Year
      Ended
      December
      31, 2003
    
    Percentage
      ChangeRevenue
    
    $
    2,867,921
    
    $
    612,948
    
    
    368
    %Cost
      of Emission Certificates
    
    
    874,507
    
    
    173,495
    
    
    404
    %General
      & Administrative Expenses
    
    
    4,901,360
    
    
    1,781,370
    
    
    175
    %Loss
      from Operations
    
    
    (2,907,946
    )
    
    (1,341,917
    )
    
    117
    %
 
 Our
revenues increased 368% in 2004 because of the fourteen stations added through
acquisition and new stations openings, while combined revenues from existing
stations increased by approximately 3% when compared to 2003.
 
 Our cost
of emission certificates increased $701,012 during 2004 and was $874,507, or 30%
of revenues, compared to $173,495 or 28% of revenues, during 2003. This increase
was largely attributable to revenues at the seven stations acquired in the $20
Emissions acquisition providing emission testing services at a rate of $20 per
test rather than the maximum $25 per test fee allowed in the state of Georgia
and charged by the Company's other Georgia emission testing
stations.
 
 Our
general and administrative expenses during 2004 were $4,901,360, an increase of
$3,119,990, or 175% as compared to 2003. The 175% increase in general and
administrative expenses from 2003 to 2004 compares favorably with the 368%
increase in revenues during the same period and indicates that the significant
fixed expenses associated with being a public company do not increase
proportionally with increased revenues. As we grow through future acquisitions
we expect revenues will continue to increase at a faster rate than do general
and administrative expenses and these efficiencies will result in more
profitable operations. The primary causes of the increased expenses were as
follows:
  15
  
 Increased
      wages and rent expense associated with fourteen additional emissions
      testing stations
    
    $
    969,700Excess
      of purchase price over fair market value of assets
    purchased
    
    
    559,514Expense
      associated with common stock issued in conversion of promissory
      notes
    
    
    489,812Increased
      legal, accounting and consulting expenses due to acquisitions and public
      company issues
    
    
    435,351Increased
      depreciation and maintenance expense associated with fourteen additional
      emissions testing stations
    
    
    189,628$
    2,644,005
 
 Interest
Expense, Taxes, and Net Loss
  Our
interest expense, income tax benefit, and net loss for the year ended December
31, 2004 as compared to the year ended December 31, 2003 are as
follows:
 
 Year
      Ended
      December
      31, 2004
    
    Year
      Ended
      December
      31, 2003
    
    Percentage
      ChangeInterest
      Expense
    
    $
    64,110
    
    $
    137,276
    
    
    (53
    )%Net
      Loss
    
    
    (2,972,056
    )
    
    (1,479,193
    )
    
    101
    %Basic
      and Diluted Loss per Share
    
    
    (0.14
    )
    
    (0.16
    )
    
    (13
    )%
 
 Our
interest expense during 2004 was $64,110, a $73,166, or 53% decrease compared to
$137,276 for 2003. The decrease was due to reductions in the Company's
outstanding debt; a total of $540,000 in promissory notes were converted to the
Company's common stock during 2004 and $1,450,000 in convertible debentures was
converted to the Company's common stock in December 2003.
 
 During
2004, we had a net loss of $2,972,056 or $0.14 per weighted-average share.
During 2003, we reported a net loss of $1,479,193 or $0.16 per weighted-average
share. The $1,492,863 increase in net loss for 2004 was primarily due to the
$2,644,005 in additional expenses as detailed above, partially offset by an
increase of $1,554,207 in revenue less cost of emission certificates, due to the
fourteen additional stations, for 2004 compared to 2003. The 101% increase in
net loss from 2003 to 2004 compares favorably with the 368% increase in revenues
during the same period and indicates that the significant fixed expenses
associated with being a public company do not increase proportionally with
increased revenues. As we grow through future acquisitions we expect revenues
will continue to increase at a faster rate than associated expenses and these
efficiencies will result in more profitable operations.
  16
 **Three
Months Ended December 31, 2004 Compared to the Three Months Ended September 30,
2004 and December 31, 2003**
 
 Revenues
and Loss from Operations
 
 Our
revenue, cost of emission certificates (our cost of goods sold), general and
administrative expenses, and loss from operations for the quarter ended December
31, 2004 as compared to the quarter ended September 30, 2004 and the quarter
ended December 31, 2003 are as follows:
 
 Quarter
      Ended
      December
      31, 2004
    
    Quarter
      Ended
      September
      30, 2004
    
    Quarter
      Ended
      December
      31, 2003Revenue
    
    $
    746,515
    
    $
    758,008
    
    $
    145,213Cost
      of Emission Certificates
    
    
    225,075
    
    
    233,681
    
    
    43,115General
      & Administrative Expenses
    
    
    946,765
    
    
    970,564
    
    
    600,237Loss
      from Operations
    
    
    (425,325
    )
    
    (446,229
    )
    
    (498,139
    )
 
 Our
revenues have remained relatively consistent during the last two quarters of
2004, but increased by $601,302, or approximately 414%, when the fourth quarter
of 2004 is compared to the fourth quarter of 2003. This increase is attributable
to the fourteen stations added through acquisition and new stations openings
during 2004. Accordingly, our cost of emission certificates has also remained
relatively consistent during the last two quarters of this year and when
compared to the fourth quarter of 2003. The cost of emission certificates as a
percentage of revenues was approximately 30% for all periods.
 
 Our
general and administrative expenses during the fourth quarter of 2004 were
$946,765, or 2% less than in the immediately preceding quarter ended September
30, 2004. The cause of this decrease is primarily the result of reduced legal
and accounting fees in the quarter ended December 31, 2004 compared to the
quarter ended September 30, 2004.
 
 Our
general and administrative expenses during the fourth quarter of 2004 were
$946,765, or 58% more than in the quarter ended December 31, 2003. This increase
in general and administrative expense occurred while revenues during the same
periods actually increased by 414%. This is a further indication that our
revenue increase, generated primarily through acquisitions, is significantly
greater than the expense required to generate the additional
revenues.
 
 Our loss
from operations during the fourth quarter of 2004 was $425,325, or 5% less than
in the immediately preceding quarter ended September 30, 2004. The cause of this
decrease is primarily the result of reduced legal and accounting fees in the
quarter ended December 31, 2004 compared to the quarter ended September 30,
2004.
 
 Our loss
from operations during the fourth quarter of 2004 was $425,325, or 15% less than
in the quarter ended December 31, 2003. This decrease in loss from operations
occurred while revenues during the same periods actually increased by 414%. This
is a further indication that our revenue increase, generated primarily through
acquisitions, is significantly greater than the expense required to generate the
additional revenues.
  17
 **Liquidity
and Capital Resources**
 
 Introduction
  During
2004, we did not generate positive operating cash flows. With the acquisitions
described above and as we continue to implement our growth strategy, we
anticipate an increase in our operating cash flow, but with the increased costs
of expanding our operations, may not achieve positive operating cash flow during
2005. Therefore, subsequent to December 31, 2004, we raised $350,000 from the
issuance of a promissory note to the GCA Strategic Investment Fund Limited, to
be used for working capital purposes. To date, the Company has funded operations
and acquisitions primarily through the issuance of equity securities to related
parties. We anticipate raising additional capital during the second quarter of
2005 from the sale of our equity securities, although the terms of this offering
have not been determined.
 
 Of our
four acquisitions during 2004, the two acquisitions, which occurred in January,
were funded from the private placement of $2,500,000 of our Series A Convertible
Preferred Stock and warrants to GCA Strategic Investment Fund Limited, an
existing affiliate shareholder. The single station June acquisition was funded
by the $285,000 private placement of common stock and warrants to qualified
investors and the December acquisition of six stations and seven mobile units
was funded by a $1,285,000 promissory note from the seller.
 
 Our cash,
current assets, total assets, current liabilities, and total liabilities as of
December 31, 2004 as compared to December 31, 2003 were:
 
 As
      of December 31, 2004
    
    As
      of December 31, 2003
    
    ChangeCash
    
    $
    16,431
    
    $
    9,231
    
    $
    7,200Total
      current assets
    
    
    88,355
    
    
    27,629
    
    
    60,726Total
      assets
    
    
    4,344,038
    
    
    548,206
    
    
    3,795,832Total
      current liabilities
    
    
    1,504,933
    
    
    1,243,997
    
    
    260,936Total
      liabilities
    
    
    2,837,235
    
    
    1,243,997
    
    
    1,593,238Total
      stockholders' equity (deficit)
    
    
    1,506,803
    
    
    (695,791
    )
    
    2,202,594
 
 During
2004 our total assets increased by $3,795,832 while our total liabilities
increased by only 1,593,238, resulting in a $2,202,594 increase in stockholders'
equity.
 
 Cash
Requirements
 
 For the
year ended December 31, 2004 our net cash used in operating activities was
($788,429), as compared to ($761,766) for the year ended December 31, 2003.
Negative operating cash flows during 2004 were primarily created by a net loss
from operations of $2,972,056, partially offset by; an increase of $593,169 in
accounts payable and accrued liabilities, stock expense incurred in a business
acquisition of $559,514, non-cash stock issuance expense of $489,812, stock
issued for services valued at $404,352 and depreciation and amortization of
$251,103.
  18
  Our net
cash used in operating activities remained relatively unchanged from 2003 to
2004. The following table shows net loss as a percentage of revenues decreasing
from 241% in 2003 to 104% in 2004. This further indicates that the significant
fixed expenses associated with being a public company do not increase
proportionally with increased revenues. As we grow through future acquisitions
we expect revenues will continue to increase at a faster rate than associated
expenses and these efficiencies will result in more profitable
operations.
 
 Revenues
    
    Net
      Loss
    
    Percentage
      of RevenuesYear
      ended December 31, 2004
    
    $
    2,867,921
    
    $
    (2,972,056
    )
    
    104
    %Year
      ended December 31, 2003
    
    
    612,948
    
    
    (1,479,193
    )
    
    241
    %
 
 Negative
operating cash flows during 2003 were primarily created by a net loss from
operations of $1,479,193, partially offset by depreciation and amortization of
$207,476, an increase of $136,815 in accrued interest, an acquisition fee of
$125,000 which was paid with a promissory note, stock issued for services valued
at $120,000 and an increase of $140,421 in accounts payable and accrued
liabilities. Because of our rapid growth, we do not have an opinion as to how
indicative these results will be of future results.
 
 Sources
and Uses of Cash
 
 Net cash
used in investing activities was $2,560,876 and $47,809, respectively, for the
years ended December 31, 2004 and 2003. The investing activities during 2004
involved primarily $2,376,015 used in the acquisition of businesses. The
investing activities during 2003 involved primarily the purchase of machinery
and equipment to operate new emission testing station locations.
 
 Net cash
provided by financing activities was $3,356,505 and $682,000, respectively, for
the years ended December 31, 2004 and 2003. Net cash provided during 2004
resulted primarily from the $2,234,002 in proceeds from the sale of convertible
preferred stock, net of associated financing costs, proceeds of $231,600 from
the issuance of promissory notes to related parties and an increase of $987,550
resulting from a private placement of the Company’s common stock and warrants.
Net cash provided in 2003 resulted from the $417,000 in proceeds from the sale
of convertible debentures, net of associated financing costs and an increase of
$265,000 in promissory notes payable to related parties.
 
 On
January 18, 2004, the combined principal amount of $225,000 and accrued interest
amount of approximately $55,000 outstanding under one of our promissory notes
were converted into 1,100,000 shares of our common stock at an exchange rate of
$0.25 per common share.
 
 On June
16, 2004, the combined principal amount of $315,000 and accrued interest amount
of approximately $9,000 outstanding under a series of our promissory notes were
converted into 924,996 shares of our common stock at an exchange rate of $0.35
per common share. ****
 
 On
October 3, 2003, we filed a Registration Statement on Form SB-2 for an offering
of 5,000,000 shares of our common stock at a price to be determined. On October
21, 2003, we filed a notification with the SEC withdrawing the Registration
Statement due to market and economic conditions.
 
 19
 
 On
December 18, 2003, the combined principal amount of $1,450,000 and accrued
interest amount of approximately $135,000 outstanding under our convertible
debenture agreements were converted into 5,670,619 shares of our common stock at
an exchange rate of $0.28 per common share. ****
 
 We are
not generating sufficient cash flow from operations to fund growth as we
continue to acquire and open new emission testing stations. If we can
successfully complete one or more acquisitions of profitable businesses, then we
anticipate that we can operate at a profitable level. Until such time, however,
and in order to complete the acquisitions, we will need to raise additional
capital through the sale of our equity securities. If we are unsuccessful in
raising the required capital, we may have to curtail operations.
 
 **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 and for assessing whether any value should be assigned to a
warrant that it believes are key to an understanding of its financial
statements. Additionally, the Company has identified accounting policies related
to the valuation of goodwill, created as the result of business acquisitions, as
a key to an understanding of its financial statements. These are important
accounting policies that require management’s most difficult, subjective
judgments.
  **ITEM
7 - FINANCIAL STATEMENTS**
 
 Index
      to Financial StatementsReport
      of Independent Registered Public Accouting Firm Tauber & Balser,
      P.C.
    F-1Report
      of Independent Registered Public Accounting Firm – Bennett Thrasher,
      P.C.
    F-2Consolidated
      Balance Sheet
    F-3Consolidated
      Statements of Operations
    F-4Consolidated
      Statements of Stockholders Equity (Deficiency)
    F-5Consolidated
      Statements of Cash Flows
    F-6Notes
      to Consolidated Financial Statements
    F-7
 
 **ITEM
8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE**
 
 There
have been no events that are required to be reported under this
Item.
 
 **ITEM
8A - DISCLOSURE CONTROLS AND PROCEDURES**
 
 The
Company's Chief Executive Officer and Chief Financial Officer (or those persons
performing similar functions), after evaluating the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of a date
within 90 days prior to the filing of this annual 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.
 
 **ITEM
8B - OTHER INFORMATION**
 
 There
have been no events that are required to be reported under this
Item.
 
 20
  **PART
III**
 
 **ITEM
9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT**
 
 **Directors
and Executive Officers**
 
 The
following table sets forth the names and ages of the current directors and
executive officers of the Company, the director nominees, and the principal
offices and positions with the Company held by each person and the date such
person became a director or executive officer of the Company. The executive
officers of the Company are elected annually by the Board of Directors. The
directors serve one-year terms until their successors are elected. The executive
officers serve terms of one year or until their death, resignation or removal by
the Board of Directors. Unless described below, there are no family
relationships among any of the directors and officers, and none of our officers
or directors serves as a director of another reporting issuer.
 
 **Name**
    
    **Age**
    
    **Position(s)**Richard
      A. Parlontieri
    
    59
    
    Director
      and President (2003)Bahram
      Yusefzadeh
    
    59
    
    Director
      (2003)Bradley
      A. Thompson
    
    40
    
    Director
      (2003)William
      Klenk
    
    47
    
    Chief
      Financial Officer, Secretary (2004)
 
 **Richard
A. Parlontieri** was
appointed to our Board of Directors and as an officer in connection with the
recent acquisition of Speedemissions, Inc., a Georgia corporation, our
subsidiary of which Mr. Parlontieri is a founder and President/CEO. He was the
founder, Chairman and Chief Executive Officer of ebank.com, Inc., a publicly
held bank holding company headquartered in Atlanta. ebank.com, which began as a
traditional bank designed to deliver banking services in a non-traditional way,
was the first internet bank to provide banking services focusing on small
business owners. The Company opened in August 1998, and was named one of “The
Best 100 Georgia Companies” in May 2000, by the Atlanta-Journal
Constitution.
 
 Prior to
starting ebank, Mr. Parlontieri was President/CEO of Habersham Resource
Management, Inc., a consulting firm with over 16 years experience in the
financial services, mortgage banking, real estate, home health care and capital
goods industries. While at Habersham, Mr. Parlontieri co-founded and organized
banks (including Fayette County Bank which was sold to Regions Financial
Corporation) and completed strategic acquisitions or divestitures for banks,
mortgage companies and real estate projects.
 
 Mr.
Parlontieri currently serves on the Georgia Emissions, Industry Advisory Board
as Secretary. He also is a member of the Georgia Emissions Testing Association
(GETA). Over the past several years he has spoken or given presentations at
various conferences concerning the financial services industry and the Internet.
These include the American Banker Online Financial Services in Cyberspace
Conference, the Phoenix International Users Banking Conference, GE Capital
Management Conference and the eFinancial World Conference.
  21
  Mr.
Parlontieri is an active participant in community and civic organizations,
including serving as a three-term city councilman in suburban Atlanta, a past
two-term President of the local chapter of the American Heart Association, and
was an Organizer/Director of the suburban YMCA.
 
 **Bahram
Yusefzadeh** was
elected to our Board of Directors at our annual shareholders meeting in August
2003. Mr. Yusefzadeh is currently the founder and Managing Director of V2R, LLC.
V2R is a strategic, multi-faceted consulting firm that assists both United
States and international organizations with increasing their value and
accelerating their growth through C-Level services and capital investment. To
further support their clients, V2R provides strategic management services across
mission critical business areas, including sales and marketing, finance, legal,
and human resources management.
 
 A
seasoned businessman and entrepreneur, Mr. Yusefzadeh’s career began in 1969
when he co-founded a banking software company, Nu-Comp Systems, Inc., and
developed the Liberty Banking System. This system was marketed by IBM as the IBM
Banking System from 1981 through 1985. He served as Nu-Comp’s Chief Executive
Officer and President through Broadway & Seymour, Inc.’s acquisition of the
company in June 1986 and remained with Broadway & Seymour as their Chairman
of the Board through November 1986.
 
 From 1986
to 1992, he served in various capacities at The Kirchman Corporation, first as
President of the product and marketing strategies division, where he was
instrumental in bringing innovative bank automation products to market. He later
served as President of both the independent banking group, which focused on
delivering products in-house, and the outsourcing division, where the focus was
on data center operations.
 
 In 1993,
he founded Phoenix International, a provider of integrated, client/server based
software applications for the global financial services industry. Mr. Yusefzadeh
served as their Chairman and Chief Executive Officer and was instrumental in
Phoenix’s successful initial public offering in 1996, secondary offering in 1997
and acquisition by London Bridge Software Holdings plc in 2001.
 
 Mr.
Yusefzadeh has also provided his expertise to numerous boards. From 1997 to
2001, he served on the board of Towne Services, Inc. (now merged with Private
Business, Inc.), a provider of a merchant sales and payment transaction
processing system. He also chaired Towne Services’ audit committee and was a
member of the compensation committee.
 
 Today,
Mr. Yusefzadeh serves as a member of an advisory board to Capital Appreciation
Partners, a venture fund that invests in stage II technology focused companies
in the United States. He is also Chairman of the Board of Trustees for the
International Center for Automated Information Research, a capital fund
sponsored by the University of Florida College of Law and the Warrington
Graduate School of Business that invests in early stage technology companies
focused on enhancing the law and accounting professions.
 
 Throughout
his career, Mr. Yusefzadeh has been dedicated to community involvement. Prior to
moving to Central Florida, he actively participated in various economic and
community development organizations in Minneapolis. Since joining the Central
Florida community, he has served as director of the Seminole County/Lake Mary
Chamber of Commerce and co-chair of the Economic Development Counsel Technology
Roundtable. He has also funded an Endowed Teaching Chair at Seminole Community
College and serves on the advisory boards for the Central Florida Festival of
Orchestra and BETA Center.
  22
  **Bradley
A. Thompson, CFA** was
elected to our Board of Directors at our annual shareholders meeting in August
2003. Mr. Thompson is currently the Chief Investment Officer and Chief Financial
Analyst for Global Capital Advisors, LLC, an affiliate of GCA Strategic
Investment Fund, Limited. Mr. Thompson is also the Chief Operating Officer and
Secretary for Global Capital Management Services, Inc. the Corporate General
Partner and Managing Partner of Global Capital Funding Group, LP, a licensed
SBIC.
 
 Mr.
Thompson, born August 15, 1964, has over 18 years of experience in commercial
banking, investment management, bond credit underwriting, financial analysis,
and business management. Mr. Thompson received his Bachelors of Business
Administration degree in Finance from the University of Georgia in 1986. Mr.
Thompson also holds the Chartered Financial Analyst (CFA) designation sponsored
by the CFA institute.
 
 Mr.
Thompson began his career in banking with Trust Company Bank, now SunTrust Bank,
as a financial analyst. He later joined the firm of Merrill Lynch, Pierce Fenner
& Smith in the securities industry managing retirement, profit sharing,
pension, trust, and individual investment portfolios. While at Merrill Lynch,
Mr. Thompson received his NASD Series 7 (General Securities) and Series 63
(State Securities) License, both of which have now expired. Mr. Thompson
subsequently performed the duties of financial analyst and bond underwriter for
SAFECO Insurance Company of America. At SAFECO, Mr. Thompson was responsible for
the financial analysis and credit evaluations of the prospective and current
bond accounts, and was ultimately responsible for the credit decision with a
single line of credit approval authority ranging from $1 million to $10 million
and an aggregate line of authority on specific accounts in excess of $175
million.
 
 Prior to
joining GCA, Mr. Thompson was self-employed managing his own small business
enterprises. Mr. Thompson was the President and sole owner of Time Plus, an
automated payroll accounting services firm for small to mid sized companies. Mr.
Thompson successfully negotiated the sale of Time Plus, a sole proprietorship,
for a 328% annualized return on investment. Mr. Thompson was also 50% owner and
Vice President, Chief Financial Officer of AAPG, Inc., a specialty retail
sporting goods firm. Mr. Thompson has since sold his interest in AAPG,
Inc.
 
 Mr.
Thompson currently serves on the Board of Directors of Axtive Inc., (OTC:BB-
AXTV), a publicly traded technology consulting firm that acquires and operates
various technology product and service companies. Mr. Thompson also serves as a
Director on the Board of GCA Strategic Investment Fund, and he is a former
Director and Secretary on the Board of Directors of AdMark Systems, LLC., a
privately held marketing firm.
 
 **William
Klenk** was
elected as an officer in 2004. Mr. Klenk has over twenty years of business
experience, both in public accounting and private industry with strong financial
analysis and technology, including the Internet. Mr. Klenk has been with both
private and public companies, including industries ranging from capital goods,
health insurance, mortgage banking, and commercial banking. Mr. Klenk was
formerly with ebank.com.
  23
 **Board
Committees**
 
 On August
26, 2003, an Audit Committee, established in accordance with section 3(a)(58)(A)
of the Exchange Act, of the Board of Directors was formed. The Audit Committee
held two meetings in 2003 and one meeting in 2004. In accordance with a written
charter adopted by the Company’s Board of Directors, the Audit Committee assists
the Board of Directors in fulfilling its responsibility for oversight of the
quality and integrity of the Company’s financial reporting process, including
the system of internal controls. The directors who are members of the Audit
Committee are Bradley A. Thompson and Bahram Yusefzadeh, both of whom are
considered audit committee financial experts, but neither of which are
considered independent directors under Section 121(A) of the AMEX listing
standards.
 
 On August
26, 2003, a Compensation Committee of the Board of Directors was formed. The
Compensation Committee consists of Bradley A. Thompson and Bahram Yusefzadeh.
The Compensation Committee held one meeting in 2003 and one meeting in 2004, and
has approved the employment agreement and other compensation of Richard
Parlontieri.
 
 **Compliance
with Section 16(a) of the Securities Exchange Act of 1934**
 
 Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors
and executive officers and persons who own more than ten percent of a registered
class of the Company's equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
 
 During
the two most recent fiscal years, to the Company’s knowledge, the following
delinquencies occurred:
 
 **Name**
    
    **No.
      of Late Reports**
    
    **No.
      of Transactions Reported Late**
    
    **No.
      of**
      **Failures
      to File**Richard
      A. Parlontieri
    
    
    3
    
    
    3
    
    
    -0-Bahram
      Yusefzadeh
    
    
    3
    
    
    4
    
    
    -0-Bradley
      A. Thompson
    
    
    4
    
    
    5
    
    
    -0-GCA
      Strategic Investment Fund Ltd.
    
    
    5
    
    
    6
    
    
    -0-William
      Klenk
    
    
    2
    
    
    2
    
    
    -0-
 
 **Code
of Ethics**
 
 We have
not adopted a written code of ethics, primarily because we believe and
understand that our officers and directors adhere to and follow ethical
standards without the necessity of a written policy.
 
 **ITEM
10 - EXECUTIVE COMPENSATION**
 
 The
Summary Compensation Table shows certain compensation information for services
rendered in all capacities for the fiscal years ended December 31, 2004 and
2003. In addition, the table shows compensation for our current sole executive
officer. Other than as set forth herein, no executive officer's salary and bonus
exceeded $100,000 in any of the applicable years. The following information
includes the dollar value of base salaries, bonus awards, the number of stock
options granted and certain other compensation, if any, whether paid or
deferred.
 
 24
   **Annual
      Compensation**
    
    **Long
      Term Compensation****Awards**
    
    **Payouts****Name
      and**
      **Principal
      Position**
    
    **Year**
    
    **Salary**
      **($)**
    
    **Bonus**
      **($)**
    
    **Other
      Annual**
      **Compensation**
      **($)**
    
    **Restricted
      Stock**
      **Awards**
      **($)**
    
    **Securities
      Underlying Options SARs**
      **(#)**
    
    **LTIP
      Payouts**
      **($)**
    
    **All
      Other**
      **Compensation**
      **($)**Richard
      A. Parlontieri
    
    
    2004
    
    
    180,000
    
    
    -0-
    
    
    7,200
    
    
    -0-
    
    
    900,000
    
    
    -0-
    
    
    -0-Chairman,
      President
    
    
    2003
    
    
    180,000
    
    
    -0-
    
    
    5,400
    
    
    -0-
    
    
    410,000
    
    
    -0-
    
    
    -0-William
      Klenk (1)
    
    
    2004
    
    
    57,000
    
    
    -0-
    
    
    -0-
    
    
    -0-
    
    
    150,000
    
    
    -0-
    
    
    -0-CFO,
      Secretary
 
 (1) Mr.
Klenk’s employment with us started in April, 2004.
 
 
 **OPTION/SAR
      GRANTS IN LAST FISCAL YEAR**
      **(Individual
      Grants)****Name**
    
    **Number
      of Securities**
      **Underlying**
      **Options/SARs
      Granted**
      **(#)**
    
    **Percent
      of Total**
      **Options/SARs
      Granted**
      **to
      Employees In Fiscal**
      **Year**
    
    **Exercise
      or Base Price**
      **($/Sh)**
    
    **Expiration
      Date**Richard
      A. Parlontieri
    
    
    450,000
    
    
    36
    %
    $
    0.75
    
    
    2/18/09450,000
    
    
    36
    %
    $
    1.05
    
    
    2/18/09William
      Klenk
    
    
    50,000
    
    
    4
    %
    $
    0.515
    
    
    4/20/14100,000
    
    
    8
    %
    $
    0.30
    
    
    11/17/14
 
  **AGGREGATED
      OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR**
      **AND
      FY-END OPTION/SAR VALUES****Name**
    
    **Shares
      Acquired On**
      **Exercise**
      **(#)**
    
    **Value
      Realized**
      **($)**
    
    **Number
      of Unexercised**
      **Securities
      Underlying**
      **Options/SARs
      at FY-End**
      **(#)**
      **Exercisable/Unexercisable**
    
    **Value
      of Unexercised**
      **In-The-Money**
      **Option/SARs**
      **at
      FY-End**
      **($)**
      **Exercisable/Unexercisable**Richard
      A. Parlontieri
    
    
    N/A
    
    
    N/A
    
    
    N/A
    
    
    N/AWilliam
      Klenk
    
    
    N/A
    
    
    N/A
    
    
    N/A
    
    
    N/A
 
 Our
Directors receive $250 for each meeting attended, including meetings of the
committees. They are also entitled to reimbursement for their travel expenses.
In addition, in December 2003, we issued to each of our Directors options to
acquire 10,000 shares of our common stock at an exercise price of $0.25 per
share, exercisable for a period of ten years, and in March 2005 we issued to Mr.
Thompson and Mr. Yusefzadeh options to acquire 75,000 shares of our common stock
at an exercise price of $0.25 per share, exercisable for a period of ten years.
  25
 
 Effective
September 15, 2003, we entered into a three-year employment agreement with
Richard A. Parlontieri, our President and Chief Executive Officer. This
employment agreement was amended on December 19, 2003. Under the terms of the
agreement, as amended, 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
$0.25 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.
 
 The
Compensation Committee of our Board of Directors originally agreed to issue to
Mr. Parlontieri, pursuant to the terms of his employment agreement, options to
purchase up to 400,000 shares of our common stock at an exercise price of $2.00
per share. The exercise price was determined based on conversations with our
independent auditors about the deemed fair market value if we subsequently file
a registration statement for a primary offering at $2.00 per share. However,
after we withdrew the registration statement, and the proposed primary offering
was cancelled, the Committee decided to reprice Mr. Parlontieri’s options at
$0.25 per share, which was at or close to the fair market value of our common
stock based on the closing bid price on the date of repricing, and within the
parameters of our Speedemissions, Inc. 2001 Stock Option Plan.
 
 On April
20 and November 17, 2004, we issued options to acquire 50,000 and 100,000
shares, respectively, of common stock under our 2001Stock Option Plan to William
Klenk, our Chief Financial Officer. The options vested immediately and are
exercisable at $0.515 and $0.30 per share, respectively, for a period of ten
years. In addition, in March 2005, we issued options to Mr. Klenk to acquire
25,000 shares of common stock under the plan, exercisable at $0.25 per share for
ten years.
 
 On March
15, 2005, the Compensation Committee of our Board of Directors issued to Mr.
Parlontieri warrants to acquire 250,000 shares of our common stock at $0.25 per
share, the fair market value of our common stock based on the closing bid price
on the date of grant.
  26
 
 **ITEM
11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT**
 
 The
following table sets forth, as of March 11, 2005, certain information with
respect to the Company’s equity securities owned of record or beneficially by
(i) each Officer and Director of the Company; (ii) each person who owns
beneficially more than 5% of each class of the Company’s outstanding equity
securities; and (iii) all Directors and Executive Officers as a
group.
 
 Common
      StockTitle
      of Class
    
    Name
      and Address ofBeneficial
      Owner
    
    Amount
      and Nature of Beneficial Ownership
    
    Percent
      of
      Class (1)Common
      Stock
    
    GCA
      Strategic Investment Fund Ltd (2)
      c/o
      Prime Management Ltd
      Mechanics
      Bldg 12 Church St. HM11
      Hamilton,
      Bermuda HM 11
    
    19,670,619
      (3)
    
    65.3
      % (3)Common
      Stock
    
    Richard
      A. Parlontieri (4)
      1029
      Peachtree Parkway North
      Suite
      310
      Peachtree
      City, GA 30269
    
    2,759,996
      (5)
    
    10.6
      % (5)Common
      Stock
    
    Bahram
      Yusefzadeh (4)
      2180
      West State Road
      Suite
      6184
      Longwood,
      FL 32779
    
    311,000
      (6)
    
    1.2%
      (6)Common
      Stock
    
    Bradley
      A. Thompson (4)(7)
      227
      King Street
      Frederiksted,
      USVI 00840
    
    85,000
      (7)(8)
    
    <1%
      (8)Common
      Stock
    
    William
      Klenk
      c/o
      Speedemissions, Inc.
      1139
      Senoia Road, Suite B
      Tyrone,
      GA 30290
    
    175,000
      (9)
    
    <1
      % (9)All
      Officers and Directors
      as
      a Group (4 Persons)
    
    3,330,996
      (5)(6)(7)(8)(9)
    
    12.5
      %
      (5)(6)(8)(9)
 
 (1)
    Unless
      otherwise indicated, based on 25,041,594 shares of common stock
      outstanding.
 
 (2)
    Global
      Capital Advisors, LLC (“Global”), the investment advisor to GCA Strategic
      Investment Fund Limited (“GCA”), has sole investment and voting control
      over shares held by GCA. Mr. Lewis Lester is the sole voting member of
      Global.
 
 (3)
    Includes
      2,500,000 shares of common stock which may be acquired upon conversion of
      2,500 shares of Series A Convertible Preferred Stock. Also includes
      2,500,000 shares of common stock which may be acquired upon the exercise
      of warrants at $1.25 per share, and 100,000 shares of common stock which
      may be acquired upon the exercise of warrants at $0.357 per
      share
 
 (4)
    Indicates
      a Director of the Company.
   27
 
 (5)
    Includes
      10,000 shares of common stock which may be acquired upon the exercise of
      options at $0.25 per share. Includes 200,000 shares of common stock which
      may be acquired upon the exercise of options at $0.25 per share, which are
      part of a grant of 400,000 options, with 100,000 options vesting on
      October 1, 2004 and the remaining 200,000 options vesting equally on
      October 1, 2005, and 2006. Includes 300,000 shares which may be acquired
      upon the exercise of warrants at $0.75 per share, which are part of a
      grant of 450,000 warrants, with the remaining 150,000 warrants vesting on
      January 1, 2006. Includes 300,000 shares which may be acquired upon the
      exercise of warrants at $1.05 per share, which are part of a grant of
      450,000 warrants, with the remaining 150,000 warrants vesting on January
      1, 2006. Includes 250,000 shares which may be acquired upon the exercise
      of warrants at $0.25 per share. Includes 1,174,996 shares of common stock
      owned of record by Calabria Advisors, LLC, an entity controlled by Mr.
      Parlontieri.
 
 (6)
    Includes
      85,000 shares of common stock which may be acquired upon the exercise of
      options at $0.25 per share. Includes 25,000 shares which may be acquired
      upon the exercise of warrants at $0.01 per share and 100,000 shares which
      may be acquired upon the exercise of warrants at $0.25 per
      share.
 
 (7)
    Mr.
      Thompson is a director of GCA Strategic Investment Fund Limited, and
      disclaims beneficial ownership of the shares held by
  them.
 
 (8)
    Includes
      85,000 shares of common stock which may be acquired upon the exercise of
      options at $0.25 per share.
 
 (9)
    Includes
      50,000 shares of common stock which may be acquired upon the exercise of
      options at $0.515 per share, 100,000 shares of common stock which may be
      acquired upon the exercise of options at $0.30 per share, and 25,000
      shares of common stock which may be acquired upon the exercise of options
      at $0.25 per share.
 
 There are
no current arrangements that will result in a change in control.
 
 **ITEM
12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 **Acquisition
of Subsidiary**
 
 On June
13, 2003, while we were still named SKTF Enterprises, Inc., we entered into an
acquisition agreement with Speedemissions, Inc., a Georgia corporation now our
wholly owned subsidiary, and its shareholders, which resulted in a change of the
Company’s management, Board of Directors, and ownership. Mr. Parlontieri was an
officer, director, and material shareholder of Speedemissions, Inc. Pursuant to
the terms of the agreement, effective on June 16, 2003, the following
occurred:
 
 ·
    in
      exchange for 100% of the stock of Speedemissions, we issued 9,000,000
      shares of our common stock to the Speedemissions shareholders, which after
      giving effect to the redemption of our stock from our previous officer and
      director described below, represented 90% of our outstanding stock. Mr.
      Parlontieri received 600,000 shares of our common stock, representing 6%
      of the outstanding stock, in this
transaction;
 ·
    5,044,750
      shares of our common stock held by our the sole officer and director prior
      to the effectiveness of the agreement, were redeemed by us, and he
      resigned as our officer;
 ·
    our
      sole director prior to the effectiveness of the agreement tendered his
      resignation as our director, which was effective 10 days following the
      mailing of an Information Statement to our shareholders. His resignation
      was effective on June 27, 2003.
  
 28
 ****
 **Financing
Transactions with Shareholder**
 
 On May 2,
2002, our subsidiary entered into a securities purchase agreement (the 2002
agreement) with GCA Strategic Investment Fund Limited (“GCA Fund”), our majority
shareholder, pursuant to which GCA Fund agreed to purchase certain convertible
debentures from us. The 2002 agreement contemplated 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. 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. On October 9, 2003, we assumed the debentures from our subsidiary. On
December 18, 2003, GCA Fund elected to convert the outstanding principal amount
of the debentures, plus accrued interest, for a total of $1,587,770, into
5,670,619 shares of our common stock at a conversion price of $.028 per
share.
 
 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 October 2004, after
its due date was extended by GCA in writing, while the $225,000 note was due in
October 2003. On October 9, 2003, we assumed the notes from our subsidiary. In
January 2004, we agreed to convert the $225,000 note, plus accrued interest,
into 1,100,000 shares of common stock.
 
 On
January 21, 2004, we completed a private placement of 2,500 shares of our Series
A Convertible Preferred Stock and 2,500,000 common stock purchase warrants to
GCA Fund, in exchange for gross proceeds to us of $2,500,000. Net proceeds to us
after the payment of an advisors fee to Global Capital Advisors, LLC, the
investment advisor to GCA Fund, was $2,234,000. The Preferred stock pays a
dividend of seven percent (7%) per annum, and each share of Preferred Stock is
convertible into one thousand (1,000) shares of our common stock, or 2,500,000
shares of common stock in the aggregate. The Warrants are exercisable for a
period of five (5) years at an exercise price of $1.25 per share of common stock
to be acquired upon exercise.
 
 On
January 26, 2005, we executed a promissory note in favor of GCA Strategic
Investment Fund Limited in the principal amount of $350,000, and on that date we
received funds in the same amount. Under the terms of the note, we are obligated
to repay the entire principal amount, plus interest at the rate of 8% per year,
on April 26, 2005. The obligation is secured by certain of our real property. We
will use the funds for general working capital purposes. In connection with the
transaction, we issued to GCA Strategic Investment Fund Limited warrants to
acquire 100,000 shares of our common stock, exercisable for a period of five
years at $0.357 per share. We also issued to Global Capital Advisors, LLC, the
investment advisory to GCA Strategic Investment Fund Limited, warrants to
acquire 100,000 shares of our common stock, exercisable for a period of five
years at $0.357 per share.
 
 **Employment
Agreements and Compensation of Officers and Directors**
 
 Our
directors receive $250 for each meeting attended, including meetings of the
committees.
 
 29
 
 On June
13, 2003, our subsidiary entered into a consulting agreement with V2R, Inc.,
which is controlled by Bahram Yusefzadeh, who subsequent to June 13, 2003 became
one of our directors. Under the terms of the agreement, our subsidiary agreed to
pay to V2R, upon the successful closing of a merger or acquisition of our
subsidiary with a publicly traded corporation, the sum of $225,000. Of this
amount, $125,000 was to be paid in accordance with the terms of a promissory
note. The principal balance of the note was due on December 31, 2003, but was
extended pursuant to an amendment dated December 30, 2003 to the earlier to
occur of (i) the closing of a round of equity or debt financing in excess of
$1,500,000, (ii) 90 days after the effectiveness of a registration statement, or
(iii) in three equal installments beginning March 1, 2004, May 1, 2004, and July
1, 2004. We are currently in default on this note.
 
 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. On October 19, 2003 we assumed the obligations under this
agreement. Under the terms of the agreement, we agreed to pay V2R $8,334 per
month, effective June 1, 2003 for 36 months, of which $3,334 was deferred until
after the closing of an initial round of financing. In addition, we agreed to
pay to V2R a sales commission on any money raised as a result of their
introductions. V2R, LLC was entitled to receive 130,000 warrants to acquire
common stock at $0.01 per share, of which 25,000 vested immediately, 35,000
would vest if we raised $1.5 million in any offering, 35,000 more would vest if
we raised $3.0 million in any offering, and a final 35,000 would vest if we
raised $4.5 million in any offering. On January 1, 2004, we terminated this
consulting agreement and entered into a new consulting agreement with V2R. Under
the terms of the new consulting agreement, we agreed to pay V2R $8,334 per
month, effective January 1, 2004, for 30 months, plus a success fee for any
closed acquisitions arranged by the V2R. We also issued to V2R warrants to
acquire 100,000 shares of common stock at $0.25 per share, of which one-half
vest on January 1, 2005 and the other half vest on January 1, 2006.
 
 In
October 2003, we issued 300,000 shares of common stock to the designees of V2R,
LLC as a bonus for services rendered not in connection with any consulting
agreement. The shares were never beneficially owned by V2R or Mr.
Yusefzadeh.
 
 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. This
employment agreement was amended on December 19, 2003. Under the terms of the
agreement, as amended, 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
$0.25 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.
 
 The
Compensation Committee of our Board of Directors originally agreed to issue to
Mr. Parlontieri, pursuant to the terms of his employment agreement, options to
purchase up to 400,000 shares of our common stock at an exercise price of $2.00
per share. The exercise price was determined based on conversations with our
independent auditors about the deemed fair market value if we subsequently file
a registration statement for a primary offering at $2.00 per share. However,
after we withdrew the registration statement, and the proposed primary offering
was cancelled, the Committee decided to reprice Mr. Parlontieri’s options at
$0.25 per share, which was at or close to the fair market value of our common
stock based on the closing bid price on the date of repricing, and within the
parameters of our Speedemissions, Inc. 2001 Stock Option Plan.
  30
  On April
20 and November 17, 2004, we issued options to acquire 50,000 and 100,000
shares, respectively, of common stock under our 2001Stock Option Plan to William
Klenk, our Chief Financial Officer. The options vested immediately and are
exercisable at $0.515 and $0.30 per share, respectively, for a period of ten
years. In addition, in March 2005, we issued options to Mr. Klenk to acquire
25,000 shares of common stock under the plan, exercisable at $0.25 per share for
ten years.
 
 On
February 22, 2005, we issued 250,000 shares of our common stock to Calabria
Advisors, LLC, an entity controlled by Mr. Parlontieri, for services
rendered.
 
 On March
15, 2005, the Compensation Committee of our Board of Directors issued to Mr.
Parlontieri warrants to acquire 250,000 shares of our common stock at $0.25 per
share, the fair market value of our common stock based on the closing bid price
on the date of grant.
 
 **Loans
from Officers and Directors**
 
 Between
October 24, 2003 and January 30, 2004, Calabria Advisors, LLC, an entity
controlled by Mr. Parlontieri loaned the Company a total of $315,000 pursuant to
the terms of seven identical unsecured promissory notes. The notes were each due
and payable as set forth below and carry interest at five percent
annually:
 
 Date
    
    Principal
      Amount
    
    Due
      DateOctober
      24, 2003
    
    $
    40,000
    
    
    April
      21, 2004October
      30, 2003
    
    $
    50,000
    
    
    April
      27, 2004November
      7, 2003
    
    $
    100,000
    
    
    May
      5, 2004December
      26, 2003
    
    $
    75,000
    
    
    June
      24, 2004January
      2, 2004
    
    $
    25,000
    
    
    June
      30, 2004January
      4, 2004
    
    $
    10,000
    
    
    July
      2, 2004January
      30, 2004
    
    $
    15,000
    
    
    July
      28, 2004
 
 On June
16, 2004, we converted all of the notes, plus accrued interest, into 924,996
shares of our common stock.
 
 From
September to December 2004, Calabria Advisors, LLC loaned the Company a total of
$25,600 pursuant to the terms of three unsecured promissory notes, identical to
the notes listed above. The notes remain outstanding and are due and payable as
follows:
 
 Date
    
    Principal
      Amount
    
    Due
      DateSeptember
      29, 2004
    
    $
    5,900
    
    
    March
      29, 2005October
      28, 2004
    
    $
    9,900
    
    
    April
      28, 2005December
      17, 2004
    
    $
    9,800
    
    
    June
      17, 2005
 
  31
 ****
 **ITEM
13 - EXHIBITS**
 
 **(a)**  **Exhibits**
 
 2.1
      (1)
    
    Acquisition
      Agreement dated June 13, 2003 with Speedemissions, Inc.2.2
      (8)
    
    Asset
      Purchase Agreement dated January 21, 20042.3
      (9)
    
    Asset
      Purchase Agreement dated January 30, 20042.4
      (15)
    
    Asset
      Purchase Agreement dated December 2, 20042.5
      (16)
    
    Asset
      Purchase Agreement dated December 30, 20043.1
      (2)
    
    Articles
      of Incorporation of SKTF Enterprises, Inc.3.2
      (3)
    
    Articles
      of Amendment to Articles of Incorporation of SKTF Enterprises,
      Inc.3.3
      (2)
    
    Bylaws
      of SKTF Enterprises, Inc.4.1
      (7)
    
    Certificate
      of Designation of Series A Convertible Preferred Stock5.1
    
    Legal
      Opinion of The Lebrecht Group, APLC10.1
      (2)
    
    SKTF,
      Inc. 2001 Stock Option Plan10.2
      (10)
    
    Form
      of Incentive Stock Option Agreement relating to options granted under the
      2001 Stock Option Plan10.3
      (10)
    
    Form
      of Non Statutory Stock Option Agreement relating to options granted under
      the 2001 Stock Option Plan10.4
      (10)
    
    Form
      of Common Stock Purchase Agreement relating to restricted stock granted
      under the 2001 Stock Option Plan10.5
      (4)
    
    Consulting
      Agreement with V2R, LLC dated June 16, 200310.6
      (4)
    
    Consulting
      Agreement with V2R, Inc. dated June 13, 200310.7
      (4)
    
    Warrant
      Agreement issued to V2R, LLC dated June 16, 200310.8
      (3)
    
    First
      Amendment to SKTF, Inc. 2001 Stock Option Plan dated August 27,
      200310.9
      (5)
    
    Form
      of Indemnification Agreement10.10
      (5)
    
    Employment
      Agreement with Richard A. Parlontieri dated September 15,
    200310.11
      (6)
    
    Acknowledgement
      and Assumption of Liabilities with GCA Strategic Investment Fund Ltd.
      dated October 9, 2003
   32
   10.12
      (6)
    
    Acknowledgement
      and Assumption of Liabilities with V2R, LLC dated October 9,
      200310.13
      (5)
    
    Form
      of Promissory Note to GCA Strategic Investment Fund
  Limited10.14
      (5)
    
    Form
      of 7% Convertible Debenture to GCA Strategic Investment Fund
      Limited10.15
      (11)
    
    Form
      of Unsecured Promissory Note issued to Calabria Advisers,
    LLC10.16
      (11)
    
    First
      Amendment to Employment Agreement for Richard A. Parlontieri dated
      December 19, 200310.17
      (11)
    
    First
      Amendment to Secured Promissory Note dated December 30,
    200310.18
      (11)
    
    Consulting
      Agreement with V2R, LLC dated January 1, 200410.19
      (11)
    
    Form
      of Warrant issued to V2R, LLC dated January 1, 200410.20
      (7)
    
    Subscription
      and Securities Purchase Agreement dated as of January 21,
    200410.21
      (7)
    
    Common
      Stock Purchase Warrant issued to GCA dated January 21,
  200410.22
      (7)
    
    Registration
      Rights Agreement dated January 21, 200410.23
      (11)
    
    Warrant
      issued to Richard A. Parlontieri dated February 18,
200410.24
      (11)
    
    Warrant
      issued to Richard A. Parlontieri dated February 18,
200410.25
      (9)
    
    Registration
      Rights Agreement dated January 30, 200410.26
      (9)
    
    Bill
      of Sale and Assignment dated January 30, 200410.27
      (12)
    
    Consulting
      Agreement with Benchmark Consulting Inc.10.28
      (12)
    
    Consulting
      Agreement with Black Diamond Advisors dated January 1,
  200410.29
      (13)
    
    Amendment
      No. 1 dated May 5, 2004 to Consulting Agreement with Black Diamond
      Advisors dated January 1, 2004.10.30
      (13)
    
    Conversion
      Notice and Agreement with Calabria Advisors, LLC dated June 16,
      200410.31
      (13)
    
    Form
      of Subscription Agreement10.32
      (13)
    
    Form
      of Warrant Agreement10.33
      (14)
    
    Equity
      Research Agreement with The Research Works, Inc., dated as of October 29,
      200410.34
      (16)
    
    Promissory
      Note dated December 30, 2004
   33
  10.35
      (17)
    
    Promissory
      Note dated January 26, 200510.36
      (17)
    
    Common
      Stock Purchase Warrant issued to GCA Strategic Investment Fund
      Limited10.37
      (17)
    
    Common
      Stock Purchase Warrant issued to Global Capital Advisors,
    LLC10.38
      (17)
    
    Registration
      Rights Agreement dated January 26, 200510.39
      (18)
    
    Form
      of Speedemissions, Inc. Warrant dated February 22, 200510.40
    
    Letter
      Agreement Extending Note dated March 1, 200521
      (11)
    
    Subsidiaries
      of Speedemissions, Inc.23.1
    
    Consent
      of Tauber & Balser, P.C.23.2
    
    Consent
      of Bennett Thrasher, PC31.1
    
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer31.2
    
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer32.1
    
    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 from our Current Report on Form 8-K dated June 16, 2003 and
      filed with the Commission on June 17, 2003.
 
 (2)
    Incorporated
      by reference from our Pre-Effective Registration Statement on Form SB-2
      dated and filed with the Commission on August 30,
2001.
 
 (3)
    Incorporated
      by reference from our Current Report on Form 8-K dated August 29, 2003 and
      filed with the Commission on September 2,
2003
 
 (4)
    Incorporated
      by reference from our Quarterly Report on Form 10-QSB/A dated September
      26, 2003 and filed with the Commission on October 2,
  2003
 
 (5)
    Incorporated
      by reference from our Pre-Effective Registration Statement on Form SB-2
      filed with the Commission on October 3, 2003.
 
 (6)
    Incorporated
      by reference from our Quarterly Report for the quarter ended September 30,
      2003 dated November 12, 2003 and filed with the Commission on November 14,
      2003.
 
 (7)
    Incorporated
      by reference from our Current Report on Form 8-K dated January 26, 2004
      and filed with the Commission on January 29,
2004.
 
 (8)
    Incorporated
      by reference from our Current Report on Form 8-K dated and filed with the
      Commission on February 3, 2004.
   34
  (9)
    Incorporated
      by reference from our Current Report on Form 8-K dated February 4, 2004
      and filed with the Commission on February 5,
2004.
 
 (10)
    Incorporated
      by reference from our Registration Statement on Form S-8 dated December
      12, 2003 and filed with the Commission on December 19,
    2003.
 
 (11)
    Incorporated
      by reference from our Annual Report on Form 10-KSB dated March 29, 2004
      and filed with the Commission on March 30,
2004.
 
 (12)
    Incorporated
      by reference from our Quarterly Report on Form 10-QSB dated May 14, 2004
      and filed with the Commission on May 17,
2004.
 
 (13)
    Incorporated
      by reference from our Quarterly Report on Form 10-QSB dated August 12,
      2004 and filed with the Commission on August 16,
2004.
 
 (14)
    Incorporated
      by reference from our Current Report on Form 8-K dated November 8, 2004
      and filed with the Commission on November 12,
2004.
 
 (15)
    Incorporated
      by reference from our Current Report on Form 8-K dated December 7, 2004
      and filed with the Commission on December 8,
2004.
 
 (16)
    Incorporated
      by reference from our Current Report on Form 8-K dated January 3, 2005 and
      filed with the Commission on January 7,
2005.
 
 (17)
    Incorporated
      by reference from our Current Report on Form 8-K dated February 2, 2005
      and filed with the Commission on February 3,
2005.
 
 (18)
    Incorporated
      by reference from our Current Report on Form 8-K dated March 10, 2005 and
      filed with the Commission on March 17,
2005.
 
 
 **(b)**  **Reports
on Form 8-K**
 
 On
October 8, 2005, we filed an Item 3.02 Current Report on Form 8-K regarding the
issuance of unregistered securities.
 
 On
November 11, 2005, we filed an Item 1.01 and 3.02 Current Report on Form 8-K
regarding our entry into a material definitive agreement and corresponding
issuance of unregistered securities.
 
 On
December 8, 2004, we filed an Item 1.01, 2.01, and 9.01 Current Report on Form
8-K regarding our acquisition of the mobile testing units from State Inspections
of Texas, Inc.
 
 **ITEM
14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 **Audit
Fees**
 
 During
the fiscal years ended December 31, 2004 and 2003, Ramirez International billed
us $zero and $10,643, respectively, and Bennett Thrasher PC billed us $193,342
and $132,278, respectively, in fees for professional services for the audit of
our annual financial statements and review of financial statements included in
our Form 10-QSB.
 
 **Audit
- Related Fees**
 
 During
the fiscal years ended December 31, 2004 and 2003, Ramirez International did not
bill us for any fees, and Bennett Thrasher PC billed us $2,402 and $20,702,
respectively, in fees for assurance and related services related to the performance of the audit or review
of our financial statements.
  **Tax
Fees**
 
 During
the fiscal years ended December 31, 2004 and 2003, Ramirez International billed
us $zero and $200, respectively, and Bennett Thrasher PC billed us $400 and
$2,500, respectively, in fees for professional services for tax planning and preparation.
 
 **All
Other Fees**
 
 During
the fiscal years ended December 31, 2003 and 2002, Ramirez International and
Bennett Thrasher did not bill us for any other fees.
 
 Of the
fees described above for the fiscal year ended December 31, 2003, 100% were
either approved in advance by the Audit Committee if it was in existence at the
time of approval, or subsequently ratified by the Audit Committee.
 
  35
  **SIGNATURES**
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 
 **Speedemissions,
      Inc.**Dated:
      April 14, 2005
    
    /s/
      Richard A. ParlontieriBy:
    Richard
      A. Parlontieri, President and Chief Executive
  OfficerDated:
      April 14, 2005
    
    /s/
      William KlenkBy:
    William
      Klenk, Chief Financial Officer and Chief Accounting
      Officer
  In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
 
  /s/
      Richard A. Parlontieri
    Dated:April14, 2005By:Richard
      A. Parlontieri, Director, President, and Chief Executive
      Officer/s/
      Bahram Yusefzadeh
    Dated:
      April 14, 2005By:Bahram
      Yusefzadeh, Director/s/
      Bradley A. Thompson
    Dated:
      April 14, 2005By:Bradley
      A. Thompson, Director/s/
      William Klenk
    Dated:
      April 14, 2005By:William
      Klenk, Chief Financial Officer and Chief Accounting
      Officer
 
 
 36
  **Speedemissions,
Inc**.
 **(Accounting
and Reporting Successor****to SKTF Enterprises,
Inc.)**
 
 **Consolidated
Financial Statements**
 
 **December
31, 2004 and 2003**
 
       
  Report of
Independent Registered Public Accounting Firm
 To the
Board of Directors and Stockholders
 Speedemissions,
Inc.
 
 We have
audited the accompanying consolidated balance sheet of Speedemissions Inc. (the
“Company”) as of December 31, 2004, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. **** The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. ** An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Speedemissions, Inc. as of
December 31, 2004, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations, operating
cash flow deficiencies and its limited capital resources raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 
 /s/
Tauber & Balser, P. C.
 Atlanta,
Georgia
 March 21,
2005
 
  
 F-1
 
 **Independent
Auditors’ Report**
 
 To the
Board of Directors and Stockholders of
 Speedemissions,
Inc.
 
 We have
audited the accompanying consolidated balance sheets of Speedemissions, Inc. and
subsidiary as of December 31, 2003
and the related consolidated statements of operations, stockholders’ deficit and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Speedemissions, Inc. and
subsidiary as of December 31, 2003
and the results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
 
 As
discussed in Note 1 to the consolidated financial statements, effective as of
June 16, 2003, Speedemissions, Inc. entered into an acquisition agreement with
SKTF Enterprises, Inc. pursuant to which Speedemissions, Inc. became a wholly
owned subsidiary of SKTF Enterprises, Inc. For accounting purposes,
Speedemissions, Inc. is viewed as the acquiring entity and has accounted for the
transaction as a reverse acquisition.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, Speedemissions, Inc. is a start-up enterprise
with limited operations and has not generated significant amounts of revenue.
The Company incurred net losses in 2003 and 2002 and had a deficit in working
capital and a deficit in stockholders’ equity at December 31, 2003. These
factors, among others, raise substantial doubt about the Company’s ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
 
 
 Bennett
Thrasher PC
 Atlanta,
Georgia
 February
20, 2004
 
  
 F-2
 
 
 **Speedemissions,
      Inc.****(Accounting
      and Reporting Successor to SKTF Enterprises, Inc. - see Note
      1)****Consolidated
      Balance Sheet****December
      31, 2004**
  **Assets**Current
      assets:Cash
    
    $
    16,431Other
      current assets
    
    
    71,924Total
      current assets
    
    
    88,355Property
      and equipment, at cost less accumulateddepreciation
      and amortization
    
    
    1,201,289Goodwill
    
    
    2,991,040Other
      assets
    
    
    63,354$
    4,344,038**Liabilities
      and Stockholders' Equity**Current
      liabilities:Accounts
      payable and accrued liabilities
    
    $
    800,220Debt
      payable to related parties
    
    
    540,934Accrued
      interest on debt payable to related parties
    
    
    113,178Current
      portion of capitalized lease obligation
    
    
    50,601Total
      current liabilities
    
    
    1,504,933Long-term
      liabilities:Debt
      payable to related parties less current portion
    
    
    1,309,000Capitalized
      lease obligation less current portion
    
    
    23,302Total
      long-term liabilities
    
    
    1,332,302Total
      liabilities
    
    
    2,837,235Commitments
      and contingenciesStockholders'
      equity:Series
      A convertible and cumulative preferred stock, $.001par
      value, 5,000,000 shares authorized, 2,500 shares issued and
      outstanding
    
    
    3Common
      stock, $.001 par value, 100,000,000 sharesauthorized,
      24,541,594 sharesissued
      and outstanding
    
    
    24,541Additional
      paid-in capital
    
    
    8,431,137Deferred
      compensation
    
    
    (66,139
    )Accumulated
      deficit
    
    
    (6,882,739
    )Total
      stockholders' equity
    
    
    1,506,803$
    4,344,038*See
      accompanying notes to consolidated financial
    statements.*
  
 F-3
 
 
 **Speedemissions,
      Inc.****(Accounting
      and Reporting Successor to SKTF Enterprises, Inc. - see Note
      1)****Consolidated
      Statements of Operations****For
      the Years Ended December 31, 2004 and
2003**
  **2004**
    
    **2003**Revenue
    
    $
    2,867,921
    
    $
    612,948Costs
      and expenses:Cost
      of emissions certificates
    
    
    874,507
    
    
    173,495General
      and administrative expenses
    
    
    4,901,360
    
    
    1,781,370Loss
      from operations
    
    
    (2,907,946
    )
    
    (1,341,917
    )Interest
      expense
    
    
    64,110
    
    
    137,276Net
      loss
    
    $
    (2,972,056
    )
    $
    (1,479,193
    )Basic
      and diluted net loss per share
    
    $
    (0.14
    )
    $
    (0.16
    )Weighted
      average shares outstanding, basic and diluted
    
    
    21,893,637
    
    
    9,009,795
  *See
      accompanying notes to consolidated financial
    statements.*
  
 
 F-4
 
 **Speedemissions,
      Inc.****(Accounting
      and Reporting Successor to SKTF Enterprises, Inc. - see Note
      1)****Consolidated
      Statements of Stockholders' Equity
(Deficiency)****For
      the Years Ended December 31, 2004 and
2003**

**Preferred
      Stock**
    
    **Common
      Stock**
    
    **Additional**
    
    ******Shares**
    
    **Amount**
    
    **Shares**
    
    **Amount**
    
    **Paid-In
      Capital**
    
    ****Deferred**Compensation**
    
    **Accumulated****Deficit**
    
    **Total**Balance
      at December 31, 2002
    
    
    
    
    
    
    
    
    7,142,857
    
    $
    71,429
    
    $
    1,432,692
    
    $
    -
    
    $
    (2,431,490
    )
    $
    (927,369
    )Recapitalization
      due to reverse acquisition
    
    
    
    
    
    
    
    
    2,857,143
    
    
    (61,429
    )
    
    61,429
    
    
    
    
    
    -
    
    
    -Stock
      issued for services
    
    
    
    
    
    
    
    
    600,000
    
    
    600
    
    
    119,400
    
    
    
    
    
    -
    
    
    120,000Conversion
      of debentures
    
    
    
    
    
    
    
    
    5,670,619
    
    
    5,671
    
    
    1,579,740
    
    
    
    
    
    -
    
    
    1,585,411Compensation
      due to stock option grant
    
    
    
    
    
    
    
    
    -
    
    
    -
    
    
    5,360
    
    
    
    
    
    -
    
    
    5,360Net
      loss
    
    
    
    
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    
    
    
    (1,479,193
    )
    
    (1,479,193
    )Balance
      at December 31, 2003
    
    
    -
    
    $
    -
    
    
    16,270,619
    
    $
    16,271
    
    $
    3,198,621
    
    $
    -
    
    $
    (3,910,683
    )
    $
    (695,791
    )Common
      stock issued for cash
    
    
    
    
    
    
    
    
    3,310,144
    
    
    3,310
    
    
    984,240
    
    
    
    
    
    -
    
    
    987,550Common
      stock issued for services
    
    
    
    
    
    
    
    
    1,124,517
    
    
    1,124
    
    
    500,669
    
    
    
    
    
    -
    
    
    501,793Conversion
      of notes payable
    
    
    
    
    
    
    
    
    2,024,996
    
    
    2,025
    
    
    1,091,973
    
    
    
    
    
    -
    
    
    1,093,998Compensation
      due to stock option grant
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    14,588
    
    
    
    
    
    -
    
    
    14,588Preferred
      stock issued for cash, net of expenses
    
    
    2,500
    
    
    3
    
    
    
    
    
    
    
    
    2,233,999
    
    
    
    
    
    
    
    
    2,234,002Preferred
      stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (164,932
    )
    
    
    
    
    
    
    
    (164,932
    )Common
      stock issued for antidilution agreement
    
    
    
    
    
    
    
    
    855,000
    
    
    855
    
    
    (855
    )
    
    
    
    
    
    
    
    -Common
      stock issued for business acquisition
    
    
    
    
    
    
    
    
    956,318
    
    
    956
    
    
    572,834
    
    
    
    
    
    
    
    
    573,790Compensation
      due to stock issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,139
    )
    
    
    
    
    (66,139
    )Net
      loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    
    
    
    (2,972,056
    )
    
    (2,972,056
    )Balance
      at December 31, 2004
    
    
    2,500
    
    $
    3
    
    
    24,541,594
    
    $
    24,541
    
    $
    8,431,137
    
    $
    (66,139
    )
    $
    (6,882,739
    )
    $
    1,506,803

*See
      accompanying notes to consolidated financial
    statements.*
 
 
 F-5
 
 **Speedemissions,
      Inc.****(Accounting
      and Reporting Successor to SKTF Enterprises, Inc. - see Note
      1)****Consolidated
      Statements of Cash Flows****For
      the Years Ended December 31, 2004 and
2003**
  **2004**
    
    **2003**Cash
      flows from operating activities:Net
      loss
    
    $
    (2,972,056
    )
    $
    (1,479,193
    )Adjustments
      to reconcile net loss to
      net cash used in operating activities:Depreciation
      and amortization
    
    
    251,103
    
    
    207,476Stock
      expense incurred in payment of promissory notes
    
    
    489,812
    
    
    -Stock
      expense incurred in business acquisition
    
    
    559,514
    
    
    -Acquisition
      fee
    
    
    -
    
    
    125,000Stock
      issued for services
    
    
    404,352
    
    
    120,000Changes
      in assets and liabilities, net of acquisitions:Other
      current assets
    
    
    (53,526
    )
    
    (7,060
    )Other
      assets
    
    
    (52,029
    )
    
    (5,225
    )Accrued
      interest on long-term debt payable to related parties
    
    
    (8,768
    )
    
    136,815Accounts
      payable and accrued liabilities
    
    
    593,169
    
    
    140,421Net
      cash used in operating activities
    
    
    (788,429
    )
    
    (761,766
    )Cash
      flows from investing activities:Acquisition
      of businesses
    
    
    (2,376,015
    )
    
    -Net
      purchases of property and equipment
    
    
    (184,861
    )
    
    (47,809
    )Net
      cash used in investing activities
    
    
    (2,560,876
    )
    
    (47,809
    )Cash
      flows from financing activities:Proceeds
      from issuance of convertible preferred stockto
      related party, net of expenses
    
    
    2,234,002
    
    
    -Proceeds
      from issuance of convertible debt to related party, net of expenses
    
    
    -
    
    
    417,000Proceeds
      from issuance of common stock and warrants
    
    
    987,550
    
    
    -Proceeds
      from promissory note payable to related party
    
    
    231,600
    
    
    265,000Payments
      on promissory notes
    
    
    (41,666
    )
    
    -Payments
      on capitalized leases
    
    
    (54,981
    )
    
    -Net
      cash provided by financing activities
    
    
    3,356,505
    
    
    682,000Net
      increase (decrease) in cash
    
    
    7,200
    
    
    (127,575
    )Cash
      at beginning of year
    
    
    9,231
    
    
    136,806Cash
      at end of year
    
    $
    16,431
    
    $
    9,231**Supplemental
      Information:**Cash
      paid during the year for interest
    
    $
    14,043
    
    $
    -Cash
      paid during the year for income taxes
    
    $
    -
    
    $
    -**Non-cash
      Investing and Financing activities:**Equity
      securities issued in connection with the acquisition of
    
    $
    573,790
    
    $
    -Twenty
      Dollar Emission, Inc.Equity
      securities issued in conversion of debentures
    
    $
    -
    
    $
    1,585,411Equity
      securities issued in payment of notes payable
    
    $
    1,093,998
    
    $
    -Promissory
      notes issued in connection with the acquisition of SIT
    
    $
    1,321,000
    
    $
    -
  *See
      accompanying notes to consolidated financial
    statements.*
 
 F-6
 
 **Speedemissions,
Inc.**
 **(Accounting
and Reporting Successor to SKTF Enterprises, Inc.)**
 
 **Notes
to Consolidated Financial Statements**
 **December
31, 2004 and 2003**
 
 **Note
1: Organization** **and Summary of Significant Accounting Policies**
 
 Emissions
Testing, Inc. (Emissions Testing) was incorporated on May 5, 2000 under the laws
of the state of Georgia for the primary business purpose of opening, acquiring,
developing and operating vehicle emission testing stations. Effective as of
March 19, 2002, Emissions Testing and Speedemissions, LLC merged and changed its
name to Speedemissions, Inc. Effective
as of June 16, 2003, Speedemissions, Inc. (Speedemissions or the Company)
entered into an acquisition agreement with SKTF Enterprises, Inc. (SKTF).
Pursuant to the acquisition agreement, SKTF acquired all of the outstanding
common stock of Speedemissions in exchange for 9,000,000 shares of SKTF common
stock, which were issued to the stockholders of Speedemissions. Accordingly,
Speedemissions became a wholly owned subsidiary of SKTF.
 
 SKTF was
a development stage company that had not begun operations and had no revenues
and a minimal amount of assets and liabilities. For accounting purposes,
Speedemissions is viewed as the acquiring entity and has accounted for the
transaction as a reverse acquisition. Accounting and reporting guidance
indicates that the merger of a private operating company into a nonoperating
public shell corporation with nominal net assets is in substance a capital
transaction rather than a business combination. That is, the transaction is
equivalent to the private company issuing common stock for the net monetary
assets of the shell corporation, accompanied by a recapitalization.
 
 The
accumulated deficit of Speedemissions has been carried forward subsequent to the
acquisition. Results of operations subsequent to the date of acquisition reflect
the consolidated results of operations of Speedemissions and SKTF. Operations
for periods prior to the acquisition reflect those of Speedemissions. Assets and
liabilities of Speedemissions and SKTF have been consolidated at their
historical cost carrying amounts at the date of acquisition.
 
 Effective
on September 5, 2003, SKTF Enterprises, Inc. changed its name to Speedemissions,
Inc. For ease of reference, these notes and the accompanying consolidated
financial statements continue to refer to “SKTF” and “Speedemissions” in the
context of their legal names prior to the September 5, 2003 name
change.
 
 **Consolidation**
 
 The
accompanying consolidated financial statements include the accounts of
Speedemissions and SKTF as discussed in Note 1. All significant intercompany
accounts and transactions have been eliminated in consolidation.
 
 **Nature
of Operations**
 
 Speedemissions
is engaged in opening, acquiring, developing and operating vehicle emissions
testing stations. The federal government and a number of state and local
governments in the United States (and in certain foreign countries) mandate
vehicle emissions testing as a method of improving air quality.
  F-7
  As of
December 31, 2004 the Company operated, twenty-five (25) emissions testing
stations and seven (7) mobile units in Georgia and Texas. As of December 31,
2003 the Company operated five (5) emissions testing stations, including two (2)
stations in the metropolitan Atlanta, Georgia area and three (3) stations in the
metropolitan Houston, Texas area. The Company does business under the trade name *Speedemissions* . At its
emissions testing stations, the Company uses computerized emissions testing
equipment that tests vehicles for compliance with emissions standards; in the
emissions testing industry, such stations are known as decentralized facilities.
The Company utilizes “basic” testing systems that test a motor vehicle’s
emissions while in neutral and “enhanced” testing systems that test a vehicle’s
emissions under simulated driving conditions.
 
 **Use
of Estimates**
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 period. Actual results could differ from those
estimates.
 
 **Revenue
Recognition**
 
 Revenue
is recognized as the testing services are performed. Under current state of
Georgia law, the charge for an emission test is limited to $25.00 per vehicle,
which is recorded by the Company as gross revenue. The cost of emissions
certificates due to the state of Georgia is approximately $6.95 per certificate
and is shown separately in the accompanying consolidated statements of
operations. Under current state of Texas law, the charge for an emission test is
generally limited to $39.50 per vehicle, which is recorded by the Company as
gross revenue. The cost of emissions certificates due to the state of Texas
varies between approximately $5.50 and $14.00 per certificate depending on the
type of test and is shown separately in the accompanying consolidated statements
of operations. In some cases, in response to competitive situations, the Company
has charged less than the statutory maximum revenue charges
allowed.
 
 The
Company normally requires that the customer’s payment be made with cash, check
or credit card; accordingly, the Company does not have significant levels of
accounts receivable.
 
 Under
current Georgia and Texas laws, if a vehicle fails an emissions test, it may be
retested at no additional charge during a specified period after the initial
test, as long as the subsequent test is performed at the same facility. At the
time of initial testing, the Company provides an allowance for potential retest
costs, based on prior retest experience and information furnished by the states
of Georgia and Texas, which is comprised mainly of the labor cost associated
with performing a retest. When a retest is performed, the incremental cost of
performing a retest is applied against the retest allowance. At December 31,
2004 and 2003, the allowance for retest costs was not material.
 
 **Property
and Equipment**
 
 Property
and equipment are recorded at cost and depreciated on a straight-line basis over
the estimated useful lives, as follows: building, fifteen years; emission
testing equipment, five years; and furniture, fixtures and office equipment,
five years.
  F-8
  Leasehold
improvements are amortized using the straight-line method over the lesser of the
remaining lease terms or the estimated useful lives of the
improvements.
 
 Repair
and maintenance costs are charged to expense as incurred. Gains or losses on
disposals are reflected in operations.
 
 **Impairment
of Long-Lived Assets**
 
 The
Company reviews its property and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. When indicators of impairment are present, the Company evaluates
the carrying amount of such assets in relation to the operating performance and
future estimated undiscounted net cash flows expected to be generated by the
assets or underlying businesses. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. The assessment of the
recoverability of assets will be impacted if estimated future operating cash
flows are not achieved. In the opinion of management, property and equipment was
not impaired as of December 31, 2004
or 2003.
 
 Goodwill
 
 The
Company has  adopted
Statement of Financial Accounting Standards No. 142, *Goodwill
and Other Intangible Assets* (SFAS
142), which prescribes the accounting for all purchased goodwill. In accordance
with SFAS 142, goodwill is not amortized but tested for impairment annually and
also whenever an impairment indicator arises.
 
 Goodwill
is tested for impairment using a two-step process that begins with an estimation
of the fair value of the specific reporting unit of the Company, as defined, to
which the goodwill is attributable and a comparison of such fair value to the
carrying amount of the reporting unit, including goodwill. If the carrying
amount exceeds fair value, the second step is performed to measure the amount of
the impairment loss, which equals the amount by which the carrying amount of the
reporting unit goodwill exceeds the implied fair value of that goodwill (the
implied fair value of goodwill represents the excess of the fair value of a
reporting unit over the amounts assigned to its assets and liabilities as if the
reporting unit had been acquired in a business combination and the fair value of
the reporting unit was the price paid to acquire the reporting unit). In the
opinion of management, goodwill was not impaired as of December 31, 2004 and
2003.
 
 **Income**  **Taxes**
 
 Deferred
income taxes are provided principally for the tax effect of net operating loss
carryforwards.
 
 **Advertising
Costs**
 
 Advertising
costs are expensed as incurred. Advertising expense totaled $27,551 in 2004 and
$11,584 in 2003.
   F-9
 ****
 **Fair
Value of Financial Instruments**
 
 The
carrying amounts of cash approximate fair value because of the short-term nature
of these accounts .
Management does not believe it is practicable to estimate the fair value of its
liability financial instruments because of the Company's financial
position.
 
 **Accounting
for Business Combinations**
 
 Statement
of Financial Accounting Standards No 141, *Business
Combinations* (SFAS
141), prescribes the accounting for all business combinations by, among other
things, requiring the use of the purchase method of accounting. SFAS 141 was
effective for the Company for business combinations consummated after June 30,
2001.
 
 **Net
Loss Per Common Share**
 
 Basic net
loss per share is computed by dividing the net loss for the period by the
weighted-average number of common shares outstanding for the period. Diluted net
loss per share is computed by dividing the net loss for the period by the
weighted average number of common and potential common shares outstanding during
the period, if the effect of the potential common shares is dilutive. As a
result of the Company’s net losses, all potentially dilutive securities would be
antidilutive and are excluded from the computation of diluted loss per
share.
 
 **Cash**
 
 At times,
cash balances may exceed federally insured amounts. The Company believes it
mitigates risks by depositing cash with major financial
institutions.
 
 **Accounting
for Stock-Based Compensation**
 
 The
Company applies Accounting Principles Board Opinion No. 25, *Accounting
for Stock Issued to Employees* (APB 25),
and related interpretations in accounting for stock options. The Company has
adopted only the disclosure provisions of Statement of Financial Accounting
Standards No. 123, *Accounting
for Stock-Based Compensation* (SFAS
123), as amended by statement of Financial Accounting Standards No. 148, *Accounting
for Stock-Based Compensation - Transition and Disclosure,* in
accounting for stock options and does not recognize compensation expense under
the fair value provisions of SFAS 123. Beginning with the first reporting period
that begins after December 31, 2005, we will no longer be allowed to use the
intrinsic value recognition method and instead will recognize the cost of
employee services received in exchange for equity securities based on the grant
date fair value of the awards.
 
 The
Company applies APB Opinion 25 and related interpretations in accounting for its
stock options. Stock-based employee compensation cost has been reflected in net
loss in the accompanying consolidated statements of operations, for the 400,000
options classified as variable stock options granted that had an exercise price
less than the market value of the underlying common stock on the date of grant
(see Note 7). At the end of each calendar quarter, the Company determines a
value for the financial effect of the variable stock options. The following
table illustrates the effect on net loss and net loss per share if the Company
had applied the fair value recognition provisions of SFAS 123 to stock-based
employee compensation.
 
 F-10
  **2004**
    
    **2003**Net
      loss, as reported
    
    $
    (2,972,056
    )
    $
    (1,479,193
    )Deduct:
      Total stock-based employee compensation expensedetermined
      under the fair value method for all awards, net ofrelated
      tax effects
    
    
    144,905
    
    
    1,507Pro
      forma net loss
    
    $
    (3,116,961
    )
    $
    (1,480,700
    )Loss
      per share:Basic
      and diluted, as reported
    
    $
    (0.14
    )
    $
    (0.16
    )Basic
      and diluted, pro forma
    
    $
    (0.14
    )
    $
    (0.16
    )
 The fair
value of stock options issued during 2004 and 2003 has been determined using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest rates of 3.00%; expected lives of 3 years; expected volatility of
45.00%; and no dividend yield.
 
 **Recently
Issued Accounting Standards**
 
 Recent
pronouncements that potentially affect these or future financial statements
include:
 
 FASB
Statement No. 123R - Share Based Payment On December 16, 2004, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004),
Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation.  Statement 123(R) supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows.  The approach to accounting for share-based
payments in Statement 123(R) is similar to the approach described in Statement
123.  However, Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values and no longer allows pro forma
disclosure as an alternative to financial statement recognition.  The
Company will be required to adopt Statement 123(R) at the beginning of its
quarter ending March 31, 2006.
 
 **Note
2: Going Concern**
 
 The
Company is a start-up enterprise with limited operations and has not generated
significant amounts of revenue. The Company incurred net losses and operating
cash flow deficiencies in 2004 and 2003 and had a deficit in working capital of
$1,416,578 (including $540,934 in current portion of long-term debt payable to
related parties) at December 31, 2004. These factors, among others, raise
substantial doubt about the Company’s ability to continue as a going concern.
The future success of the Company is contingent upon, among other things, the
ability to: achieve and maintain satisfactory levels of profitable operations;
obtain and maintain adequate levels of debt and/or equity financing; and provide
sufficient cash from operations to meet current and future obligations. The
Company is actively seeking new sources of financing, however there is no
guarantee that the Company will be successful in obtaining the financing
required to fund its capital needs.
 
 The
Company has prepared financial forecasts which indicate that, based on its
current business plans and strategies, it anticipates that it will achieve
profitable operations and generate positive cash flows in the next few years.
However, the ultimate ability of the Company to achieve these forecasts and to
meet the objectives discussed in the preceding paragraph cannot be determined at
this time. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
  F-11
 **Note
3: Property and Equipment**
 
 Property
and equipment at December 31, 2004 was as follows:
 Land
    
    $
    240,000Building
    
    
    10,000Emission
      testing equipment
    
    
    928,563Furniture,
      fixtures and office equipment
    
    
    30,764Vehicles
    
    
    10,548Leasehold
      improvements
    
    
    448,5861,668,461Less
      accumulated depreciation and amortization
    
    
    467,172$
    1,201,289
 
 Depreciation
and amortization expense associated with property and equipment totaled $251,103
in 2004 and $95,963 in 2003.
 
 At
December 31, 2004, approximately $86,000 of emission testing equipment
represented equipment held for use in future emission testing
stations.
 
 **Note
4: Long-Term Debt Payable to Related Parties**
 
 Long-term
debt payable to related parties at December 31, 2004 was as
follows:
 
 
 GCA
      Fund 10% note(a)
    
    $
    300,000V2R
      10% note (b)
    
    
    83,334Calabria
      5% note (c)
    
    
    25,600State
      Inspections of Texas 12.5% note(d)
    
    
    120,000State
      inspections of Texas non-interest bearing
      note
      (e)
    
    
    36,000State
      Inspections of Texas 12.5% note(f)
    
    
    1,285,0001,849,934Less
      current portion
    
    
    540,934$
    1,309,000
 
 (a) The
$300,000 promissory note payable had an original maturity date of August 2, 2003
but was not repaid on that date. Effective as of September 2, 2003, the Company
and GCA Fund agreed to extend the maturity date to April 24, 2004. Effective as
of May 5, 2004, the Company and GCA Fund agreed to extend the maturity date to
October 24, 2004. Effective as of October 15, 2004, the Company and GCA Fund
agreed to extend the maturity date to October 24, 2005. At
December 31, 2004, the Company had made no interest payments to GCA Fund and
thus was not in compliance with the applicable interest payment provisions of
the promissory note payable agreements; however, the Company obtained a waiver
from GCA Fund regarding such noncompliance.
  F-12
  The
$300,000 promissory note payable is mandatorily redeemable, at the option of GCA
Fund, under certain circumstances as outlined in the note payable agreement,
including but not limited to a change in control, as defined. The promissory
note payable agreement contains certain financial and nonfinancial covenants to
which the Company must adhere.
 
 (b) On
June 13, 2003, the Company entered into a consulting agreement with V2R, Inc.,
which is controlled by Bahram Yusefzadeh, who subsequent to June 13, 2003 became
one of our directors. Under the terms of the agreement, our subsidiary agreed to
pay to V2R, upon the successful closing of a merger or acquisition of our
subsidiary with a publicly traded corporation, the sum of $225,000. Of this
amount, $125,000 was to be paid in accordance with the terms of a promissory
note. The principal balance of the note was due on December 31, 2003, but was
extended pursuant to an amendment dated December 30, 2003 to the earlier to
occur of (i) the closing of a round of equity or debt financing in excess of
$1,500,000, (ii) 90 days after the effectiveness of a registration statement, or
(iii) in three equal installments beginning March 1, 2004, May 1, 2004, and July
1, 2004. The entire principal and interest became due on January 21, 2004 when
we closed a round of equity financing in excess of $1,500,000; however, as of
the date hereof we have only made one payment of $41,666, leaving an unpaid
balance of principal and interest of approximately $92,400 as of December 31,
2004.
 
 (c) The
president and chief executive officer of the Company had advanced the Company
$25,600 as of December 31, 2004, on several unsecured promissory notes.
Principal and interest on the notes are due and payable in 180 days, from their
respective date of issuance, and carry interest at 5%.
 
 (d) On
November 15, 2004, State Inspections of Texas, Inc. ("SIT") **** advanced
the Company $120,000 on a secured promissory note. The note is due and payable
in 180 days, from the date of issuance, and carries interest at 12.5%. The note
is secured by certain real property of the Company.
 
 (e) On
December 1, 2004, SIT **** sold the
Company certain assets for $36,000 on an unsecured promissory note. The note is
due and payable in 36 equal monthly installments, starting January 2005 and
ending December 2008 and carries no interest.
 
 (f) On
December 30, 2004, SIT **** sold the
Company certain assets for $1,285,000 on a secured promissory note. Payment
terms of the note are; interest only (12.5% annually) payable monthly from
February 2005 through January 2006, monthly principal and interest payments of
$43,000 from February 2006 through June 2008 and a final payment of
approximately $291,000 in July 2008. The note is secured by the assets sold to
the Company by SIT under the terms of this promissory note.
 
 Future
minimum debt payments required were as follows at December 31,
2004:
 
 2005
    
    $
    540,9342006
    
    
    353,8972007
    
    
    432,7262008
    
    
    522,3772009
      and later
    
    
    -$
    1,849,934
  
 
 F-13
 
 **Note
5: Income Taxes**
 
 As of
December 31, 2004, the Company had net operating loss (NOL) carryforwards of
approximately $6,046,000 that may be used to offset future taxable income. If
not utilized, the NOL carryforwards will expire at various dates through
2024.
 
 Differences
between the income tax benefit reported in the statements of operations for 2004
and 2003 and the amount determined by applying the statutory federal income tax
rate (34%) to the loss before income taxes were as follows:
  **2004**
    
    **2003**Statutory
      rate
    
    
    (34.0
    )%
    
    (34.0
    )%State
      income taxes, net of federal deduction
    
    
    (4.0
    )
    
    (4.0
    )Valuation
      allowance
    
    
    38.0
    
    
    38.0-
    %
    
    -
    %
    Noncurrent
deferred income tax assets at December 31, 2004 and 2003 consisted of the
following:
 **2004**
    
    **2003**Net
      operating loss carryforwards
    
    $
    2,298,000
    
    $
    1,213,000Less
      valuation allowance
    
    
    (2,298,000
    )
    
    (1,213,000
    )Net
      deferred tax asset
    
    $
    -
    
    $
    -
 A
valuation allowance was established for the tax benefit of the NOL carryforwards
for which realization was not considered more likely than not. At December 31,
2004 and 2003, the valuation allowance was adjusted such that no net deferred
tax assets were recognized. The valuation allowance totaled $2,298,000 at
December 31, 2004.
 
 **Note
6: Leasing Activities**
 
 **Operating
Leases**
 
 The
Company leases office space and land and buildings for certain of its emission
testing stations. The leases generally require that the Company pay taxes,
maintenance and insurance. The leases for the emission testing stations are
renewable, at the option of the Company, for specified periods. Management
expects that, in the normal course of business, leases that expire will be
renewed or replaced by other leases. Certain of the leases have been personally
guaranteed by the president of the Company.
 
 Certain
of the above leases contain scheduled base rent increases over the terms of the
leases. The total amount of base rent payments is charged to expense on a
straight-line basis over the lease terms. At December 31, 2004 and 2003, the
excess of rent expense over cash payments was approximately $40,000 and $13,000,
respectively. Such amount is included in accounts payable and accrued
liabilities in the accompanying 2004 consolidated balance sheet.
  F-14
  Future
minimum rental payments required under the noncancelable operating leases were
as follows at December 31,
2004:
 2005
    
    $
    857,1742006
    
    
    562,3962007
    
    
    434,4192008
    
    
    334,9782009
      and later
    
    
    993,324$
    3,182,291
 Rent
expense under all operating leases totaled $534,032 in 2004 and $167,457 in
2003.
 
 **Note
7: Equity Transactions**
 
 **Preferred
Stock**
 
 On
January 21, 2004, the Company completed a private placement of 2,500 shares of
its Series A Convertible Preferred Stock (the Preferred Stock) and 2,500,000
common stock purchase warrants (the Warrants) to GCA Strategic Investment Fund
Limited, an existing affiliate shareholder of the Company, in exchange for gross
proceeds to the Company of $2,500,000. Net proceeds to the Company after the
payment of an advisors fee and offering expenses was $2,234,000.
 
 The
Preferred Stock accrues a dividend of 7% per annum, and each share of Preferred
Stock is convertible into 1,000 shares of the Company’s common stock, or
2,500,000 shares of common stock in the aggregate. The Warrants are exercisable
for a period of five years at an exercise price of $1.25 per share of common
stock to be acquired upon exercise. In the event of a liquidation, dissolution
or winding up of the Company preferred stockholders are entitled to be paid
prior to any preference of any other payment or distribution.
 
 **Common
Stock**
 
 Effective
as of June 16, 2003, the closing date of the reverse acquisition (see Note 1),
SKTF redeemed 5,044,750 shares at a cost of approximately $500 and issued
9,000,000 shares of common stock to the stockholders of Speedemissions (see Note
1).
 
 On
December 18, 2003, the combined principal amount of $1,450,000 and accrued
interest amount of approximately $135,000 outstanding under convertible
debenture agreements, with a related party, were converted into 5,670,619 shares
of the Company's common stock at an exchange rate of $0.28 per common
share.
 
 In 2004
and 2003, the Company issued 1,124,517 and 600,000 shares of its common stock,
respectively, for general and administrative expenses, which consisted
principally of legal and consulting services. The Company recognized expense of
$404,352 and $120,000 in 2004 and 2003, respectively. (see note 8).
  F-15
  On
January 18, 2004, the Company and GCA Fund agreed to convert the principal
amount of a $225,000 promissory note) and accrued interest amount of
approximately $55,000 outstanding into 1,100,000 shares of the Company’s common
stock at an exchange rate of $0.25 per common share. As a result of the
conversion, the Company recorded an expense of approximately $231,000 during the
quarter ended March 31, 2004. The expense was recorded as a result of the
difference between the $0.25 per share conversion price and the closing bid
price for the Company’s common stock on the date of the conversion agreement.
 
 During
the quarter ended March 31, 2004, the Company sold to qualified investors
855,000 security units. Each security unit consisted of two shares of the
Company’s common stock and a warrant to purchase a share of the Company’s common
stock at the closing bid price for the Company’s common stock on the
subscription date. The Company received $.50 for each unit subscribed. The
Company received subscriptions for 855,000 units, which represents $427,500 in
proceeds to the Company, less consulting fees of approximately $21,000. Upon
completion of these subscriptions the Company issued a total of 1,710,000 shares
of its common stock and 855,000 warrants.
 
 As of
March 31, 2004, the president and chief executive officer of the Company had
advanced the Company $315,000 on several unsecured promissory notes. The notes
were due and payable in 180 days, from their respective date of issuance, and
carried interest at 5%. On June 16, 2004, the Company and its president and
chief executive officer agreed to convert the principal amount of the $315,000
promissory note and accrued interest amount of approximately $8,700 outstanding
into 924,996 shares of the Company’s common stock representing an exchange rate
of $0.35 per common share. As a result of the conversion, the Company recorded
an expense of approximately $259,000 during the quarter ended June 30, 2004. The
expense was recorded as a result of the difference between the $0.35 per share
conversion price and the closing bid price for the Company’s common stock on the
date of the conversion agreement.
 
 During
the quarter ended June 30, 2004, the Company sold to qualified investors 814,286
security units. Each security unit consisted of one share of the Company’s
common stock and a warrant to purchase a share of the Company’s common stock at
$.75 per warrant for every two common shares purchased. The Company received
$.35 for each common share sold, which represents $285,000 in proceeds to the
Company during the quarter ended June 30, 2004. Upon completion of these
subscriptions the Company issued a total of 814,286 shares of its common stock
and 407,143 warrants.
 
 On August
24, 2004, the Company issued 855,000 shares of common stock, restricted in
accordance with Rule 14, to thirteen (13) existing accredited investors in a
private placement exempt from registration pursuant to Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as consideration under
anti-dilution provisions of their securities purchase agreements.
 
 During
the quarter ended September 30, 2004, the Company sold to qualified investors
785,858 security units. Each security unit consisted of one share of the
Company’s common stock and a warrant to purchase a share of the Company’s common
stock at $.75 per warrant for every two common shares purchased. The Company
received $.35 for each common share sold, which represents approximately
$275,000 in proceeds to the Company during the quarter ended September 30, 2004.
Upon completion of these subscriptions the Company issued a total of 785,858
shares of its common stock and 392,929 warrants.
  F-16
  Speedemissions
had reserved 10,000,000 shares of common stock for issuance to GCA Fund upon
conversion of the convertible debentures issued to GCA Fund pursuant to the 2002
agreement (see Note 4). Effective with the June 16, 2003 reverse acquisition
with SKTF, this conversion obligation was assumed by SKTF and accordingly
5,670,619 of SKTF common stock was issued in the December 18, 2003 debenture
conversion.
 
 **Stock
Option Plan and Warrants**
 
 SKTF’s
board of directors and stockholders approved a stock option plan, effective June
1, 2001, pursuant to which 1,000,000 shares of common stock have been reserved
for issuance under the plan.
 
 On
October 2, 2003 the Company issued options to purchase up to 400,000 shares of
common stock at an exercise price of $2.00 per share. No stock-based employee
compensation cost was recorded related to these options as the options granted
had an exercise price greater than the market value of the underlying common
stock on the date of grant.
 
 On
December 19, 2003, the 400,000 options granted on October 2, 2003, were
cancelled and immediately re-issued with an exercise price of $.25 per share and
an expiration date of December 18, 2013. Of the 400,000 options, 100,000 vested
immediately with the remaining options vesting in three equal increments on
October 1, 2004, 2005 and 2006, respectively. The 400,000 options granted on
December 19, 2003 have been reclassified as variable stock options since they
had an exercise price less than the market value of the underlying common stock
on the date of grant. The Company recorded $14,589 and $5,360 in compensation
expense, respectively, during 2004 and 2003.
 
 On
December 19, 2003, the Company granted 30,000 options to its directors for
services provided with an exercise price of $.25 per share and an expiration
date of December 18, 2013. All of the 30,000 options vested immediately. No
stock-based employee compensation cost has been recorded in the accompanying
2003 consolidated statement of operations related to these options as the
options granted had an exercise price equal to the fair value of the underlying
common stock on the date of grant.
 
 On
January 5, 2004, the Company granted 55,000 stock options to three of its
employees. All of the options carried an exercise price of $.40, vested as of
the date of the grant and expire January 4, 2014. No stock-based employee
compensation cost has been recorded in the accompanying consolidated statements
of operations related to these options as the options granted had an exercise
price greater than the fair value of the underlying common stock on the date of
grant.
 
 On April
20, 2004, the Company granted 75,000 stock options to two of its employees. All
of the options carried an exercise price of $.515, vested as of the date of the
grant and expire April 19, 2014. No stock-based employee compensation cost has
been recorded in the accompanying consolidated statements of operations related
to these options as the options granted had an exercise price equal to the fair
value of the underlying common stock on the date of grant.
 
 On
November 17, 2004, the Company granted 126,750 stock options to five of its
employees. All of the options carried an exercise price of $.30, vested as of
the date of the grant and expire November 17, 2014. No stock-based employee
compensation cost has been recorded in the accompanying consolidated statements
of operations related to these options as the options granted had an exercise
price equal to the fair value of the underlying common stock on the date of
grant.
  F-17
  As of
December 31, 2004, options to purchase a total of 686,750 shares had been
granted under this plan and options to purchase 486,750 shares were exercisable.
The weighted-average remaining contractual life in years was 9.18 at December
31, 2004.
 
 The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2003 and 2004:
 2003
    
    2004Risk
      free interest rate
    
    
    3.00
    %
    
    3.00
    %Expected
      life
    
    
    3
      years
    
    
    3
      yearsExpected
      volatility
    
    
    45
    %
    
    45
    %Expected
      dividend yield
    
    
    ---
    
    
    ---
 
 The
following table sets forth the options granted under the Speedemissions Stock
Option Plan as of December 31, 2004:
 
 2003
    
    2004Options
    
    Weighted
      Average
      Exercise
      Price
    
    Options
    
    Weighted
      Average
      Exercise
      PriceOutstanding
      at beginning of year
    
    
    0
    
    $
    0.00
    
    
    430,000
    
    $
    0.25Granted
    
    
    830,000
    
    
    1.09
    
    
    256,750
    
    
    0.38Cancelled
    
    
    (400,000
    )
    
    2.00
    
    
    (-
    )
    
    0.00ExExercised
    
    
    —
    
    
    —
    
    
    (-
    )
    
    0.00Outstanding
      at end of year
    
    
    430,000
    
    $
    0.25
    
    
    686,750
    
    $
    0.30Options
      exerciseable at end of year
    
    
    130,000
    
    
    0.25
    
    
    486,750
    
    $
    0.32
 
 The
following table summarizes information about stock options outstanding at
December 31, 2004:
 
 Options
      OutstandingOptions
      Outstanding
    
    Weighted
      Average
      Remaining
      Life
    
    Exercise
      Price430,000
    
    
    8.97
      years
    
    $
    0.2555,000
    
    
    9.02
      years
    
    
    0.4075,000
    
    
    9.30
      years
    
    
    0.52126,750
    
    
    9.88
      years
    
    
    0.30686,750
  F-18
  The
following table summarizes information about stock warrants issued in 2003 and
2004, also the amount outstanding at December 31, 2004:
 
 Warrants
      Outstanding
    
    Warrants
      ExercisableWarrants
      Outstanding
    
    Weighted
      Average
      Remaining
      Life
    
    Exercise
      Price
    
    Warrants
      Exercisable
    
    Exercise
      Price25,000
    
    
    3.46
      years
    
    $
    0.01
    
    
    25,000
    
    $
    0.01275,000
    
    
    5.08
      years
    
    $
    0.25
    
    
    275,000
    
    $
    0.251,905,073
    
    
    3.60
      years
    
    $
    0.75
    
    
    1,905,073
    
    $
    0.75450,000
    
    
    4.14
      years
    
    $
    1.05
    
    
    450,000
    
    $
    1.052,500,000
    
    
    4.06
      years
    
    $
    1.25
    
    
    2,500,000
    
    $
    1.255,155,073
    
    
    
    
    
    
    
    
    5,155,073
 ****
 **Additional
Warrants**
 
 As
discussed in Note 1, in connection with the acquisition of Speedemissions by
SKTF, Speedemissions issued a warrant to V2R. The warrant entitles V2R to
purchase 130,000 shares of Speedemissions common stock at an exercise price of
$.01 per share. At December 31, 2004, the warrant is exerciseable.
 
 On
February 18, 2004, in accordance with authorization by the board of directors on
January 21, 2004, the Company issued 900,000 warrants to purchase shares of the
Company’s common stock to its president. Each warrant entitles the president to
purchase one share of common stock. The exercise price for 450,000 of the
warrants is $0.75, with the remaining 450,000 having an exercise price of $1.05.
Each of the two separately priced warrant issues expire on February 17, 2009 and
each vest 150,000 warrants as immediately exercisable with the remaining 300,000
vesting in two equal parts of 150,000 warrants on January 1, 2005 and January 1,
2006. The Company did not assign a value to the warrants upon issuance as the
value was deemed immaterial.
 
 **Note
8: Consulting Agreements**
 
 In
connection with the acquisition of Speedemissions by SKTF, Speedemissions
entered into a consulting agreement with V2R. Effective January 1, 2004, the
consulting agreement was cancelled and replaced, by mutual agreement of the
Company and V2R, with a new agreement. The new agreement continues for 30 months
at a consulting fee of $8,334 per month. The new agreement grants V2R warrants
to purchase 100,000 shares of the Company's common stock at $0.25 per share. The
warrants vest in two increments of 50,000 on January 1, 2005 and 2006,
respectively. Additionally, V2R can earn success fees calculated using the
Lehman Formula, as defined, for merger and acquisition and strategic alliance or
partnership agreements arranged by the entity. During the years ended December
31, 2004 and 2003, the Company paid a total of approximately $29,900 and
$70,100, respectively, under the consulting agreement.
 
 Pursuant
to the consulting agreement, Speedemissions agreed to pay V2R a consulting fee
of $8,334 per month, effective June 1, 2003. Additionally, Speedemissions agreed
to pay the entity a transaction fee generally equal to 5% of the gross
transaction amount of an equity transaction, as defined in the agreement. The
agreement has a thirty-six month term, which term relies on the ability of
Speedemissions to raise additional capital, and will automatically renew for
successive twelve-month periods unless terminated by either party. If
Speedemissions terminates the agreement, it will nevertheless be subject to a
minimum consulting fee of $150,000. During the year ended December 31, 2003, the
Company paid a total of approximately $44,000 under the consulting agreement.
  F-19
 Effective
December 1, 2003, the Company entered into an agreement with a public relations
firm to issue stock in exchange for consulting services to be rendered by the
public relations firm during the period from December 1, 2003 to May 31, 2004.
During 2003, the Company recognized $18,750 in general and administrative
expenses related to this agreement. On January 7, 2004, March 9, 2004 and May 7,
2004, the Company issued a total of 450,000 shares of its common stock under the
terms of its consulting agreement with a public relations firm. During the year
ended December 31, 2004, the Company recognized approximately $218,000 in
general and administrative expenses related to this agreement.
 
 Effective
January 1, 2004, the Company entered into an agreement with a financial
consulting firm to issue stock in exchange for consulting services to be
rendered by the financial consulting firm during the period from January 1, 2004
to June 30, 2004. The Company issued, on May 24 and August 24, 2004, a total of
180,000 shares of its common stock, under the terms of this agreement. During
the year ended December 31, 2004, the Company recognized $93,400 in general and
administrative expenses related to this agreement.
 
 On
October 8, 2004, the Company issued a total of 90,000 shares of its common
stock, to a financial consulting firm in exchange for consulting services
rendered. During the year ended December 31, 2004, the Company recognized
$37,800 in general and administrative expenses related to these
services.
 
 Effective
November 5, 2004, the Company entered into an agreement with an equity research
services firm to issue stock in exchange for consulting services to be rendered
by the equity research services firm. The Company issued, on November 5, 2004, a
total of 312,500 shares of its common stock, under the terms of this agreement.
During the year ended December 31, 2004, the Company recognized approximately
$12,000 in general and administrative expenses related to this
agreement.
 
 **Note
9: Related Party Transactions**
 
 The
Company has a $300,000 promissory note payable to the GCA Fund, which had an
original maturity date of August 2, 2003 but was not repaid on that date.
Effective as of September 2, 2003, the Company and GCA Fund agreed to extend the
maturity date to April 24, 2004. Effective as of May 5, 2004, the Company and
GCA Fund agreed to extend the maturity date to October 24, 2004. Effective as of
October 15, 2004, the Company and GCA Fund agreed to extend the maturity date to
October 24, 2005. At December 31, 2004, the Company had made no interest
payments to GCA Fund and thus was not in compliance with the applicable interest
payment provisions of the promissory note payable agreements; however, the
Company obtained a waiver from GCA Fund regarding such
noncompliance.
 
 As of
December 31, 2003, the Company had a $225,000 promissory note payable to GCA
Fund with terms of: interest payable quarterly at 10%, principal payable in a
single installment at maturity date of April 24, 2004 and secured by certain
assets of the Company. On January 18, 2004, the Company and GCA Fund agreed to
convert the principal amount of the $225,000 promissory note and accrued
interest amount of approximately $55,000 outstanding into 1,100,000 shares of
the Company’s common stock representing an exchange rate of $0.25 per common
share.
  F-20
 The
$300,000 promissory note payable is 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, as defined. The promissory
note payable agreements contain certain financial and nonfinancial covenants to
which the Company must adhere.
 
 In
connection with the June 16, 2003, acquisition of Speedemissions, the Company
agreed to pay an acquisition fee of $225,000 to V2R, LLC (V2R), an entity
controlled by an existing minority stockholder of SKTF. Such amount is included
in general and administrative expenses in the accompanying 2003 consolidated
statements of operations. Of this amount, $100,000 was paid in cash at the
closing of the acquisition, with the balance due pursuant to the terms of a
promissory note (see Note 4). Additionally, Speedemissions agreed to issue a
warrant (see Note 7) to V2R to purchase 130,000 shares of Speedemissions common
stock at an exercise price of $.01 per share (see Note 7) and entered into a
consulting agreement with V2R that, among other things, provides for a monthly
consulting fee and provides for a transaction fee generally equal to 5% of the
gross transaction amount of an equity transaction, as defined in the agreement.
Subsequent to December 31, 2003, this agreement was cancelled and replaced by a
new agreement (see Note 8).
 
 In 2003,
SKTF issued stock in exchange for legal and consulting services rendered in the
form of 600,000 shares of common stock. Of such amount, 300,000 shares were
issued to The Lebrecht Group, APLC, an existing minority stockholder, and
300,000 shares were issued to designees of V2R. The shares were issued at no
cost to the recipients and the Company recognized approximately $120,000 in
general and administrative expense related to the issuance.
 
 The
president and chief executive officer of the Company had advanced the Company
$265,000 as of December 31, 2003. During 2004 this amount increased to $315,000
documented on several unsecured promissory notes. The notes were due and payable
in 180 days, from their respective date of issuance, and carried interest at 5%.
On June 16, 2004, the Company and its president and chief executive officer
agreed to convert the principal amount of the $315,000 promissory note and
accrued interest amount of approximately $8,700 outstanding into 924,996 shares
of the Company’s common stock representing an exchange rate of $0.35 per common
share.
 
 The
president and chief executive officer of the Company had advanced the Company
$25,600 as of December 31, 2004, on several unsecured promissory notes.
Principal and interest on the notes are due and payable in 180 days, from their
respective date of issuance, and carry interest at 5%.
 
 On
January 21, 2004, the Company completed a private placement of 2,500 shares of
its Series A Convertible Preferred Stock (the Preferred Stock) and 2,500,000
common stock purchase warrants (the Warrants) to GCA Strategic Investment Fund
Limited, an existing affiliate shareholder of the Company, in exchange for gross
proceeds to the Company of $2,500,000. Net proceeds to the Company after the
payment of an advisors fee and offering expenses was $2,234,000. The Preferred
Stock accrues a dividend of 7% per annum, and each share of Preferred Stock is
convertible into 1,000 shares of the Company’s common stock, or 2,500,000 shares
of common stock in the aggregate. The Warrants are exercisable for a period of
five years at an exercise price of $1.25 per share of common stock to be
acquired upon exercise. In the event of a liquidation, dissolution or winding up
of the Company preferred stockholders are entitled to be paid prior to any
preference of any other payment or distribution.
  F-21
 On
January 30, 2004, the Company completed the acquisition of all of the assets of
the businesses known and operated as $20 Emission (the $20 Acquired Assets). The
$20 Acquired Assets constitute all of the business assets of seven emissions
testing stations in the Atlanta, Georgia area, which the Company intends to
continue to operate under the Speedemissions name. In exchange for the $20
Acquired Assets, the Company paid the purchase price of $1,001,000 in cash (the
Cash Purchase Amount) and issued an aggregate of 956,318 shares of Company
common stock (the Stock Purchase Shares) and, together with the Cash Purchase
Amount, (the $20 Purchase Price) to the sellers, Twenty Dollar Emission, Inc.
and Kenneth Cameron (each a Seller and collectively the Sellers), and the
Sellers’ designee. The Cash Purchase Amount and 622,985 of the Stock Purchase
Shares were paid to the Sellers’ lender, Global Capital Funding Group, LP
(Global), who is an affiliate of the Company and Kenneth Cameron who is a former
employee of the Company, whose services were retained by the Company after the
purchase of $20 Emission. The Cash Purchase Amount was paid by the Company using
funds raised in its $2,500,000 private placement of its Series A Convertible
Preferred Stock.
 
 **Note
10: Business Acquisitions**
 
 **Holbrook**
 
 Effective
January 21, 2004, the Company purchased, for $1,250,000 in cash, substantially
all the assets of Holbrook Texaco, Inc. and NRH Enterprises, Inc. (Holbrook).
The assets purchased included the business assets of five emissions testing
stations, which the Company intends to continue to operate under the
Speedemissions name. The Company made the acquisition to increase its market
share in the Atlanta, Georgia, area and reduce average overhead costs per
station by acquiring locations, which could be controlled by a local management
team, using existing resources. These circumstances were the primary
contributing factors for the recognition of goodwill as a result of this
acquisition.
 
 The
acquisition was accounted for using the purchase method of accounting, whereby a
new basis of accounting and reporting for the assets acquired was established.
The purchase price allocation was based on the estimated fair values of the
assets acquired. Such fair values were estimated by management.
 
 The
purchase price allocation was as follows:
  Assets
      acquiredCurrent
      assets
    
    $
    29,824Property
      and equipment
    
    
    167,012Goodwill
    
    
    1,053,164$
    1,250,000Purchase
      priceCash
    
    $
    1,250,000
 The
following pro-forma condensed statement of operations has been prepared as if
the acquisition of Holbrook was consummated as of the beginning of the period
presented herein. The pro-forma results of operations are not necessarily
indicative of the results that would have been achieved had the acquisition
occurred at the beginning of the period, nor is it necessarily indicative of the
results of operations that may occur in the future:
 
 **2004****(unaudited)**Revenue
    
    $
    2,982,822Net
      (loss)
    
    $
    (2,976,472
    )Net
      (loss) per share, basic and diluted
    
    $
    (0.14
    )Weighted
      average common shares outstanding
    
    
    21,893,637
 
 F-22
 
 **$20
Emissions**
 
 Effective
January 30, 2004, the Company purchased, for approximately $1,574,000 in cash
and stock, substantially all the assets and assumed specified liabilities of Twenty
Dollar Emission, Inc. ($20 Emissions) . The
Cash Purchase Amount and 622,985 of the Stock Purchase Shares were paid to the
sellers’ lender, Global Capital Funding Group, LP (Global), who is an affiliate
of the Company and Kenneth Cameron who is a former employee of the Company,
whose services were retained by the Company after the purchase of $20 Emission.
The assets purchased included the business assets of seven emissions testing
stations, which the Company intends to continue to operate under the
Speedemissions name. The Company made the acquisition to increase its market
share in the Atlanta, Georgia, area and reduce average overhead costs per
station by acquiring locations, which could be controlled by a local management
team, using existing resources. These circumstances were the primary
contributing factors for the recognition of goodwill as a result of this
acquisition. The assets and liabilities of $20 Emissions were recorded at
historical cost on the acquisition date as $20 Emissions and the Company were
deemed to be under common control. A loss of $559,514 resulting from the
acquisition is included in general and administrative expenses.
 
 The
acquisition was accounted for using the purchase method of accounting, whereby a
new basis of accounting and reporting for the assets acquired and liabilities
assumed was established. The purchase price allocation was based on the
estimated fair values of the assets acquired and liabilities assumed. Such fair
values were estimated by management.
 
 The
purchase price allocation was as follows:
 Current
      assets
    
    $
    42,469Property
      and equipment
    
    
    335,596Other
      assets
    
    
    10,530Goodwill
    
    
    767,760Acquisition
      expenses
    
    
    559,514$
    1,715,869
 Purchase
price
 Cash
    
    $
    1,001,000Common
      Stock
    
    
    573,790Capital
      lease obligation
    
    
    124,166Accrued
      expenses
    
    
    16,913$
    1,715,869
 
 F-23
 
 The
following pro-forma condensed statement of operations has been prepared as if
the acquisition of $20 Emissions was consummated as of the beginning of the
period presented herein. The pro-forma results of operations are not necessarily
indicative of the results that would have been achieved had the acquisition
occurred at the beginning of the period, nor is it necessarily indicative of the
results of operations that may occur in the future:
 
 **2004****(unaudited)**Revenue
    
    $
    2,950,116Net
      (loss)
    
    $
    (3,000,783
    )Net
      (loss) per share, basic and diluted
    
    $
    (0.14
    )Weighted
      average common shares outstanding
    
    
    21,893,637
 ****
 **SIT**
 
 On
December 30, 2004, the Company completed the acquisition of substantially all of
the assets of State Inspections of Texas, Inc. (SIT). The SIT assets constitute
all of the business assets of six operating emission testing stations in the
Houston, Texas area, which the Company intends to continue to operate under the
State Inspections of Texas name. The Company made the acquisition to increase
its market share in the Houston, Texas, area and reduce average overhead costs
per station by acquiring locations, which could be controlled by a local
management team, using existing resources. These circumstances were the primary
contributing factors for the recognition of goodwill as a result of this
acquisition.
 
 The
purchase price of $1,285,000 was paid in the form of a promissory note to SIT.
SIT is an unrelated party to the Company and its affiliates.
 
 The
acquisition was accounted for using the purchase method of accounting, whereby a
new basis of accounting and reporting for the assets acquired was established.
The purchase price allocation was based on the estimated fair values of the
assets acquired. Such fair values were estimated by management.
 
 The
purchase price allocation was as follows:
 
 Assets
acquired
 Property
      and equipment
    
    $
    196,550Goodwill
    
    
    1,088,450$
    1,285,000Purchase
      pricePromissory
      note
    
    $
    1,285,000
 
 F-24
  The
following pro-forma condensed statement of operations has been prepared as if
the acquisition of SIT was consummated as of the beginning of the period
presented herein. The pro-forma results of operations are not necessarily
indicative of the results that would have been achieved had the acquisition
occurred at the beginning of the period, nor is it necessarily indicative of the
results of operations that may occur in the future:
 
 **2004****(unaudited)**Revenue
    
    $
    4,378,503Net
      (loss)
    
    $
    (2,837,006
    )Net
      (loss) per share, basic and diluted
    
    $
    (0.13
    )Weighted
      average common shares outstanding
    
    
    21,893,637
 ****
 **BB&S**
 
 On June
16, 2004, the Company completed the acquisition of all of the assets of the
business known and operated as BB&S Emissions, LLC (the BB&S Acquired
Assets). The Company paid the purchase price of $125,015 in cash and assumed
$4,716 in a capitalized lease obligation. The BB&S Acquired Assets
constitute all of the business assets of an emissions testing station in the
Atlanta, Georgia area, which the Company intends to continue to operate under
the Speedemissions name.
 
 As a
result of the acquisitions mentioned above, plus the opening of two new stations
and the closing of an existing station, the Company increased its number of
emissions testing stations from five, as of December 31, 2003, to twenty-five
(25) emissions testing stations plus seven (7) mobile units, as of December 31,
2004.
 
 For all
of the acquisitions, the acquired companies' results of operations are included
in the Company's financial statements beginning with the acquisition date.
 
 **Note
11: Risk and Uncertainties**
 
 **Regulatory
Impact**
 
 The
current and future demand for the Company’s services is substantially dependent
upon federal, state, local and foreign legislation and regulations mandating air
pollution controls and emissions testing. If any or all of these governmental
agencies should change their positions or eliminate or revise their requirements
related to air pollution controls and emissions testing (including a shift to
centralized facilities versus decentralized facilities), the Company could
experience a significant adverse impact on its financial position and results of
operations.
 
 **Contingencies**
 
 The
Company is involved in various proceedings and litigation arising in the
ordinary course of business. While any proceeding or litigation has an element
of uncertainty, the Company believes that the outcome of any lawsuit or claim
that is pending or threatened, or all of them combined, will not have a material
adverse effect on its consolidated financial position or results or
operations.
 
 **Note
12: Subsequent Events**
 
 On
January 18, 2005, the Company issued 250,000 shares of its common stock to two
consultants for services rendered.
 
 On
January 26, 2005, the Company executed a promissory note in favor of GCA
Strategic Investment Fund Limited in the principal amount of $350,000, and on
that date the Company received funds in the same amount. Under the terms of the
note, we are obligated to repay the entire principal amount, plus interest at
the rate of 8% per year, on April 26, 2005. The obligation is secured by certain
of our real property. We will use the funds for general working capital
purposes. In connection with and as consideration for the issuance of the
promissory note, we issued warrants to acquire a total of 200,000 shares of our
common stock at $0.357 per share, and entered into a registration rights
agreement in connection therewith. We issued to GCA Strategic Investment Fund
Limited warrants to acquire 100,000 shares of our common stock, exercisable for
a period of five years at $0.357 per share. We also issued to Global Capital
Advisors, LLC, the investment advisory to GCA Strategic Investment Fund Limited,
warrants to acquire 100,000 shares of our common stock, exercisable for a period
of five years at $0.357 per share.
 
 **Note
13- Significant Fourth Quarter Adjustments**
 
 During
the fourth quarter, we recorded the following adjustments:
 
 During
the second and third quarters, sales of our common stock under private placement
offerings were recorded incorrectly. The result of the correction in the fourth
quarter resulted in the reduction of general and administrative expenses of
$332,883.
 
 During
the third quarter, common stock issued pursuant to an anti-dilution clause was
recorded incorrectly. The result of the correction in the fourth quarter
resulted in the reduction of general and administrative expenses of
$453,150.
 
 
 ******
  F-25