Disclaimer Regarding Forward-Looking Statements

Our Management's Discussion and Analysis of Financial Condition and Results of Operations contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are statements we make based on our management's expectations, estimates, projections and assumptions and are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; emission certificate cost; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission. The above examples are not exhaustive and new risks emerge from time to time. For a further discussion of risk factors relating to our business, see Part I, Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2011.

Although the forward-looking statements in this quarterly report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Since our common stock is considered a "penny stock," we are not eligible to rely on the safe harbor for forward-looking statements provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and any references to these sections are for informational purposes only.

Overview

Speedemissions performs vehicle emissions testing and safety inspections in certain cities in which vehicle emissions testing is mandated by the Environmental Protection Agency ("EPA"). The federal government and a number of state and local governments in the United States (and in certain foreign countries) mandate vehicle emissions testing as a method of improving air quality. As of March 31, 2012, the Company operated 38 vehicle emissions testing and safety inspection stations under the trade names of Speedemissions (Atlanta, Georgia and St. Louis, Missouri); Mr. Sticker (Houston, Texas); and Just Emissions (Salt Lake City, Utah). The Company also operates four mobile testing units in the Atlanta, Georgia area. The Company manages its operations based on these four regions and has one reportable segment. We use computerized emissions testing and safety inspections equipment that test vehicles for compliance with vehicle emissions and safety standards. Our revenues are generated from the test or inspection fee charged to the registered owner of the vehicle. We do not provide automotive repair services.

On June 22, 2010, the Company announced the launch of its first iPhone application, Carbonga. Carbonga diagnoses an automobile's computer systems using the on board diagnostic port on vehicles that are 1996 or newer. Carbonga can check over 2,000 vehicle fault codes. We launched version two of Carbonga on February 16, 2011. Version two improved the speed and performance of the application and has additional features including the ability to receive vehicle safety recalls and Technical Service Bulletins for an annual subscription fee. Revenues from Carbonga have not been material to operating results.

Results of Operations

Three Months Ended March 31, 2012 and 2011

Our revenue, cost of emission certificates, store operating expenses, general
and administrative expenses, (gain) loss from disposal of non-strategic assets
and operating loss for the three months ended March 31, 2012 as compared to the
three months ended March 31, 2011 were as follows:



                                                Three Months Ended March 31             Percentage
                                                  2012                 2011               Change
Revenue                                      $    1,921,005         $ 2,111,126                (9.0 %)
Cost of emission certificates                       425,747             470,067                (9.4 %)
Store operating expenses                          1,312,551           1,441,887                (9.0 %)
General and administrative expenses                 299,042             340,323               (12.1 %)
(Gain) loss from disposal of
non-strategic assets                                 (2,458 )            (1,000 )             145.8 %

Operating loss                               $     (113,877 )       $  (140,151 )             (18.7 %)

Revenue. Revenue decreased $190,121 or (9.0%) to $1,921,005 in the three month period ended March 31, 2012 compared to $2,111,126 in the three month period ended March 31, 2011. The decrease in revenue over the comparable period was primarily due to the closure of two stores in Texas during the quarter ended March 31, 2011 and a decrease from same store sales of $140,076 or (6.8%). The decrease in same store sales is mainly attributable to fewer tests being performed during the three month period ended March 31, 2012 compared to the prior comparable period at our all locations.

Cost of emission certificates. Cost of emission certificates decreased $44,321 or (9.4%) in the three month period ended March 31, 2012 and was $425,747 or 22.2% of revenues, compared to $470,067 or 22.3% of revenues in the three month period ended March 31, 2011. The decrease in cost of emission certificates over the comparable period was primarily due to the closure of two stores in Texas during the quarter ended March 31, 2011 and decrease in same store sales.

Store operating expenses. Store operating expenses decreased $129,336 or (9.0%) in the three month period ended March 31, 2012 and was $1,312,551 or 68.3% of revenues, compared to $1,441,887 or 68.2% of revenues in the three month period ended March 31, 2011. The decrease was mainly attributable to lower store operating costs of $46,596 resulting from the closure of two stores in Texas during the quarter ended March 31, 2011 and a decrease in same store operating expenses of $82,740. The decrease in same store operating expenses was primarily the result of tighter management controls over store operating controls.

General and administrative expenses. Our general and administrative expenses decreased $41,281, or (12.1%) to $299,042 in the three month period ended March 31, 2012 from $340,323 in the three month period ended March 31, 2011. The decrease in general and administrative expenses during the three month period March 31, 2012 was mainly due to a decrease in staffing and lower professional fees related to Carbonga compared to the prior year comparable period.

(Gain) Loss from disposal of non-strategic assets. We recognized a $2,458 gain from the disposal of a non-strategic asset in the three month period ended March 31, 2012. We recognized a gain on the disposal of non-strategic assets of $1,000 in the three month period ended March 31, 2011.

Operating loss. Our operating loss decreased by $26,275 in the three month period ended March 31, 2012 and was ($113,877) compared to an operating loss of ($140,151) in the three month period ended March 31, 2011. The decrease in operating loss was mainly due to the decrease in the cost of emission certificates, store operating expenses and general and administrative expenses, offset by the decrease in revenue.

Interest income, interest expense, net loss and basic and diluted net loss per share. Our interest income, interest expense, net loss and basic and diluted net loss per share for the three month period ended March 31, 2012 as compared to the three month period ended March 31, 2011 is as follows:

                                                                   Three Months Ended
                                                                        March 31,
                                                                2012                 2011
Operating loss                                              $   (113,877 )       $   (140,151 )
Interest income                                                      755                  759
Interest expense                                                  (3,660 )             (4,559 )

Net loss                                                    $   (116,782 )       $   (143,951 )

Basic and diluted net loss per common share                 $      (0.00 )       $      (0.01 )

Weighted average shares outstanding, basic and diluted        34,688,166           23,874,568

The Company incurred net interest expense of $2,905 and $3,800 during the three month periods ended March 31, 2012 and 2011, respectively.

Net loss and basic and diluted loss per common share. Net loss was $116,782 and $143,951 in the three month period ended March 31, 2012 and 2011, respectively. Basic and diluted net loss per share was ($0.00) and ($0.01), respectively in the three month period ended March 31, 2012 and 2011.

Liquidity and Capital Resources

Introduction

Our net cash position decreased by $6,909 during the three months ended March 31, 2012 primarily from cash used in operations while our total liabilities increased by a net $75,765. Our current liabilities increased mainly due to an $118,980 increase in our accounts payable. We hope to achieve an increase in our net operating cash flows on a long-term basis, but we may not achieve positive operating cash flows on a consistent basis during 2012.

We do not believe that our existing cash, cash flows from operations and potential borrowings on our existing line of credit loan facility will be sufficient to support our operating and investing needs for at least the next twelve months. We may or may not have the ability to raise additional working capital to fund operations. Our stores may or may not have the ability to achieve or maintain sufficient positive operating cash flow to fund operations without additional working capital. Net cash used in operating activities in the quarter ended March 31, 2012 was $8,436 as compared to net cash used in operating activities of $167,452 in the quarter ended March 31, 2011.

Our near term liquidity and ability to continue as a going concern is dependent on our ability to generate sufficient revenues from our store operations to provide sufficient cash flow from operations to pay our current level of operating expenses, to provide for inventory purchases and to reduce past due amounts owed to vendors and service providers. No assurances may be given that the Company will be able to achieve sufficient levels of revenues in the near term to provide adequate levels of cash flow from operations. If the Company is unable to achieve near term profitability and generate sufficient cash flow from operations, we would need to raise additional capital or obtain additional borrowings beyond our existing line of credit facility. We currently have very limited access to capital, including the public and private placement of equity securities and additional debt financing. No assurances can be given that additional capital or borrowings would be available to allow us to continue as a going concern.

Cash Requirements

For the three months ended March 31, 2012, our net cash used in operating activities was $8,436 compared to net cash used in operations of $167,452 in the three months ended March 31, 2011. Negative operating cash flows during the three months ended March 31, 2012 were primarily created by a net loss of $116,782, an increase in other current assets of $12,800, an increase in certificate and merchandise inventory of $10,993, offset by an $88,307 increase in accounts payable and accrued liabilities. The decrease in net cash used in operating activities was also offset by depreciation and amortization of $45,890.

Negative operating cash flows during the three months ended March 31, 2011 were primarily created by a net loss of $143,951, a decrease in accounts payable and accrued liabilities, an increase in other current assets of $14,871, an increase in certificate and merchandise inventory, a decrease in other liabilities of $15,041 and a gain on the disposal of assets of $1,000. The decrease in net cash used in operating activities was offset by depreciation and amortization of $55,801.

Sources and Uses of Cash

Net cash provided by investing activities was $14,470 for the three months ended March 31, 2012 compared to net cash provided by investing activities of $3,245 for the three months ended March 31, 2011. The net cash provided by investing activities during the three months ended March 31, 2012 was related to proceeds from a note receivable of $11,370 and proceeds from an asset sale of $3,100. The net cash provided by investing activities during the three months ended March 31, 2011 was related to proceeds from a note receivable of $2,245 and proceeds from an asset sale of $1,000.

Net cash (used in) provided by financing activities was ($12,943) and $55,517 for the three months ended March 31, 2012 and 2011, respectively. During the three months ended March 31, 2012 we received net proceeds of $5,000 from our note payable to a bank which is related to our line of credit and made principal payments of $5,954 and $11,989 on equipment financing obligations and capital leases, respectively. During the three months ended March 31, 2011 we received net proceeds of $70,357 from our note payable to a bank which is related to our line of credit and made principal payments of $4,162 and $10,678 on equipment financing obligations and capital leases, respectively.

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors, the Company has identified accounting policies related to valuation of our equity instruments, valuation of long-lived assets and goodwill, created as the result of business acquisitions, and valuation of the allowance provided against deferred tax assets as key to an understanding of our financial statements. These are important accounting policies that require management's most difficult, subjective judgments.