AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 2001
REGISTRATION NO. 333-47082
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT 3 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
EMISSIONS TESTING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7500 58-2542609
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
400 COLONY PARK, BUILDING 104, SUITE 600, CUMMING, GEORGIA 30041
(678) 947-6718
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Richard A. Parlontieri, President/CEO
Emissions Testing, Inc
400 Colony Park, Building 104, Suite 600
Cumming, Georgia 30041
(678) 947-6718
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
Agent for Service: With a Copy to:
Richard A. Parlontieri, President/CEO Thomas Stalzer, Esq.
Emissions Testing, Inc. Epstein, Becker & Green, P.C.
400 Colony Park, Building 104, Suite 600 3399 Peachtree Road, N.E.
Cumming, Georgia 30041 Suite 1400
(678) 947-6718 Atlanta, Georgia 30326-2834
(404) 812-5680
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [ ].
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- ------------------------------- --------------- -------------------------- --------------------------- --------------------------
Title and Each Class of Amount Proposed Maximum Proposed Maximum Amount of Registration
Securities to be to be Offering Price Per Unit Aggregate Offering Price Fee
Registered Registered
- ------------------------------- --------------- -------------------------- --------------------------- --------------------------
Common Stock, no par value 2,000,000(1) $5.50 $11,000,000
Common Stock, no par value 4,623,137(2) $5.50 (3) $25,427,254
--------- ----- -----------
TOTALS: 6,623,137 $36,427,254 $9,107(4)
========= ===========
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1. Represents shares to be offered for sale by us.
2. Represents shares to be offered by the Selling Shareholders.
3. Estimated solely for purposes of calculating the registration fee.
4. Previously paid to the Commission by us.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
This prospectus and the information contained herein are subject to completion
or amendment. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 2001
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EMISSIONS TESTING, INC. DBA SPEEDEMISSIONS
6,623,137 Shares of Common Stock
[LOGO]
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We are registering 6,623,137 shares of our common stock, no par value per
share. The shares consist of the following:
(I) 2,000,000 shares are being offered for sale by us. These shares will be
offered for sale through on a "best efforts, no minimum" basis.
is not required to sell any specific number or dollar amount of
securities but will use their best efforts to sell the securities
offered. All net sale proceeds from the sale of these shares will be
paid directly to us by the broker-dealers promptly upon receipt, and no
escrow, trust or other account will be used to hold investors' funds
pending the completion of this offering. This offering will end at
6:00 P.M. (New York Time) on the six month anniversary date of this
prospectus. We intend to offer our shares in this offering at a price of
$5.50 per share. See "Plan of Distribution."
PER SHARE TOTAL
--------- -----------
Public offering price...................................... $5.50 $11,000,000
Underwriting commissions (12%)............................. $0.66 $ 1,320,000
Proceeds, before expenses, to Emissions Testing............ $4.84 $ 9,680,000
(II) 4,623,137 shares are being registered on behalf of the selling
shareholders identified below under the heading "Selling Shareholders."
We will not receive any proceeds from the resale of these shares.
PER SHARE TOTAL
--------- -----------
Selling Shareholders' offering price....................... $5.50 $25,427,254
Selling commissions (assumed).............................. $0.66 $ 3,051,270
Net Proceeds to Selling Shareholders....................... $4.84 $22,375,984
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Prior to this offering, no public market has existed for our shares of
common stock. We plan to have our common stock quoted on the Over-the-Counter
Bulletin Board under the symbol SMOG.
THE PURCHASE OF THE COMMON STOCK CARRIES WITH IT A HIGH DEGREE OF RISK.
INVESTORS MAY LOSE THEIR ENTIRE INVESTMENT IN OUR COMMON STOCK. SEE "RISK
FACTORS" ON PAGES 6 TO 12 FOR A DISCUSSION OF CERTAIN RISKS CONCERNING US AND
THIS OFFERING BEFORE INVESTING IN OUR SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................1
THE OFFERING..............................................................4
RISK FACTORS..............................................................6
FORWARD LOOKING STATEMENTS...............................................13
OFFERING PRICE FOR OUR 2,000,000 SHARES..................................13
USE OF PROCEEDS..........................................................14
DIVIDEND POLICY..........................................................14
DILUTION.................................................................15
CAPITALIZATION...........................................................18
SELECTED FINANCIAL DATA..................................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS/FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................20
BUSINESS.................................................................25
EMPLOYEES AND CONSULTANTS................................................34
REAL ESTATE..............................................................40
OUR PRIOR SERIES A CONVERTIBLE DEBENTURES AND WARRANTS...................41
MANAGEMENT...............................................................43
PRINCIPAL SHAREHOLDERS AND MANAGEMENT....................................46
SELLING SHAREHOLDERS.....................................................48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................50
RECENT TRANSACTIONS......................................................51
RECENTLY ISSUED ACCOUNTING STANDARDS.....................................52
DESCRIPTION OF CAPITAL STOCK.............................................53
TRANSFER AGENT AND REGISTRAR.............................................57
SHARES ELIGIBLE FOR FUTURE SALE..........................................58
PLAN OF DISTRIBUTION.....................................................60
LEGAL MATTERS............................................................62
EXPERTS..................................................................62
WHERE YOU CAN FIND ADDITIONAL INFORMATION................................62
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PROSPECTUS SUMMARY
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THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO
CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD CAREFULLY REVIEW THE
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS, IN PARTICULAR THE
DISCUSSION UNDER THE HEADING "RISK FACTORS".
EMISSIONS TESTING, INC.
OUR BUSINESS
We are a start-up enterprise. We were formed as a Georgia
corporation on May 5, 2000, for the purpose of engaging primarily in the
business of opening, developing, acquiring and operating vehicle emissions
testing stations. We do business with the public under the trade name
"Speedemissions," using a distinctive logo and color scheme that identifies
our testing stations. We currently operate four emissions testing stations in
the Metro Atlanta Area in the State of Georgia. Our revenue for the period
from May 5, 2000 through December 31, 2000 was $167,000, during which time we
incurred a net loss of $541,000.
To improve air quality in the United States, many states have
enacted statutes and regulations that require vehicles owned in those states
to be tested periodically for emissions. Generally, under those laws,
vehicles that fail to pass an emissions test are required to undergo certain
repairs to correct the emissions problem. We formed Emissions Testing, Inc.,
for the purpose of conducting vehicle emissions testing. Under our current
business plan, we do not intend to perform vehicle repair work on cars and
trucks that fail to pass an emissions test.
One state that requires periodic vehicle emissions testing is
Georgia. By law, Georgia mandates emissions testing of vehicles in the 13
counties that comprise and surround the Metro Atlanta Area. These counties
include Cherokee, Clayton, Cobb, Coweta, DeKalb, Douglas, Fayette, Forsyth,
Fulton (which encompasses the City of Atlanta), Gwinnett, Henry, Paulding and
Rockdale. According to the Environmental Protection Division of the State of
Georgia, an estimated 1,335,000 vehicles will be tested in the state for
emissions during the year 2000 and, according to projections of the Georgia
EPD, that number is expected to increase by 68%, to 2,240,000 vehicle tests
in 2001. The increase is attributable to two key factors: First, Georgia
recently enacted new rules that require emissions testing on an annual basis,
as opposed to testing every other year; second, the population of the State
of Georgia continues to increase, much of which is concentrated in the Metro
Atlanta Area.
Georgia law regulates the price that emissions testing operators may
charge for their testing service. Currently, the charge may not be less than
$10.00 nor more than $25.00. Of the price charged by the operator for each
test, $7.40 must be remitted to the state by the operator in the form of a
fee. Beginning April 1, 2001, the fee that must be remitted to the state will
be reduced to $6.95. The balance of the price received by the operator for
its testing service is retained by the operator.
1
OUR GROWTH STRATEGY
Our initial marketing plan focuses on Georgia. To effect this plan,
we intend to operate several testing stations in relatively close proximity
to one another in various "clusters" within the Metro Atlanta Area. Each
cluster will have a radius of approximately 10 to 12 miles. By clustering our
stations, we hope to establish and maintain name recognition with persons who
live and work in our markets, which we believe will lead to customer goodwill
and repeat business. Our goal is have our customers think of us and our
locations whenever they need to have their cars and trucks tested for
emissions.
Our first "cluster" of stations is located in parts of Gwinnett,
Forsyth and DeKalb Counties, situated in the northeast part of the Metro
Atlanta Area. This area was selected because of its dense population and the
expectation for further population growth.
At each of our four stations within this cluster, we own the
emissions testing equipment that we use, and we lease the land and the
buildings that we occupy. On June 1, 2000, we acquired our first two
emissions testing stations, one located at 27 East Crogan Street in Gwinnett
County, and the other at 554 Atlanta Highway in Forsyth County. These
stations were pre-existing emissions testing sites when we purchased them. In
November 2000, we opened two additional testing stations in Gwinnett County,
one at 1807 Beaver Ruin Road and the other at 4125 Jimmy Carter Boulevard.
These sites previously operated as car wash facilities, which we converted
into emissions testing stations. The Atlanta Highway, Beaver Ruin and Jimmy
Carter stations are equipped to test one vehicle at a time. We upgraded the
East Crogan Street station on February 3, 2001 to test two vehicles at a time.
Though we do not have any pending probable acquisitions of existing or other
testing stations, we are in the process of identifying two new sites within
our initial cluster area that will be the locations of our fifth and sixth
stations. Most likely, our fifth and sixth stations will involve the
conversion of car wash or other facilities into emissions testing stations.
We have already purchased the equipment we will need for one of those
facilities. Our fifth and sixth stations should be opened for business during
the second quarter of 2001. We intend to open or acquire approximately two to
four additional stations in our initial cluster area, and then concentrate on
opening or acquiring testing stations in one or more other cluster areas in
Metro Atlanta.
In selecting sites for our emissions testing stations, we seek to
find locations at busy intersections on heavily traveled roads, which have
convenient means of ingress and egress for our customers. We believe that,
when a vehicle owner decides to have his or her car or truck tested for
emissions, convenience is key. With that in mind, we decided to open our
third and fourth stations on properties on which Texaco, Inc., operates a gas
station and food mart. At these sites, Texaco decided to close down their car
wash facilities. We converted the car wash facilities to emissions testing
stations. We believe these sites are especially convenient for customers,
allowing them to purchase gas and food items, and to have their vehicles
tested for emissions, all at the same location. We plan to find similar
opportunities with Texaco and the other major oil companies. To date,
however, we have not conducted market or consumer surveys, studies or tests
in selecting our sites, and we have no plans to do so in the future.
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As we grow, we plan to market our emission testing services in other
states that have emissions testing laws similar to those of Georgia. The
states of California, North Carolina, Pennsylvania, Texas and Virginia are
future potential market areas for us, based upon current laws and
regulations. The rate of our growth will depend upon the amount of capital
available to us for expansion, and our ability to locate and secure test
sites that will be financially successful.
As noted above, we have no plans to repair vehicles that fail to
pass an emissions test. While some of our competitors do provide repair
services, we believe our customers may question the integrity of our testing
service knowing that we could make more money if a vehicle fails to pass an
emissions test. Accordingly, in an effort to protect the customer's
perception of our testing service - which is the sole source of our revenue -
we will not provide repair services. We believe such a strategy will enhance
our ability to attract repeat business over the coming years.
Thus far, we have financed the development of our business primarily
through the sale of convertible debentures. On June 1, 2000, we entered into
a Securities Purchase Agreement with GCA Strategic Investment Fund Limited,
under which we sold to GCA $1 million of our Series A convertible debentures,
all on the terms set and conditions set forth in that agreement. On January
31, 2001 GCA converted our debentures, plus outstanding accrued interest,
into 3,553,137 shares of our common stock.
Currently, we have sufficient funds to open our fifth and sixth
emissions testing stations and to cover our expected operating costs for the
next six to nine months. However, we do not have sufficient capital to grow
our business beyond six stations. Our plan in this offering is to raise funds
that will allow us to implement our strategy of increasing the number of
testing stations that we operate in the Metro Atlanta Area and to expand our
operations into other states that we deem appropriate for our business.
CORPORATE INFORMATION
Our address is 400 Colony Park Drive, Building 104, Suite 600,
Cumming, Georgia 30040. Our phone number is (678) 947-6718 and our facsimile
number is (678) 947-5034. Our web page address is www.speedemissions.com.
Information contained in our web site is not incorporated by reference into
this prospectus and you should not consider information contained in our web
site as part of this prospectus.
3
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THE OFFERING
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Common stock offered in this offering 6,623,137 shares
Common Stock to be outstanding after the offering 7,903,137 shares (1)
Use of proceeds........................................... To open and acquire additional emissions
testing stations, for working capital and
other general corporate purposes.
- --------------------------
The above table includes the following:
(1) This number is based on the number of shares outstanding as of January
31, 2001 and includes:
* 5,903,137 shares of our common stock currently outstanding; and
* 2,000,000 shares of common stock offered by us in this offering;
But excludes:
* 1,000,000 shares of common stock reserved for issuance under the 2000
Stock Option Plan.
GENERAL INFORMATION
INFORMATION ABOUT THE EMISSIONS TESTING INDUSTRY, STATION AND MARKET DATA
As you review the station and market data contained throughout this
prospectus, you should note the following:
o We obtained certain information from the United States Environmental
Protection Agency with regard to the ongoing programs for air quality
control, inspections and maintenance. As of December 1, 2000,
additional information is available on the Internet at
HTTP://WWW.EPA.GOV/.
o We obtained information about the industry, its size and potential
application from the Manufacturers of Emission Controls Association
("MECA"), a non-profit association formed in 1976 to provide
information on exhaust control technology and its implementation. Its
members include manufacturers of emission control equipment for
automobiles, trucks, buses, off-road vehicles and stationary sources.
MECA's report of June 1999 on Inspection/Maintenance Implementation
Status Report as well as additional information regarding the industry
is available on the Internet at HTTP://WWW.MECA.ORG/.
o We utilized population and workforce data for the State of Georgia from
the Bureau of Labor, State of Georgia, in estimating the market size
and demographics for that state. As of December 1, 2000, additional
information is available on the Internet at
HTTP://WWW.CLEANAIRFORCE.COM.
4
o We obtained historical information with regard to the emissions testing
programs in the State of Georgia from the Georgia Environmental
Protection Division. As of December 1, 2000, additional information is
available on the Internet at HTTP://WWW.CLEANAIRFORCE.COM.
o All market information appearing in this prospectus is for 1999, unless
otherwise indicated.
5
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RISK FACTORS
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YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE
PURCHASING OUR COMMON STOCK. OUR COMMON STOCK IS A HIGHLY SPECULATIVE
INVESTMENT AND A PURCHASER COULD LOSE ALL OF THE MONEY SPENT ON PURCHASING
OUR COMMON STOCK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN
ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING SHARES
OF OUR COMMON STOCK. EACH OF THESE RISK FACTORS COULD ADVERSELY AFFECT OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION, AS WELL AS THE VALUE OF
AN INVESTMENT IN OUR COMMON STOCK.
WE DEPEND UPON GOVERNMENT LAWS AND REGULATIONS THAT MAY BE CHANGED IN WAYS THAT
HURT OUR BUSINESS.
Our business depends upon government legislation and regulations
mandating air pollution controls. At this point, Georgia law is especially
important to us because all of our existing emissions testing services are
conducted in that state. Changes in federal or state law that govern or apply
to our operations could have a materially adverse effect on our business. For
example, Georgia law could be changed so as to require that vehicles in the
state be tested every other year, as opposed to every year. Such a change
would reduce the number of vehicles that need to be tested in any given year
and a such a reduction would have a material adverse effect on our revenues
in Georgia. Other changes that would adversely us would be a reduction in the
price we can charge customers for our testing service, an increase in the
fees we must pay to the state in order to operate emissions testing stations
in its jurisdiction, and the adoption of a system whereby the state, as
opposed to private operators, performs vehicle emissions testing. We cannot
be assured that changes in federal or state law would not have a materially
adverse effect on the vehicle emissions testing industry generally or,
specifically, on our business.
WE HAVE A LIMITED OPERATING HISTORY AND LIMITED HISTORICAL FINANCIAL
INFORMATION UPON WHICH YOU MAY EVALUATE OUR PERFORMANCE.
You should consider, among other factors, our prospects for success
in light of the risks and uncertainties encountered by companies that, like
us, are in their early stages of development. We may not successfully address
these risks and uncertainties or successfully implement our operating and
acquisition strategies. If we fail to do so, it could materially harm our
business and impair the value of our common stock. Even if we accomplish
these objectives, we may not generate positive cash flows or profits we
anticipate in the future.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH AND OPERATIONS.
If this offering is successful, we expect to have approximately
$9,334,000 in cash available to us, approximately one-half of which we intend
to use to open or acquire testing stations. Since it costs approximately
$60,000 to $65,000 to open a station, we anticipate that a minimum of 73 new
stations would be opened or acquired by us in a short period of time
following the completion of this offering ($4,600,000/$62,500). We could open
more than 73 new testing stations with the cash we intend to receive in this
offering, if we subsequently finance a part of
6
our start-up or acquisition costs for new stations, instead of using our
cash. In either event, we anticipate rapid growth and development in a
relatively short period of time; however, we do not have any pending or
probable acquisitions of existing or other stations at this time. The
management of this growth will require, among other things, continued
development of our financial and management controls and management
information systems, stringent control of costs, increased marketing
activities, the ability to attract and retain qualified management personnel
and the training of new personnel. We intend to hire additional personnel in
order to manage our expected growth and expansion. Failure to successfully
manage our expected growth and development and difficulties in managing our
emissions testing stations could have a material adverse effect on our
business and the value of our common stock.
OUR STRATEGY OF ACQUIRING AND OPENING MORE TESTING STATIONS MAY NOT PRODUCE
POSITIVE FINANCIAL RESULTS FOR US.
Our strategy of acquiring and opening more emissions testing
stations in the Metro Atlanta Area and in other states is subject to a
variety of risks, including the:
o Inability to find suitable acquisition candidates;
o Failure or unanticipated delays in completing acquisitions due to
difficulties in obtaining regulatory approvals or consents;
o Difficulty in integrating the operations, systems and management of our
acquired stations and absorbing the increased demands on our
administrative, operational and financial resources;
o Loss of key employees;
o Reduction in the number of suitable acquisition targets resulting from
continued industry consolidation;
o Inability to negotiate definitive purchase agreements on satisfactory
terms and conditions;
o Increases in the prices of sites and testing equipment due to increased
competition for acquisition opportunities or other factors; and
o Inability to sell any non-performing stations or to sell used
equipment.
If we are not able to address successfully these risks, it could materially
harm our business and impair the value of our common stock
WE MAY NOT HAVE ACCESS TO ADDITIONAL FINANCING OR MONEY.
Depending upon the nature, size and timing of our opening and
acquiring of emissions testing stations, we may require additional equity or
debt financing. We cannot be assured that any such financing will be
available to us in the future or, if available, will be offered on terms
7
and conditions that are acceptable to us. It is unlikely that any bank or
financial institution would provide a conventional loan to us given our
limited operating history.
BECAUSE THE EMISSIONS TESTING INDUSTRY IS HIGHLY COMPETITIVE, WE MAY LOSE
CUSTOMERS AND REVENUES TO OUR COMPETITORS.
Our testing stations face competition from other emission station
operators that are located near our sites. We expect such competition
whenever and wherever we open or acquire a station. Our revenue from
emissions testing is affected primarily by the number of vehicles our
stations service. Other emissions testing operators may have greater
financial resources than us, which may allow them to obtain more expensive
and advantageous locations for testing stations, to provide services in
addition to emissions testing and to advertise and promote their businesses
more effectively than us. Although we believe our stations are well
positioned to compete, we cannot assure you that our stations will maintain,
or will increase, their current testing volumes and revenues. A decrease in
testing volume as the result of competition or other factors could materially
impair our profitability and our cash flows, thereby adversely affecting our
business and the value of our common stock.
A DOWNTURN AT ANY ONE OF OUR EMISSION TESTING STATIONS COULD ADVERSELY AFFECT
OUR REVENUES AND THE AMOUNT OF CASH WE HAVE.
We currently operate four emissions testing stations. A significant
decline in testing volume and revenue at any one of our stations could have a
materially adverse effect on our overall operations and financial condition,
thereby adversely affecting our business and the value of our common stock.
THE LOSS OF RICHARD A. PARLONTIERI, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
AND THE INABILITY TO HIRE OR RETAIN OTHER KEY PERSONNEL, WOULD ADVERSELY
EFFECT OUR ABILITY TO MANAGE AND CONTROL OUR BUSINESS.
Our business now depends primarily upon the efforts of Mr. Richard
A. Parlontieri, who currently serves as our President and Chief Executive
Officer. We believe that the loss of Mr. Parlontieri's services would have a
materially adverse effect on us. In this regard, we note that we have entered
into a three-year employment agreement with Mr. Parlontieri, and we are in
the process of securing a "key-man" life insurance policy on the life of Mr.
Parlontieri in the amount of $1 million. See "Employees and Consultants."
As our business grows and expands, we will need the services of
other persons to fill key positions in our company. As a start-up company
with limited financial resources, however, we may be unable to attract, or
retain, competent, qualified and experienced individuals to direct and manage
our business. The absence of skilled persons within our company will have a
materially adverse effect on us and the value of our common stock.
8
RESTRICTIONS AND LIMITATIONS IMPOSED UNDER ANY CREDIT FACILITY COULD
ADVERSELY AFFECT OUR ABILITY TO EXPAND OUR BUSINESS, THEREBY HURTING THE
VALUE OF OUR COMMON STOCK.
We expect that any credit facility we enter into will restrict our
ability to, among other things:
o Incur additional indebtedness;
o Pay dividends or make certain other payments or distributions;
o Enter into certain transactions with affiliates;
o Merge or consolidate with any other entity; or
o Sell, assign, transfer, lease, convey, or otherwise dispose of all or
substantially all of our assets.
In addition, any credit facility may restrict our ability to incur
liens or to sell certain assets and may require us to maintain specified
financial ratios and satisfy certain financial condition tests.
These restrictions and limitations may adversely affect our ability
to grow and expand our business, which may, in turn, adversely affect the
value of our common stock.
UPON COMPLETION OF THIS OFFERING, OUR EXISTING SHAREHOLDERS WILL RETAIN
CONTROL OF OUR COMPANY, ALLOWING THEM TO DIRECT THE COMPANY IN WAYS THAT MAY
BE CONTRARY TO THE WISHES OF OUR NEW INVESTORS.
Immediately following the completion of this offering, our existing
shareholders will own approximately 75% of the outstanding shares of our
common stock. One of our existing shareholders will own approximately 45% of
our outstanding shares, even if we sell 2,000,000 shares in this offering.
This ownership structure will mean that our existing shareholders, or a small
number of our existing shareholders, will have the ability to control the
direction of our company, which may be contrary to the wishes of our new
investors or a majority of our shareholders.
UPON COMPLETION OF THIS OFFERING, APPROXIMATELY 5,868,137 SHARES OF OUR
COMMON STOCK WILL BE AVAILABLE FOR IMMEDIATE RESALE. THE IMMEDIATE
AVAILABILITY FOR SALE OF SUCH A LARGE AMOUNT OF OUR STOCK MAY DECREASE THE
PRICE AT WHICH OUR INVESTORS ARE ABLE TO SELL THEIR SHARES.
Immediately following the completion of this offering, there will be
5,868,137 shares of our common stock available for immediate resale. The sale
of all or substantially all of those shares in the public market, or the
market's expectation of such sales, may result in an immediate and
substantial decline in the market price of our shares. Such a decline will
adversely affect our investors, and make it more difficult for us to raise
additional funds through equity offerings in the future.
9
CERTAIN SHARES OF OUR COMMON STOCK ARE RESTRICTED OR LOCKED-UP FROM IMMEDIATE
RESALE. THE LAPSE OF THOSE RESTRICTIONS AND LOCK-UPS, COUPLED WITH THE SALE
OF THE RELATED SHARES IN THE MARKET, OR THE MARKET'S EXPECTATION OF SUCH
SALES, COULD RESULT IN AN IMMEDIATE AND SUBSTANTIAL DECLINE IN THE MARKET
PRICE OF OUR COMMON STOCK.
A substantial number of our shares of common stock are restricted or
locked-up from immediate resale in the public market. However, those
restrictions and lock-ups will lapse or expire between the date of this
prospectus and October 1, 2001. The sale or resale of those shares in the
public market, or the market's expectation of such sales, may result in an
immediate and substantial decline in the market price of our shares. Such a
decline will adversely affect our investors, and make it more difficult for
us to raise additional funds through equity offerings in the future. See,
"Shares Eligible for Future Sale."
YOU MAY BE UNABLE TO SELL THE SHARES OF COMMON STOCK YOU PURCHASE IN THIS
OFFERING, SINCE OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED AND NO MARKET
MAY DEVELOP FOR OUR SHARES.
Prior to this offering, there has not been a public market for our
common stock. We intend to apply to include our common stock for quotation on
the Over-the-Counter Bulletin Board. After this offering, an active trading
market might not develop or, if developed, not continue. The per share price
for our common stock will be determined by market forces not within our
control, including broker-dealers and other parties. You may not be able to
resell your shares at or above the price you paid. If an active trading
market does develop after the completion of this offering, the market price
of our common stock will be subject to fluctuations in response to various
factors and events, including:
o Variations in our operating results;
o Regulatory and technological developments;
o Announcements of business developments by us, our competitors or
applicable governmental agencies;
o Our ability or failure to implement our growth strategy;
o Analysts' reports or projections;
o Loss of or changes in key personnel;
o Changes in market value of emissions testing companies;
o Stock market price and volume fluctuations generally; and
o Sales of our common stock by our shareholders, including sales by GCA
Strategic Investment Fund Limited.
10
Fluctuations in the market price of our common stock may, in turn,
adversely affect our ability to complete targeted acquisitions, to attract
additional capital and financing, and to attract and retain qualified
personnel.
OUR STOCK MAY BECOME SUBJECT TO CERTAIN RULES REGULATING BROKER-DEALER
ACTIVITY AND TRANSACTIONS WITH RESPECT TO "PENNYSTOCKS." SUCH RULES AND
REGULATIONS MAY HAVE AN ADVERSE AFFECT ON OUT STOCK PRICE, THE MARKET AND AN
INVESTOR'S ABILITY TO SELL OUT STOCK AT A PARTICULAR PRICE.
The Securities and Exchange Commission has adopted regulations that
define "penny stock" to include common stock that has a market price of less
than $5.00 per share, subject to certain exceptions. These rules include the
following requirements:
o broker-dealers must deliver, prior to the transaction, a disclosure
schedule prepared by the SEC relating to the penny stock market;
o broker-dealers must disclose the commissions payable to the
broker-dealer and its registered representative;
o broker-dealers must disclose current quotations for the securities;
o if a broker-dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the
market; and
o a broker-dealer must furnish its customers with monthly statements
disclosing recent price information for all penny stocks held in the
customer's account and information on the limited market in penny
stocks.
Additional sales practice requirements are imposed on broker-dealers
who sell penny stocks to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and must have
received the purchaser's written consent to the transaction prior to sale.
Many securities listed on the Over-the-Counter Bulletin Board would
be covered by the definition of penny stock. If our common stock becomes
subject to these penny stock rules these disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for
our common stock. A reduced level of trading activity in the secondary market
may make it difficult for you to sell your shares at a particular time or at
a particular price.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AND MAY INCUR DILUTION IN
THE FUTURE.
If you purchase the common stock of this offering, you will incur
immediate dilution in the pro forma net tangible book value of our common
stock of $4.26 per share, if we sell all
11
2,000,000 of the shares that we are registering in this offering. If we sell
fewer shares, you will incur greater dilution. Moreover, we may require
additional funds to support our working capital requirements or for other
purposes, and may seek to raise additional funds through public or private
equity financing. Also, we may acquire other companies or finance strategic
alliances by issuing equity. Any capital raising transaction may result in
additional dilution to our shareholders.
12
- -------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
- -------------------------------------------------------------------------------
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any
jurisdiction where the offer or sale is not permitted. You should not assume
that the information contained in this prospectus is accurate as of any date
other than the date on the front cover of this prospectus unless otherwise
stated herein.
This prospectus contains forward-looking statements that address,
among other things, our business strategy, use of proceeds, projected capital
expenditures, and possible effects of changes in government laws. These
statements may be found under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," and "Management's Discussion and Analysis/Financial Condition and
Result of Operations," as well as in this prospectus generally.
Forward-looking statements are based on management's beliefs and assumptions
and on information currently available to management. Forward-looking
statements include all statements that are not historical facts and can be
identified by the use of forward-looking terminology such as the words
"believes," "expects," "anticipates," "intends," "plans," "estimates," or
similar expressions. Actual events or results may differ materially from
those discussed in forward-looking statements as a result of various factors,
including those factors discussed below under "Risk Factors" and set forth in
this prospectus generally. We do not have any intention or obligation to
update forward-looking statements after we distribute this prospectus.
- -------------------------------------------------------------------------------
OFFERING PRICE FOR OUR 2,000,000 SHARES
- -------------------------------------------------------------------------------
Prior to this offering, there has been no public market for our
shares of common stock. For the 2,000,000 shares we plan to sell in the
offering, we have established an offering price of $5.50 per share. This
price has been arbitrarily determined by us and bears no relation to the book
value or the fair market value of our assets, our current or projected
revenues, or the earnings we expect to generate in the future. The price at
which we offer our shares for sale may change during the course of this
offering depending upon market conditions.
13
- -------------------------------------------------------------------------------
USE OF PROCEEDS
- -------------------------------------------------------------------------------
We intend to use the net proceeds raised in this offering for the
following purposes:
o Open new emissions testing stations;
o Acquire existing emissions testing stations;
o Advertise, market and promote our stations and our services;
and
o Other general corporate purposes.
The following table shows the amount of net proceeds we expect to
raise and the anticipated uses of those net proceeds if we sell 100% of the
shares offered by us in this "best-efforts, no minimum" offering (or
2,000,000 shares), 50% of the shares offered (or 1,000,000 shares) and 25% of
the shares offered (or 500,000 shares):
USE OF PROCEEDS
-----------------------------------------------
Purchase of New Other
Or Advertising, General
No. of Anticipated Proceeds, Existing Emissions Marketing & Corporate
Shares Sold Net of Offering Expenses & Commissions Testing Stations Promotion Purposes
- ----------- -------------------------------------- ---------------- --------- --------
2,000,000 $9,334,000 $4,600,000 $725,000 $4,009,000
1,000,000 $4,494,000 $3,450,000 $300,000 $ 744,000
500,000 $2,074,000 $1,665,000 $150,000 $ 259,000
At the present time, we have no pending or probable acquisitions
of existing or other emissions testing stations.
We will not receive any proceeds from the resale of the 4,623,137
shares of common stock by the Selling Shareholders in this offering.
- -------------------------------------------------------------------------------
DIVIDEND POLICY
- -------------------------------------------------------------------------------
We have not declared or paid any cash or other dividends on our
common stock. We currently intend to retain earnings to finance the growth
and development of our business and do not anticipate declaring or paying
cash dividends on our common stock in the foreseeable future. Our board of
directors has discretion to declare future dividends after taking into
account various factors, including our financial condition, operating
results, current and anticipated cash needs and other factors our board of
directors deems relevant.
14
- -------------------------------------------------------------------------------
DILUTION
- -------------------------------------------------------------------------------
Our pro forma net tangible book value as of December 31, 2000 was
$801,000 or $.05 per share. Pro forma net tangible book value per share is
equal to our total tangible assets (which excludes goodwill and all deferred
offering and financing costs) less our total liabilities, divided by the
number of shares of common stock outstanding on a pro forma basis after
giving effect to:
(a) the purchase by GCA of a Series A convertible debenture
in January 2001 in the original principal amount of
$175,000 for a price equal to 95% thereof, or $166,250;
(b) the conversion of all Series A convertible debentures in the
aggregate principal amount of $1,000,000, plus accrued
interest thereon, into 3,553,137 shares of common stock;
(c) the cancellation of the warrants related to the Series A
convertible debentures;
After giving effect to the sale of 2,000,000, 1,000,000 or 500,000
shares of common stock offered by us in this offering at an assumed initial
public offering price of $5.50 and the receipt by us of the estimated net
proceeds therefrom, after deducting estimated selling commissions and other
offering expenses, our pro forma net tangible book value at December 31,
2000, would have been $9,806,000, or $1.24 per share (assuming the sale of
2,000,000 shares of our common stock); $4,966,000 or $0.72 per share
(assuming the sale of 1,000,000 shares of our common stock); or $2,546,000 or
$0.40 per share (assuming the sale of 500,000 shares of our common stock).
The following table illustrates the per share dilution assuming various
levels of sale of our common stock:
NUMBER OF SHARES SOLD IN THIS OFFERING
2,000,000 1,000,000 500,000
--------- --------- -------
Assumed initial public offering
price per share for shares of $5.50 $5.50 $5.50
common stock
Pro forma net tangible book
value per share before the
offering $ .05 $ .05 $ .05
Increase per share attributable to
purchases of shares of common
stock offered hereby $1.19 $ .67 $ .35
-----
Pro forma net tangible book value
per share after the offering $1.24 $ .72 $ .40
---- --- ---
15
Dilution per share to purchasers
of common stock offered
hereby $4.26 $4.78 $5.10
===== ===== =====
The following table summarizes, on a pro forma basis (as described
above) as of December 31, 2000, the number of shares of common stock
purchased from us, the total consideration paid to us and the average price
per share paid by existing stockholders and by the investors purchasing
shares of common stock in this offering, before deducting estimated selling
commissions and other offering expenses (shown at sales of 2,000,000,
1,000,000 and 500,000 shares of stock by us in this offering):
2,000,000 SHARES SOLD
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
---------------- ------------- PRICE PER
NUMBER* PERCENT AMOUNT* PERCENT SHARE
------- ------- ------- ------- -----------
Existing stockholders 5,903 75% $ 1,030 9% $ .17
New investors(1) 2,000 25% $11,000 91% 5.50
----- --- ------- ---- ------
Total 7,903 100% $12,030 100% $1.52
===== ==== ======= ==== =====
* IN THOUSANDS
(1) Represents only purchasers of the
2,000,000 shares of common stock offered by us in
this offering.
1,000,000 SHARES SOLD
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
---------------- ------------- PRICE PER
NUMBER* PERCENT AMOUNT* PERCENT SHARE
------- ------- ------- ------- -----------
Existing stockholders 5,903 86% $ 1,030 16% $ .17
New investors(1) 1,000 14% $ 5,500 84% 5.50
----- --- -------- ---- ------
Total 6,903 100% $ 6,530 100% $0.95
===== ==== ======== ==== =====
* IN THOUSANDS
(1) Represents only purchasers of the
1,000,000 shares of common stock offered by us in
this offering.
16
500,000 SHARES SOLD
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
---------------- ------------- PRICE PER
NUMBER* PERCENT AMOUNT* PERCENT SHARE
------- ------- ------- ------- -----------
Existing stockholders 5,903 92% $ 1,030 27% $ .17
New investors(1) 500 8% $ 2,750 73% 5.50
------ ---- -------- ---- ------
Total 6,403 100% $ 3,780 100% $ .59
===== ==== ======== ==== ======
* IN THOUSANDS
(1) Represents only purchasers of the
500,000 shares of common stock offered by us in this
offering.
17
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CAPITALIZATION
- -------------------------------------------------------------------------------
The following table set forth (i) our actual capitalization derived
from our audited financial statements as of December 31, 2000, and (ii) our
as adjusted capitalization to reflect:
(a) the purchase by GCA of a Series A convertible
debenture in January 2001 in the original principal
amount of $175,000, for a purchase price equal to 95%
thereof, or $166,250.
(b) the conversion of all Series A convertible debentures
in the aggregate principal amount of $1,000,000, plus
accrued interest thereon, into 3,553,137 shares of
common stock;
(c) the cancellation of the warrants related to the
Series A convertible debentures;
DECEMBER 31, 2000
-----------------
ACTUAL AS ADJUSTED
------ -------------
Cash $78,000 $ 244,000
======== =============
Convertible Debentures, less unamortized
original issue discount $673,000 $ ----
======== =============
Owners' equity (deficit):
Preferred stock, no par value per share;
10,000,000 shares authorized, no shares issued
and outstanding, actual; no shares
issued and outstanding, pro forma ---- ----
Common stock, no par value per share; 20,000,000
shares authorized, 2,350,000 shares issued
and outstanding, actual (1); 20,000,000 shares
authorized, 5,903,137 shares issued and
outstanding, pro forma $313,000 1,443,000
Accumulated deficit (635,000) (926,000)
--------- -----------
Total Owners' Equity(Deficit) $(322,000) $ 517,000
========== ===========
- -------------------------
(1) Based on the number of shares outstanding as of December 31,
2000. Excludes: 1,000,000 shares reserved for issuance under our
2000 Stock Option Plan
18
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SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------
The following condensed financial statements reflect our results of
operations for the period from May 5, 2000, the date of our incorporation,
through December 31, 2000, and our predecessor's results of operations for the
period from January 1, 2000 through May 31, 2000, and for each of the 12-month
periods ending December 31, 1999, 1998 and 1997.
Emissions Lake Holdings, LLC and R.V. Evans Enterprises, Inc.
Testing, Inc. (Predecessor)
-------------------- ---------------------------------------------------------
For the Period For the Period
from May 5, 2000 from January 1, 2000 For the Years Ended December 31,
through December 31, through May 31, ----------------------------------------
2000 2000 1999 1998 1997
---- ---- ---- ---- ----
Statement of
Operations Data
Net sales $167,000 $134,000 $339,000 $195,000 $ 70,000
Income (loss) from
operations ($342,000) $25,000 $36,000 $33,000 ($36,000)
Net income (loss) ($541,000) $17,000 $14,000 $17,000 ($36,000)
Income (loss) per
common share ($0.22) N/A N/A N/A N/A
Emissions Lake Holdings, LLC and R.V. Evans Enterprises, Inc.
Testing, Inc. (Predecessor)
------------- ---------------------------------------------------
December 31, December 31, December 31, December 31,
2000 1999 1998 1997
---- ---- ---- ----
Balance Sheet Data
Total assets $494,000 $127,000 $84,000 $39,000
Long term obligations
(including capital lease
obligations) $673,000 $ 91,000 $78,000 $32,000
Cash dividends per
common share - - - -
(1) The predecessor began operations in 1997, therefore, no information has been
provided for periods prior to 1997.
19
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS/FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ WITH OUR FINANCIAL
STATEMENTS AND NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE DISCUSSION IN
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVES RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS
APPLYING TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE THOSE
DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
In this offering we plan to raise net cash proceeds of $9,334,000,
approximately one-half of which we intend to use to open or acquire new testing
stations. According to our estimates, it costs $60,000 - $65,000 to open a new
emissions testing station. Therefore, if this offering is successful, we plan to
open or acquire at least 73 testing stations within 18 months from the
completion of this offering ($4,600,000/$62,500). We could open or acquire more
than 73 testing stations with the cash we anticipate from this offering, if we
subsequently finance a part of our start-up or acquisition costs for new
stations, instead of using our cash. If this offering is not as successful as we
hope and we are unable to sell all of the stock that we are offering to sell at
a price that we are willing to accept, we will reduce our acquisition plans
accordingly. If we sell only half of our stock that we are offering to sell, we
will be able to open or acquire only 55 additional stations with the cash from
the offering ($3,450,000/$62,500). If we sell only one-quarter of the stock that
we are offering to sell, we will be able to open or acquire only 26 stations
($1,665,000/$62,500).
FINANCIAL ANALYSIS
Our principal revenue source will be from the testing of automobiles
for compliance with emission level laws. In our initial market in the Metro
Atlanta Area, the price that we may charge for this service is fixed by the
state regulations. Currently, the maximum price that may be charged is $25.00
per vehicle. From that amount the state currently receives $7.40 in the form of
a fee, with the balance, or $17.60, retained by the emissions operator.
Effective April 1, 2001, the amount that the state will receive will decrease to
$6.95, with the balance of $18.05 to be retained by the emissions operator. We
currently charge and intend to continue to charge the maximum price allowable
per vehicle. As a result, our gross revenue from emissions testing will be
affected by, among other things, the number of tests our stations are able to
complete, the number of retests performed for which, by law, we cannot
collect a fee, the price we are allowed by law to charge for our service and
the time required by our employees to complete the tests.
20
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANAYLSIS/FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS FROM STATIONS ACQUIRED FROM LAKE HOLDINGS, LLC FOR FISCAL
YEARS 1998, 1999 AND THROUGH MAY 31, 2000
Our first two emissions testing stations were purchased from Lake
Holdings, LLC on June 1, 2000. We have operated those stations since the time of
our purchase. We have continued operating the stations using employees formerly
employed by Lake Holdings, and we have retained as a consultant, Robert Evans,
who managed the emissions stations for Lake Holdings, through his company known
as R.V. Evans Enterprises, Inc.
In reviewing the historical results of the first two stations we
acquired, we considered it most meaningful to view the combined financial
statements of Lake Holdings and Evans Enterprises given the close operational
relationship that existed between those entities. For accounting purposes, we
have treated Lake Holdings and Evans Enterprises, together, as our predecessor.
The combined audited financial statements of Lake Holdings and Evans Enterprises
show that, for the year ending December 31, 1998, the two companies generated
gross revenue of $195,000.00, and a resulting net profit of $17,000. For the
year ending December 31, 1999, Lake Holdings and Evans Enterprises generated
gross revenue of $339,000 and a net income of $14,000. We note that the combined
results of Lake Holdings and Evans Enterprises for the fiscal year ending
December 31, 1999, included two emissions testing facilities that were closed
during the course of 1999. For the period January 1, 2000 through May 31, 2000,
Lake Holdings and Evans Enterprises collectively generated gross revenue of
$134,000, which produced net income for the five month period of $17,000.
RESULTS OF OPERATIONS - MAY 5, 2000 THROUGH DECEMBER 31, 2000.
For the period May 5, 2000 through December 31, 2000, we generated
gross revenues of $167,000, and a net loss of $541,000. The revenue we generated
during the period ending December 31, 2000, met our expectations, based upon the
revenue generated by the same emissions testing stations during the first five
months of 2000.
Our net loss of $541,000 was the result of a significant increase in
our general and administrative costs, which totaled $432,000 during the period
from May 5, 2000 through December 31, 2000. The added costs were incurred to
establish the infrastructure we need to manage and grow our business. Among the
primary costs included in our G&A costs were the following:
* Approximately $111,000 was incurred in salary and wage payments to
our employees, including our current and former executive officers, home office
personnel and emissions testing personnel.
* Approximately $67,000 was paid to our consultants, Porter Lane
Investments, LLC and Robert Evans, in the respective amounts of approximately
$45,000 and $22,000. Porter Lane provides us with advice on matters involving
our industry and business, and Mr. Evans
21
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANAYLSIS/FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
provides us with advice concerning the operations of our existing testing
stations and on the selection of new sites.
* Approximately $43,000 was incurred in connection with maintaining our
corporate office located in Cumming, Georgia, including rent, telephone,
supplies, utilities, travel and entertainment and related items.
* Approximately $21,000 was incurred in non-offering related
professional fees.
* Approximately $41,000 related to various non-payroll costs incurred
at the testing stations.
* Approximately $88,000 in depreciation and amortization expense.
We expect that for the 18 month period following this offering, our
general and administrative costs will increase as a result of the substantial
increase in the number of stations that we will open. However, as our expansion
efforts slow, we expect that our general and administrative costs will decrease
and remain relatively constant thereafter.
In addition, we incurred an interest expense in the aggregate amount of
approximately $199,000 for the period May 5, 2000 through December 31, 2000. The
expense consists primarily of the following:
* Approximately $159,000 in interest expense was recognized related to
the amortization of the beneficial conversion features contained in the Series A
convertible debentures, of which approximately $80,000 was recognized in the
fourth quarter. We allocated a total of $232,000 of the proceeds from these
Series A Debentures purchases to the beneficial conversion feature contained
with these debentures based upon the relative fair values of the Series A
Debentures and the warrants issued and the conversion price of the Series A
Debentures relative to the estimated fair value of our common stock at that
time. Additionally, we will recognize approximately $238,000 in interest expense
in January 2001 related to the amortization of the beneficial conversion
features upon GCA's conversion of all of the Series A Debentures.
* Approximately $25,000 in interest expense related to the Series A
convertible debentures.
As discussed in more detail below, we have opened our third and fourth
stations in our first cluster area in the northeastern part of the Metro Atlanta
area. At those sites, we have converted car wash facilities previously operated
by Texaco, Inc., into our emissions stations. We believe that, by offering our
customers the convenience of purchasing gasoline and food items when having
their vehicle emissions tested, we should experience a high level of traffic and
sufficient revenues to cover our costs at those location and produce a profit.
22
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MANAGEMENT'S DISCUSSION AND ANAYLSIS/FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
In addition, we have purchased the emissions testing equipment we need
to open our fifth station. Currently, we are in the process of identifying
potential sites for our fifth and sixth stations in Metro Atlanta. We expect
that our fifth and sixth stations will be new emissions testing stations,
most likely converted car wash facilities similar to our third and fourth
stations. We plan to have these stations open for business by the end of the
second quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES.
We have funded our business through cash flows from operations and
proceeds from the issuance of convertible debentures. During the period from
June 2000 through January 2001, we sold $1 million of our Series A convertible
debentures to GCA Strategic Investment Fund Limited, as noted below:
Date Principal Amount of Debenture Proceeds Received
---- ----------------------------- -----------------
June 1, 2000 $525,000 $498,750
September 15, 2000 100,000 95,000
November 1, 2000 100,000 100,000
December 6, 2000 100,000 95,000
January 31, 2001 175,000 166,250
- ---------------- ------- -------
Total: $1,000,000 $955,000
========== ========
In January 2001, GCA converted the debentures, plus outstanding accrued
interest, into 3,553,137 shares of our common stock. Today GCA is our largest
single shareholder.
Currently, with regard to our fifth and sixth stations that we intend
to open by the end of the second quarter of 2001, we have sufficient capital
to acquire the necessary equipment for our sixth station and lease the land
and the buildings that we will need and to install the emissions testing
equipment at those sites. In addition, we have sufficient capital at this
time to cover our operating costs and expenses, assuming a six station
operation, for a period of six to nine months, based upon the revenue that we
currently derive at our stations. To date, we have not approached any banks
or financial institutions to discuss alternate financing. We doubt that
conventional financing would be available to us given our limited operating
history.
For our company to grow beyond six stations, we need to successfully
sell our shares in this offering. If we are unable to sell our shares in this
offering, it is unlikely that we will be able to expand our operations. However,
we should be able to open our fifth and sixth stations and maintain that level
of business through operating revenues, so long as we incur no extraordinary
losses or expenses and steps are taken to reduce our administrative expenses,
which are high at this time in anticipation of future growth and expansion. If
we are unable to sell our shares in this offering, we would consider the
following cost-savings steps:
23
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MANAGEMENT'S DISCUSSION AND ANAYLSIS/FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
o We would consider not renewing or extending the lease on our
home office located at 400 Colony Park, Cumming, Georgia. That
lease is scheduled to expire on May 31, 2001. If necessary, we
would consider locating our office in the home office of Mr.
Parlontieri. The move would save us $1,195 per month, and
$14,340 per year.
o We would consider reducing our personnel headcounts and
associated costs. That step would save us approximately
$25,000 - $50,000 per year.
o We would consider seeking renegotiation of our consulting
agreements to reduce the amounts we pay to our operations and
business consultants.
FISCAL YEAR.
We have adopted the calendar year ending December 31st as our fiscal
year.
24
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BUSINESS
- -------------------------------------------------------------------------------
OVERVIEW
We are a start-up enterprise formed on May 5, 2000 as a corporation
under the laws of the State of Georgia. Our purpose is to establish a network of
automotive emissions testing stations by opening new stations or acquiring
existing stations. In June, 2000, we acquired our first two testing stations,
which were pre-existing emissions testing sites. In November, 2000, we opened
our third and fourth testing stations. Our third and fourth sites were used as
car wash facilities before we converted them to emissions testing stations.
Other than our brief experience with our initial stations, we have no operating
or financial history.
Since the time of our formation, however, we believe that we have made
considerable strides in establishing a platform from which to build our
business. We have assembled a group of founders who, as a group, have devoted
their time and energy in researching and studying key aspects of the emissions
testing business in the United States, and particularly in the State of Georgia.
We have entered into an employment agreement with Richard A. Parlontieri to
serve as our President and Chief Executive Officer to handle our day-to-day
operations, and have retained two consultants to provide specialized services
for us.
We believe there exists an opportunity for us to exploit the emissions
testing business in several states in the United States. In many states,
including Georgia, emissions testing operators each command no more than two or
three percent of the market in those jurisdictions. To our knowledge, there are
only two operators in the Metro Atlanta Area who own and operate more than two
testing stations. We believe there are three primary reasons for this market
fragmentation:
1. Most emissions testing stations are affiliated with another
business, which serves as their primary business. Examples of such operators
include automobile dealerships, muffler shops and other automobile repair shops.
2. Most of the companies that provide emissions testing services are in
the business of repairing vehicles.
3. A large segment of the operators that perform emissions testing are
independent "mom and pop" small business owners.
Given this market fragmentation, the large number of small business
operators engaged in the business, and the fact that many large companies that
perform emissions testing do so as a non-primary business, we believe that a
roll-up en masse of independent emissions testing operators is a very viable
business opportunity. Many of the current operators are handicapped in their
ability to expand and grow because of limited capital and management resources.
25
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BUSINESS
- -------------------------------------------------------------------------------
By building a national company we can provide for the local independent
operator access to capital for marketing and expansion, along with the corporate
benefits of health insurance, a retirement plan, stock options and other
benefits we intend to adopt as we grow. If we are able to build a national
company, we will be able to offer an exit strategy for small operators who chose
to sell their stations to us -- an exit strategy that is otherwise unavailable
today.
INDUSTRY BACKGROUND -- GOVERNMENTAL AND REGULATORY OVERVIEW
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
small number of emissions testing operators are licensed by the state 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. Fifteen states have implemented decentralized programs
and eleven states and the District of Columbia have implemented centralized
programs. 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
26
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BUSINESS
- -------------------------------------------------------------------------------
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 and it has yet to impose any sanctions or
penalties for non-compliance.
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 22 million vehicles subject to emissions testing, more than three
times that of any other state. California's testing program is overseen by the
California Bureau of Automotive Repair (the "BAR"). The BAR has revised its
emissions testing standards three times: in 1984, 1990 and, most recently, in
1997. With each of these revisions, the BAR has required the use of new, more
sophisticated and more accurate emissions testing and analysis equipment, which
must be certified by the BAR. 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
27
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BUSINESS
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"enhanced" tests in some areas. A technician conducts these enhanced tests on
a dynamometer, a treadmill-type device that simulates actual driving
conditions, including periods of acceleration, deceleration and cruising.
THE FOLLOWING TABLE WAS DEVELOPED BY THE EPA AND PROVIDES CONTACT
INFORMATION ABOUT THOSE STATE INSPECTION PROGRAMS. THESE LINKS WERE VALID AS OF
JANUARY 29, 2001.
=============================================================================================
CENTRALIZED STATE PROGRAM PAGES
=============================================================================================
Arizona HTTP://WWW.ADEQ.STATE.AZ.US/INDEX.HTM
=============================================================================================
Connecticut HTTP://DMVCT.ORG/EMIPAGE.HTM
=============================================================================================
Colorado HTTP://WWW.STATE.CO.US/GOV_DIR/REVENUE_DIR/MV_DIR/EMISSIONS.HTML
=============================================================================================
DC HTTP://NETSCAPE.DIGITALCITY.COM/WASHINGTON/DMV/MAIN.DCI#SAFETY
=============================================================================================
Delaware HTTP://WWW.DNREC.STATE.DE.US/AIR/AQM_PAGE/INSPECT.HTM
=============================================================================================
Illinois HTTP://WWW.EPA.STATE.IL.US/AIR/VIM/
=============================================================================================
Indiana HTTP://WWW.STATE.IN.US/BMVEXPRESS/TITLES/REGMANOL.HTML
=============================================================================================
Maryland HTTP://WWW.MDE.STATE.MD.US/ARMA/VEIP/VEIPHOME.HTML
=============================================================================================
Ohio HTTP://WWW.EPA.STATE.OH.US/DAPC/MOBILE/MAIN_PAGE.HTML
=============================================================================================
Washington HTTP://WWW.ECY.WA.GOV/PROGRAMS/AIR/AUTOMOTIVE_PAGES.HTM
=============================================================================================
Wisconsin HTTP://WWW.DOT.STATE.WI.US/DMV/IM.HTML
=============================================================================================
DECENTRALIZED STATE PROGRAM PAGES
=============================================================================================
Alaska HTTP://WWW.STATE.AK.US/DMV/REG/IMTEST.HTM
=============================================================================================
California HTTP://WWW.SMOGCHECK.CA.GOV/
=============================================================================================
Georgia HTTP://WWW.CLEANAIRFORCE.COM/
=============================================================================================
Kentucky HTTP://WWW.NR.STATE.KY.US/NREPC/DEP/DAQ/OUTREACH/SMOG.HTML
=============================================================================================
Massachusetts HTTP://WWW.MAGNET.STATE.MA.US/DEP/BWP/IANDM/IMHOME.HTM
=============================================================================================
New Jersey HTTP://WWW.STATE.NJ.US/MVS/INSPECTION.HTM
=============================================================================================
Nevada HTTP://WWW.STATE.NV.US/DMV_PS/NVREG.HTM
=============================================================================================
New York HTTP://WWW.NYDMV.STATE.NY.US/VEHSAFE.HTM
=============================================================================================
Oregon HTTP://WWW.DEQ.STATE.OR.US/AQ/VIP/INDEX.HTM
=============================================================================================
Pennsylvania HTTP://WWW.DRIVECLEANPA.STATE.PA.US/
=============================================================================================
Rhode Island HTTP://WWW.RIINSPECTION.COM/
=============================================================================================
Texas HTTP://WWW.TNRCC.STATE.TX.US/AIR/MS/MOTORISTCHOICE.HTML
=============================================================================================
Utah HTTP://WWW.SLVHEALTH.ORG/HTML/EH/HTML/IM.HTML
=============================================================================================
Vermont HTTP://WWW.AOT.STATE.VT.US/DMV
=============================================================================================
Virginia HTTP://WWW.DEQ.STATE.VA.US/PROTAIR/HOMEPAGE.HTML
=============================================================================================
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 inspections 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,
28
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.
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, or a fleet
of vehicles. The four stations we currently operate 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 beginning on January 1, 2001. Also, beginning on
January 1, 2001, new vehicles will be exempt from testing until the test year
three years following the model year of the vehicle. Thus, for the year 2001,
all vehicles must be tested, other than 1999, 2000 and 2001 vehicle models.
The market for emissions testing in Georgia is highly fragmented and
generally consists of services provided by independent auto service providers,
such as service stations and car dealers. According to the State of Georgia,
there were 649 licensed test sites and 1,416,452 tests were performed in Georgia
under the Georgia Clean Air Force Program during the calendar year 1999.
Under Georgia law, the price that a testing station may charge per test
may not be less than $10 nor more than $25. Until April 1, 2001, $7.40 per test
must be paid by the station operator to the state as a fee. Beginning April 1,
2001, that fee will reduce to $6.95. The balance of the current charge, or
$17.60 per vehicle ($18.05 after April 1, 2001) 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. During the first six months of 2000, according to the State of
Georgia, approximately 13.77% all tests performed in Georgia were retests for
which there was no charge. At our stations, to date, we have had a test failure
rate of 3.7%.
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
$627 under current law. If a vehicle fails a reinspection despite the maximum
expenditure required by law, the owner must apply for a compliance waiver from
the state.
29
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.
The typical testing site is located inside of a structure similar to a
residential garage with doors at both ends so vehicles can "drive-through" the
facility. A computerized testing system is located in the building and, in the
case of enhanced testing, a dynamometer is fixed to the floor, generally inset
in a concrete floor. The dynamometer is a device that allows the vehicle to be
running, in drive gear, allowing a simulation of the operation of the vehicle at
normal driving speeds, though in place, in the garage. In Georgia, a dynamometer
test is required of all vehicles made between 1977 and 1995. The cost of
equipment for a new testing station is approximately $40,000, while the cost of
the facility varies. Generally, we do not expect to own any land or buildings.
Instead, we intend to lease or sublease all of the land and the buildings that
we use in our business. We expect a total cost for a new emissions testing site
will be approximately $60,000 to $65,000, including renovations, equipment and
installation.
BUSINESS, GROWTH AND OPERATIONS STRATEGY
Our initial business strategy is to establish a "cluster" of emissions
testing stations in various locations in the Metro Atlanta Area, and to expand
into other states that have adopted a decentralized emissions testing program.
By creating a presence by branding our image in additional testing markets, we
believe we can develop a long-term strategy for growth and stabilize our
revenues as our markets change, based on population changes, governmental
legislation and other factors.
Our business strategy takes into account the following factors;
o An increase of approximately 70%, as determined in the Georgia Clean
Air Force, in the number of cars requiring emissions testing as a
result of changes in Georgia law, requiring that vehicles be tested
annually, instead of biennially, and by conditioning the issuance of a
license registration upon compliance with the emissions testing law, in
the 13 county area that comprises the Metro Atlanta Area; and
o A increasing population in the Metro Atlanta Area, together with an
increase in the number of vehicles operated in that area; the Metro
Atlanta Area has seen an increase the number of automobiles operated in
the area, from 1,932,635 cars in 1995 to 2,175,316 in 1999.
We believe that these market characteristics should create for us the
potential for revenue growth and cost efficiencies.
GROWTH STRATEGY
Our growth strategy is to establish an initial presence in the Metro
Atlanta Area through (a) the opening of new stations in locations that
management believes will offer the potential for a high volume of business, and
(b) the acquisition of existing testing stations. In the acquisition
30
of existing stations, we seek facilities located on heavily traveled roads
and at busy intersections. Other criteria include proximity to a large number
of businesses, state automobile licensing offices, and densely populated
residential areas. The same attributes apply to new sites, when establishing
the most desirable locations. Our goal is to locate sites that are convenient
and "user friendly" for our customers.
Many of the existing emission sites in Georgia are located at
intersections with relatively low traffic volume, or operate in conjunction with
other low volume businesses, including many service stations and other auto
service businesses. While these sites may operate profitably when combined with
other business activities, they would likely be unprofitable as a standalone
testing business. We will generally avoid the selection of such sites, instead
focusing on higher volume traffic sites.
As we open new sites, we expect that we will lease the land and
building from the existing owner or sublessor. When we are able to use an
existing building, such as an abandoned car wash, oil change or service station
location, we expect minimum expense associated with the installation of the
equipment. In the case that we lease the land only, for instance in a shopping
center parking lot, we would expect to erect a simple structure to house our
equipment. These structures would be assembled on site, using pre-made panels,
such that they can easily be moved at a later date. A structure of this style
would cost from $5,000 to $7,000, depending on size and local building code
requirements.
After acquiring a site, or opening a new facility, we may advertise our
location using leaflets, flyers and other printed material, as well as signage
at the location. We believe the use of such promotions will generate awareness
of our sites, and thereby create increased traffic to our locations. We expect
to make our information available on the Internet for look-up by our customers,
such as our site locations, operating hours and other information that might be
of interest to our customers and prospective customers.
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 is designed to enhance our revenue and cash flow. To achieve
these goals, we:
o Seek to secure and maintain multiple stations at well-traveled
intersections and other locations that are easily reachable by our
customers:
o Coordinate operations, training and advertising in each market to
enhance revenue and maximize cost efficiencies within each market;
o Implement regional management and marketing initiatives in each of our
markets;
o Seek to acquire existing testing sites where significant volume
potential exists; and
31
o Tailor each facility, our advertising and the services we offer to
appeal to the broadest range of consumers.
Our emissions testing stations are open for business during weekdays
between the hours of 8:00 AM to 5:30 PM, and from 8:30 AM to 2:00 PM on
Saturdays, for a total of 53 hours per week. Our stations are closed on Sundays.
The average emissions test takes approximately 12 to 15 minutes to complete.
Therefore, each of our stations with one testing bay can test anywhere from
four to five vehicles per hour. Assuming steady demand throughout the day,
six days a week, each of our stations would have the capacity to test
approximately 212 vehicles per week (53 hours X 4 vehicles per hour), or 848
vehicles per month (212 vehicles per week X 4 weeks). Based upon our
calculations involving our first two emissions stations during the time
period June 1, 2000 through December 1, 2000, stations with one testing bay
(currently, the Atlanta Highway, Jimmy Carter and Beaver Ruin stations) need
to receive payment for 429 emissions tests per month to cover the costs
associated with its operation.
On February 3, 2001, we upgraded the East Crogan Street station to
test two vehicles at a time. Based upon our experience with that station, a
station with two testing bays needs to receive payment for 438 emissions
tests per month to cover its costs.
Under our model described above, our stations have sufficient capacity
for us to cover our station overhead costs and generate a profit.
To date, our stations at East Crogan Street, Atlanta Highway, Jimmy
Carter and Beaver Ruin performed, and received payment for, the following number
of emissions tests:
Month (2000) Atlanta Highway East Crogan Street Jimmy Carter Beaver Ruin
- ------------ --------------- ------------------ ------------ -----------
June 652 278 N/A N/A
July 636 301 N/A N/A
August 740 411 N/A N/A
September 620 292 N/A N/A
October 513 299 N/A N/A
November 588 262 44 39
(3 weeks only)
December 490 189 109 36
January (2001) 994 373 133 89
February (2001) 866 438 120 76
(two testing bays)
Our Atlanta Highway station has consistently achieved its break-even of
point of 429 paid tests per month.
32
Results at our East Crogan station have continued to improve. With the
addition of an additional testing bay on February 3, 2001, the East Crogan
station reached its break-even point of 438 paid tests, in the same month. We
plan to increase our promotion of that station with direct mailings and flyers
in an attempt to generate additional volume at that station.
Our third and fourth stations, were opened during November, 2000. Prior
to that time, the buildings we are now occupying on Jimmy Carter Boulevard and
Beaver Ruin Road were used as car wash facilities. Therefore, it will take time
to make motorists aware of the new emission testing service now provided at
those locations. To date, the Jimmy Carter Station is meeting our expectations
and we believe that station has good potential for high volume. We are
disappointed with the results of our Beaver Ruin Station. We are watching that
station very carefully to determine what steps can be taken to enhance the
volume we have seen thus far.
Our results for January and February 2001 show an increase in volume
over prior months during 2000. We attribute the increase primarily to the change
in Georgia law, which, as of January 1, 2001, mandates annual testing of
vehicles, instead of every other year as under prior law.
EMPLOYEES AND CONSULTANTS
We currently employ seven individuals, including our President, Richard
A. Parlontieri, and our Business Office Manager, Karen Vickers. Our other
employees are each licensed by the State of Georgia to perform vehicle emissions
tests. In addition, we have engaged the services of two consultants. See,
"Employees and Consultants."
INTELLECTUAL PROPERTY
We have registered the trade name "Speedemissions" in Forsyth County,
Georgia, and are thereby authorized to conduct our business in Georgia under the
name "Speedemissions." To date, we have not filed either a State or Federal
Service Mark Registration, nor have we conducted any research as to whether or
not we would be able to register such a mark or whether or not any other party
has pre-emptive rights to such a mark.
LEGAL PROCEEDINGS
We are not currently involved in litigation, arbitration or other
proceedings in connection with the ownership or operation of our business.
FISCAL YEAR
We have adopted a fiscal year that ends on December 31st of each year.
33
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EMPLOYEES AND CONSULTANTS
- -------------------------------------------------------------------------------
As noted above, we currently employ seven individuals, including our
President, Richard A. Parlontieri, and our Business Office Manager, Karen
Vickers. Our other employees are each licensed by the State of Georgia to
perform vehicle emissions tests. In addition, we have engaged the services of
two consultants.
EXECUTIVE EMPLOYMENT AND CONSULTING AGREEMENTS
RICHARD A. PARLONTIERI. On September 18, 2000, we entered into an
employment agreement with Richard A. Parlontieri to serve as our President and
Chief Executive Officer. Our initial agreement with Mr. Parlontieri was replaced
and superceded by an employment that we entered into with him on December 1,
2000. The effective date of our new employment agreement with Mr. Parlontieri is
September 18, 2000.
Our current agreement with Mr. Parlontieri has an initial term of three
years, which may be extended for up to three one-year periods. Mr. Parlontieri's
base compensation is $120,000 per year beginning January 1, 2001. His base
compensation for the period September 18, 2000 through December 31, 2000 was
$60,000 per annum. In addition, Mr. Parlontieri is entitled to receive a
quarterly bonus of not less than $10,000 per quarter if he achieves certain
performance goals and criteria developed by the Compensation Committee of the
board of directors. Mr. Parlontieri received a cash bonus in the amount of
$10,000 for the quarter ended December 31, 2000. Mr. Parlontieri also in
entitled to a monthly automobile allowance of $500 and reimbursement of certain
necessary, customary and usual business related expenses. We have agreed to pay,
or reimburse Mr. Parlontieri for, his actual COBRA expenses for himself and his
wife until we have a health plan for our employees. Mr. Parlontieri is a member
of our board of directors and will serve in that capacity without additional
compensation, though we may reimburse Mr. Parlontieri for his out-of-pocket to
attend meetings of the Board.
In addition, we have agreed to issue Mr. Parlontieri an option to
purchase up to and including 500,000 shares of common stock. The option will be
issued in accordance with the term of our 2000 Stock Option Plan. The option
will be granted after our shares of common stock are traded in the public
market. The per share exercise price under the option will be equal to the per
share fair market value of our common stock on the date on which the option is
granted. The option will vest as to 250,000 shares on the grant date of the
option, and the remaining 250,000 shares will vest on January 1, 2002. See
"Employees and Consultants - 2000 STOCK OPTION PLAN."
Mr. Parlontieri is one of our founders and is one of the selling
shareholders in this offering. Mr. Parlontieri is the owner of record of 200,000
shares of our common stock, of which 100,000 shares are being registered for Mr.
Parlontieri in this offering. See "Principal Shareholders" and "Selling
Shareholders." 150,000 shares of Mr. Parlontieri's shares of common stock are
subject to a lock-up agreement with us. See "Shares Eligible for Future Sale."
We are in the process of obtaining a "key-man" insurance policy on the life of
Mr. Parlontieri in the amount of $1 million and expect to have that coverage in
place within the next 60 days.
34
ROBERT EVANS. On June 1, 2000 , we entered into a consulting agreement
with Robert Evans, a resident of Atlanta, Georgia Mr. Evans previously operated
for Lake Holdings, LLC, the emissions testing stations at 27 East Crogan Street
and at 554 Atlanta Highway, which we purchased and are currently operating.
Under our agreement, Mr. Evans has agreed to provide assistance and advice in
connection with the operations of our emissions testing stations on East Crogan
Street and on Atlanta Highway, and in connection with developing criteria to use
in selecting potential sites for our additional stations. Mr. Evans was
instrumental in the process of selecting our third and fourth emissions testing
sites on Jimmy Carter Boulevard and Beaver Ruin Road in Gwinnett County,
Georgia. We have agreed to pay Mr. Evans $1,000 per week for his services and we
have agreed to provide him with an automobile allowance of $500 per month. In
addition, we have agreed to issue Mr. Evans an option to purchase up to and
including 120,000 shares of our common stock pursuant to the terms of our 2000
Stock Option Plan. The option will be granted after our share of common stock
are traded in the public market. The per share exercise price under the option
will be equal to the per share fair market value of our common stock on the date
on which the option is granted. The option will vest as to 60,000 shares on the
grant date of the option, and the remaining 60,000 shares will vest on January
1, 2002. See "Employees and Consultants - 2000 STOCK OPTION PLAN." Our
consulting agreement with Mr. Evans, which has an effective date as of June 1,
2000, will expire on April 1, 2001. See "Employees and Consultants - 2000 STOCK
OPTION PLAN."
Mr. Evans is one of our founders and is the owner of record of 140,000
shares of common stock, 90,000 of which we are registering for Mr. Evans in this
offering. Mr. Evans's shares of common stock are not subject to any lock-up
agreement with us, though Mr. Evans' shares that are not being registered in
this offering are and will be subject to transfer restrictions under Rule 144
promulgated under the Securities Act of 1933, as amended. See "Shares Eligible
for Future Sale."
PORTER LANE INVESTMENTS, INC. Concurrently with our formation on May 5,
2000, we entered into a consulting agreement with Porter Lane Investments, Inc.,
a Georgia corporation. Porter Lane is owned by Gerald F. Sullivan, one of our
founders and a resident of Georgia. Our consulting agreement with Porter Lane
obligates Porter Lane to provide assistance and advice to us in connection with
mergers, acquisitions and other business combinations, and in connection with
the capital markets and financing transactions. Our agreement with Porter Lane
has a term of five years and requires us to pay Porter Lane a monthly fee of
$8,000, which fee increases at the rate of ten percent per year, plus a finder's
fee on debt and/or equity acquisition transactions procured for us through the
efforts of Porter Lane equal to two and one-half percent of the value of the
transaction. The agreement permits Porter Lane to retain, engage and employ
other persons and entities to provide the services required to be furnished by
Porter Lane under our agreement.
The consulting agreement with Porter Lane further requires that we
provide it with office space and office support at our executive offices in
Cumming, Georgia, as well as reimburse Porter Lane for any actual expenses
incurred by it in connection with the performance of its duties under our
consulting agreement. Porter is a selling shareholders in this offering. We are
registering 100,000 shares of the 210,000 shares of our common stock owned of
record by Porter
35
Lane. See "Principal Shareholders" and "Selling Shareholders." Of the 210,000
shares of common stock owned of record by Porter Lane, 160,000 shares are
subject to a lock-up agreement with us. See "Shares Eligible for Future Sale."
WILLIAM S. ESTROFF. On June 1, 2000, we entered into an employment
agreement with William S. Estroff to serve as our president and chief executive
officer. The agreement had an initial term of one year, with renewal options for
up to three additional one-year terms. Mr. Estroff resigned as our president and
chief executive officer as of September 15, 2000. At the same time, Mr. Estroff
resigned his position as a member of our board of directors. Mr. Estroff is one
of our founders and is the owner of record of 110,000 shares of common stock. Of
those shares, we are registering 55,000 shares for Mr. Estroff in this offering.
Mr. Estroff is one of the selling shareholders in this offering. See "Principal
Shareholders" and "Selling Shareholders." All of Mr. Estroff's shares of common
stock are subject to a lock-up agreement with us. See "Shares Eligible for
Future Sale."
The following table sets forth information with respect to all
compensation, paid or accrued, in the year ended December 31, 2000, for services
rendered in all capacities to us by our Chief Executive Officer, Richard A.
Parlontieri; by our independent contracts, Gerald F. Sullivan and Robert Evans;
and by our former Chief Executive Officer, Robert Estroff.
SUMMARY COMPENSATION TABLE
(ALL AMOUNTS ARE ANNUALIZED FISCAL YEAR 2000 AMOUNTS)
Long-term
Compensation
Annual Compensation Awards
Fiscal -------------------------------------------- ----------------
Year Other Securities
Ended Salary Bonus Annual Underlying
Name and Principal Position Dec. 31 ($) ($) Compensation($) Options(#)
- --------------------------- ------- -------- -------- --------------- ----------
Richard A. Parlontieri, CEO 2000 $60,000 $10,000 -0- 500,000
Gerald F. Sullivan, Consultant 2000 $96,000 -0- -0- -0-
Robert Evans, Consultant 2000 $52,000 -0- $6,000(1) 120,000
William S. Estroff, Former CEO 2000 $60,000 -0- $6,000(1) -0-
- ----------------------
(1) Automobile allowance of $500 per month.
2000 STOCK OPTION PLAN
IN GENERAL
In December, 2000, our board of directors adopted a stock option plan
known as the "Emissions Testing, Inc., 2000 Stock Option Plan." The effective
date of the plan is December 1, 2000. The purpose of the plan is to afford our
executive employees and directors, as well as our key consultants and advisors,
with an opportunity to acquire or increase their respective proprietary
interests in us. The plan is administered by a committee appointed by our board
of directors. The board has appointed three of its members, Messrs. Sidney E.
Brown,
36
William L. Ross and Richard D. Downey, to serve as the initial members of the
committee. The committee has the power and authority under the plan, among
other things, to select the persons to whom options or awards will be
granted, the type and number of shares or awards to be granted to such
persons and the terms and conditions of the grant, including the timing of
the grant.
Our board has reserved 1,000,000 shares of our common stock for
issuance under the plan. The plan contemplates the issuance of incentive stock
options, options other than incentive stock options, reload options, restricted
shares of our common stock, and stock appreciation rights.
INCENTIVE STOCK OPTIONS. Incentive stock options are options issued in
accordance with the terms, limitations and conditions of Section 422 of the
Internal Revenue Code. Incentive stock options provide certain tax benefits to
the option holder, mainly the deferral of income tax recognition until the
securities issuable upon exercise of the option are sold or otherwise disposed
of by the security holder. Options that do not satisfy Section 422 generally are
taxable to the option holder upon the exercise of the option.
o the option holder must be an employee of the issuer
or a subsidiary of the issuer;
o the option holder may not be an individual who, at
the time the option is granted, owns stock that has
more than 10% of the voting power of all classes of
stock of the issuer or any subsidiary of the issuer
unless certain more stringent qualification rules are
satisfied;
o upon exercise of the option, the option holder must
receive stock of the employer corporation or the
stock of a parent or subsidiary corporation to the
employer;
o the option plan must specify the aggregate number of
shares of employer stock that may be issued pursuant
to the plan and the employees or class of employees
who are eligible to receive incentive stock options;
o a newly adopted incentive stock option plan must be
approved by the shareholders of the adopting
corporation within 12 months before or after the plan
is adopted;
o the plan cannot be of a duration of more than 10
years from the date the plan is adopted or the date
the plan received shareholder approval, whichever is
earlier;
37
o the incentive stock option, by its terms, cannot be
exercised after the expiration of 10 years from the
date of the grant;
o the option exercise price must be no less than the
fair market value of the underlying stock at the time
the option is granted and, if the option holder is
the owner of 10% or more of the total combined voting
power of the stock of the employer corporation or its
parent or subsidiary, the exercise price must be no
less than 110% of the market value of the underlying
stock, and
o the value of shares of employer stock that can be
exercised for the first time by a taxpayer in any one
year under an incentive stock option plan cannot
exceed $100,000, based on the fair market value of
the stock at the date of the option's grant.
OPTIONS THAT ARE NOT "INCENTIVE" STOCK OPTIONS. Options that do not
meet the requirements of an incentive stock options may be issued under the
plan, pursuant to terms and conditions established by the committee in
accordance with the plan, including the exercise price, any vesting period,
forfeiture provisions, and the period of time within which the option may be
exercised.
RELOAD OPTIONS. Reload or "replacement" options are options that may,
in the discretion of the committee, be issued whenever an option holder uses
shares of our common stock to pay the exercise price of options previously
granted under the plan. The number of shares covered by such an reload option
generally is equal to the number of shares used by the option holder to pay the
exercise price of the earlier options, and the exercise price for the reload
option generally is equal to the then-current fair market value of our common
stock.
RESTRICTED SHARES. Restricted shares of common stock may be issued
under the plan. Restricted shares are those subject to restrictions, terms and
conditions placed upon them by the committee, in its discretion, in connection
with the issuance, ownership or transferability of those shares.
STOCK APPRECIATION RIGHTS. Stock appreciation rights allow the holder
to receive from us an amount of cash equal to the appreciation, if any, in the
fair market value of a share of our common stock from the grant date of such
rights to the date on which the rights are retired or expire.
The plan provides that the Committee, in its discretion, may issue
options and awards in any combination. We are not obligated under the plan, or
any agreement to which we are a party, to register any of the options or awards
issuable under the plan with the Securities and Exchange Commission or any other
governmental agency.
38
OPTIONS TO BE GRANTED UNDER THE PLAN
To date, no options have been issued under the plan. However, the
committee under the plan has agreed to issue options to Richard A. Parlontieri
for 500,000 shares, to Mr. Robert Evans for 120,000 shares and to the current
outside members of our board of directors for 15,000 shares of common stock. The
options will not be granted until after our common stock is traded in the public
market. The per share exercise price under each of these options will be equal
to the per share fair market value of our common stock on the date the options
are granted.
39
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REAL ESTATE
- -------------------------------------------------------------------------------
CORPORATE OFFICE
We rent our general corporate offices located at 400 Colony Park in
Cumming, Georgia, which consist of 1,240 square feet of office space. The rent
for our office space is $1,195 per month, including utilities, with a term that
expires on May 31, 2001. We believe that this space is adequate for our current
needs.
TESTING FACILITIES
We rent the land and buildings we use in connection with our four
existing emissions testing facilities:
o EAST CROGAN STREET STATION: We lease a facility located at 27 East
Crogan Street, Lawrenceville, Georgia. That lease expires May 31, 2004.
The current rent under that agreement is $1,759 per month, subject to
adjustment based upon the consumer price index. We have a single, five
year renewal option on this lease. This facility was originally leased
to Lake Holdings. Pursuant to the terms of that lease, we obtained the
lessor's consent to the assignment of that lease by Lake Holdings to us.
o ATLANTA HIGHWAY STATION: We lease a facility located at 554 Atlanta
Highway, Cumming Georgia 30041. That lease expires on September 1, 2001,
but may be terminated by either party upon thirty (30) days written
notice. The monthly rent under that lease is the greater of $500 or $1.
for each vehicle tested at the site during the applicable month. This
facility was originally leased to Lake Holdings. The lease does not
require and we did not obtain an assignment or sublease of this lease,
though we do occupy the facility, operate our business from the facility
and fulfill the obligations of the lessee under the lease.
o JIMMY CARTER BOULEVARD AND BEAVER RUIN ROAD STATIONS: On October 4,
2000, we entered into two separate land leases with Motiva Enterprises
LLC, a Delaware limited liability company, with executive offices in
Houston, Texas. Under each of those agreements, we agreed to lease, as
lessee, a building previously operated as a car wash by Texaco, Inc.,
and the adjoining land. Our purpose for leasing the land and buildings
was to convert each of the car wash facilities to emissions testing
stations. At each site, the lessor removed the car wash equipment and we
then installed our emissions testing equipment in the buildings, using a
part of the testing equipment we purchased from Lake Holdings in June,
2000. The sites we leased from Motiva are in Gwinnett County, Georgia,
and are located at 4125 Jimmy Carter Boulevard and 1807 Beaver Ruin Road.
The initial term of each of our land leases with Motiva is one
year from October 1, 2000. We may extend the term of each land lease for
five consecutive one year periods, so long as we are not in breach of the
land lease, by giving 90 days' advance written notice to Motiva. The base
rent under each land lease is $1,800 per month.
40
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OUR PRIOR SERIES A CONVERTIBLE DEBENTURES AND WARRANTS
- -------------------------------------------------------------------------------
On June 1, 2000, we entered into a Securities Purchase Agreement
with GCA Strategic Investment Fund Limited, under which we agreed to sell to
GCA up to $1,000,000 of our Series A convertible debentures and warrants for
up to 500,000 shares of our common stock. Our original agreement allowed GCA
to convert its debentures into shares of our common stock at the rate of
$1.00 per share, and the exercise of its warrants at the rate of $1.00 per
share. This agreement was subsequently amended to allow GCA to convert its
debentures into shares of our common stock at the rate of $.50 per share and
exercise its warrants at the rate of $.50 per share. We subsequently sold and
issued the following debentures and warrants to GCA:
Principal Amount Warrant For
Date of Debenture Shares
- ---- -------------------- --------------
June 1, 2000 $525,000 250,000 shares
September 15, 2000 100,000 50,000 shares
November 1, 2000 100,000 50,000 shares
December 8, 2000 100,000 50,000 shares
January 31, 2001 175,000 *
------------------------------------------------
TOTAL $1,000,000 400,000 shares
========== ==============
* We did not issue a final warrant for 100,000 shares since GCA intended to
cancel all warrants immediately upon the closing of the January 31, 2001 sale of
the $175,000 debenture noted above.
These sales and issuances were structured as private placements
under Sections 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of
Regulation D of the Securities and Exchange Commission.
On January 31, 2001, we amended our agreement with GCA whereby GCA
elected to purchase the remaining debentures of $175,000 and convert all of the
debentures into shares of common stock. Under our agreement, as amended, GCA:
o Purchased the remaining debenture in the principal amount of
$175,000, for a price of $166,250;
o GCA converted all of our debentures, in the aggregate amount
of $1 million, into 3,448,276 of our shares (at a per share
price of $0.29);
o We and GCA cancelled, without exercise, all warrants held by
GCA to purchase our shares; and
41
o We paid all accrued and outstanding interest on the
debentures, in the approximate amount of $30,410 as of January
31, 2001, by issuing to GCA an additional 104,861 shares of
common stock.
As a result of these transactions, GCA currently is our largest
single shareholder, owing 60.19% of our outstanding shares immediately prior to
this offering.
As a condition to GCA's conversion of our debentures under the
Securities Purchase Agreement, we agreed that for a period lasting up to and
including May 31, 2001, not to:
o sell, or offer to sell, any securities (including any credit
facilities that are convertible into securities which may be
issued at a discount to the then current market price);
o issue any securities in connection with a strategic alliance
to be entered into by us unless the issued securities are the
subject of a one year statutory or contractual hold period or,
if not subject to such a hold period, unless GCA has
liquidated all of its holdings of our stock.
We are not restricted from borrowing under conventional credit
facilities existing as of June 1, 2000, stock issued or credit facilities to be
established in connection with acquisitions or employee or director stock
options, or existing rights, warrants or securities issued under a take-down
with GCA for a period lasting up to and including May 31, 2001.
Also, we may enter into the following types of transactions:
o "Permanent Financing" transactions, which include any form of
debt or equity financing, other than an underwritten offering
which is offered by a reduction of the financing commitment to
zero and payment of all related fees and expenses;
o "Project Financing" transactions which provide an issuance of
recourse debt instruments in connection with the operation of
our business as presently conducted or as proposed to be
conducted;
o An underwritten offering of our common stock; and
o Other financing transactions specifically consented to in
writing by GCA.
Our sale of securities under this offering is not restricted under
the Securities Purchase Agreement.
42
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MANAGEMENT
- -------------------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of our
directors and executive officers:
Age as of
Name December 1, 2000 Position
Sidney E. Brown 61 Chairman of the Board and
Director
William L. Ross 54 Director
Richard D. Downey 62 Director
Richard A. Parlontieri 54 President/CEO and Director
SIDNEY E. BROWN - Mr. Brown holds a B.S. from Georgia Southern University and a
B.B.A., M.E.D., E.D.S. and E.D.D., from the University of Georgia. He recently
retired from his position as the dean of Graduate and Off-Campus Programs at
Piedmont College, where he was on staff since April 1998. Prior to April 1998,
Mr. Brown was employed as the Associate Vice President of Academic Affairs of
the University of Georgia, where he was on staff from July 1969 to June 1998.
Mr. Brown remains active in small business development activities in an advisory
role to a number of growth companies. Mr. Brown is the father of Michael Brown,
a director of GCA.
WILLIAM L. ROSS - Mr. Ross is a graduate of Howard University's Graduate Program
graduating with his Ph.D. in 1977, and his MS in 1969, both in Psychology. He
has been in private practice since 1981. Mr. Ross has been involved in clinical
psychology, child development, professional counseling and management training
in the Miami, Florida area from 1977 until moving to Amelia Island, Florida in
1993. His management consulting experience includes executive development,
recruiting and communication skills development.
RICHARD D. DOWNEY - Mr. Downey is the Director of Special Services and
Psychological Services for the Gwinnett County Public Schools, Lawrenceville,
Georgia, a suburb of Atlanta. Prior to joining Gwinnett County in 1988, Mr.
Downey worked in a similar role at Marana School System, Marana, Arizona, from
1986 through 1988. His other experience includes extensive management of
programs for various hospitals, school systems and research organization. Mr.
Downey's business experience in both governmental and private business includes
budget development and administration, recruiting and reporting.
43
RICHARD A. PARLONTIERI - Mr. Parlontieri is our President and Chief Executive
Officer. Prior to joining us, Mr. Parlontieri served as the chairman and chief
executive officer of ebank.com, Inc., a publicly held bank holding company
founded by Mr. Parlontieri and headquartered in Atlanta, Georgia. He held those
positions with ebank.com during the period July, 1997 through July 2000. Between
1994 and July, 1997, Mr. Parlontieri was a private consultant to banks and
financial institutions. From 1990 to 1994, Mr. Parlontieri was the owner of Main
Street Customs Homes, Inc., a residential construction company in Atlanta,
Georgia. And between 1983 and 1990, Mr. Parlontieri served as president and
chief executive officer of Habersham Resource Management, Inc., a consulting
firm that specialized in the financial services, real estate, health care and
capital goods industries.
Each of our directors holds office until the next annual meeting of
shareholders or until his successor has been elected and qualified.
DIRECTOR COMPENSATION AND SHARES OF COMMON STOCK: Our non-employee, or
outside, directors will receive $1,000 per meeting attended in person and a $500
per attended telephonic meeting fee for serving on our board of directors or any
committee thereof. Our outside directors also may be reimbursed for certain
expenses incurred in connection with attending a meeting of our board of
directors or one of its committees. Any employee who serves on our board of
directors, including Richard A. Parlontieri, will not be entitled to receive
such meeting fees, though expenses incurred to attend meetings of our Board or
Directors or one of its committees may be reimbursed.
Further, each of our directors is one of our co-founders. Each of our
three outside directors has been issued 50,000 shares of our common stock, for a
total of 150,000 shares. One-half of the founders shares held by each outside
director are being registered in this offering on their behalf as selling
shareholders.
Mr. Parlontieri, our only employee-director, holds 200,000 shares of
our common stock. Those shares were issued to Mr. Parlontieri as a co-founder of
the company. One-half of Mr. Parlontieri's shares, i.e., 100,000 shares, are
being registered in this offering on behalf of Mr. Parlontieri as a selling
shareholder. Of the 200,000 shares held by Mr. Parlontieri, 150,000 shares are
subject to the terms of a lock-up agreement between us and Mr. Parlontieri,
which agreement prohibits the sale of those shares until October 1, 2001. See
"Shares Eligible for Future Sale" and "Selling Shareholders."
In addition, we have agreed to issued each of our current outside
directors with an option to purchase up to and including 5,000 shares of common
stock, for a total of 15,000 shares. The options will be issued in accordance
with the terms of the 2000 Stock Option Plan after our shares of common stock
are traded in the public market. The per share exercise price under the options
will be equal to the fair market value of the common stock on the date on which
the options are granted and will vest in favor of the directors immediately.
COMMITTEES OF THE BOARD OF DIRECTORS: In June 2000, our board of
directors established the following committees: (a) a Compensation Committee,
consisting of our three outside directors -- Messrs. Sidney E. Brown, William L.
Ross and Richard D. Downey; (b) an Audit
44
Committee, consisting of the same three outside directors -- Messrs. Sidney
Brown, William L. Ross and Richard D. Downey, and (c) a Stock Option
Committee consisting of our three outside directors.
MANAGEMENT: The day-to-day operations of the Company will be led by
Richard A. Parlontieri, our President and Chief Executive Officer.
45
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PRINCIPAL SHAREHOLDERS AND MANAGEMENT
- -------------------------------------------------------------------------------
The following table sets forth the beneficial ownership of the
shares of our common stock as of the close of business on February 28, 2001 of
each person known by us to own beneficially five percent or more of the our
common stock.
Principal Shareholders
Percentage
of Common Stock
Total Shares of --------------- No. of Shares
Common Stock Before After Registered
Beneficially Owned(a) Offering Offering in Offering
GCA Strategic
Investment Fund
Limited(b) 3,553,137 60.19% 44.96% 3,553,137
Irish Investments, LLC(c) 310,000 5.25% 3.92% 100,000
Emerald Marine(d) 310,000 5.25% 3.92% 100,000
Westhurst, Ltd.(e) 310,000 5.25% 3.92% 100,000
Bolling Investments,
LLC.(f) 310,000 5.25% 3.92% 100,000
(a) For purposes of this table, beneficial ownership has been
determined in accordance with the provisions of Rule 13(d)-3
of the Securities Exchange Act of 1934, under which, in
general, a person is deemed to be the beneficial owner of a
security if such person has or shares the power to vote or to
direct the voting of the security or the power to dispose or
to direct the disposition of the security, or if that person
has the right to acquire beneficial ownership of such security
within 60 days through the exercise of any option or warrant
or through the conversion of a security.
(b) GCA Strategic Investment Fund Limited is a Bermuda corporation
having a place of business at Mechanics Building, 12 Church
Street, Hamilton HM II, Bermuda.
(c) Irish Investments, LLC, is a limited liability company
beneficially owned by Joseph Powell. Mr. Powell's address is
2413 1st Avenue Apt. K-3, Fernandina Beach, Florida 32034.
(d) Emerald Marine, Ltd., is a company beneficially owned by
Gordon Mundy. Mr. Mundy's address is P.O. Box 175 12-14 Finch
Douglas, Isle of Man, IM 991TT.
(e) Westhurst Ltd., is a company beneficially owned by Gordon
Mundy. Mr. Mundy's address is P.O. Box 175 12-14 Finch
Douglas, Isle of Man, IM 991TT.
46
(f) Bolling Investments, LLC, is a limited liability company
beneficially owned by Wayne Shortridge. Mr. Shortridge's
address is 257 Bolling Road, NE, Atlanta, Georgia 30305.
The following table sets forth the beneficial ownership of our common
stock as of the close of business on February 28, 2001, by our directors and
executive officers, and our directors and executive officers as a group.
Management
----------
Percentage
of Common Stock
Total Shares of -------------------------- No. of Shares
Common Stock Before After Registered
Beneficially Owned(a) Offering Offering in Offering
-------------------------------------------------------------------------
Richard A. Parlontieri,
President and CEO 200,000 3.39% 2.53% 100,000
Sidney E. Brown, Director 50,000 .85% .63% 25,000
William L. Ross, Director 50,000 .85% .63% 25,000
Richard D. Downey, 50,000 .85% .63% 25,000
Director
All directors and officers
as a group 350,000 5.93% 4.443% 175,000
(a) For purposes of this table, beneficial ownership has been
determined in accordance with the provisions of Rule 13(d)-3
of the Securities Exchange Act of 1934, under which, in
general, a person is deemed to be the beneficial owner of a
security if such person has or shares the power to vote or to
direct the voting of the security or the power to dispose or
to direct the disposition of the security, or if that person
has the right to acquire beneficial ownership of such security
within 60 days through the exercise of any option or warrant
or through the conversion of a security.
47
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SELLING SHAREHOLDERS
- -------------------------------------------------------------------------------
This prospectus concerns, in part, the registration of an aggregate of
4,570,000 shares of common stock owned of record by the selling shareholders.
Some of these shares are subject to lock-up agreements between the applicable
selling shareholder and us, which agreements prohibit the sale or transfer of
the shares until October 1, 2001. See "Shares Eligible for Future Sale." Once
their shares may be traded and sold, the selling shareholders may transfer their
shares of our common stock at those prices that they are able to obtain in the
market or as otherwise negotiated. In addition, once their shares may be traded
or sold, the selling shareholders may transfer the shares in exchange for
consideration other than cash, or for no consideration, as determined by the
selling shareholders in their sole discretion. This prospectus may be used by
the selling shareholders to transfer shares of the common stock to affiliates of
the selling shareholders. We will receive no proceeds from the sale of common
stock by the selling shareholders.
The following table sets forth the name of the selling shareholders,
the number of shares of common stock owned by the selling shareholders before
this offering, the number of shares of common stock being registered, and the
number and percentage of shares of common stock owned after this offering. None
of the selling shareholders has held any position or office, or had any marital
relationship with our officers or directors since our formation on May 5, 2000,
except as noted below.
Beneficial Ownership Beneficial Ownership
Prior to the After the
Offering Number of Offering(1)
---------------- Shares -----------------
Selling Shareholder Number Percent Registered Number Percent
- ------------------- ------ ------- ---------- ------ -------
GCA Strategic Investment
Fund Limited 3,553,137 60.19% 3,553,137 3,553,137 44.96%
Porter Lane Investments,
Inc.(a) 210,000 3.56% 100,000 210,000 2.66%
Irish Investments, LLC. 310,000 5.25% 100,000 310,000 3.92%
Emerald Marine, Ltd. 310,000 5.25% 100,000 310,000 3.92%
Westhurst, Ltd. 310,000 5.25% 100,000 310,000 3.92%
Bolling Investments, LLC 310,000 5.25% 100,000 310,000 3.92%
Richard A. Parlontieri(b) 200,000 3.39% 100,000 200,000 2.53%
William S. Estroff(c) 110,000 1.86% 55,000 110,000 1.39%
Gant Alumni Associates,
LLC 100,000 1.69% 100,000 100,000 1.27%
ARM & Associates, LLC 100,000 1.69% 100,000 100,000 1.27%
Karen Vickers(d) 50,000 .85% 25,000 50,000 .63%
Sidney E. Brown(e) 50,000 .85% 25,000 50,000 .63%
William L. Ross(f) 50,000 .85% 25,000 50,000 .63%
Richard D. Downey(g) 50,000 .85% 25,000 50,000 .63%
John J. McManus 50,000 .85% 25,000 50,000 .63%
Robert Evans(h) 140,000 2.37% 90,000 140,000 1.77%
------- ------- -------- ------- -----
48
Total 5,903,137 100% 4,623,137 5,903,137 74.68%
========= ==== ========= ========= ======
(1) Assumes that we sell a total of 2,000,000 shares of common
stock in this offering. Excludes 1,000,000 shares of common
stock reserved for issuance under the 2000 Stock Option Plan.
(a) Porter Lane Investments, Inc., is a corporation beneficially
owned by Gerald F. Sullivan, a resident of Gainesville,
Georgia. Mr. Sullivan's address is 5255 Porter Lane,
Gainesville, Georgia 30506. Mr. Sullivan served as our sole
director from May 5, 2000 to May 31, 2000.
(b) Richard A. Parlontieri is the President/CEO and a director of
the Company. Mr. Parlontieri's address is 400 Colony Park,
Building 104, Suite 600, Cumming, Georgia 30041.
(c) William S. Estroff served as our president from May 1, 2000 to
September 17, 2000.
(d) Karen Vickers is our Business Office Manager and corporate
secretary.
(e) Sidney E. Brown is one of our directors. Mr. Brown is the
father of Michael Brown, a director of GCA, the holder of
3,553,137 shares of our common stock.
(f) William L. Ross is one of our directors.
(g) Richard D. Downey is one of our directors.
(h) Mr. Evans is one of our consultants.
49
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------------------------------
SIDNEY E. BROWN. Mr. Sidney E. Brown is one or outside directors.
Mr. Brown is the father of Michael Brown, one of the directors of the GCA.
GCA is the holder of 3,553,137 shares of our common stock.
BEACHSIDE COMMONS I, INC. AND PORTER LANE INVESTMENTS, INC. On June
2, 2000, we advanced a loan to Beachside Commons I, Inc., a Florida corporation,
in the amount of $94,883.35. The money for this loan was obtained by us from the
sale to GCA Strategic Investment Fund Limited of a debenture in the original
principal amount of $525,000. The intent of the advance was to invest a portion
of our funds then on-hand at a relatively high rate of return on a short-term
basis.
The loan to Beachside was evidenced by a promissory note. The note
provided for interest at the rate of 12% per annum and a fee equal to two
percent of the original principal amount of the note. The note further provided
that all principal, interest and fees were due to be paid in full on August 2,
2000.
The note was not paid on August 2, 2000, and no payments were
subsequently received by us under the note.
Subsequently it was determined that, the loan to Beachside violated
a restriction on the use of proceeds set forth in our securities purchase
agreement with GCA.
When the loan to Beachside was made, Mr. Sullivan was our sole
director and, at the same time, he was the president of Beachside. Also, when
the loan was made, Mr. Estroff was our president and, at the same time, his
family was the beneficiary of a trust that co-owned Beachside. The trusts
that owned Beachside were created by Mongoose Investments, LLC., owned by
Richard P. Smyth. Mr. Smyth is the beneficial owner of Irish Investments,
LLC., one of our shareholders. Two other relationships existed among these
persons: The trustee of the trusts that own Beachside is Margaret Ryder, an
attorney and the daughter of Mr. Sullivan; and Mr. Smyth and Mr. Estroff are
brothers-in-law.
On December 1, 2000, we sold the note from Beachside to Porter Lane
Investments, Inc. which is beneficially owned by Mr. Sullivan, in exchange for
100,000 shares of our common stock owned of record by Porter Lane. Concurrently
with the closing of our sale and redemption transaction with Porter Lane, GCA
provided us with a letter waiving our default stemming from our use of proceeds
for an unauthorized purpose. GCA subsequently converted all of our debentures
into shares of our common stock.
50
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RECENT TRANSACTIONS
- -------------------------------------------------------------------------------
Since our formation on May 5, 2000, we have entered into the following
transactions, other than our transactions with GCA Strategic Investment Fund
Limited described earlier in this prospectus and the related transactions
mentioned in the preceding section of this prospectus:
ASSET PURCHASE TRANSACTION WITH LAKE HOLDINGS, LLC.
On June 1, 2000, we acquired certain assets and assumed certain
liabilities of Lake Holdings, LLC., a Georgia limited liability company then
engaged in the emissions testing business in the State of Georgia. The assets we
purchased consisted primarily of equipment sufficient to operate up to five
vehicle emissions testing stations. Other assets acquired in the transaction
included all licenses, permits, and goodwill of the seller, together with lease
agreements covering the land and buildings used by Lake Holdings in connection
with the operations of two testing stations, one at 27 East Crogan Street in
Gwinnett County and the other at 554 Atlanta Highway in Forsyth County, Georgia.
The total purchase price for Lake Holdings' assets was $220,000, all of
which was paid by us in cash. We used a portion of the proceeds from our sale on
June 1, 2000 of a $525,000 debenture to GCA Strategic Investment Fund Limited to
pay the purchase price for the assets of Lake Holdings. We subsequently granted
to GCA a first priority lien in the emissions testing equipment we purchased
from Lake Holdings, to secure our obligations under the debenture and the
securities purchase agreement with GCA. See "Series A Convertible Debentures and
Warrants - Terms and Conditions."
The only significant liabilities of Lake Holdings that we assumed were
the real estate leases for the East Crogan and the Atlanta Highway sites. The
lease for the East Crogan site has a term that expires on May 31, 2004, although
we may, at our option, renew the lease for an additional five years. The current
rent under that agreement is $1,759 per month, subject to adjustment based upon
the consumer price index. The lease for the Atlanta Highway site has a term that
expires on September 1, 2001, but may be terminated by either party with 30
days' advance notice. We have the right, at our option, to renew the Atlanta
Highway lease up to two times, each for an additional five-year term, but any
renewal will be subject to cancellation by either party on 30 days' advance
notice. The monthly rent under that lease is the greater of $500 or $1. for each
vehicle tested at the site during the applicable month. See, "Real Estate."
We continue to operate the same two emissions testing stations formerly
operated by Lake Holdings at 27 East Crogan Street and 554 Atlanta Highway. The
Atlanta Highway station is equipped to test the emissions of one vehicle at a
time. The East Crogan Street station is now equipped to test the emissions of
two vehicles at a time.
The equipment purchased from Lake Holdings that is not used at our East
Crogan or Atlanta Highway testing stations is now in use at our other two
emissions testing stations or is leased to an unrelated party for $528 per month
under an agreement that is scheduled to expire May 2003.
51
- -------------------------------------------------------------------------------
RECENTLY ISSUED ACCOUNTING STANDARDS
- -------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133), was issued in June
1998. SFAS 133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Statement of Financial
Accounting Standards No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT 133 (SFAS 137),
was issued in June 1999. SFAS 137 delays the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. Our convertible debentures are
considered to be a derivative; however, we have not yet determined whether
adoption of SFAS 133 will have a material impact on our financial statements.
52
- -------------------------------------------------------------------------------
DESCRIPTION OF CAPITAL STOCK
- -------------------------------------------------------------------------------
GENERAL: Our authorized capital stock consists of 30,000,000 shares,
consisting of 20,000,000 shares of common stock, no par value per share, and
10,000,000 shares of preferred stock, no par value per share. As of the date of
this prospectus, and without giving effect to the 1,000,000 shares of common
stock reserved for issuance under our 2000 Stock Option Plan, we have
outstanding 5,903,137 shares of common stock and no preferred stock. Immediately
following this offering and assuming that we sell 2,000,000 shares of common
stock in this offering, there will be outstanding a total of 7,903,137 shares of
common stock, and no shares of preferred stock, computed as follow:
Shares Number
------- ------
Currently issued and outstanding 5,903,137
Shares to be sold by us to the public in this offering 2,000,000
---------
Total 7,903,137
=========
VOTING RIGHTS OF COMMON STOCK: Holders of our common stock are entitled
to one vote per share on all matters submitted to a vote of our shareholders.
DIVIDENDS ON COMMON STOCK: The holders of our common stock are entitled
to receive, pro rata, dividends as may be declared by our board of directors out
of funds legally available for the payment of dividends. See "Dividend Policy."
OTHER PROVISIONS APPLICABLE TO OUR COMMON STOCK: There are no
preemptive rights to subscribe for any additional securities that we may issue.
There are no redemption provisions or sinking fund provisions applicable to our
common stock, nor is our common stock subject to calls or assessments by us.
LIQUIDATION AND DISSOLUTION: In the event of any liquidation,
dissolution or winding up of our affairs, holders of our common stock will be
entitled to share ratably in our assets remaining after payment or provision for
payment of all of our debts and obligations, including, without limitation, the
debt evidenced by our debentures, and liquidation payments to holders of any
outstanding shares of presently undesignated preferred stock that has a
liquidation preference.
UNDESIGNATED PREFERRED STOCK: Our board of directors has the authority,
subject to the limitations prescribed by law and the provisions of our articles
of incorporation, to provide for the issuance of up to 10,000,000 shares of
preferred stock in series, to establish from time to time the number of shares
to be included in each of these series, and to fix the designations, powers,
preferences and rights of the shares of each series and the qualifications,
limitations or
53
restrictions thereof. Among the specific matters that may be determined by
the board of directors are the number of shares constituting each series and
the distinctive designation thereof; the dividend rate; whether dividends
will be cumulative; the relative rights of priority, if any, on the payment
of dividends; whether the series will have voting rights in addition to the
voting rights provided by law, and, if so, the terms of those voting rights;
whether the series will have conversion privileges, and if so, the terms of
the conversion, including provision for adjustment of the conversion rate;
redemption rights and the terms thereof; whether the series will have a
sinking fund and if so, the terms and amount of the sinking fund; and the
rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up, and the relative rights
of priority, if any, of payment of shares of these series. Any undesignated
preferred stock issued by us may:
- - Rank prior to our common stock as to dividend rights, liquidation
preference or both;
- - Have full or limited voting rights; and
- - Be convertible into shares of our common stock.
The issuance of undesignated preferred stock could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring or seeking to acquire, a significant portion of our
outstanding common stock.
INDEMNIFICATION: Our bylaws provide for indemnification rights to any
person who was or is threatened to be a party to any proceeding by reason of the
fact that such person is or was a director, officer, employee or agent of ours,
against expenses, including reasonable attorneys' fees, reasonably incurred by
such person in connection with such proceeding, if such person acted in a manner
he or she believed in good faith to be in or not opposed to our best interests,
and with respect to any criminal action or proceeding, if such person had no
reasonable cause to believe such person's conduct was unlawful, to the maximum
extent permitted by, and in the manner provided by, the Georgia Business
Corporation Code.
In addition, to the extent that our directors, officers, employees or
agents have been successful, on the merits or otherwise, in the defense of any
proceeding to which such person was a party, in the defense of any claim, issue,
or matter therein, because that individual is or was a director, officer,
employee or agent of ours, we will indemnify such person against reasonable
expenses incurred by that person in connection therewith. We may not indemnify a
director, officer, employee or agent under our bylaws unless a determination has
been made by our disinterested members of our board of directors, or
alternatively by disinterested shareholders or by special legal counsel, as
provided in the bylaws, in each specific case that such person has met the
standard of care required under the bylaws for indemnification.
Furthermore, we may pay for or reimburse the reasonable expenses
incurred by our directors, officers, employees or agents who parties to a
proceeding in advance of final disposition of the proceeding if (a) such person
furnishes us with a written affirmation of such person's good faith believe that
he or she has met the standard of conduct required for
54
indemnification by us, and (b) such person furnishes us with a written
undertaking to repay any advances if its is ultimately determined that such
person is not entitled to indemnification by us.
Insofar as indemnification for liabilities under the Securities Act may
be permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy and is, therefore, unenforceable.
We do not currently maintain directors' and officers' liability
insurance. However, we intend to obtain such coverage as soon as practical after
this prospectus is declared effective by the Securities and Exchange Commission.
THE ABSENCE OF PREVENTATIVE ANTI-TAKEOVER MEASURES: We have not elected
to adopt any preventative anti-takeover, "shark repellant," or "porcupine"
measures to defend against a tender offer of our common stock. We may elect such
measures in the future, in the discretion of the board of directors.
GEORGIA'S FAIR PRICE REQUIREMENTS - NOT AVAILABLE TO US OR OUR
SHAREHOLDERS: The Georgia Business Corporation Code includes certain provisions
designed to protect shareholders of Georgia corporations against the inequities
of certain tactics that may be used in hostile takeover attempts. In so-called
two-tier transactions, the acquiring party usually tenders in cash at a
substantial premium for a major stock interest in the target corporation. After
acquiring this initial interest in the corporation, the acquiring party may
acquire total ownership of the corporation by effecting a so-called freeze-out
merger that forces minority shareholders to receive cash or other consideration
for their common stock in the acquired corporation. The result is that minority
shareholders that do not participate in the initial tender may receive a lower
price or less desirable form of consideration than was received by shareholders
in tender. The provisions of O.C.G.A. Sections 14-2-1110-1113 are designed to
discourage transactions of this type and to encourage negotiated acquisitions in
which all of the shareholders will be more likely to receive equal treatment.
However, unlike other states, notable Delaware, the Georgia statutes provide
that these provisions do not apply unless the corporation, through its bylaws,
elects to activate these provisions. We have not elected to have these
provisions apply to us.
"PENNY STOCK" REGULATIONS: The Securities and Exchange Commission has
adopted regulations that define "penny stock" to include common stock that has a
market price of less than $5.00 per share, subject to certain exceptions. These
rules include the following requirements:
- - broker-dealers must deliver, prior to the transaction, a disclosure
schedule prepared by the SEC relating to the penny stock market;
- - broker-dealers must disclose the commissions payable to the
broker-dealer and its registered representative;
- - broker-dealers must disclose current quotations for the securities;
55
- - if a broker-dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the
market; and
- - a broker-dealer must furnish its customers with monthly statements
disclosing recent price information for all penny stocks held in the
customer's account and information on the limited market in penny
stocks.
Additional sales practice requirements are imposed on broker-dealers
who sell penny stocks to persons other than established customers and accredited
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale.
Many securities listed on the Over-the-Counter Bulletin Board would be
covered by the definition of penny stock. If our common stock becomes subject to
these penny stock rules these disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for our common
stock. A reduced level of trading activity in the secondary market may make it
difficult for you to sell your shares at a particular time or at a particular
price.
56
- -------------------------------------------------------------------------------
TRANSFER AGENT AND REGISTRAR
- -------------------------------------------------------------------------------
Continental Stock Transfer & Trust Company is the transfer agent and
registrar for our common stock.
57
- -------------------------------------------------------------------------------
SHARES ELIGIBLE FOR FUTURE SALE
- -------------------------------------------------------------------------------
Prior to this offering, there has been no public market for our common
stock. Prior to this offering, we had 5,903,137 outstanding shares of common
stock. If we sell 2,000,000 of our shares in this offering, we will have a total
of 7,903,137 shares outstanding, assuming no shares are issued under our stock
option plan.
Of the 7,903,137 shares, 6,623,137 shares are being registered in this
offering - 2,000,000 shares to be sold by us and 4,623,137 to be sold by the
selling shareholders. The registered shares may be sold in the public market as
follows:
- 5,868,137 shares may be sold in the public market upon the
effective date of the registration statement; and
- 755,000 shares may be sold in the public market from and after
October 1, 2001. The 755,000 shares are subject to lock-up
agreements between us and the security holders, prohibiting
the transfer of these shares until, at the earliest, October
1, 2001.
The 1,280,000 shares of our common stock not registered in this
offering (7,903,137 - 6,623,173) held by our existing shareholders are
restricted securities. The 1,280,000 shares may be sold in the public market as
follows:
- 175,000 shares are eligible for sale, at the earliest, on May
6, 2001, under the provisions of Rule 144 described below; and
- 1,105,000 shares are eligible for sale, at the earliest, on
October 1, 2001, under the provisions of Rule 144 described
below. The 1,105,000 shares are subject to lock-up agreements
between us and the security holders, prohibiting the transfer
of these shares until, at the earliest, October 1, 2001.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus a person or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including the holding period of any prior owner except an affiliate, would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the number of shares of our common stock then
outstanding, which will equal approximately 79,100 shares immediately after this
offering. Generally, an "affiliate" is any director or officer of the issuer or
the holder of 10% or more of the issuer's stock.
58
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. No shares of
our common stock will qualify as "144(k) shares" prior to June 6, 2002.
RULE 701
In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus, subject
only to the manner of sale provisions of Rule 144, and by affiliates under Rule
144 without compliance with its holding period requirements. None of our
currently outstanding shares is subject to Rule 701.
59
- -------------------------------------------------------------------------------
PLAN OF DISTRIBUTION
- -------------------------------------------------------------------------------
We are registering 6,623,137 shares of our common stock in this
offering. Of those shares, we plan to sell to investors up to and including
2,000,000 shares. The 2,000,000 shares will be offered for sale on a "best
efforts, no minimum" basis through, ____________________. __________ is not
required to sell any specific number or dollar amount of securities but will use
their best efforts to sell the securities. All net sale proceeds from the sale
of these shares will be paid directly to us, and no escrow or other arrangement
will be used to hold investors' funds. This offering will end at 6:00 P.M.(New
York Time) on the six month anniversary date of the prospectus.
Our shares are offered at the per share price of $5.50. We expect to
pay commissions to __________ upon the sale of our common stock in an amount up
to 12 percent of the gross sale price of our common stock.
Any person retained to sell our shares may be required to deliver a
copy of this prospectus and any supplement to this prospectus to any person who
purchases any of the shares we are selling in this offering. An investor need
not purchase a minimum number or dollar value of shares of common stock in this
offering. The net sale proceeds from this offering will be used as indicated
above. See "Use of Proceeds."
As for the balance of the shares of common stock registered in this
offering, it is anticipated that the selling shareholders will offer their
respective shares of common stock in one or more public and/or non-public market
transactions, consistent with applicable federal and state securities law and
consistent with the terms of any lock-up agreement we may have entered into with
such shareholder or holder. See "Shares Eligible for Future Sale."
Once the shares of common stock registered hereby may be sold by the
selling shareholders, sales may be made on the OTC Bulletin Board, in another
over-the-counter market, on a national securities exchange, in privately
negotiated transactions or otherwise or in a combination of such transactions at
prices and at terms then prevailing or at prices related to the then current
market price, or at privately negotiated prices. In addition, any shares covered
by this prospectus which qualify for sale pursuant to Section 4(1) of the
Securities Act of 1933 or Rule 144 may be sold under such provisions rather than
pursuant to this prospectus. The shares may be sold in one or more of the
following types of transactions:
(a) a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
(b) purchases by a broker-dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
(c) an exchange distribution in accordance with the rules of such
exchange;
60
(d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
(e) face-to-face transactions between sellers and purchasers without a
broker-dealer.
In effecting sales, brokers or dealers engaged by the selling
shareholders may arrange for other brokers or dealers to participate in the
resales.
The selling shareholders may also enter into option or other
transactions with broker-dealers that require the delivery to the broker-dealer
of the shares registered hereunder, which the broker-dealer may resell pursuant
to this prospectus. The selling shareholders may also pledge the shares
registered hereunder to a broker or dealer and upon a default, the broker or
dealer may effect sales of the pledged shares pursuant to this prospectus.
We have advised the selling shareholders that during such time as they
may be engaged in a distribution of the shares included herein they are required
to comply with Regulation M promulgated under the Securities Exchange Act of
1934. Regulation M prohibits, among other things, any bids or purchases made in
order to stabilize the price of a security in connection with the distribution
of that security. The foregoing may affect the marketability of our common
stock.
61
- -------------------------------------------------------------------------------
LEGAL MATTERS
- -------------------------------------------------------------------------------
The validity of the shares of common stock offered hereby will be
passed upon for the Company by Epstein Becker & Green, P.C., Atlanta, Georgia.
- -------------------------------------------------------------------------------
EXPERTS
- -------------------------------------------------------------------------------
The financial statements of Emissions Testing, Inc. as of December 31,
2000 and for the period from May 5, 2000 through December 31, 2000; the combined
financial statements of Lake Holdings, LLC and R.V. Evans Enterprises, Inc. for
the period from January 1, 2000 through May 31, 2000; and the combined financial
statements of Lake Holdings, LLC and R.V. Evans Enterprises, Inc. as of December
31, 1999 and for each of the two years in the period ended December 31, 1999
appearing in this prospectus and registration statement have been audited by
Bennett Thrasher PC, independent auditors, as set forth in its report thereon
appearing elsewhere herein and in the registration statement, and are included
in reliance upon the authority of such firm as experts in accounting and
auditing.
- -------------------------------------------------------------------------------
WHERE YOU CAN FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act of 1933, concerning
the shares of common stock being offered hereby. This prospectus does not
contain all the information set forth in the registration statement, parts of
which are omitted in accordance with the rules and regulations of the SEC. For
further information concerning us and our common stock, we refer you to the
registration statement and the documents filed as exhibits to the registration
statement. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete,
and in each instance reference is made to the copy of such contract, agreement
or other document listed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. We also file
annual, quarterly and special reports and other information with the Securities
and Exchange Commission.
The registration statement and any document we file with the Securities
and Exchange Commission can be read and copied at the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
registration statement and any document we file with the Commission can be
obtained from the Public Reference Section of the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330, or at the SEC website located at www.sec.gov.
Prior to this offering, we were not a reporting company under the
Securities Act of 1934 and, therefore, we have not filed any reports with the
Securities and Exchange Commission. Upon completion of this offering we intend
to file reports with the Securities and Exchange Commission under the Securities
Act of 1933, and to furnish to our security holders annual reports containing
audited financial statements reported on by our independent auditors.
62
EMISSIONS TESTING, INC.
FINANCIAL STATEMENTS
* * * * *
DECEMBER 31, 2000
EMISSIONS TESTING, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F - 2
Balance Sheets - December 31, 2000 and 1999 F - 4
Statements of Operations - For the Period from May 5, 2000 through
December 31, 2000, for the Period from January 1, 2000 through
May 31, 2000 and for the Years Ended December 31, 1999 and 1998 F - 5
Statements of Owners' Deficit - For the Period from May 5, 2000 through
December 31, 2000, for the Period from January 1, 2000 through
May 31, 2000 and for the Years Ended December 31, 1999 and 1998 F - 6
Statements of Cash Flows - For the Period from May 5, 2000 through
December 31, 2000, for the Period from January 1, 2000 through
May 31, 2000 and for the Years Ended December 31, 1999 and 1998 F - 7
Notes to Financial Statements F - 9
Schedule II - Valuation and Qualifying Accounts F - 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Emissions Testing, Inc.
We have audited the accompanying balance sheet of Emissions Testing, Inc.
(formerly eMissions Testing, Inc.) as of December 31, 2000 and the related
statements of operations, owners' deficit and cash flows for the period from
May 5, 2000 through December 31, 2000. We have also audited the accompanying
combined statements of operations, owners' deficit and cash flows of Lake
Holdings, LLC and R.V. Evans Enterprises, Inc. (predecessor entities of
Emissions Testing, Inc.) for the period from January 1, 2000 through May 31,
2000. Additionally, we have audited the accompanying combined balance sheet
of Lake Holdings, LLC and R.V. Evans Enterprises, Inc. as of December 31,
1999 and the related combined statements of operations, owners' deficit and
cash flows for each of the two years in the period ended December 31, 1999.
These financial statements are the responsibility of the management of the
respective entities. Our responsibility is to express an opinion on these
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 financial statements referred to above present fairly, in
all material respects, the financial position of Emissions Testing, Inc. as
of December 31, 2000 and the results of its operations and its cash flows for
the period from May 5, 2000 through December 31, 2000; the combined results
of operations and cash flows of Lake Holdings, LLC and R.V. Evans
Enterprises, Inc. for the period from January 1, 2000 through May 31, 2000;
and the combined financial position of Lake Holdings, LLC and R.V. Evans
Enterprises, Inc. as of December 31, 1999 and the results of their operations
and their cash flows for each of the two years in the period ended December
31, 1999, all in conformity with accounting principles generally accepted in
the United States of America.
F-2
In connection with our audits of the financial statements referred to above,
we audited Schedule II for the period from May 5, 2000 through December 31,
2000, for the period from January 1, 2000 through May 31, 2000 and for each
of the two years in the period ended December 31, 1999. In our opinion, this
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
BENNETT THRASHER PC
Atlanta, Georgia
February 16, 2001
F-3
EMISSIONS TESTING, INC.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
Lake Holdings, LLC
Emissions and R.V. Evans
Testing, Inc. Enterprises, Inc.
---------------- --------------------
(Predecessor)
2000 1999
---------------- --------------------
Current assets:
Cash $ 78,000 $ -
Prepaid expenses 9,000 -
------------ -----------
Total current assets 87,000 -
Property and equipment, at cost less
accumulated depreciation 189,000 122,000
Due from related party - 4,000
Other assets 218,000 1,000
------------ -----------
$ 494,000 $ 127,000
============ ===========
LIABILITIES AND OWNERS' DEFICIT
Current liabilities:
Borrowings under line of credit $ - $ 8,000
Current portion of obligations under capital leases - 29,000
Notes payable to owners - 40,000
Accounts payable 97,000 6,000
Accrued expenses 46,000 7,000
------------ -----------
Total current liabilities 143,000 90,000
------------ -----------
Obligations under capital leases, less current portion - 91,000
------------ -----------
Convertible debentures, less unamortized
original issue discount of $152,000 673,000 -
------------ -----------
Commitments and contingencies
Owners' deficit:
Preferred stock, 10,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, no par value, 20,000,000 shares
authorized, 2,350,000 shares issued and outstanding 313,000 -
Accumulated deficit (635,000) (54,000)
------------ -----------
Total owners' deficit (322,000) (54,000)
------------ -----------
$ 494,000 $ 127,000
============ ===========
See accompanying notes to financial statements.
F-4
EMISSIONS TESTING, INC.
STATEMENTS OF OPERATIONS
Emissions Lake Holdings, LLC and
Testing, Inc. R.V. Evans Enterprises, Inc.
-------------- ---------------------------------------------------
(Predecessor)
For the For the
Period from Period from
May 5, 2000 January 1, For the For the
through 2000 through Year Ended Year Ended
December 31, May 31, December 31, December 31,
2000 2000 1999 1998
-------------- --------------- -------------- ----------------
Revenue $ 167,000 $134,000 $ 339,000 $195,000
-------------- --------------- -------------- ----------------
Costs and expenses:
Cost of emissions certificates 49,000 35,000 60,000 57,000
General and administrative
expenses 432,000 74,000 243,000 105,000
Organizational and start-up
costs 28,000 - - -
-------------- --------------- -------------- ----------------
509,000 109,000 303,000 162,000
-------------- --------------- -------------- ----------------
Income (loss) from operations (342,000) 25,000 36,000 33,000
Interest expense 199,000 8,000 22,000 16,000
-------------- --------------- -------------- ----------------
Loss before income tax benefit (541,000)
Benefit for income taxes -
--------------
Net income (loss) $ (541,000) $ 17,000 $ 14,000 $ 17,000
============== =============== ============= ================
Unaudited pro forma income
tax information:
Net income before provision
for income taxes $ 17,000 $ 14,000 $ 17,000
Pro forma provision for
income taxes 4,000 3,000 4,000
--------------- -------------- ----------------
Pro forma net income $ 13,000 $ 11,000 $ 13,000
=============== ============= ================
Basic and diluted net loss
per share $ (.22)
==============
Weighted average shares
outstanding, basic and diluted 2,424,000
==============
See accompanying notes to financial statements.
F-5
EMISSIONS TESTING, INC.
STATEMENTS OF OWNERS' DEFICIT
Emissions Testing, Inc. Lake Holdings, LLC R.V. Evans Enterprises, Inc.
------------------------------------- ------------------ ----------------------------
(Predecessor) (Predecessor)
Common Stock Common Stock
------------------------ Accumulated ------------------------ Accumulated
Shares Amount Deficit Members' Capital Shares Amount Deficit
----------- ----------- ----------- ------------------ ----------- ----------- -----------
Balance at January 1, 1998 $ - - $ - $(42,000)
Distributions - - - (20,000)
Net income - - - 17,000
------------------ ----------- ----------- -----------
Balance at December 31, 1998 - - - (45,000)
Issuance of shares - 100 - -
Distributions - - - (23,000)
Net income - - - 14,000
------------------ ----------- ----------- -----------
Balance at December 31, 1999 - 100 - (54,000)
Distributions - - - (33,000)
Net income - - - 17,000
Issuance of shares to
founders for services
on May 5, 2000 2,410,000 $ 24,000 $ -
Issuance of shares
for services 40,000 - -
------------------ ----------- ----------- -----------
Balance at May 31, 2000 $ - 100 $ - $(70,000)
================== =========== =========== ===========
Redemption of common stock (100,000) (1,000) (94,000)
Beneficial conversion
features on convertible
debentures - 232,000 -
Issuance of warrants - 58,000 -
Net loss - - (541,000)
----------- ----------- -----------
Balance at December 31,
2000 2,350,000 $313,000 $(635,000)
========== =========== ===========
See accompanying notes to financial statements.
F-6
EMISSIONS TESTING, INC.
STATEMENTS OF CASH FLOWS
Emissions Lake Holdings, LLC and
Testing, Inc. R.V. Evans Enterprises, Inc.
-------------- ---------------------------------------------------
(Predecessor)
For the For the
Period from Period from
May 5, 2000 January 1, For the For the
through 2000 through Year Ended Year Ended
December 31, May 31, December 31, December 31,
2000 2000 1999 1998
-------------- --------------- -------------- ----------------
Cash flows from operating activities:
Net income (loss) $(541,000) $ 17,000 $ 14,000 $ 17,000
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 88,000 14,000 25,000 16,000
Issuance of common stock for services 24,000 - - -
Charge for beneficial conversion features 156,000 - - -
Changes in assets and liabilities:
(Increase) decrease in prepaid
expenses (9,000) - 4,000 (4,000)
Increase in other assets (2,000) - (6,000) -
Increase in accounts payable and
accrued liabilities 143,000 21,000 - 4,000
-------------- --------------- -------------- ----------------
Net cash provided by (used in) operating
activities (141,000) 52,000 37,000 33,000
-------------- --------------- -------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (35,000) - - -
Purchase of assets from Lake Holdings, LLC (220,000) - - -
Advance on note receivable from affiliate (95,000) - - -
-------------- --------------- -------------- ----------------
Net cash used in investing activities (350,000) - - -
-------------- --------------- -------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of convertible debentures 789,000 - - -
Distributions - (33,000) (23,000) (20,000)
Payments on obligations under capital leases - (11,000) (21,000) (15,000)
Net borrowings (repayments) on line of credit - (2,000) 8,000 -
Financing and offering costs (220,000) - - -
Book overdraft - - (1,000) 1,000
-------------- --------------- -------------- ----------------
Net cash provided by (used in) financing
activities 569,000 (46,000) (37,000) (34,000)
-------------- --------------- -------------- ----------------
Net increase (decrease) in cash 78,000 6,000 - (1,000)
Cash at beginning of period - - - 1,000
-------------- --------------- -------------- ----------------
Cash at end of period $ 78,000 $ 6,000 $ - $ -
============== =============== ============== ================
See accompanying notes to financial statements.
F-7
EMISSIONS TESTING, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
Emissions Lake Holdings, LLC and
Testing, Inc. R.V. Evans Enterprises, Inc.
-------------- ---------------------------------------------------
(Predecessor)
For the For the
Period from Period from
May 5, 2000 January 1, For the For the
through 2000 through Year Ended Year Ended
December 31, May 31, December 31, December 31,
2000 2000 1999 1998
-------------- --------------- -------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ - $ 13,000 $ 22,000 $ 2,000
============== =============== ============== ================
Cash paid during the period for income taxes $ - $ - $ - $ -
============== =============== ============== ================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the period from May 5, 2000 through December 31, 2000, Emissions
Testing, Inc. issued common stock to its founding stockholders and an
individual for services valued at $24,000.
In December 2000, the Company redeemed 100,000 shares of common stock at a
total cost of $95,000 (see Note 4).
During 1999 and 1998, Lake Holdings, LLC acquired equipment under capital
lease arrangements totaling $65,000 and $60,000, respectively.
See accompanying notes to financial statements.
F-8
EMISSIONS TESTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Emissions Testing, Inc. (Emissions or the Company) (formerly eMissions
Testing, Inc.) was formed for the primary business purpose of opening,
acquiring, developing and operating vehicle emission testing stations. The
federal government and a number of state and local governments in the United
States (and in certain foreign countries) mandate vehicle emission testing as
a method of improving air quality.
As of December 31, 2000, the Company operated four emission testing stations
in the metropolitan Atlanta, Georgia area. The Company does business under
the trade name SPEEDEMISSIONS. The Company intends to operate several
emission testing stations in relatively close proximity to one another in
various "clusters". The four stations operated by the Company as of December
31, 2000 are in one such cluster.
Emissions was incorporated on May 5, 2000 under the laws of the state of
Georgia. On June 1, 2000, the Company acquired emission testing equipment
sufficient to operate up to five emission testing stations (the Acquisition)
from Lake Holdings, LLC (Lake Holdings) (see Note 3). In conjunction with the
Acquisition, the Company assumed agreements to lease certain emission testing
equipment to unrelated station operators. At its emission testing stations,
the Company uses computerized emission 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.
Lake Holdings was primarily engaged in leasing emissions testing stations
(both land and buildings) and emission testing equipment from various lessors
and operating those emission testing stations through a management agreement
with R.V. Evans Enterprises, Inc. (Evans). Lake Holdings also leased emission
testing equipment to unrelated station operators. From January 1998 to May
2000, Lake Holdings and Evans (collectively, the Predecessor) operated
between two and four emission testing stations, all in the metropolitan
Atlanta, Georgia area.
Lake Holdings was incorporated as a limited liability company in January 1997
under the laws of the state of Georgia. Lake Holdings operates under an
informal operating agreement and will continue indefinitely, unless
terminated by its members. Other than the member notes discussed in Note 8,
there was no additional contributed capital by the members upon formation of
Lake Holdings. Evans was incorporated in June 1999 under the laws of the
state of Georgia. Prior to this date, Evans was operated as a sole
proprietorship by its sole stockholder. The accompanying combined financial
statements include the results of operations of the sole proprietorship for
the periods prior to June 1999.
F-9
Since Emissions had no operations prior to the Acquisition on June 1, 2000
(see Note 3), for financial reporting purposes Lake Holdings and Evans are
considered a predecessor entity to Emissions for periods prior to June 1,
2000. The combined financial position and results of operations for periods
prior to June 1, 2000 reflect the combined financial position and results of
operations of Lake Holdings and Evans. Although there is no common ownership
between Lake Holdings and Evans, management believes the presentation of
combined financial statements is considered the most meaningful due to the
operational relationship between the two entities. All significant
intercompany accounts and transactions have been eliminated in combination.
The Company has adopted a December 31 fiscal year end.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
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 is approximately $7.40 per
certificate and is shown separately in the accompanying statements of
operations. From October 1998 through June 1999, the Predecessor received
discounts on the cost of emissions certificates from the state of Georgia as
part of a program to assist emission station operators in implementing
changes in emission testing procedures. The Predecessor received discounts
totaling $46,000 during 1999 and $9,500 during 1998, which have been deducted
from cost of emissions certificates in the accompanying statements of
operations. The Company requires that the customer's payment be made with
cash or check; accordingly, the Company does not have significant levels of
accounts receivable.
Under current state of Georgia law, if a vehicle fails an emissions test, it
may be retested at no additional charge for up to thirty days 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 state of Georgia, 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, 2000 and 1999, the allowance for retest costs was
insignificant.
Revenue from leases of emission testing equipment (see Note 11 - Lease
Revenue) is recognized on a straight-line basis over the life of the leases.
F-10
In December 1999, the Securities and Exchange Commission (SEC) staff released
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS (SAB 101), as amended. SAB 101 provides interpretive guidance on
the recognition, presentation and disclosure of revenue in financial
statements. The Company believes its revenue recognition policies comply with
SAB 101.
METHODS OF DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets of five
years. Repair and maintenance costs are charged to expense as incurred. Gains
or losses on disposals are reflected in operations.
Goodwill is amortized on a straight-line basis over a ten year period.
Financing and offering costs are deferred and amortized on a straight-line
basis over the life of the related agreement through June 2002.
IMPAIRMENT
Property and equipment and certain intangibles, including goodwill, are
reviewed 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, no assets were
impaired as of December 31, 2000 or 1999.
INCOME TAXES
Emissions is taxed as a C corporation under the Internal Revenue Code.
Deferred income taxes are provided for temporary differences between the
financial reporting basis and tax basis of assets and liabilities.
Lake Holdings is treated as a partnership for federal and state income tax
purposes. Evans has elected under the Internal Revenue Code to be taxed as an
S corporation. Accordingly, no provision or benefit for federal or state
income taxes is necessary since income, losses and tax credits are reported
on the owners' individual income tax returns.
ORGANIZATION COSTS
Organization costs are expensed as incurred.
F-11
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense was not
significant during the period from May 5, 2000 through December 31, 2000, for
the period from January 1, 2000 through May 31, 2000 or for the years ended
December 31, 1999 and 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, due from related party,
accounts payable and accrued liabilities approximate their fair value because
of their short-term nature. Borrowings under the line of credit are carried
at amounts which approximate fair value due to the variable rate feature of
the debt. The obligations under capital leases are carried at amounts which
approximate fair value based on lease obligations with similar remaining
maturities and similar terms. The notes payable to owners are carried at
amounts which approximate fair value as the debt is analogous to a capital
contribution and the stated rate under these notes is not materially
different than market rates. The fair value of the convertible debentures was
determined based on the greater of the estimated fair value of the shares to
be received upon conversion of the debentures or the discounted cash flows of
the remaining principal and interest payments, based on current interest
rates (see Note 7).
NET LOSS PER 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 loss, all potentially dilutive
securities would be antidilutive and are excluded from the computation of
diluted loss per share. The following table lists the number of shares which
could be issued related to all potentially dilutive securities as of December
31, 2000:
Convertible debentures 1,650,000
Warrants 400,000
-----------
2,050,000
===========
Subsequent to December 31, 2000, all convertible debentures outstanding at
December 31, 2000 were converted to shares of common stock of the Company.
Furthermore, all warrants outstanding at December 31, 2000 were cancelled by
agreement between the Company and the warrant holder (see Note 7).
Net income per share for the Predecessor has not been presented as it is not
deemed to be a meaningful presentation due to the different capital structure
as a result of the Acquisition.
F-12
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and highly liquid investments that are
readily convertible into cash and have a maturity of ninety days or less when
purchased. At times, cash and cash equivalent balances may exceed federally
insured amounts. The Company believes it mitigates risks by depositing cash
and investing in cash equivalents with major financial institutions.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133), was issued in June
1998. SFAS 133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Statement of Financial
Accounting Standards No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT 133
(SFAS 137), was issued in June 1999. SFAS 137 delays the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. The Company's
convertible debentures are considered to be derivatives; however, the Company
has not yet determined whether the adoption of SFAS 133 will have a material
impact on its financial statements.
STOCK-BASED COMPENSATION
Stock-based compensation is determined using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
estimated market price of the common stock at the date of grant over the
amount an employee must pay to acquire the stock.
NOTE 2: FACTORS AFFECTING OPERATIONS
The Company is a start-up enterprise with limited operations and has not
generated significant amounts of revenue. 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
F-13
adequate levels of debt and/or equity financing; and provide sufficient cash
from operations to meet current and future obligations.
The Company has prepared financial forecasts which indicate that, based on
its current business plans and strategies, 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 financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE 3: ACQUISITION
On June 1, 2000, the Company entered into an asset purchase agreement with
Lake Holdings, a company engaged in the emissions testing business in
Georgia. Pursuant to the agreement, the Company acquired certain assets and
assumed certain liabilities of Lake Holdings. The majority owners of Lake
Holdings also own an entity which manages GCA Strategic Investment Fund
Limited (GCA Fund), which has entered into a securities purchase agreement
with the Company (see Note 7). Lake Holdings owned emissions testing
equipment and leased and operated two emission testing stations in Georgia at
the date of the acquisition (see Note 11).
Assets purchased by the Company consisted primarily of emission testing
equipment for emission testing stations and emission testing equipment that
is leased to unrelated station operators, with all licenses and permits held
by Lake Holdings. Liabilities assumed by the Company consisted primarily of
the real estate leases for the two existing emission testing stations. The
purchase price consisted of cash of $220,000 (exclusive of the real estate
lease obligations), and was funded by proceeds from a debenture sold pursuant
to the securities purchase agreement between GCA Fund and the Company (see
Note 7).
The acquisition was accounted for using the purchase method of accounting,
whereby a new basis of accounting for the assets acquired and liabilities
assumed was established.
The purchase price was allocated as follows:
Emission testing equipment $175,000
Goodwill 45,000
---------
$220,000
=========
In the opinion of management, the value of the acquired licenses, permits and
other intangible assets was not significant.
F-14
NOTE 4: NOTE RECEIVABLE FROM RELATED PARTY
The Company had a note receivable from an entity managed by, and otherwise
related to, a stockholder in the amount of $95,000. The Company has a
consulting agreement with this stockholder (see Note 13). The note was
originally unsecured and carried interest at 12%. Principal and accrued
interest plus an additional fee of 2% of the principal were due on the August
2, 2000 maturity date, but were not repaid, at which time the interest rate
increased to 18% from that date until the note is paid in full. The Company
extended the maturity date to 45 days subsequent to the date as of which the
Company's registration statement is declared effective by the Securities and
Exchange Commission (SEC). Furthermore, the Company entered into an agreement
with a second stockholder of the Company whereby if the note receivable was
not repaid within the above-stipulated 45 day period, the stockholder would
purchase the note receivable from the Company for a purchase price equal to
the aggregate cash proceeds received by the stockholder upon the sale of
100,000 shares of common stock of the Company. In addition, the Company
obtained a mortgage interest in certain property and improvements owned by
the entity.
Due to the uncertainty of the collectibility of this note receivable, the
Company recorded an allowance of $95,000 on this note. The execution of this
note was a technical violation of the use of proceeds specified in the
securities purchase agreement with GCA Fund (see Note 7), however, the
Company obtained a waiver from GCA Fund.
In December 2000, the Company transferred the note receivable and the
mortgage interest to the stockholder who manages the related entity from whom
the note receivable is due. In return, the Company received 100,000 shares of
common stock of the Company held by the stockholder. The Company has
accounted for this transaction as a redemption and cancellation of the shares
of common stock. The redemption cost of $95,000 has been allocated between
common stock ($1,000, representing the original assigned value of the shares)
and the accumulated deficit ($94,000) in the accompanying statement of
owners' deficit for the period from May 5, 2000 through December 31, 2000 and
as an offset to the provision for uncollectible note receivable of $95,000 in
the accompanying statement of operations for the period from May 5, 2000
through December 31, 2000.
F-15
NOTE 5: PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 2000 and 1999 is as follows:
Emissions Lake Holdings, LLC and
Testing, Inc. R.V. Evans Enterprises, Inc.
-------------- ------------------------------
(Predecessor)
2000 1999
-------------- --------------
Emission testing equipment $196,000 $171,000
Furniture, fixtures and office equipment 6,000 2,000
Leasehold improvements 8,000 -
-------------- --------------
210,000 173,000
Less accumulated depreciation and amortization 21,000 51,000
-------------- --------------
$189,000 $122,000
============== ==============
NOTE 6: OTHER ASSETS
Other assets at December 31, 2000 and 1999 were as follows:
Emissions Lake Holdings, LLC and
Testing, Inc. R.V. Evans Enterprises, Inc.
-------------- ------------------------------
(Predecessor)
2000 1999
-------------- --------------
Goodwill $ 45,000 $ -
Deferred financing and offering costs 220,000 -
Deposits 2,000 1,000
-------------- --------------
267,000 1,000
Less accumulated amortization 49,000 -
-------------- --------------
$218,000 $1,000
============== ==============
NOTE 7: DEBENTURES
On June 1, 2000, the Company entered into a Securities Purchase Agreement, as
amended, (the Agreement) with GCA Fund, pursuant to which GCA Fund agreed to
purchase certain convertible debentures (collectively, the Series A
debentures) and certain related stock warrants of the Company (collectively,
the warrants). The Agreement contemplates the purchase by GCA Fund (on or
before June 1, 2001), in one or more tranches, of up to an aggregate
principal amount of $1,000,000 of the Series A debentures at a price equal to
95% of the principal amount. The Agreement also contemplates the issuance, in
one or more tranches, of warrants (entitling GCA
F-16
Fund to purchase up to 500,000 shares of the Company's common stock at a
price (as amended) of $0.50 per share, with such price subject to adjustment
in certain circumstances as outlined in the Agreement) concurrently with the
purchase of the debentures.
The Series A debentures are convertible, at the option of GCA Fund, into
shares of common stock of the Company. The conversion price is generally
equal to the lesser of (a) $0.50 or (b) 75% of the trading price of the
common stock over a ten day period, as defined in the Agreement, when the
Company's common stock is traded in the public markets. The conversion price
is subject to adjustment in certain circumstances as outlined in the
Agreement.
The outstanding principal amount of the Series A debentures is due on June 1,
2002. Series A debentures issued under the Agreement bear interest at 7%
(payable, at the Company's option, in cash or shares of common stock) and are
secured by all emission testing equipment owned by the Company. The Company
elected to pay interest under the currently outstanding Series A debentures
in cash.
The Agreement also contemplates the purchase of the Series A debentures by
GCA Fund in accordance with criteria outlined in the Agreement, up to the
expiration date of the commitment of June 1, 2001. The Company is subject to
a commitment fee of 1.5% of any portion of the commitment not used.
The Agreement contemplates the issuance of warrants in conjunction with each
purchase by GCA Fund of a Series A debenture. The term of each warrant is
five years from its respective issue date. The warrants are mandatorily
redeemable for cash whenever the Company is obligated to redeem the Series A
debentures (see below); in that case, the redemption price would be based on
the value of the warrants, the number of warrants being redeemed and the
average trading price of the common stock, all as outlined in the Agreement.
On June 1, 2000, GCA Fund purchased a Series A debenture in the original
principal amount of $525,000, for a price equal to 95% thereof, or
approximately $499,000; concurrently, the Company issued to GCA Fund a
warrant to purchase up to 250,000 shares of the Company's common stock at any
time over a five year period commencing June 1, 2000 at a price (as amended)
of $0.50 per share. The resulting discount of $26,000 is being amortized
using the interest method over the term of the debt. The Company did not
assign a value to the beneficial conversion feature of the Series A debenture
for the June 2000 issuance, as the value was deemed immaterial.
Based upon the fair value methodology prescribed under Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS
123), the Company did not assign a value to the warrant issued in June 2000
as the value was deemed immaterial. The fair value of the warrant was
estimated using the Black-Scholes option-pricing model with the following
assumptions: risk-free interest rate of 6.7%; expected life of five years; no
expected volatility; and no dividend yield.
F-17
In June 2000, the Company advanced $95,000 of the proceeds from the Series A
debenture to an entity managed by, and otherwise related to, a stockholder in
return for a note receivable (see Note 4). The execution of this note was a
technical violation of the use of proceeds specified in the securities
purchase agreement with GCA Fund, however, in December 2000, the Company
obtained a waiver from GCA Fund.
In September 2000, GCA Fund purchased a second Series A debenture in the
original principal amount of $100,000, for a price equal to the principal
amount; concurrently, the Company issued to GCA Fund a warrant to purchase up
to 50,000 shares of the Company's common stock at any time over a five year
period at a price (as amended) of $0.50 per share.
Since the Company had begun operations and secured a financing arrangement,
the Company believes the fair value of its common stock in September 2000
approximated the $5.50 per share proposed public offering price of the
Company's common stock (see Note 12). Based on the relative fair values of
the Series A debenture and warrant issued in September 2000 (as determined
using the Black-Scholes option pricing model as described above), the Company
has allocated $80,000 of the proceeds to the beneficial conversion feature
contained within the Series A debenture and the remaining $20,000 to the
warrant. However, as the Series A debenture is immediately convertible, the
Company has accounted for the $80,000 beneficial conversion feature as
additional interest expense on the Series A debenture, with a corresponding
increase in common stock. Furthermore, the $20,000 allocated to the warrant
has been reflected as a discount on the Series A debenture with a
corresponding increase in common stock. The $20,000 discount on the Series A
debenture is being amortized using the interest method over the term of the
debt.
On November 1, 2000, GCA Fund purchased a third Series A debenture in the
original principal amount of $100,000, for a price equal to 95% thereof, or
$95,000; concurrently, the Company issued to GCA Fund a warrant to purchase
up to 50,000 shares of the Company's common stock at any time over a five
year period at a price of $0.50 per share. The terms of this Series A
debenture are similar to the second Series A debenture and contain a
beneficial conversion feature. The Company has allocated $76,000 of the
proceeds from this purchase to the beneficial conversion feature contained
within the Series A debenture and the remaining $19,000 of the proceeds to
the warrant. The Company has accounted for the $76,000 beneficial conversion
feature as additional interest expense with a corresponding increase in
common stock. The $19,000 allocated to the warrant has been reflected as a
discount on the Series A debenture with a corresponding increase in common
stock. The $19,000 discount on the Series A debenture is being amortized
using the interest method over the term of the debt.
On December 8, 2000, GCA Fund purchased a fourth Series A debenture in the
original principal amount of $100,000, for a price equal to 95% thereof, or
$95,000; concurrently, the Company issued to GCA Fund a warrant to purchase
up to 50,000 shares of the Company's common stock at any time over a five
year period at a price of $0.50 per share. The terms of this Series A
debenture are similar to the second and third Series A debentures and contain
a beneficial conversion feature. Similar to the third Series A debenture, the
Company has allocated $76,000 of the proceeds from this purchase to the
beneficial conversion feature contained within the Series A debenture and the
remaining $19,000 of the proceeds to the warrant. The
F-18
Company is amortizing the $76,000 beneficial conversion feature using the
interest method over the term of the debt (through June 1, 2002) in
accordance with Emerging Issues Task Force (EITF) Issue No. 00-27 (EITF
00-27), APPLICATION OF EITF NO. 98-5 "ACCOUNTING FOR CONVERTIBLE SECURITIES
WITH BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY ADJUSTABLE CONVERSION
RATIOS" TO CERTAIN CONVERTIBLE INSTRUMENTS, which is effective for all
convertible securities issued after November 16, 2000. Accordingly, the
Company recognized approximately $4,000 in interest expense related to the
amortization of this beneficial conversion feature. The $19,000 allocated to
the warrant has been reflected as a discount on the Series A debenture with a
corresponding increase in common stock. The $19,000 discount on the Series A
debenture is being amortized using the interest method over the term of the
debt.
The Company recognized approximately $80,000 in interest expense in the
fourth quarter of fiscal 2000 related to the amortization of the above
beneficial conversion features. Interest expense, including amortization of
the discounts and beneficial conversion features, was $199,000 during the
period from May 5, 2000 through December 31, 2000.
The Series A debentures are redeemable, at the option of the Company, as long
as there is no event of default, as defined. The redemption price is
generally equal to the number of shares of common stock into which the Series
A debentures are convertible times the average trading price of the common
stock, as defined in the Agreement. The redemption price is subject to
adjustment in certain circumstances as outlined in the Agreement.
Additionally, the Series A debentures are mandatorily redeemable, at the
option of GCA Fund, under certain circumstances as outlined in the Agreement,
including but not limited to a change in control, as defined.
The Agreement contains provisions granting GCA Fund certain registration
rights, including a requirement that the Company file a registration
statement with the SEC which was required to be effective by August 30, 2000.
The Company did not comply with this provision of the Agreement. Under the
terms of the Agreement, the Company was subject to liquidated damages of 2%
of the outstanding principal amount of the convertible debentures, prorated,
for each thirty day period the registration statement was not declared
effective by the SEC. If not declared effective by the SEC by September 29,
2000, the liquidated damages were to increase to 3% of the outstanding
principal amount of the convertible debentures. In addition, if the
registration statement was not declared effective by the SEC by October 29,
2000, the conversion price of the convertible debentures was to decrease by
1% for each thirty day period in which the registration statement was not
declared effective. Finally, if the registration statement was not declared
effective by November 28, 2000, the Company was to be required to redeem the
convertible debentures and warrants as set forth in the Agreement. In
December 2000, the Company obtained a waiver, through November 1, 2001, of
all such liquidated damages and registration requirements from GCA Fund.
Under the waiver, if the registration statement is not declared effective by
November 1, 2001, then GCA Fund is entitled to all liquidating damages and
other rights as described above.
F-19
The estimated fair value of the Company's Series A debentures at December 31,
2000, which is based in part on the conversion features of the Series A
debentures, was approximately $9,075,000.
On January 31, 2001, the Company entered into an agreement with GCA Fund
whereby GCA Fund purchased a fifth Series A debenture in the original
principal amount of $175,000, for a price equal to 95% thereof, or $166,000;
concurrently, all warrants previously issued to GCA Fund by the Company were
cancelled. The Company allocated the $166,000 in proceeds from this purchase
to the beneficial conversion feature contained within the Series A debenture.
Furthermore, GCA Fund elected to immediately convert all outstanding Series A
convertible debentures plus outstanding accrued interest into 3,553,137
shares of Company common stock. Since all Series A debentures were converted
on January 31, 2001, any unamortized beneficial conversion features as of
that date were amortized immediately. Accordingly, the Company will recognize
approximately $238,000 in interest expense in January 2001 related to the
amortization of the above beneficial conversion features.
NOTE 8: DEBT
REVOLVING LINE OF CREDIT
Lake Holdings had a $30,000 revolving line of credit with a financial
institution. Outstanding borrowings were unsecured, accrued interest at prime
(8.5% at December 31, 1999) plus 1% and matured in July 2000. Accrued
interest was payable monthly and the outstanding principal was due at
maturity. The outstanding balance at December 31, 1999 was $8,000. At
December 31, 1999, $22,000 was available under the line of credit. Interest
expense for outstanding borrowings under the revolving line of credit was
insignificant for the period from January 1, 2000 through May 31, 2000 or for
the years ended December 31, 1999 and 1998.
MEMBER NOTES
In 1997, the two members of Lake Holdings contributed a total of $40,000 in
capital to Lake Holdings in the form of two demand notes payable. These notes
accrued interest at 6%, were unsecured and principal and accrued interest
were due on demand. Interest expense recognized under these notes totaled
$1,000 for the period from January 1, 2000 through May 31, 2000, $7,000 for
the year ended December 31, 1999 and $5,000 for the year ended December 31,
1998.
NOTE 9: INCOME TAXES
As of December 31, 2000, the Company had a net operating loss carryforward of
approximately $375,000 which will expire in 2020 that may be used to offset
future taxable income.
F-20
Differences between the income tax benefit reported in the statement of
operations for the period from May 5, 2000 through December 31, 2000 and the
amount determined by applying the statutory federal income tax rate (34%) to
the loss before income taxes for the period from May 5, 2000 through December
31, 2000 were as follows:
Expected rate (34.0)%
State income taxes, net of federal deduction (5.7)
Beneficial conversion feature 25.1
Valuation allowance 14.6
-------------
- %
=============
Noncurrent deferred income tax assets at December 31, 2000 consisted of the
following:
Net operating loss carryforward $150,000
Less valuation allowance 150,000
-------------
Net deferred tax asset $ -
=============
NOTE 10: UNAUDITED PRO FORMA INCOME TAX INFORMATION
The following unaudited pro forma income tax information is presented in
accordance with Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, as if the Predecessor had been a C corporation
subject to federal and state income taxes throughout the periods presented.
For the
Period from
January 1, For the For the
2000 through Year Ended Year Ended
May 31, December 31, December 31,
2000 1999 1998
---------------- -------------- ----------------
Net income before pro forma adjustment,
per combined statements of operations $17,000 $14,000 $17,000
Provision for income taxes 4,000 3,000 4,000
---------------- -------------- ----------------
Pro forma net income $13,000 $11,000 $13,000
================ ============== ================
NOTE 11: LEASING ACTIVITIES
OPERATING LEASES
The Company leases office space and land and buildings for the emissions
testing stations. The leases for the emission testing stations are renewable,
at the option of the Company, for specified periods.
F-21
One of the leases for an emission testing station is cancelable by either the
lessor or the Company at any time.
Future minimum rental payments required under the noncancelable operating
leases were as follows at December 31, 2000:
Year Ending December 31
-----------------------
2001 $ 63,000
2002 21,000
2003 21,000
2004 9,000
---------
$ 114,000
=========
During the period from May 5, 2000 through December 31, 2000, rent expense
was approximately $35,000, during the period from January 1, 2000 through May
31, 2000 rent expense was approximately $10,000 and during the years ended
December 31, 1999 and 1998 rent expense was approximately $54,000 and
$18,000, respectively.
CAPITAL LEASES
The Predecessor leased emission testing equipment under leases which were
accounted for as capital leases. Emissions acquired the emission testing
equipment as part of the Acquisition (see Note 3) on June 1, 2000. All future
capital lease payments were made by the Predecessor at that time. At December
31, 2000, Emission had no leases which are accounted for as capital leases.
LEASE REVENUE
The Company leases certain emission testing equipment under operating leases,
one of which was cancelled at the Company's option in August 2000 and the
other of which is noncancelable. At December 31, 2000, such equipment had a
cost of $25,000 and accumulated depreciation of $2,900 and at December 31,
1999, a cost of $60,000 and accumulated depreciation of $18,000. The
equipment is included in property and equipment on the accompanying balance
sheets. The Company is depreciating the equipment on a straight-line basis
over its estimated useful life of five years. The remaining lease term under
the noncancelable lease at December 31, 2000 is approximately 26 months. The
lessees pay the Company monthly rent of approximately $500.
Future estimated receipts under the noncancelable lease were as follows at
December 31, 2000:
Year Ending December 31
-----------------------
2001 $ 6,000
2002 6,000
2003 1,000
---------
$ 13,000
=========
F-22
NOTE 12: EQUITY
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock. No
terms or conditions have been established for any preferred stock which may
be issued.
COMMON STOCK
In conjunction with the formation of the Company, a total of 2,410,000 shares
of common stock were issued to 15 founders. The founders contributed no cash
or other tangible property in exchange for their shares; instead, the
founders contributed organizational and start-up expertise, industry
knowledge and know-how and other such intangible services. The Company has
assigned a value of $0.01 per share to these services, or a total of
approximately $24,000 which has been included in organizational and start-up
costs in the accompanying statement of operations for the period from May 5,
2000 through December 31, 2000. The $0.01 per share fair value assigned to
the common shares issued to the founders was determined by the Company's
board of directors based on the services rendered to the Company and the fact
that at the time of issuance, Emissions had no operations and had no
financing arrangements with which to acquire operations. Management believes
that such value of $0.01 per share approximated fair value as of the date of
formation of the Company.
STOCK OPTION PLAN
In December 2000, the Company adopted the Emissions Testing, Inc. 2000 Stock
Option Plan (the 2000 stock option plan). The Company has reserved 1,000,000
shares of common stock for issuance under the plan. The plan permits the
issuance of incentive stock options, options other than incentive stock
options, reload options, restricted shares of common stock and stock
appreciation rights.
PROPOSED PUBLIC OFFERING
The Company has filed a registration statement with the SEC to offer up to
2,000,000 shares of its common stock to the public. The Company tentatively
believes the proposed public offering price on the common stock will be $5.50
per share. However, as the Company is offering these shares in a "best
efforts, no minimum" offering, there can be no assurance that the Company
will be able to sell its shares of common stock.
NOTE 13: CONSULTING AND EMPLOYMENT AGREEMENTS
In May 2000, the Company entered into a consulting agreement with an entity
that is a founding stockholder of the Company (see Note 4 for a discussion of
a note receivable from an entity related to this stockholder). The agreement
has a term of five years, requires a monthly fee of $8,000,
F-23
which increases by 10% per year, and requires finders fees on acquisitions
procured, as defined in the agreement.
The Company has also entered into a consulting agreement with a founding
stockholder who is the sole stockholder of Evans (see Note 1). The agreement
expires on April 1, 2001 and requires payments of $1,000 per week, together
with an automobile allowance of $500 per month. Additionally, the Company has
agreed to issue the stockholder an option to purchase up to 120,000 shares of
its common stock pursuant to the 2000 stock option plan (see Note 12). The
exercise price per share of the option to be granted will be the fair market
value of the Company's common stock on the date of grant and the option will
not be granted until after the Company's common stock becomes publicly
traded. Upon being granted, 60,000 shares will be immediately vested and the
remaining 60,000 shares will vest on October 1, 2001, provided that at each
such date, the stockholder has served continuously as either a consultant to
or employee of the Company.
In June 2000, the Company entered into an employment agreement with one of
the founding stockholders to serve as the Company's president. This
individual resigned from the Company in September 2000.
In September 2000, the Company entered into an employment agreement with
another founding stockholder to serve as the Company's president which, among
other things, provides for annual compensation of $120,000 for a three year
term, with three one year renewal periods. The agreement also provides for
quarterly performance bonuses and certain allowances. Additionally, the
Company has agreed to issue the stockholder an option to purchase up to
500,000 shares of its common stock pursuant to the 2000 stock option plan
(see Note 12). The exercise price per share of the option to be granted will
be the fair market value of the Company's common stock on the date of grant
and the option will not be granted until after the Company's common stock
becomes publicly traded.
F-24
EMISSIONS TESTING, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Costs and Balance at
Beginning of Period Expense Deductions End of Period
--------------------- ------------- ------------ ---------------
EMISSIONS TESTING, INC.
For the Period from
May 5, 2000
through December 31, 2000:
Allowance for note receivable
from related party $ - $ 95,000 $ 95,000 $ -
=========== ========= =========== ===========
Deferred tax valuation allowance $ - $ 150,000 $ - $ 150,000
=========== ========= =========== ===========
LAKE HOLDINGS, LLC AND R.V. EVANS
ENTERPRISES, INC. (PREDECESSOR)
For the Period from
January 1, 2000
through May 31, 2000:
None $ - $ - $ - $ -
=========== ========= =========== ===========
Year Ended
December 31, 1999:
None $ - $ - $ - $ -
=========== ========= =========== ===========
Year Ended
December 31, 1998:
None $ - $ - $ - $ -
=========== ========= =========== ===========
Note: Schedules other than that above are omitted because they are not
required or are not applicable, or because the information is furnished
elsewhere in the financial statements or the notes thereto.
F-25
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
selling commissions that we incur, payable by us in connection with the
registration of the common stock offered hereby. All of the amounts shown
below are estimated, except the SEC registration fee.
SEC Registration Fee $ 9,107
Printing Expenses 12,000
Legal Fees and Expenses 165,000
Accounting Fees and Expenses 135,000
Blue Sky Expenses and Counsel Fees 12,000
Transfer Agent Fees 3,000
Miscellaneous 10,000
---------
Total $ 346,107
=========
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS. Section 14-2-851 of the Georgia
Business Corporation Code provides that, except as noted below, a Georgia
corporation may indemnify or obligate itself to indemnify an individual made
a party to a proceeding because he is or was a director against liability
incurred in the proceeding if he acted in a manner he believed in good faith
to be not opposed to the best interests of the corporation and, in the case
of any criminal proceeding, he had no reasonable cause to believe his conduct
was unlawful. A corporation may not indemnify a director in connection with
(a) any proceeding brought by or in the right of the corporation in which the
director was adjudged liable to the corporation, or (b) any other proceeding
in which the director was adjudged liable on the basis that a personal
benefit was improperly received by the director. Indemnification of a
director in a proceeding brought by or in the right of the corporation is
limited to reasonable expenses, including attorneys' fees, incurred by the
director in connection with the proceeding. Under Georgia law, a corporation
may indemnify any individual who is or was a director of a corporation or an
individual who, while a director of the corporation, is or was serving at the
corporation's request as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise. For purposes of O.C.G.A.
Section 14-2-851, the term "proceeding" is broadly defined so as to include
any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative and whether formal or
informal.
In addition, a corporation may not indemnify a director under
O.C.G.A. Section 14-2-851 unless a determination has been made in the
specific case that indemnification of the director is permissible in the
circumstances because he director has met the standard of conduct set forth in
II-1
Section 14-2-851. O.C.G.A. Section 14-2-855 establishes a procedure for
selecting the person or persons who will make the determination of
eligibility for indemnification under Section 14-2-851. Generally, a
determination must be made by (a) by the board of directors of the
corporation by majority of a quorum consisting of directors not at the time
parties to the proceeding: (b) if a quorum of such directors cannot be
obtained, by majority vote of a committee duly designated by the board of
directors consisting of two or more directors not at the time parties to the
proceeding; (c) by special counsel selected by the board of directors or a
committee designated by the board, or (d) by the shareholders, although
shares owned by or voted under the control of directors who are at the time
parties to the proceeding may not be voted on the determination.
Further, a corporation may pay for or reimburse the reasonable
expenses, including attorneys' fees, incurred by a director who is or was a
party to a proceeding in advance of the final disposition of the proceeding
if the director furnishes the corporation with a written affirmation of his
(a) good faith believe that he has met the standard of conduct set forth in
Section 14-2-851, and (b) promise to repay any advances if it is ultimately
determined that his is not entitled to indemnification, which promise need to
be secured by any collateral and may be accepted by the corporation without
regard to the director's financial ability to make repayment.
Georgia law also provides that, in certain circumstances, a
corporation must indemnify its directors. O.C.G.A Section 14-2-852 provides
that, unless limited by the corporation's articles of incorporation, a
director is entitled to recover from the corporation all reasonable expenses,
including attorneys' fees, incurred by him in the defense of any proceeding
to which he was a party, or to the defense of any claim, issue, or matter
therein, because he is or was a director of the corporation, to the extent
the director was successful of the merits, or otherwise, in the proceeding,
claim, issue of matter.
Unless the corporation's articles of incorporation provide
otherwise, a director who is a party to a proceeding may apply to the court
conducting the proceeding or another court of competent jurisdiction for
indemnification or the advance payment of expenses. O.C.G.A. Section 14-2-854
permits court-ordered indemnification three situations:
(1) A director entitled to mandatory indemnification under Section
14-2-852 may enforce that right by judicial proceeding, in which event the
court may also order the corporation to pay the reasonable expenses incurred
by the director in connection with the proceeding;
(2) Indemnification at the court's discretion is permitted in all
cases whether or not the director met the requisite standard of conduct set
forth in Section 14-2-851 or is otherwise ineligible for indemnification; and
(3) A director secures a court order for the advance payment of
expenses as set forth in Section 14-2-853.
Finally, under the provisions of O.C.G.A. Section 14-2-856, with the
approval or ratification of its shareholders by a majority of the votes
entitled to be case, a corporation may indemnify or
II-2
obligate itself to indemnify a party to a proceeding, including one brought
by or in the right of the corporation, without regard to any statutory
limitations. This right, however, cannot be exercised in favor of a director
in which the director has been adjudged liable to the corporation or is
subjected to injunctive relief in favor of the corporation, for (a) any
appropriation, in violation of his duties, of any business opportunity of the
corporation, (b) act or omissions that involve intentional misconduct or a
knowing violation of law, (c) any unlawful distribution to shareholders of
assets or properties belonging to the corporation, or (d) any transaction
from which the director receives an improper personal benefit. Also, the
shareholders right to authorize the payment or reimbursement of a director's
expenses incurred in a proceeding in advance of final disposition of the
proceeding, may be made only if the director furnishes the corporation with a
written affirmation of his good faith believe that his conduct does not
constitute behavior of the kind described in clauses (a) through (d) of this
paragraph and with a written undertaking to repay any advances if it is
ultimately determined that he is not entitled to indemnification under
Section 14-2-856.
INDEMNIFICATION OF OFFICERS. A Georgia corporation may, unless its
articles of incorporation otherwise provide, indemnify and advance expenses
to an officer, employee and agent who is not a director of the corporation,
consistent with public policy, that may be provided by its articles of
incorporation, bylaws, general or specific action of its board of directors
or contracts. In addition, unless the articles of incorporation otherwise
provide, an officer of the corporation who is not a director is entitled to
mandatory indemnification under O.C.G.A Section 14-2-852, described above,
and is entitled to apply for court indemnification under O.C.G.A. Section
14-2-854, described above, in each case to the same extent as a director.
INSURANCE. O.C.G.A. Section 14-2-858 permits a corporation to
purchase and maintain insurance of behalf of directors, officers, employees,
or agents against liabilities imposed on them by reason of actions in their
official capacity or arising from their service to the corporation or another
entity at the corporation's request.
BYLAWS OF EMISSIONS TESTING, INC. Our bylaws provide for
indemnification rights to any person who was or is threatened to be a party
to any proceeding by reason of the fact that such person is or was a
director, officer, employee or agent of ours, against expenses, including
reasonable attorneys' fees, reasonably incurred by such person in connection
with such proceeding, if such person acted in a manner he or she believed in
good faith to be in or not opposed to our best interests, and with respect to
any criminal action or proceeding, if such person had no reasonable cause to
believe such person's conduct was unlawful, to the maximum extent permitted
by, and in the manner provided by, the Georgia Business Corporation Code.
In addition, to the extent that our directors, officers, employees
or agents have been successful, on the merits or otherwise, in the defense of
any proceeding to which such person was a party, in the defense of any claim,
issue, or matter therein, because that individual is or was a director,
officer, employee or agent of ours, we will indemnify such person against
reasonable expenses incurred by that person in connection therewith. We may
not indemnify a director, officer, employee or agent under our bylaws unless
a determination has been made by our disinterested members of our board of
directors, or alternatively by disinterested
II-3
shareholders or by special legal counsel, as provided in the bylaws, in each
specific case that such person has met the standard of care required under
the bylaws for indemnification.
Furthermore, we may pay for or reimburse the reasonable expenses
incurred by our directors, officers, employees or agents who parties to a
proceeding in advance of final disposition of the proceeding if (a) such
person furnishes us with a written affirmation of such person's good faith
believe that he or she has met the standard of conduct required for
indemnification by us, and (b) such person furnishes us with a written
undertaking to repay any advances if its is ultimately determined that such
person is not entitled to indemnification by us.
Insofar as indemnification for liabilities under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and is, therefore, unenforceable.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, we have sold unregistered shares of our common
stock in the amounts, at the times, and for the aggregate amounts of
consideration listed as follows:
Date Class Shares Purchaser Consideration
- ---- ------ --------- ---------------------------- -------------
January 31, 2001 Common 3,553,137 GCA Strategic Investment $1,030,410
Fund Limited
May 2, 2000 Common 310,000 Porter Lane Investment, Inc. $0
May 2, 2000 Common 310,000 Irish Investments, LLC $0
May 2, 2000 Common 310,000 Emerald Marine, Ltd. $0
May 2, 2000 Common 310,000 Westhurst, Ltd. $0
May 2, 2000 Common 310,000 Bolling Investments, LLC $0
May 2, 2000 Common 200,000 Richard A. Parlontieri $0
May 2, 2000 Common 110,000 William S. Estroff $0
May 2, 2000 Common 100,000 ARM & Associates, LLC $0
May 2, 2000 Common 100,000 Gant Alumni Associates, LLC $0
May 2, 2000 Common 50,000 Karen Vickers $0
May 2, 2000 Common 50,000 Sidney E. Brown $0
May 2, 2000 Common 50,000 Robert D. Downey $0
May 2, 2000 Common 50,000 William L. Ross $0
May 2, 2000 Common 50,000 John J. McManus $0
May 2, 2000 Common 140,000 Robert Evans $0
- -------------
No underwriters were engaged in connection with the foregoing offers
and sales of securities. Such offers and sales of common stock were made in
reliance upon the exemption from
II-4
registration set forth in Section 4(1) in connection with the formation of
the Registrant, and such offers and sales of the Series A Convertible
Debentures and the related Warrants were made in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 of Regulation D promulgated thereunder for transactions
not involving a public offering.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
Exhibit
No. Description
- ------- -----------
1.1 Underwriting Agreement between Emissions Testing and
*
-------------------
3.1 Articles of Incorporation of Emissions Testing, Inc. **
3.1.1 Articles of Amendment of Articles of Incorporation of eMissions
Testing, Inc.**
3.2 Bylaws of Emissions Testing, Inc.**
4.1 Specimen of Common Stock Certificate.**
5.1 Opinion of Counsel regarding legality of the shares.*
10.1 Securities Purchase Agreement by and between Emissions Testing, Inc.
and GCA Strategic Investment Fund Ltd., as amended, dated June 1,
2000.**
10.2 Security Agreement dated June 1, 2000 by and between Emissions Testing,
Inc. and GCA Strategic Investment Fund, Ltd., as amended, as of
September 15, 2000.**
10.3 7% Convertible Debentures in the principal amount of $525,000 from
Emissions Testing, Inc. to GCA Strategic Investment Fund, Ltd., dated
June 1, 2000.**
10.4 Common Stock Purchase Warrant issued by Emissions Testing, Inc. to GCA
Strategic Investment Fund, Ltd. For 250,000 shares, dated June 1,
2000.**
10.5 7% Convertible Debenture in the principal amount of $100,000 from
II-5
Emissions Testing, Inc. to GCA Strategic Investment Fund, Ltd., dated
September 15, 2000.**
10.6 Common Stock Purchase Warrant issued by Emissions Testing, Inc. to GCA
Strategic Fund, Ltd. for 50,000 shares, dated September 15, 2000.**
10.7 Letter from GCA Strategic Investment Fund, Ltd., dated September 15,
2000 regarding Waiver of Closing Conditions for $100,000 Subsequent
Takedown Financing of 7% Convertible Debentures of Emissions Testing,
Inc.**
10.8 Registration Rights Agreement dated June 1, 2000 by and between
Emissions Testing, Inc. and GCA Strategic Investment Fund, Ltd.**
10.9 Asset Purchase Agreement by and between Emissions Testing, Inc. and
Lake Holdings, LLC, dated June 1, 2000.**
10.10 Employment Agreement by and between Emissions Testing, Inc., and
Richard A. Parlontieri, dated September 18, 2000.**
10.11 Consulting Agreement by and between Emissions Testing, Inc., and Porter
Lane Investments, Inc., dated May 5, 2000.**
10.12 12% Promissory Note from Beachside Commons I, LLC to Emissions Testing,
Inc., dated September 15, 2000.**
10.13 Purchase Agreement by and between Emissions Testing, Inc. and Irish
Investments, LLC, dated September 15, 2000.**
10.14 Employment Agreement by and between Emissions Testing, Inc., and
Richard A. Parlontieri dated as of September 18, 2000.**
10.15 Emissions Testing, Inc. 2000 Stock Option Plan.**
10.16 Consulting Agreement dated as of June 1, 2000, between Emissions
Testing, Inc., and Robert Evans.**
10.17 Promissory Note Purchase Agreement, dated as of November 30, 2000,
between Emissions Testing, Inc., and Porter Lane Investments, Inc.**
II-6
10.18 Agreement dated as of December 8, 2000 between Emissions Testing, Inc.
and GCA Strategic Investment Fund Limited.**
10.19 Letter dated October 3, 2000 from GCA Strategic Investment Fund Limited
to Emissions Testing, Inc., relating to the Series A Convertible
Debenture in the principal amount of $100,000.00 sold by Emissions
Testing, Inc., to GCA on or about September 15, 2000.**
10.20 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and GCA Strategic Investment Fund Limited,
dated December 1, 2000.**
10.21 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Porter Lane Investments, Inc., dated
December 1, 2000.**
10.22 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Irish Investments, LLC, dated December 1,
2000.**
10.23 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Emerald Marine, Ltd., dated December 1,
2000.**
10.24 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Westhurst, Ltd., dated December 1, 2000.**
10.25 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Bolling Investments, LLC, dated December 1,
2000.**
10.26 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Williams S. Estroff, dated December 1,
2000.**
10.27 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Gant Alumni Associates, LLC, dated December
1, 2000.**
10.28 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and ARM & Associates, LLC, dated December 1,
2000.**
II-7
10.29 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Richard A. Parlontieri, dated December 1,
2000.**
10.30 Mortgage dated November 30, 2000, between Beachside Commons I, Inc.,
and Emissions Testing, Inc.**
10.31 Lease Agreement by and between Barry N. Jones and Emissions Testing,
Inc. dated as of May 25, 2000 for certain leased premises located at
400 Colony Park, Building 104, Suite 600, Cumming, Georgia 30041.**
10.32 Lease Agreement with Purchase Option by and between the Estate of
Miriam G. Homeyer and Lake Holdings, LLC d/b/a Quick Test dated as of
June 2, 1999 for certain leased premises located at 27 Crogan Street,
Lawrenceville, Georgia.**
10.33 Lease Agreement by and between The Right Stuff Food Stores, Inc. and
State Approved Emissions dated as of September 1, 1997 for certain
leased premises located at 554 Atlanta Highway, Cumming, Georgia
30041.**
10.34 Land Lease by and between Motiva Enterprises, LLC and eMissions
Testing, Inc. dated as of September 1, 2001 for certain leased premises
located at 4125 Jimmy Carter Boulevard, Norcross, Georgia 30093.**
10.35 Land Lease by and between Motiva Enterprises, LLC and eMissions
Testing, Inc. dated as of September 1, 2000 for certain leased premises
located at 1807 Beaver Ruin Road, Norcross, Georgia 30071.**
10.36 Consent to Assignment of Lease by The Estate of Miriam G. Homeyer to
that certain Lease Agreement with Purchase Option by and between the
Estate of Miriam G. Homeyer and Lake Holdings, LLC d/b/a Quick Test
dated as of June 2, 1999 for certain leased premises located at 27
Crogan Street, Lawrenceville, Georgia.**
10.37 Termination Agreement by and between GCA Strategic Investment Fund,
Ltd. and Emissions Testing, Inc., dated January 31, 2001.*
10.38 Conversion Certificate issued by GCA Strategic Investment Fund, Ltd. to
Emissions Testing, Inc., dated January 31, 2001.*
II-8
10.39 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Porter Lane Investments, Inc., dated
February 1, 2001.*
10.40 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Irish Investments, LLC, dated February 1,
2001.*
10.41 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Emerald Marine, Ltd., dated February 1,
2001.*
10.42 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Westhurst, Ltd. dated February 1, 2001.*
10.43 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Bolling Investments, LLC dated February 1,
2001.*
10.44 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and William S. Estroff, dated February 1,
2001.*
10.45 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Gant Alumni Associates, LLC, dated February
1, 2001.*
10.46 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and ARM & Associates, LLC, dated February 1,
2001.*
10.47 Letter Agreement relating to the Lock-Up of Common Stock between
Emissions Testing, Inc. and Richard A. Parlontieri, dated February 1,
2001.*
23.1. Consent of the Independent Auditors - Bennett Thrasher PC
23.2 Consent of Independent Auditors.**
23.3 Consent of Epstein, Becker & Green, P.C. (included in Exhibit 5.1).*
23.4 Consent of Independent Auditors.**
27.1 Financial Data Schedule.**
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- ------------
* To be filed by amendment
** Previously filed
Item 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to our directors,
officers, and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
us of expenses incurred or paid by a director, officer or controlling person
of ours in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
We hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
and
(2) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933, as amended;
(3) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which individually or in the
aggregate represents a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(4) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
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(5) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(6) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
undersigned Registrant has duly caused this Form S-1 Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in
the City of Cumming, State of Georgia, on March _____, 2001.
EMISSIONS TESTING, INC.
/s/ Richard A. Parlontieri
----------------------------------------------------
(Signature)
PRESIDENT
----------------------------------------------------
(Title)
---------------------------------------------------
(Date)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE
/s/ Richard A. Parlontieri President and Chief Executive
- ----------------------------------------- Officer
Richard A. Parlontieri
/s/ Richard A. Parlontieri Chief Financial and Accounting
- ----------------------------------------- Officer
Richard A. Parlontieri
The Board of Directors
/s/ William L. Ross Director
- -----------------------------------------
William L. Ross
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/s/ Richard D. Downey Director
- -----------------------------------------
Richard D. Downey
/s/ Sidney E. Brown Director
- -----------------------------------------
Sidney E. Brown
/s/ Richard A. Parlontieri Director
- -----------------------------------------
Richard A. Parlontieri
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