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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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FORM 10-Q

|(Mark One)                                        |                                                                                         
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|/X/                                               | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|For the quarterly period ended September 30, 2003
|OR                                               
|/ /                                               | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-11763

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TRANSMONTAIGNE INC.

|Delaware(State or other jurisdiction of
incorporation or organization)                                       |  | 06-1052062(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------
|1670 Broadway
Suite 3100
Denver, Colorado 80202(Address, including zip code, of principal executive offices)
|(303) 626-8200(Telephone number, including area code)                                                       

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Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past
90 days. Yes /X/    No / /

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act). Yes /X/
    No / /

As
of October 31, 2003 there were 41,112,841 shares of the Registrant's Common Stock outstanding.

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TABLE OF CONTENTS

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|                              |  |                                                                                                                                                      
|----------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Part I. Financial Information
|Item 1.                       |  | Unaudited Consolidated Financial Statements                                                                                                          
|                              |  | Consolidated Balance Sheets as of September 30, 2003 and June 30, 2003                                                                               
|                              |  | Consolidated Statements of Operations for the Three Months Ended
September 30, 2003 and 2002                                                         
|                              |  | Consolidated Statements of Preferred Stock and Common Stockholders' Equity for the Year Ended June 30, 2003 and Three Months Ended September 30, 2003
|                              |  | Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 2003 and 2002                                                         
|                              |  | Notes to Consolidated Financial Statements                                                                                                           
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                
|Item 3.                       |  | Qualitative and Quantitative Disclosures about Market Risk                                                                                           
|Item 4.                       |  | Controls and Procedures                                                                                                                              
|Part II. Other Information   
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                                                     

2

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains certain forward-looking statements and information relating to TransMontaigne Inc., including the following:

Our
business and results of operations are subject to risks and uncertainties, many of which are beyond our ability to control or predict. Because of these risks and uncertainties, actual results may
differ materially from those expressed or implied by forward-looking statements, and investors are cautioned not to place undue reliance on such statements, which speak only as of the date thereof.

The
following risk factors, discussed in more detail under the heading "Risk Factors" in our Current Report on Form 8-K filed on May 14, 2003, are important factors that
could cause
actual results to differ materially from our expectations and may adversely affect our business and results of operations, include, but are not limited to:

3

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In
addition, other factors such as the following also could cause actual results to differ materially from our expectations:

We
do not intend to update these forward-looking statements except as required by law.

4

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Part I. Financial information

ITEM 1.    UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The interim consolidated financial statements of TransMontaigne Inc. as of and for the three months ended September 30, 2003 are included herein beginning on the
following page. The accompanying interim consolidated financial statements should be read in conjunction with our annual consolidated financial statements and related notes for the year ended
June 30, 2003, together with our discussion and analysis of financial condition and results of operations, included in our Annual Report on Form 10-K filed on
September 29, 2003.

TransMontaigne Inc.
is a holding company with the following active wholly-owned subsidiaries during the three months ended September 30, 2003.

We
do not have any off-balance-sheet arrangements (other than operating leases) or special-purpose entities.

5

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Transmontaigne Inc. and subsidiaries  Consolidated balance sheets(In thousands)

|                                                              |                                                   | September 30,
2003 |         | June 30,
2003 |        
|------------------------------------------------------------- | ------------------------------------------------- | ------------------ | ------- | ------------- | -------
|
|ASSETS                                                        |                                                  
|Current assets:                                               |                                                   |                    |         |               |        
|                                                              | Cash and cash equivalents                         |                    | $       | 17,944        |        
|                                                              | Restricted cash held by commodity broker          |                    |         | 7,202         |        
|                                                              | Trade accounts receivable, net                    |                    |         | 234,273       |        
|                                                              | Inventoriesdiscretionary volumes                 |                    |         | 285,900       |        
|                                                              | Unrealized gains on derivative contracts          |                    |         | 16,372        |        
|                                                              | Prepaid expenses and other                        |                    |         | 2,014         |        
|                                                              |                                                   |                    |         |               |        
|                                                              |                                                   |                    | 563,705 |               |        
|Property, plant and equipment, net                            |                                                   |                    | 372,604 |               |        
|Inventoriesminimum volumes                                   |                                                   |                    | 21,985  |               |        
|Unrealized gains on derivative contracts                      |                                                   |                    | 660     |               |        
|Investments in petroleum related assets                       |                                                   |                    | 10,131  |               |        
|Deferred tax assets                                           |                                                   |                    |        |               |        
|Deferred debt issuance costs, net                             |                                                   |                    | 12,250  |               |        
|Other assets, net                                             |                                                   |                    | 6,791   |               |        
|                                                              |                                                   |                    |         |               |        
|                                                              |                                                   | $                  | 988,126 |               | $      
|                                                              |                                                   |                    |         |               |        
|LIABILITIES, PREFERRED STOCK, AND COMMON STOCKHOLDERS' EQUITY |                                                  
|Current liabilities:                                          |                                                   |                    |         |               |        
|                                                              | Commodity margin loan                             |                    | $       |              |        
|                                                              | Working capital credit facility                   |                    |         | 195,000       |        
|                                                              | Trade accounts payable                            |                    |         | 168,434       |        
|                                                              | Unrealized losses on derivative contracts         |                    |         | 15,944        |        
|                                                              | Inventory due to others under exchange agreements |                    |         | 16,497        |        
|                                                              | Excise taxes payable                              |                    |         | 66,614        |        
|                                                              | Other accrued liabilities                         |                    |         | 29,416        |        
|                                                              | Deferred revenuesupply management services       |                    |         | 3,771         |        
|                                                              |                                                   |                    |         |               |        
|                                                              |                                                   |                    | 495,676 |               |        
|Other liabilities:                                            |                                                   |                    |         |               |        
|                                                              | Long-term debt                                    |                    |         | 200,000       |        
|                                                              | Deferred tax liabilities                          |                    |         | 832           |        
|                                                              | Unrealized losses on derivative contracts         |                    |         | 483           |        
|                                                              |                                                   |                    |         |               |        
|                                                              |                                                   | Total liabilities  |         |               | 696,991
|                                                              |                                                   |                    |         |               |        
|Series B Redeemable Convertible Preferred stock               |                                                   |                    | 78,927  |               |        
|                                                              |                                                   |                    |         |               |        
|Common stockholders' equity:                                  |                                                   |                    |         |               |        
|                                                              | Common stock                                      |                    |         | 407           |        
|                                                              | Capital in excess of par value                    |                    |         | 249,296       |        
|                                                              | Deferred stock-based compensation                 |                    |         | (3,246        | )      
|                                                              | Accumulated deficit                               |                    |         | (34,249       | )      
|                                                              |                                                   |                    |         |               |        
|                                                              |                                                   |                    | 212,208 |               |        
|                                                              |                                                   |                    |         |               |        
|                                                              |                                                   | $                  | 988,126 |               | $      
|                                                              |                                                   |                    |         |               |        

See accompanying notes to consolidated financial statements.

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Transmontaigne Inc. and subsidiaries  Consolidated statements of operations(In thousands, except per share amounts)

|                                            |                                              | Three months ended
September 30,                                   |                                                        
|------------------------------------------- | -------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------
|
|
|Supply, distribution, and marketing:        |                                              |                                                                    |                                                        
|                                            | Revenues                                     |                                                                    | $                                                      
|                                            | Cost of product sold                         |                                                                    |                                                        
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Net margin before other direct costs and expenses      
|                                            | Other direct costs and expenses:             |                                                                    |                                                        
|                                            |                                              | Net losses on risk management activities                           |                                                        
|                                            |                                              | Change in unrealized gains (losses) on derivative contracts        |                                                        
|                                            |                                              | Lower of cost or market write-downs on base operating volumes      |                                                        
|                                            |                                              | Lower of cost or market write-downs on inventoriesminimum volumes |                                                        
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Net operating margins                                  
|                                            |                                              |                                                                    |                                                        
|Terminals, pipelines, and tugs and barges:  |                                              |                                                                    |                                                        
|                                            | Revenue                                      |                                                                    |                                                        
|                                            | Direct operating costs and expenses          |                                                                    |                                                        
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Net operating margins                                  
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Total net operating margins                            
|                                            |                                              |                                                                    |                                                        
|Costs and expenses:                         |                                              |                                                                    |                                                        
|                                            | Selling, general and administrative          |                                                                    |                                                        
|                                            | Depreciation and amortization                |                                                                    |                                                        
|                                            | Corporate relocation and transition          |                                                                    |                                                        
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Total costs and expenses                               
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Operating income                                       
|                                            |                                              |                                                                    |                                                        
|Other income (expenses):                    |                                              |                                                                    |                                                        
|                                            | Dividend income                              |                                                                    |                                                        
|                                            | Interest income                              |                                                                    |                                                        
|                                            | Interest expense                             |                                                                    |                                                        
|                                            | Other financing costs:                       |                                                                    |                                                        
|                                            |                                              | Amortization of deferred debt issuance costs                       |                                                        
|                                            |                                              | Gain on interest rate swap                                         |                                                        
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Total other income (expenses)                          
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Earnings before income taxes                           
|Income tax expense                          |                                              |                                                                    | (1,318                                                 
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Net earnings                                           
|Preferred stock dividends, net              |                                              |                                                                    | (691                                                   
|                                            |                                              |                                                                    |                                                        
|                                            |                                              |                                                                    | Net earnings (loss) attributable to common stockholders
|                                            |                                              |                                                                    |                                                        
|Earnings (loss) per share:                  |                                              |                                                                    |                                                        
|                                            | Basic net earnings (loss) per common share   |                                                                    | $                                                      
|                                            |                                              |                                                                    |                                                        
|                                            | Diluted net earnings (loss) per common share |                                                                    | $                                                      
|                                            |                                              |                                                                    |                                                        
|Weighted average common shares outstanding: |                                              |                                                                    |                                                        
|                                            | Basic                                        |                                                                    |                                                        
|                                            |                                              |                                                                    |                                                        
|                                            | Diluted                                      |                                                                    |                                                        
|                                            |                                              |                                                                    |                                                        

See accompanying notes to consolidated financial statements.

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Transmontaigne Inc. and subsidiaries  Consolidated statements of preferred stock and common stockholders' equity  Year ended June 30, 2003 and three months ended September 30, 2003(In thousands)

|                                                                           |  | Preferred stock |         |   |   | Capital in
excess of
par value |   | Deferred
stock-based
compensation |     |  |   | Total
common
stockholders'
equity |  
|-------------------------------------------------------------------------- |  | --------------- | ------- | - | - | ------------------------------ | - | --------------------------------- | --- |  | - | --------------------------------- | -
|
|
|
|Balance at June 30, 2002                                                   |  | $               | 24,421  |   | $ | 80,939                         |   | $                                 | 399 |  | $ | 245,844                           |  
|Common stock issued for options exercised                                  |  |                 |        |   |   |                               |   |                                   |    |  |   | 12                                |  
|Common stock repurchased from employees for withholding taxes              |  |                 |        |   |   |                               |   |                                   |    |  |   | (214                              | )
|Net tax effect arising from stock-based compensation                       |  |                 |        |   |   |                               |   |                                   |    |  |   | 70                                |  
|Forfeiture of restricted stock awards prior to vesting                     |  |                 |        |   |   |                               |   |                                   |    |  |   | (238                              | )
|Deferred compensation related to restricted stock awards                   |  |                 |        |   |   |                               |   |                                   | 8   |  |   | 3,605                             |  
|Deferred compensation related to non-employee stock options                |  |                 |        |   |   |                               |   |                                   |    |  |   | 260                               |  
|Amortization of deferred stock-based compensation                          |  |                 |        |   |   |                               |   |                                   |    |  |   |                                  |  
|Preferred stock dividends                                                  |  |                 |        |   |   |                               |   |                                   |    |  |   |                                  |  
|Amortization of premium on Series B Redeemable Convertible Preferred stock |  |                 |        |   |   | (1,610                         | ) |                                   |    |  |   |                                  |  
|Repurchase of Series A Convertible Preferred stock                         |  |                 | (24,421 | ) |   |                               |   |                                   |    |  |   |                                  |  
|Net earnings                                                               |  |                 |        |   |   |                               |   |                                   |    |  |   |                                  |  
|                                                                           |  |                 |         |   |   |                                |   |                                   |     |  |   |                                   |  
|Balance at June 30, 2003                                                   |  |                 |        |   |   | 79,329                         |   |                                   | 407 |  |   | 249,339                           |  
|Common stock issued for options exercised                                  |  |                 |        |   |   |                               |   |                                   |    |  |   | 123                               |  
|Common stock repurchased from employees for withholding taxes              |  |                 |        |   |   |                               |   |                                   |    |  |   | (73                               | )
|Forfeiture of restricted stock awards prior to vesting                     |  |                 |        |   |   |                               |   |                                   |    |  |   | (93                               | )
|Amortization of deferred stock-based compensation                          |  |                 |        |   |   |                               |   |                                   |    |  |   |                                  |  
|Preferred stock dividends                                                  |  |                 |        |   |   |                               |   |                                   |    |  |   |                                  |  
|Amortization of premium on Series B Redeemable Convertible Preferred stock |  |                 |        |   |   | (402                           | ) |                                   |    |  |   |                                  |  
|Net earnings                                                               |  |                 |        |   |   |                               |   |                                   |    |  |   |                                  |  
|                                                                           |  |                 |         |   |   |                                |   |                                   |     |  |   |                                   |  
|Balance at September 30, 2003                                              |  | $               |        |   | $ | 78,927                         |   | $                                 | 407 |  | $ | 249,296                           |  
|                                                                           |  |                 |         |   |   |                                |   |                                   |     |  |   |                                   |  

See accompanying notes to consolidated financial statements.

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Transmontaigne Inc. and subsidiaries  Consolidated statements of cash flows(In thousands)

|                                                 |                                                                                            | Three months ended
September 30,                                               |                                                   
|------------------------------------------------ | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------ | --------------------------------------------------
|
|
|Cash flows from operating activities:            |                                                                                            |                                                                                |                                                   
|                                                 | Net earnings                                                                               |                                                                                | $                                                 
|                                                 | Adjustments to reconcile net earnings to net cash provided (used) by operating activities: |                                                                                |                                                   
|                                                 |                                                                                            | Amortization of deferred revenue                                               |                                                   
|                                                 |                                                                                            | Depreciation and amortization                                                  |                                                   
|                                                 |                                                                                            | Deferred tax expense                                                           |                                                   
|                                                 |                                                                                            | Net tax effect arising from stock-based compensation                           |                                                   
|                                                 |                                                                                            | Amortization of deferred stock-based compensation                              |                                                   
|                                                 |                                                                                            | Amortization of debt issuance costs                                            |                                                   
|                                                 |                                                                                            | Unrealized gain on interest rate swap                                          |                                                   
|                                                 |                                                                                            | Net change in unrealized gains/losses on long-term derivative contracts        |                                                   
|                                                 |                                                                                            | Lower of cost or market write-down on base operating inventory volumes         |                                                   
|                                                 |                                                                                            | Lower of cost or market write-down on inventoriesminimum volumes              |                                                   
|                                                 |                                                                                            | Changes in operating assets and liabilities, net of effects from acquisitions: |                                                   
|                                                 |                                                                                            |                                                                                | Trade accounts receivable, net                    
|                                                 |                                                                                            |                                                                                | Inventoriesdiscretionary volumes                 
|                                                 |                                                                                            |                                                                                | Prepaid expenses and other                        
|                                                 |                                                                                            |                                                                                | Trade accounts payable                            
|                                                 |                                                                                            |                                                                                | Inventory due to others under exchange agreements 
|                                                 |                                                                                            |                                                                                | Unrealized (gain) loss on derivative contracts    
|                                                 |                                                                                            |                                                                                | Excise taxes payable and other accrued liabilities
|                                                 |                                                                                            |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|Cash flows from investing activities:            |                                                                                            |                                                                                |                                                   
|                                                 | Acquisition of terminals, pipelines, and tugs and barges                                   |                                                                                |                                                   
|                                                 | Additions to property, plant and equipmentexpansion of facilities                         |                                                                                |                                                   
|                                                 | Additions to property, plant and equipmentmaintain existing facilities                    |                                                                                |                                                   
|                                                 | Decrease (increase) in restricted cash held by commodity broker                            |                                                                                |                                                   
|                                                 | Other                                                                                      |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|Cash flows from financing activities:            |                                                                                            |                                                                                |                                                   
|                                                 | Net borrowings (repayments) of debt                                                        |                                                                                |                                                   
|                                                 | Net borrowings (repayments) of commodity margin loan                                       |                                                                                |                                                   
|                                                 | Deferred debt issuance costs                                                               |                                                                                |                                                   
|                                                 | Common stock issued for options exercised                                                  |                                                                                |                                                   
|                                                 | Common stock repurchased from employees for withholding taxes                              |                                                                                |                                                   
|                                                 | Preferred stock dividends paid in cash                                                     |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|                                                 |                                                                                            |                                                                                |                                                   
|Cash and cash equivalents at beginning of period |                                                                                            |                                                                                | 27,969                                            
|                                                 |                                                                                            |                                                                                |                                                   
|Cash and cash equivalents at end of period       |                                                                                            | $                                                                              | 17,944                                            
|                                                 |                                                                                            |                                                                                |                                                   

See accompanying notes to consolidated financial statements.

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Transmontaigne Inc. and subsidiaries  Notes to consolidated financial statements  September 30, 2003 and June 30, 2003

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation and Use of Estimates

The accompanying consolidated financial statements in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, these statements reflect adjustments (consisting only of normal recurring entries), which are, in our opinion, necessary for a fair presentation of the
financial results for the interim periods presented. Certain information and notes normally included in annual financial statements have been condensed in or omitted from these interim financial
statements pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended
June 30, 2003, together with our discussion and analysis of financial condition and results of operations, included in our Annual Report on Form 10-K filed on
September 29, 2003.

Our
accounting and financial reporting policies conform to accounting principles and practices generally accepted in the United States of America. The accompanying consolidated financial statements
include the accounts of TransMontaigne Inc. and its majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation, except for
throughput fees, storage fees, pipeline transportation fees, tug and barge fees and other fees charged to our supply, distribution and marketing operations by our terminals, pipelines, and tugs and
barges.
The related inter-company revenues and costs offset within total net operating margins in the accompanying consolidated statement of operations.

The
preparation of financial statements in conformity with generally accepted accounting principles requires us 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 periods. The following
estimates, in our opinion, are subjective in nature, require the exercise of judgment, and involve complex analysis: allowance for doubtful accounts; fair value of
inventoriesdiscretionary volumes held for immediate sale or exchange (as of and for periods prior to October 1, 2002); fair value of derivative contracts; prepaid transportation
costs; accrued lease abandonment costs; accrued transportation and deficiency obligations; and accrued environmental obligations. Changes in these estimates and assumptions will occur as a result of
the passage of time and the occurrence of future events. Actual results could differ from these estimates.

(b) Nature of Business and Basis of Presentation

TransMontaigne Inc., a Delaware corporation ("TransMontaigne") based in Denver, Colorado, was formed in 1995 to create an independent refined petroleum products
distribution and supply company. We are a holding company that conducts operations in the United States primarily in the Gulf Coast, Midwest, and East Coast regions. We provide integrated terminal,
transportation, storage, supply, distribution, and marketing services to refiners, wholesalers, distributors, marketers, and industrial and commercial end-users of refined petroleum
products. Our principal activities consist of (i) terminal,

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pipeline, and tug and barge operations, (ii) supply, distribution, and marketing, and (iii) supply management services.

On
February 28, 2003, we acquired all of the outstanding shares of capital stock of Coastal Fuels Marketing, Inc. and its subsidiary, Coastal Tug and Barge, Inc., from a
wholly-owned subsidiary of El Paso Merchant Energy Petroleum Company ("EPME-PC"), along with the rights to and operations of the southeast marketing division of EPME-PC (see
Note 2 of Notes to consolidated financial statements).

(c) Accounting for Terminal, Pipeline, and Tug and Barge Activities

In connection with our terminal, pipeline, and tug and barge operations, we utilize the accrual method of accounting for revenue and expenses. We generate revenues in our
terminal, pipeline, and tug and barge operations from throughput fees, storage fees, transportation fees, ship-assist fees and fees from other ancillary services. Throughput revenue is
recognized when the product is delivered
to the customer; storage revenue is recognized ratably over the term of the storage contract; transportation revenue is recognized when the product has been delivered to the customer at the specified
delivery location; ship-assist revenue is recognized when docking and other services are provided to marine vessels; and other service revenue is recognized as the services are performed.

Shipping
and handling costs attributable to our terminal, pipeline, and tug and barge operations are included in direct operating costs and expenses in the accompanying consolidated statement of
operations.

(d) Accounting for Supply, Distribution, and Marketing Activities

In our supply, distribution and marketing operations, we purchase refined petroleum products primarily from refineries, schedule them for delivery to our terminals, as well as
terminals owned by third parties, and then sell those products to our customers through rack sales, bulk sales, and contract sales. Revenue from our sales of physical inventory are recognized pursuant
to the accrual method accounting (i.e., when cash becomes due and payable to us pursuant to the terms of the sales contracts). Revenue from rack sales and contract sales is recognized when the product
is delivered to the customer through a truck loading rack or marine fueling equipment. Revenue from bulk sales is recognized when the title to the product is transferred to the customer, which
generally occurs upon confirmation of the terms of the sale.

Shipping
and handling costs attributable to our supply, distribution, and marketing operations are included in cost of product sold in the accompanying consolidated statement of operations.

(e) Accounting for Supply Management Services Activities

We provide supply management services to companies and governmental entities that desire to outsource their fuel supply function and to reduce the price volatility associated
with their fuel supplies. We offer three types of supply management services: delivered fuel price management, retail price management, and logistical supply management services.

Delivered
fuel price management contracts involve the sales of committed quantities of specific motor fuels delivered to our customer's proprietary fleet refueling locations, at fixed prices for terms
up to three years. Under retail price management contracts, customers commit for terms up to 18 months to a specific monthly quantity of product within one or more metropolitan areas and agree
to a net

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settlement with us for the difference between a stipulated retail price index and our fixed contract price. Our logistical supply management arrangements permit our customers to use our proprietary
web-based inventory management system for a fee, which typically is charged on a per gallon basis.

Revenue
from sales made pursuant to delivered fuel price management contracts is recognized when title to the product is transferred to the customer, which generally occurs upon delivery of the
product at the customer's proprietary fleet refueling location. Revenue from sales made pursuant to retail price management contracts is recognized when title to the product is transferred to the
customer, which generally occurs upon lifting of the product by the customer at the retail gasoline station. Revenue from logistical supply management services fees is recognized on a
straight-line basis over the term of the contract.

(f) Accounting for Risk Management Activities

We enter into risk management contracts, principally NYMEX futures contracts, to manage our exposure to changes in commodity prices. We evaluate our market risk exposure from
an overall portfolio basis that considers changes in physical inventoriesdiscretionary volumes held for immediate sale or exchange, open positions in derivative contracts, and open
positions in risk management contracts. We enter into risk management contracts that offset the changes in the values of our inventoriesdiscretionary volumes held for immediate sale or
exchange and derivative contracts. At September 30, 2003 and June 30, 2003, our open positions in risk management contracts were NYMEX futures contracts (purchases and sales).

(g) Accounting for Derivative Contracts

Our bulk sales, contract sales, delivered fuel price management, retail price management and risk management contracts qualify as derivative instruments pursuant to the
requirements of Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),Accounting for Derivative Instruments and Hedging
Activities. All derivative contracts are required to be reported as assets and liabilities at fair value in the accompanying consolidated balance sheet in accordance with SFAS
No. 133. The fair value of our derivative contracts is included in "Unrealized gains or losses on derivative contracts" in the accompanying consolidated balance sheet. At September 30,
2003 and June 30, 2003, there were no unrealized gains or losses on risk management contracts because NYMEX futures contracts require daily settlement for changes in commodity prices on open
futures contracts. Changes in the fair value of our derivative contracts are included in net operating margins attributable to our supply, distribution and marketing operations.

Effective
April 1, 2002, the estimated fair value of our delivered fuel price management and retail price management contracts at origination is deferred because our estimate of the fair value
is not evidenced by quoted market prices or current market transactions for the contracts in their entirety. The deferred revenue is amortized into income over the respective terms of the contracts as
the products are
delivered to the ground fleet customers. Subsequent changes in the fair value of our delivered fuel price management and retail price management contracts are included in net operating margins
attributable to our supply, distribution, and marketing operations.

(h) Accounting for InventoriesDiscretionary Volumes

Our inventoriesdiscretionary volumes consist of refined petroleum products, primarily gasolines, distillates, and No. 6 oil. On October 25, 2002, the
Emerging Issues Task Force reached a consensus

12

---

on Issue No. 02-03 ("EITF 02-03"),Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in
Energy Trading and Risk Management Activities, that concluded that all physical inventories, including inventory volumes associated with energy trading activities, be carried
at the lower of cost or market pursuant to Accounting Research Bulletin ("ARB") No. 43,Chapter 4Inventory Pricing.
Inventoriesdiscretionary volumes are presented in the accompanying consolidated balance sheet as current assets and are carried at the lower of cost (first-in,
first-out) or market (replacement cost) for periods subsequent to September 30, 2002. Prior to October 1, 2002, our inventoriesdiscretionary volumes held for
immediate sale or exchange were carried at fair value with the changes in the fair value included in net margins attributable to our supply, distribution and marketing operations.
Inventoriesdiscretionary volumes are as follows (in thousands):

|                                            |  | September 30,
2003 |         | June 30,
2003
|------------------------------------------- |  | ------------------ | ------- | -------------
|
|
|Volumes held for immediate sale or exchange |  | $                  | 191,322 |              
|Volumes held for base operations            |  |                    | 94,578  |              
|                                            |  |                    |         |              
|Inventoriesdiscretionary volumes           |  | $                  | 285,900 |              
|                                            |  |                    |         |              

At September 30, 2003 and June 30, 2003, the market value of our volumes held for immediate sale or exchange exceeded their cost basis by
approximately $3.1 million and $5.9 million, respectively.

We
enter into exchange agreements with major oil companies. Exchange agreements generally are fixed term agreements that involve our receipt of a specified volume of product at one location in
exchange for delivery by us of product at a different location. At September 30, 2003 and June 30, 2003, current liabilities include inventory due to others under exchange agreements of
approximately 0.5 million barrels and 1.0 million barrels, respectively, with a fair value of approximately $16.5 million and $35.1 million, respectively. The amount
recorded represents the fair value of inventory due to others under exchange agreements at the balance sheet date.

(i) Accounting for InventoriesMinimum Volumes

Our inventoriesminimum volumes are required to be held for operating balances in the conduct of our overall operating activities. We do not intend to sell or
exchange these inventories in the ordinary course of business and, therefore, we do not hedge the market risks associated with this minimum inventory.

At
September 30, 2003 and June 30, 2003, our inventoriesminimum volumes are presented in the accompanying consolidated balance sheet as non-current assets and
are carried at the lower of cost

13

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(weighted average) or market (replacement cost). Inventoriesminimum volumes are as follows (in thousands):

|                            |  | September 30,
2003 |        | June 30,
2003
|--------------------------- |  | ------------------ | ------ | -------------
|
|
|Gasolines                   |  | $                  | 12,994 |              
|Distillates                 |  |                    | 7,449  |              
|No. 6 oil                   |  |                    | 1,542  |              
|                            |  |                    |        |              
|Inventoriesminimum volumes |  | $                  | 21,985 |              
|                            |  |                    |        |              

At September 30, 2003 and June 30, 2003, the weighted average adjusted cost basis of our inventoriesminimum volumes was approximately
$0.60 per gallon. During the three months ended September 30, 2003 and 2002, we recognized impairment losses of approximately $32,000 and $nil, respectively, due to lower of cost or market
write-downs on our inventoriesminimum volumes.

(j) Cash and Cash Equivalents

Restricted cash represents cash deposits held by our commodity broker to cover initial margin requirements related to open NYMEX futures contracts.

(k) Deferred Debt Issuance Costs

Deferred debt issuance costs are as follows (in thousands):

|                                |  | June 30,
2003 |        | Additions |   | Amortization |  | September 30,
2003
|------------------------------- |  | ------------- | ------ | --------- | - | ------------ |  | ------------------
|
|Working capital credit facility |  | $             | 5,941  |           |   | 12           |  |                   
|Senior subordinated notes       |  |               | 6,967  |           |   | 143          |  |                   
|                                |  |               |        |           |   |              |  |                   
|                                |  | $             | 12,908 |           | $ | 155          |  | $                 
|                                |  |               |        |           |   |              |  |                   

(l) Environmental Obligations

At September 30, 2003 and June 30, 2003, we have accrued environmental reserves of approximately $5.5 million and $5.6 million, respectively,
representing our best estimate of our remediation obligations (see Note 7 of Notes to consolidated financial statements). During the three months ended September 30, 2003, we made
payments of approximately $0.1 million towards our environmental remediation obligations. During the three months ended September 30, 2003 and 2002, we did not revise our estimate of our
future environmental remediation obligations. During the three months ended September 30, 2003 and 2002, we received insurance recoveries of approximately $0.8 million and $nil,
respectively, which are recorded as a reduction of direct operating costs and expenses in the accompanying consolidated statements of operations.

(m) Equity-Based Compensation Plans

We account for our employee stock option plans and restricted stock awards using the intrinsic value method pursuant to APB Opinion No. 25,
Accounting for Stock Issued to Employees. We recognize

14

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deferred compensation on the date of grant if the quoted market price of the underlying common stock exceeds the exercise price (zero exercise price in the case of an award of restricted common
stock). Accordingly, no compensation cost has been recognized for the granting of stock options to employees because the exercise price was equal to the quoted market price of the underlying common
stock on the date of grant. If compensation cost for our stock-based compensation plans had been determined based on the fair value at the grant dates for awards under those plans pursuant to
SFAS 123,Accounting for Stock-Based Compensation,our net earnings and earnings per common share would have been reduced to the pro forma
amounts indicated below (in thousands, except for per share amounts):

|                                                         |                                                                      | Three months ended
September 30, |  
|-------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------- | -
|
|
|Net earnings (loss) attributable to common stockholders: |                                                                      |                                  |  
|                                                         | As reported                                                          |                                  | $
|                                                         | Amortization of the fair value of stock options granted to employees |                                  |  
|                                                         |                                                                      |                                  |  
|                                                         | Pro forma                                                            |                                  | $
|                                                         |                                                                      |                                  |  
|Earnings (loss) per common share:                        |                                                                      |                                  |  
|                                                         | As reported                                                          |                                  |  
|                                                         |                                                                      | Basic                            |  
|                                                         |                                                                      | Diluted                          |  
|                                                         | Pro forma                                                            |                                  |  
|                                                         |                                                                      | Basic                            |  
|                                                         |                                                                      | Diluted                          |  

There were no options granted during the three months ended September 30, 2003 and the year ended June 30, 2003. The weighted average fair value
at grant dates for options granted during the years ended June 30, 2002 and 2001 was $3.08 and $2.12, respectively. The primary assumptions used to estimate the fair value of options granted on
the date of grant using the Black-Scholes option-pricing model during the years ended June 30, 2002 and 2001 were as follows: no dividend yield, expected volatility of 79% and 61%,
risk-free rates of 4.49% and 4.95%, and expected lives of 4 years, and 5 years, respectively.

Deferred
compensation is amortized to income over the related vesting period on an accelerated basis pursuant to FASB Interpretation No. 28.

(q) Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is calculated based on the weighted average number of common shares outstanding during the period, excluding restricted common stock
subject to continuing vesting requirements. Diluted earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period and, when dilutive,
potential common shares from the exercise of stock options and warrants to purchase common stock and restricted common stock subject to continuing vesting requirements pursuant to the treasury stock
method. Diluted earnings (loss) per share also gives effect, when dilutive, to the conversion of the preferred stock pursuant to the if-converted method.

15

---

(2) ACQUISITIONS

On February 28, 2003, we acquired all of the outstanding shares of capital stock of Coastal Fuels Marketing, Inc. and its subsidiary, Coastal Tug and
Barge, Inc., from El Paso CGP Company ("CGP") along with the rights to and operations of the southeast marketing division of El Paso Merchant Energy Petroleum Company ("EPME-PC").
The acquisition included five Florida terminals, with aggregate capacity of approximately 4.9 million barrels, and a related tug and barge operation (collectively, the "Coastal Fuels assets").
The Coastal Fuels assets primarily provide sales and storage of bunker fuel, No. 6 oil, diesel fuel and gasoline at Cape Canaveral, Port Manatee/Tampa, Port Everglades/Ft. Lauderdale and Fisher
Island/Miami, and storage of asphalt at Jacksonville, Florida.
The purchase price for the acquisition was approximately $156.0 million, including approximately $37.0 million of product inventory. The consolidated financial statements include the
results of operations of the Coastal Fuels assets from the closing date of the transaction (February 28, 2003).

On
January 31, 2003, we acquired for cash consideration of approximately $6.4 million a 500,000-barrel products terminal in Fairfax, Virginia. The terminal increases our
presence in the Mid-Atlantic market and supplies product to the Washington, D.C. market.

On
July 31, 2002, we acquired for cash consideration of approximately $0.6 million a products terminal in Brownsville, Texas. The 25,000-barrel terminal provides us with
additional storage and rail car handling facilities in Brownsville, Texas.

The
purchase price of each transaction was allocated to the assets and liabilities acquired based upon the estimated fair value of the assets and liabilities as of the acquisition date. The purchase
price was preliminarily allocated as follows (in thousands):

|                                           |           | Coastal Fuels |         | Fairfax |   | Brownsville
|------------------------------------------ | --------- | ------------- | ------- | ------- | - | -----------
|
|Discretionary inventory volumes            |           | $             | 30,625  |         | $ |           
|Prepaid expenses and other current assets  |           |               | 2,259   |         |   |           
|Property, plant and equipment              |           |               | 121,287 |         |   | 6,773      
|Other assetsacquired intangible           |           |               | 2,500   |         |   |           
|Minimum inventory volumes                  |           |               | 6,311   |         |   |           
|Trade accounts payabledue diligence costs |           |               | (1,350  | )       |   |           
|Acquisition related liabilities            |           |               | (5,664  | )       |   | (420       
|                                           |           |               |         |         |   |            
|                                           | Cash paid |               | $       | 155,968 |   | $          
|                                           |           |               |         |         |   |            

(3) CONCENTRATION OF CREDIT RISK AND TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable, net consists of the following (in thousands):

|                                     |  | September 30,
2003 |         | June 30,
2003 |  
|------------------------------------ |  | ------------------ | ------- | ------------- | -
|
|Trade accounts receivable            |  | $                  | 234,943 |               | $
|Less allowance for doubtful accounts |  |                    | (670    | )             |  
|                                     |  |                    |         |               |  
|                                     |  | $                  | 234,273 |               | $
|                                     |  |                    |         |               |  

During the three months ended September 30, 2003 and 2002, we increased the allowance for doubtful accounts through a charge to income of approximately
$0.1 million and $0.3 million, respectively.

16

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(4) UNREALIZED GAINS AND LOSSES ON DERIVATIVE CONTRACTS

Unrealized gains and losses on derivative contracts are as follows (in thousands):

|                            |                             | September 30,
2003             |         | June 30,
2003 |    
|--------------------------- | --------------------------- | ------------------------------ | ------- | ------------- | ---
|
|Unrealized gainscurrent    |                             | $                              | 16,372  |               | $  
|Unrealized gainslong-term  |                             |                                | 660     |               |    
|                            |                             |                                |         |               |    
|                            | Unrealized gainsasset      |                                |         | 17,032        |    
|                            |                             |                                |         |               |    
|Unrealized lossescurrent   |                             |                                | (15,944 | )             |    
|Unrealized losseslong-term |                             |                                | (483    | )             |    
|                            |                             |                                |         |               |    
|                            | Unrealized lossesliability |                                |         | (16,427       | )  
|                            |                             |                                |         |               |    
|                            |                             | Net asset (liability) position |         | $             | 605
|                            |                             |                                |         |               |    

At September 30, 2003 and June 30, 2003, there were no unrealized gains or losses on risk management contracts because NYMEX futures contracts
require daily settlement for changes in commodity prices on open futures contracts.

(5) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net is as follows (in thousands):

|                                   |  | September 30,
2003 |         | June 30,
2003 |  
|---------------------------------- |  | ------------------ | ------- | ------------- | -
|
|Land                               |  | $                  | 46,616  |               | $
|Terminals, pipelines and equipment |  |                    | 369,596 |               |  
|Technology and equipment           |  |                    | 13,993  |               |  
|Tugs and barges                    |  |                    | 15,914  |               |  
|Furniture, fixtures and equipment  |  |                    | 6,919   |               |  
|Construction in progress           |  |                    | 5,103   |               |  
|                                   |  |                    |         |               |  
|                                   |  |                    | 458,141 |               |  
|Less accumulated depreciation      |  |                    | (85,537 | )             |  
|                                   |  |                    |         |               |  
|                                   |  | $                  | 372,604 |               | $
|                                   |  |                    |         |               |  

(6) OTHER ASSETS

Other assets are as follows (in thousands):

|                                                                                    |  | September 30,
2003 |       | June 30,
2003
|----------------------------------------------------------------------------------- |  | ------------------ | ----- | -------------
|
|Prepaid transportation                                                              |  | $                  | 3,021 |              
|Acquired intangible, net of accumulated amortization of $292 and $167, respectively |  |                    | 2,208 |              
|Commodity trading membership                                                        |  |                    | 1,500 |              
|Deposits and other assets                                                           |  |                    | 62    |              
|                                                                                    |  |                    |       |              
|                                                                                    |  | $                  | 6,791 |              
|                                                                                    |  |                    |       |              

17

---

Prepaid transportation relates to our contractual transportation and deficiency agreements with three interstate product pipelines (see Note 13 of Notes
to consolidated financial statements).

Acquired
intangible represents the right to use the Coastal Fuels trade name for a period of five years. The cost of the acquired intangible is being amortized on a straight-line basis
over five years.

Commodity
trading membership represents the purchase price we paid to acquire two seats on the NYMEX.

(7) ACCRUED LIABILITIES

Accrued liabilities are as follows (in thousands):

|                                                  |  | September 30,
2003 |        | June 30,
2003
|------------------------------------------------- |  | ------------------ | ------ | -------------
|
|Accrued environmental obligations                 |  | $                  | 5,484  |              
|Accrued lease abandonment                         |  |                    | 2,891  |              
|Accrued transportation and deficiency obligations |  |                    | 1,384  |              
|Dividend payablepreferred stock                  |  |                    | 1,093  |              
|Accrued interest payable                          |  |                    | 6,199  |              
|Accrued expenses and other                        |  |                    | 12,365 |              
|                                                  |  |                    |        |              
|                                                  |  | $                  | 29,416 |              
|                                                  |  |                    |        |              

Accrued Lease Abandonment.In connection with our corporate relocation and transition, we entered into an operating lease
for new office space in Denver, Colorado. The new lease was executed on April 19, 2002. We vacated our office space in Denver, Colorado during June 2003 and we vacated our excess space
in Atlanta, Georgia during October 2002. In connection with our acquisition of the Coastal Fuels assets, we vacated a sales office in Coral Gables, Florida. The accrual for the abandonment of
the office leases represents the excess of the remaining lease payments subsequent to vacancy of the space by us over the estimated sublease rentals to be received based on current market conditions.
At September 30, 2003 and June 30, 2003, the accrued liability for lease abandonment costs was approximately $2.9 million and $3.2 million, respectively.

|(in thousands)            |  | Accrued
liability at
June 30, 2003 |       | Amounts
paid during
the period |      | Accrued
liability at
September 30, 2003
|------------------------- |  | ---------------------------------- | ----- | ------------------------------ | ---- | ---------------------------------------
|
|Accrued lease abandonment |  | $                                  | 3,178 |                                | (287 | )                                      
|                          |  |                                    |       |                                |      |                                        

18

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We expect to pay the accrued liability of approximately $2.9 million, net of estimated sublease rentals, as follows (in thousands):

|Years ending June 30:        |  | Lease
payments |       | Estimated
sublease
rentals |   | Accrued
liability
|---------------------------- |  | -------------- | ----- | -------------------------- | - | -----------------
|
|2004 (Remainder of the year) |  | $              | 974   |                            | $ | (200             
|2005                         |  |                | 1,079 |                            |   | (548             
|2006                         |  |                | 1,108 |                            |   | (557             
|2007                         |  |                | 928   |                            |   | (454             
|2008                         |  |                | 370   |                            |   | (187             
|Thereafter                   |  |                | 763   |                            |   | (385             
|                             |  |                |       |                            |   |                  
|                             |  | $              | 5,222 |                            | $ | (2,331           
|                             |  |                |       |                            |   |                  

(8) DEFERRED REVENUESUPPLY MANAGEMENT SERVICES

At September 30, 2003 and June 30, 2003, our deferred revenue associated with logistical supply management services was approximately $0.9 million and
$1.0 million, respectively. We amortize the deferred revenue from these contracts into revenues attributable to our supply, distribution and marketing operations on a straight-line
basis over the respective terms of the contracts. During the three months ended September 30, 2003 and 2002, we recognized approximately $150,000 in net revenues attributable to our supply,
distribution and marketing operations from the amortization of the deferred revenues.

During
the three months ended September 30, 2003 and 2002, we originated retail and delivered fuel price management contracts with an estimated fair value of approximately $0.2 million
and $0.8 million, respectively, representing the excess of the amounts we expect to receive from the ground fleet customers over our estimate of the forward price curve of the underlying
commodity adjusted for basis differentials. We have deferred the estimated fair value of these contracts at origination because our estimate of the fair value is not evidenced by quoted market prices
or current market transactions for the contracts in their entirety. We amortize the deferred revenue into net revenues attributable to our supply, distribution, and marketing operations over the
respective terms of the contracts as the products are delivered to the ground fleet customers. During the three months ended September 30, 2003 and 2002, we recognized approximately
$1.1 million and $nil, respectively, in revenues attributable to our supply, distribution and marketing operations from the amortization of the deferred revenue from these contracts.

|(in thousands)                            |  | Deferred
revenue at
June 30, 2003 |       | Additions
during
the period |     | Amounts
amortized
during
the period |        | Deferred
revenue at
September 30, 2003
|----------------------------------------- |  | --------------------------------- | ----- | --------------------------- | --- | ----------------------------------- | ------ | --------------------------------------
|
|Logistical supply management services     |  | $                                 | 1,000 |                             |    |                                     | (150   | )                                     
|Retail price management contracts         |  |                                   | 2,047 |                             | 167 |                                     | (512   | )                                     
|Delivered fuel price management contracts |  |                                   | 1,769 |                             |    |                                     | (550   | )                                     
|                                          |  |                                   |       |                             |     |                                     |        |                                       
|                                          |  | $                                 | 4,816 |                             | 167 |                                     | (1,212 | )                                     
|                                          |  |                                   |       |                             |     |                                     |        |                                       

19

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(9) DEBT

Debt is as follows (in thousands):

|                                |  | September 30,
2003 |          | June 30,
2003 |  
|------------------------------- |  | ------------------ | -------- | ------------- | -
|
|Commodity margin loan           |  | $                  |         |               | $
|Working capital credit facility |  |                    | 195,000  |               |  
|Senior subordinated notes       |  |                    | 200,000  |               |  
|                                |  |                    |          |               |  
|                                |  |                    | 395,000  |               |  
|Less debt classified as current |  |                    | (195,000 | )             |  
|                                |  |                    |          |               |  
|Long-term debt                  |  | $                  | 200,000  |               | $
|                                |  |                    |          |               |  

Commodity Margin Loan.We currently have a commodity margin loan agreement with Salomon Smith Barney that allows us to
borrow up to $20 million to fund certain initial and variation margin requirements in commodities accounts maintained by us with Salomon Smith Barney. The entire unpaid principal amount of the
loan, together with accrued interest, is due and payable on demand. Outstanding loans bear interest at the average 90-day Treasury Bill rate plus 1.75% (2.70% at September 30,
2003).

Working Capital Credit Facility.On February 28, 2003, we executed a Credit Agreement with UBS AG that initially provided for a
$250 million revolving line of credit ("Working Capital Credit Facility") and a $200 million senior secured term loan ("Term Loan"). The Working Capital Credit Facility currently
provides for a maximum borrowing line of credit that is the lesser of (i) $275 million and (ii) the borrowing base (as defined; $423 million at September 30, 2003).
The maximum borrowing amount is reduced by the amount of letters of credit that are outstanding ($15.3 million at September 30, 2003). Borrowings under the Working Capital Credit
Facility bear interest (at our option) based on a base rate plus a specified margin, or LIBOR plus a specified margin; the specified margins are a function of our leverage ratio (as defined). Accrued
interest on the outstanding borrowings is due monthly. The weighted average interest rate on the borrowings under the Working Capital Credit Facility was 3.9% during the three months ended
September 30, 2003. Borrowings under the Working Capital Credit Facility are secured by substantially all of our current assets. The terms of the Working Capital Credit Facility include
financial covenants relating to fixed charge coverage, current ratio, consolidated tangible net worth, capital expenditures, cash distributions and open inventory positions that are tested on a
quarterly and annual basis. As of September 30, 2003, we were in compliance with all covenants included in the Working Capital Credit Facility. The Working
Capital Credit Facility matures February 28, 2006. In the accompanying consolidated balance sheets at September 30, 2003 and June 30, 2003, we have classified the outstanding
borrowings under the Working Capital Credit Facility as a current liability because we have pledged our current assets as security for the facility and because currently it is our expectation that we
will repay the outstanding borrowings within one year of the balance sheet date.

Senior Secured Term Loan.The Term Loan provided for a one-time borrowing of $200 million with a scheduled maturity of
February 28, 2006. The proceeds from the Term Loan were used primarily to finance the acquisition of the Coastal Fuels assets. The Term Loan was repaid in full on May 30, 2003 with the
proceeds from the Senior Subordinated Notes.

20

---

Former Bank Credit Facility.On February 28, 2003 we repaid in full our former bank credit facility. Our former bank credit facility
consisted of a $300 million revolving credit facility that was scheduled to mature on June 27, 2005.

Senior Subordinated Notes.On May 30, 2003, we consummated the sale and issuance of $200 million aggregate principal amount
of 91/8% Senior Subordinated Notes due 2010 and received proceeds of $194.5 million (net of underwriters' discounts of $5.5 million). The Senior Subordinated Notes mature
on June 1, 2010 and interest is payable semi-annually in arrears on each June 1 and December 1 commencing on December 1, 2003. The Senior Subordinated Notes are
unsecured and subordinated to all of our existing and future senior debt. Upon certain change of control events, each holder of the Senior Subordinated Notes may require us to repurchase all or a
portion of its notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest. The indenture governing the Senior Subordinated Notes contains covenants that, among
other things, limit our ability to incur additional indebtedness, pay dividends on, redeem or repurchase our common stock, make investments, make certain dispositions of assets, engage in transactions
with affiliates, create certain liens, and consolidate, merge, or transfer all or substantially all of our assets. The Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and
several basis by our subsidiaries other than minor subsidiaries that are inactive and have no assets or operations. We are a holding company for our subsidiaries, with no independent assets or
operations. Accordingly, we are dependent upon the distribution of the earnings of our subsidiaries, whether in the form of dividends, advances or payments on account of inter-company obligations, to
service our debt obligations. There are no restrictions on our ability or any subsidiary guarantor to obtain funds from our subsidiaries.

Scheduled
maturities of debt at September 30, 2003 are as follows (in thousands):

|Years ending June 30: |  |  
|--------------------- |  | -
|
|2004                  |  | $
|2005                  |  |  
|2006                  |  |  
|2007                  |  |  
|2008                  |  |  
|Thereafter            |  |  
|                      |  |  
|                      |  | $
|                      |  |  

(10) PREFERRED STOCK

At September 30, 2003 and June 30, 2003, we have authorized the issuance of up to 2,000,000 shares of preferred stock. Preferred stock is as follows (in
thousands, except share data):

|                                                                                                                                                                               |  | September 30,
2003 |        | June 30,
2003
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------ | -------------
|
|Series B Redeemable Convertible Preferred stock, par value $0.01 per share, 100,000 shares authorized, 72,890 shares issued and outstanding, liquidation preference of $72,890 |  | $                  | 78,927 |              
|                                                                                                                                                                               |  |                    |        |              

At September 30, 2003 and June 30, 2003, there are 72,890 shares of Series B Redeemable Convertible Preferred Stock outstanding. The
Series B Redeemable Convertible Preferred Stock has a liquidation value of $1,000 per share, bears dividends at the rate of 6% per annum of the liquidation value, and is mandatorily redeemable
between June 30, 2007 and December 31, 2007 for shares of

21

---

common stock and/or cash at our option, subject to limitations on the total number of common shares permitted to be used in the exchange and issued to any shareholder. Dividends are cumulative and
payable quarterly. The dividends are payable in cash, unless precluded by contract or the Working Capital Credit Facility, in which case dividends are payable in additional shares of Series B
Redeemable Convertible Preferred Stock. The Series B Redeemable Convertible Preferred Stock may be put to us, at the option of the holder, for cash equal to the greater of its liquidation value
or conversion value upon the future occurrence of a fundamental change (including those relating to sale of substantially all of the assets, delisting of our common stock from a national exchange,
change in control, bankruptcy filing, and an event of default that accelerates the repayment of our debt). We may call the outstanding shares of Series B Redeemable Convertible Preferred Stock
after June 30, 2005 if certain specified conditions are met. The Series B Redeemable Convertible Preferred Stock is convertible, at the option of the holder, into common stock at $6.60
per share, subject to adjustment upon the occurrence of specified future events. The holders of the Series B Redeemable Convertible Preferred Stock have the right to vote on all matters (except
the election of directors) with the holders of the common stock (voting collectively as a single class).

On
June 30, 2003, we redeemed the remaining outstanding shares of Series A Convertible Preferred stock and warrants for approximately $24.4 million in cash.

Preferred
stock dividends on the Series A Convertible Preferred stock were $nil and $0.3 million for the three months ended September 30, 2003 and 2002, respectively. Preferred
Stock dividends on the Series B Redeemable Convertible Preferred Stock were $0.7 million for each of the three months ended September 30, 2003 and 2002. The amount of the
Series B Redeemable Convertible Preferred Stock dividend recognized for financial reporting purposes for each of the three months ended September 30, 2003 and 2002, is composed of the
amount of the dividend payable and paid to the holders of the Series B Redeemable Convertible Preferred Stock of $1.1 million offset by the amortization of the premium on the carrying
amount of the Series B Redeemable Convertible Preferred Stock of $0.4 million.

At
its issuance date (June 28, 2002), the fair value of the Series B Redeemable Convertible Preferred stock exceeded its liquidation value. The initial carrying amount of the
Series B Redeemable Convertible Preferred Stock of approximately $80.9 million will be decreased ratably over its 5-year term until it equals its liquidation value of
approximately $72.9 million with an equal reduction in the amount of preferred stock dividends recorded for financial reporting purposes.

(11) COMMON STOCK

At September 30, 2003 and June 30, 2003, we were authorized to issue up to 80,000,000 shares of common stock with a par value of $0.01 per share. At
September 30, 2003 and June 30, 2003, there were 40,677,098 shares and 40,685,690 shares issued and outstanding, respectively. Our Working Capital Credit Facility, Senior Subordinated
Notes and the certificate of designations of our Series B
Redeemable Convertible Preferred stock contain restrictions on the payment of dividends on our common stock.

We
have a restricted stock plan that provides for awards of common stock to certain key employees, subject to forfeiture if employment terminates prior to the vesting dates. The market value of shares
awarded under the plan is recorded in common stockholders' equity as deferred stock-based

22

---

compensation. Information about restricted common stock activity for the three months ended September 30, 2003, and the year ended June 30, 2003 is as follows:

|                                  |  | Total shares |   | Vested shares |   | Unvested shares |  
|--------------------------------- |  | ------------ | - | ------------- | - | --------------- | -
|
|Outstanding at June 30, 2002      |  | 1,074,716    |   | 160,748       |   | 913,968         |  
|Granted                           |  | 840,500      |   |              |   | 840,500         |  
|Cancelled                         |  | (51,080      | ) |              |   | (51,080         | )
|Repurchased                       |  | (49,437      | ) | (49,437       | ) |                |  
|Vested                            |  |             |   | 187,209       |   | (187,209        | )
|                                  |  |              |   |               |   |                 |  
|Outstanding at June 30, 2003      |  | 1,814,699    |   | 298,520       |   | 1,516,179       |  
|Cancelled                         |  | (20,160      | ) |              |   | (20,160         | )
|Repurchased                       |  | (12,432      | ) | (12,432       | ) |                |  
|Vested                            |  |             |   | 40,000        |   | (40,000         | )
|                                  |  |              |   |               |   |                 |  
|Outstanding at September 30, 2003 |  | 1,782,107    |   | 326,088       |   | 1,456,019       |  
|                                  |  |              |   |               |   |                 |  

Amortization of deferred compensation of approximately $0.6 million and $0.4 million is included in selling, general and administrative expense
for the three months ended September 30, 2003 and 2002, respectively.

(12) STOCK OPTIONS

Information about stock option activity for the three months ended September 30, 2003 and the years ended June 30, 2003, is as follows:

|                                  |  | Terminated Plans |   | 1997 Plan
|--------------------------------- |  | ---------------- | - | ---------
|
|
|Outstanding at June 30, 2002      |  | 230,450          |   | 5.50     
|Granted                           |  |                 |   |         
|Cancelled                         |  | (230,450         | ) | 5.50     
|Exercised                         |  |                 |   |         
|                                  |  |                  |   |          
|Outstanding at June 30, 2003      |  |                 |   |         
|Cancelled                         |  |                 |   |         
|Exercised                         |  |                 |   |         
|                                  |  |                  |   |          
|Outstanding at September 30, 2003 |  |                 |   |         
|                                  |  |                  |   |          
|Exercisable at September 30, 2003 |  |                 |   |         
|                                  |  |                  |   |          

23

---

Information about stock options outstanding at September 30, 2003 is as follows:

|          |  |                                                     |  |                      |  |             |  | Options exercisable
|--------- |  | --------------------------------------------------- |  | -------------------- |  | ----------- |  | -------------------
|
|
|1997 Plan |  | $  3.75 -  7.25
$11.00 - 13.50
$              17.25 |  | 955,850
13,500
1,000 |  | 7.3
4.5
3.9 |  | $$$                
|          |  |                                                     |  |                      |  |             |  |                    
|          |  |                                                     |  | 970,350              |  |             |  |                    
|          |  |                                                     |  |                      |  |             |  |                    

(13) COMMITMENTS AND CONTINGENCIES

Transportation and Deficiency Agreements.In connection with our sale of two product distribution facilities in Little Rock, Arkansas, we
are potentially liable for payments of up to $725,000 per year for a five-year period through June 30, 2006. At June 30, 2003, we recognized an accrued liability of
approximately $0.8 million representing our estimate of the future amounts we expect to pay for the shortfall in our actual volumes and our estimated shortfall in volumes for the remainder of
the term of the agreement. During the three months ended September 30, 2003, we paid approximately $0.2 million as settlement for our shortfall in volumes for the year ended
June 30, 2003. Based on actual throughput volumes for the three months ended September 30, 2003, we decreased our accrued liabilities by $0.2 million resulting in a total accrued
liability of $0.4 million as of and for the three months ended September 30, 2003.

We
also are subject to three transportation and deficiency agreements ("T&D's") with three separate interstate pipeline companies. At June 30, 2003, we recognized an accrued liability of
approximately $1.2 million representing our estimate of the future amounts we expect to pay for our estimated shortfall in volumes for the remainder of the term of the agreements. During the
three months ended September 30, 2003, we recognized a reduction in our accrued liability of approximately $0.2 million representing a change in our estimate of the future amounts we
expect to pay for the estimated shortfall in volumes for the remainder of the terms of the T&D agreements resulting in a total accrued liability of $1.0 million as of and for the three months
ended September 30, 2003.

At
September 30, 2003 and June 30, 2003, we included approximately $3.0 million and $3.0 million, respectively, of prepaid transportation in other assets since we have a
contractual right, after the end of the term of the T&D agreements, to apply the amounts to charges for using the interstate pipeline in the future (see Note 6 of Notes to consolidated
financial statements).

|(in thousands)                      |  | June 30,
2003 |        | Payments
during
the period |   | Change in
estimate
during the
period |  | September 30,
2003 |    
|----------------------------------- |  | ------------- | ------ | -------------------------- | - | ------------------------------------ |  | ------------------ | ---
|
|Other assetsprepaid transportation |  | $             | 3,021  |                            | $ |                                     |  | $                  |   
|                                    |  |               |        |                            |   |                                      |  |                    |    
|Accrued liabilityT&D obligations   |  | $             | (2,013 | )                          | $ | 238                                  |  | $                  | 391
|                                    |  |               |        |                            |   |                                      |  |                    |    

24

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Operating Leases.At September 30, 2003, future minimum lease payments under our non-cancelable
operating leases are as follows (in thousands):

|Years ending June 30:        |  | Office
space |        | Terminal and
pipeline capacity |   | Property and
equipment
|---------------------------- |  | ------------ | ------ | ------------------------------ | - | ----------------------
|
|2004 (Remainder of the year) |  | $            | 1,061  |                                | $ | 2,128                 
|2005                         |  |              | 1,558  |                                |   | 2,318                 
|2006                         |  |              | 1,574  |                                |   | 601                   
|2007                         |  |              | 1,541  |                                |   | 162                   
|2008                         |  |              | 1,507  |                                |   |                      
|Thereafter                   |  |              | 5,574  |                                |   |                      
|                             |  |              |        |                                |   |                       
|                             |  | $            | 12,815 |                                | $ | 5,209                 
|                             |  |              |        |                                |   |                       

Rental expense under operating leases was $1.1 million and $0.9 million for the three months ended September 30, 2003 and 2002,
respectively.

(14) EARNINGS PER SHARE

The following table reconciles the computation of basic and diluted weighted average shares (in thousands):

|                                |                                                                    | Three months ended
September 30,
|------------------------------- | ------------------------------------------------------------------ | --------------------------------
|
|
|Basic weighted average shares   |                                                                    | 39,177                          
|Effect of dilutive securities:  |                                                                    |                                 
|                                | Restricted common stock subject to continuing vesting requirements |                                 
|                                | Stock options                                                      |                                 
|                                |                                                                    |                                 
|Diluted weighted average shares |                                                                    | 39,758                          
|                                |                                                                    |                                 

We exclude potentially dilutive securities from our computation of diluted earnings per share when their effect would be anti-dilutive. The
following securities were excluded from the dilutive earnings per share computation for the three months ended September 30, 2003, as their inclusion would have been anti-dilutive
(in thousands):

|                                                                                         |  | September 30,
2003
|---------------------------------------------------------------------------------------- |  | ------------------
|
|Restricted common stock subject to continuing vesting requirements                       |  | 61                
|Common stock issuable upon exercise of stock options                                     |  | 71                
|Common stock issuable upon conversion of Series B Redeemable Convertible Preferred stock |  | 11,044            
|                                                                                         |  |                   
|                                                                                         |  | 11,176            
|                                                                                         |  |                   

For the three months ended September 30, 2003, the stock options had a weighted average exercise price of $8.22 per share and the Series B
Redeemable Convertible Preferred stock was convertible into shares of common stock at a conversion price of $6.60 per common share.

25

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(15) BUSINESS SEGMENTS

Our chief operating decision maker is our chief executive officer ("CEO"). Our CEO reviews financial performance presented on a consolidated basis, accompanied by disaggregated
information about net
operating margins by operating activity for purposes of making operating decisions and assessing financial performance. Accordingly, we present net operating margins for our two business segments:
(i) terminals, pipelines, and tugs and barges and (ii) supply, distribution and marketing.

Within
the supply, distribution and marketing segment, our CEO manages and evaluates the performance of that segment from an overall portfolio basis that considers the changes in the fair value of our
discretionary inventory volumes held for immediate sale or exchange, derivative sales and purchase contracts and risk management contracts. Our CEO assesses the financial performance of our supply,
distribution, and marketing segment using financial information that is prepared pursuant to the mark-to-market method of accounting (referred to by us as "operating results
for debt covenant compliance"). For purposes of computing our operating results for debt covenant compliance, our inventoriesdiscretionary volumes held for immediate sale or exchange are
reflected at market value, which matches the treatment of our derivative and risk management contracts. The effects of changes in the fair value of our supply, distribution, and marketing activities
are included in net operating margins in the period of the change in value. We believe that "operating results for debt covenant compliance" is an important measure of the profit and loss for our
reportable segments. We consider this measure important because it reflects the ability of our operations to generate funds to pay our fixed obligations, including interest and principal on our debt,
as they become due. Operating results for debt covenant compliance also is used as a measure of our compliance with the financial covenants included in our borrowing arrangements.

We
provide integrated terminal, transportation, storage, supply, distribution and marketing services to refiners, wholesalers, distributors, marketers, and industrial and commercial
end-users of refined petroleum products. We conduct business in the following business segments:

26

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The
operating performance of our business segments, including a reconciliation of the segments' operating performance to earnings before income taxes as presented in the accompanying consolidated
statements of operations is as follows (in thousands):

|                                                |                                                | Three months ended
September 30, 2003                                  |                                                    | Three months ended
September 30, 2002 |                                               
|----------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------- | ----------------------------------------------
|
|Net Operating Margins:                          |                                                |                                                                        |                                                    |                                       |                                               
|                                                | Terminals, pipelines, and tugs and barges:     |                                                                        |                                                    |                                       |                                               
|                                                |                                                | Historical facilities                                                  |                                                    | $                                     | 11,132                                        
|                                                |                                                | Coastal Fuels assets                                                   |                                                    |                                       | 3,563                                         
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|                                                |                                                |                                                                        | Total terminals, pipelines, and tugs and barges    |                                       |                                               
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|                                                | Supply, distribution and marketing:            |                                                                        |                                                    |                                       |                                               
|                                                |                                                | Light oil marketing:                                                   |                                                    |                                       |                                               
|                                                |                                                |                                                                        | Rack sales margins                                 |                                       |                                               
|                                                |                                                |                                                                        | Contract sales margins                             |                                       |                                               
|                                                |                                                |                                                                        | Rolling risk management contracts to future months |                                       |                                               
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|                                                |                                                |                                                                        |                                                    | Light oil margins                     |                                               
|                                                |                                                | Basis activities                                                       |                                                    |                                       | 2,348                                         
|                                                |                                                | Trading activity, net                                                  |                                                    |                                       | 2,132                                         
|                                                |                                                | Supply management services                                             |                                                    |                                       | 2,600                                         
|                                                |                                                | Heavy oil margins                                                      |                                                    |                                       | 1,440                                         
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|                                                |                                                |                                                                        | Total supply, distribution and marketing           |                                       |                                               
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|                                                |                                                |                                                                        |                                                    | Total net operating margins           |                                               
|Selling, general and administrative expenses    |                                                |                                                                        | (10,371                                            | )                                     |                                               
|Corporate relocation and transition             |                                                |                                                                        |                                                   |                                       |                                               
|Dividend income                                 |                                                |                                                                        | 6                                                  |                                       |                                               
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|                                                |                                                |                                                                        |                                                    |                                       | Operating results for debt covenant compliance
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|Reconciliation to Earnings Before Income Taxes: |                                                |                                                                        |                                                    |                                       |                                               
|                                                | Operating results for debt covenant compliance |                                                                        | $                                                  | 15,132                                |                                               
|                                                | Inventory adjustments:                         |                                                                        |                                                    |                                       |                                               
|                                                |                                                | Gains recognized on beginning inventoriesdiscretionary volumes        |                                                    |                                       | 5,855                                         
|                                                |                                                | Gains deferred on ending inventoriesdiscretionary volumes             |                                                    |                                       | (3,067                                        
|                                                |                                                | Lower of cost or market write-down on base operating inventory volumes |                                                    |                                       | (1,848                                        
|                                                |                                                | Lower of cost or market write-down on inventoriesminimum volumes      |                                                    |                                       | (32                                           
|                                                | Other Items:                                   |                                                                        |                                                    |                                       |                                               
|                                                |                                                | Depreciation and amortization                                          |                                                    |                                       | (5,537                                        
|                                                |                                                | Dividend income                                                        |                                                    |                                       | (6                                            
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|                                                |                                                |                                                                        |                                                    |                                       | Operating income                              
|                                                |                                                | Other income (expense), net                                            |                                                    |                                       | (7,203                                        
|                                                |                                                |                                                                        |                                                    |                                       |                                               
|                                                |                                                |                                                                        |                                                    |                                       | Earnings before income taxes                  
|                                                |                                                |                                                                        |                                                    |                                       |                                               

27

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|                                    |                       | Three months ended September 30, 2003 |           
|----------------------------------- | --------------------- | ------------------------------------- | ----------
|
|
|Revenues from external customers    |                       | $                                     | 2,523,553 
|Inter-segment revenues              |                       |                                       |          
|                                    |                       |                                       |           
|                                    | Revenues              |                                       |           
|Direct operating costs and expenses |                       |                                       | (2,511,843
|                                    |                       |                                       |           
|                                    | Net operating margins |                                       |           
|                                    |                       |                                       |           
|Selling, general and administrative |                       |                                       | (5,302    
|Depreciation and amortization       |                       |                                       | (291      
|                                    |                       |                                       |           
|                                    |                       |                                       | (5,593    
|                                    |                       |                                       |           
|Operating income (loss)             |                       | $                                     | 6,117     
|                                    |                       |                                       |           
|Other income (expense), net         |                       |                                       |           
|                                    |                       |                                       |           
|Earnings before income taxes        |                       |                                       |           
|                                    |                       |                                       |           
|Capital expenditures                |                       | $                                     | 68        
|                                    |                       |                                       |           

|                                    |                       | Three months ended September 30, 2002 |           
|----------------------------------- | --------------------- | ------------------------------------- | ----------
|
|
|Revenues from external customers    |                       | $                                     | 1,727,342 
|Inter-segment revenues              |                       |                                       |          
|                                    |                       |                                       |           
|                                    | Revenues              |                                       |           
|Direct operating costs and expenses |                       |                                       | (1,719,730
|                                    |                       |                                       |           
|                                    | Net operating margins |                                       |           
|                                    |                       |                                       |           
|Selling, general and administrative |                       |                                       | (5,287    
|Depreciation and amortization       |                       |                                       | (258      
|Corporate relocation and transition |                       |                                       | (1,084    
|                                    |                       |                                       |           
|                                    |                       |                                       | (6,629    
|                                    |                       |                                       |           
|Operating income (loss)             |                       | $                                     | 983       
|                                    |                       |                                       |           
|Other income (expense), net         |                       |                                       |           
|                                    |                       |                                       |           
|Earnings before income taxes        |                       |                                       |           
|                                    |                       |                                       |           
|Capital expenditures                |                       | $                                     |          
|                                    |                       |                                       |           

28

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the accompanying consolidated financial
statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of the significant accounting policies that we have adopted and followed in the preparation of our consolidated financial statements is detailed in our consolidated
financial statements for the year ended June 30, 2003 included in our Annual Report on Form 10-K filed on September 29, 2003 (see Note 1 of Notes to the consolidated financial
statements). Certain of these accounting policies require the use of estimates. The following estimates, in our opinion, are subjective in nature, require the exercise of judgment, and involve complex
analysis: allowance for doubtful accounts; fair value of inventoriesdiscretionary volumes held for immediate sale or exchange (as of and for periods prior to October 1, 2002); fair
value of derivative contracts; prepaid transportation costs; accrued lease abandonment costs; accrued transportation and deficiency obligations; and accrued environmental obligations. These estimates
are based on our knowledge and understanding of current conditions and actions we may take in the future. Changes in these estimates will occur as a result of the passage of time and the occurrence of
future events. Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations.

SIGNIFICANT DEVELOPMENTS DURING THE THREE MONTHS ENDED SEPTEMBER 30, 2003

On May 30, 2003, we sold the Senior Subordinated Notes in a private placement transaction that was exempt from registration under the Federal Securities Act of 1933. We
also entered into a registration rights agreement requiring us to make an exchange offer. The registration rights agreement also requires us to use our best efforts to cause the registration statement
filed with respect to the exchange offer to be declared effective by October 27, 2003 and consummate the exchange offer no later than December 26, 2003. If we do not do so, additional
interest payments will be payable on the Senior Subordinated Notes. On July 22, 2003, we filed a registration statement on Form S-4 with the Securities and Exchange
Commission to effect the exchange offer. As of November 14, 2003,
the registration statement on Form S-4 has not been declared effective by the staff of the Securities and Exchange Commission.

SUBSEQUENT EVENTS

On October 1, 2003, we acquired for cash consideration of approximately $3.0 million a 900,000-barrel terminal, including product inventory, in
Norfolk, Virginia. The acquired terminal provides us with additional storage, a docking facility that permits us to receive and deliver shipments off the water, and operating synergies with our
existing facility in Norfolk, Virginia.

RESULTS OF OPERATIONSBUSINESS SEGMENTSOPERATING RESULTS FOR DEBT COVENANT COMPLIANCE

Our chief operating decision maker assesses our financial performance using a non-GAAP financial performance measure, which we refer to as "operating results for
debt covenant compliance." Our chief operating decision maker manages our operations and evaluates our performance from an overall portfolio basis that considers the changes in the fair value of our
discretionary inventory volumes held

29

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for immediate sale or exchange, derivative sales and purchase contracts and risk management contracts. Under SFAS No. 131, we are required to report measures of profit and loss that are used
by our chief operating decision maker in assessing financial performance for each of our reportable segments and, accordingly, we report operating results for debt covenant compliance in connection
with our operating segment disclosures.

Operating
results for debt covenant compliance also is used as a measure of our compliance with the financial covenants included in our borrowing arrangements.

Operating
results for debt covenant compliance differs from earnings before income taxes, interest expense, depreciation and amortization ("EBITDA") as determined in accordance with generally accepted
accounting principles due to the treatment of our inventoriesdiscretionary volumes andminimum volumes. As a result of the implementation of EITF 02-03, our
inventoriesdiscretionary volumes andminimum volumes are carried at the lower of cost or market, while our risk management contracts are carried at market. As a result, if
market prices are increasing during the end of a quarter, we may report significant losses on risk management contracts and significant deferred gains on discretionary inventory volumes held for
immediate sale or exchange at the end of that quarter and report significant gains on our beginning inventoriesdiscretionary volumes held for immediate sale or exchange in the following
quarter. In determining our operating results for debt covenant compliance, inventoriesdiscretionary volumes held for immediate sale or exchange are
reflected at fair value, which matches the treatment of our derivative and risk management contracts. Therefore, the effects of changes in the fair value of our inventoriesdiscretionary
volumes held for immediate sale or exchange are included in net operating margins attributable to our supply, distribution and marketing segment in the period in which the fair value actually changes.
Operating results for debt covenant compliance also excludes the lower of cost or market write-downs on our inventoriesminimum volumes andbase operating volumes from our net
operating margins attributable to our supply, distribution and marketing segment.

Supply, distribution and marketingnet operating marginsoperating results for debt covenant compliance

The net operating marginsoperating results for debt covenant compliance attributable to our supply, distribution and marketing segment increased to
$10.8 million in 2003 from $7.6 million in 2002. The net operating marginsoperating results for debt covenant compliance from our light oil marketing, net of the cost or
benefit of rolling risk management contracts used to manage commodity price volatility to future months, increased to $2.3 million in 2003 from $1.4 million in 2002. The Coastal Fuels
assets, which we acquired on February 28, 2003, contributed heavy oil margins of approximately $1.4 million for 2003. The net operating marginsoperating results for debt
covenant compliance from our supply management services declined to $2.6 million in 2003 from $4.4 million in 2002. The net operating marginsoperating results for debt
covenant compliance from our basis activities declined to $2.3 million in 2003 from $4.5 million in 2002. The net operating marginsoperating results for debt covenant
compliance from our trading activities increased to $2.1 in 2003 from $(2.6) million in 2002.

30

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Selected
quarterly net operating marginsoperating results for debt covenant compliance for the supply, distribution and marketing segment for each of the three months ended
September 30, 2003 and 2002, are summarized below (in thousands):

|                                                                                                    |                                                    | Three months ended
September 30, 2003                                |        | Three months ended
September 30, 2002 |       
|--------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------------------------- | ------ | ------------------------------------- | ------
|
|Supply distribution and marketing:                                                                  |                                                    |                                                                      |        |                                       |       
|Light oil marketing:                                                                                |                                                    |                                                                      |        |                                       |       
|                                                                                                    | Rack sales margins                                 |                                                                      | $      | 1,533                                 |       
|                                                                                                    | Contract sales margins                             |                                                                      |        | 1,468                                 |       
|                                                                                                    | Rolling risk management contracts to future months |                                                                      |        | (719                                  | )     
|                                                                                                    |                                                    |                                                                      |        |                                       |       
|                                                                                                    |                                                    | Light oil margins                                                    |        |                                       | 2,282 
|Heavy oil margins                                                                                   |                                                    |                                                                      | 1,440  |                                       |       
|Supply management services margins                                                                  |                                                    |                                                                      | 2,600  |                                       |       
|Basis activities                                                                                    |                                                    |                                                                      | 2,348  |                                       |       
|Trading margins, net                                                                                |                                                    |                                                                      | 2,132  |                                       |       
|                                                                                                    |                                                    |                                                                      |        |                                       |       
|                                                                                                    |                                                    | Net operating marginsOperating results for debt covenant compliance |        | $                                     | 10,802
|                                                                                                    |                                                    |                                                                      |        |                                       |       
|Net operating marginsOperating results for debt covenant compliance                                |                                                    | $                                                                    | 10,802 |                                       | $     
|Gains recognized on beginning inventoriesdiscretionary volumes held for immediate sale or exchange |                                                    |                                                                      | 5,855  |                                       |       
|Gains deferred on ending inventoriesdiscretionary volumes held for immediate sale or exchange      |                                                    |                                                                      | (3,067 | )                                     |       
|Lower of cost or market write-downs on base operating volumes                                       |                                                    |                                                                      | (1,848 | )                                     |       
|Lower of cost or market write-downs on inventoriesminimum volumes                                  |                                                    |                                                                      | (32    | )                                     |       
|                                                                                                    |                                                    |                                                                      |        |                                       |       
|Net operating marginsHistorical financial statements                                               |                                                    | $                                                                    | 11,710 |                                       | $     
|                                                                                                    |                                                    |                                                                      |        |                                       |       

Prior to October 1, 2002, our inventoriesdiscretionary volumes held for immediate sale or exchange were carried at fair value with changes
in fair value included in net operating margins in the period of the change in value. Effective October 1, 2002, we adjusted the carrying amount of inventoriesdiscretionary volumes
held for immediate sale or exchange to the lower of cost or market pursuant to the requirements of EITF 02-03. During the last half of June 2003, we experienced increases in certain
commodity prices and locations, which resulted in the fair value of our inventoriesdiscretionary volumes held for immediate sale or exchange at June 30, 2003 exceeding their cost
basis by approximately $5.9 million. The "Gains recognized on beginning inventoriesdiscretionary volumes held for immediate sale or exchange" represents the net operating margins
recognized on the subsequent sale of those inventories to
customers during the three months ended September 30, 2003. During the last half of September 2003, we experienced increases in certain commodity prices at certain locations, which
resulted in the fair value of our inventoriesdiscretionary volumes held for immediate sale or exchange at September 30, 2003 exceeding their cost basis by approximately
$3.1 million. That excess is expected to be recognized in net operating margins during the three months ended December 31, 2003, which is the period in which those discretionary
inventory volumes are expected to be sold to customers.

For
the three months ended September 30, 2003, we reduced the carrying amount of our base operating volumes by approximately $1.8 million and our inventoriesminimum volumes
by approximately $32,000 due to the application of the lower of cost or market rule.

31

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Terminals, pipelines, tugs and bargesnet operating marginsoperating results from debt compliance

For the three months ended September 30, 2003 and 2002, our terminals, pipelines and tugs and barges generated net operating margins of approximately
$14.7 million and $10.9 million, respectively. The increase of approximately $3.8 million in net operating margins attributable to our terminals, pipelines, and tugs and barges
segment for 2003 as compared to 2002 was due principally to the contribution of approximately $3.6 million from the Coastal Fuels assets, which we acquired on February 28, 2003. The net
operating margins from our historical facilities increased to $11.1 million in 2003 from $10.9 million in 2002 principally due to capacity expansion at our Brownsville facilities and
additional product throughput throughout the remainder of our terminal system.

Selected
quarterly net operating marginsoperating results for debt covenant compliance for the terminal, pipelines, tugs and barges segment for the three months ended September 30,
2003 and 2002, are summarized below (in thousands):

|                         |                       | Three months ended
September 30, 2003 |        | Three months ended
September 30, 2002
|------------------------ | --------------------- | ------------------------------------- | ------ | -------------------------------------
|
|Terminals and pipelines: |                       |                                       |        |                                      
|                         | Historical facilities |                                       | $      | 11,132                               
|                         | Coastal Fuels assets  |                                       |        | 3,563                                
|                         |                       |                                       |        |                                      
|                         |                       | $                                     | 14,695 |                                      
|                         |                       |                                       |        |                                      

32

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RESULTS OF OPERATIONSHISTORICAL FINANCIAL STATEMENTS

The following selected historical financial statement measures are derived from our unaudited interim financial statements for the three months ended September 30, 2003
and 2002 (in thousands):

|                                                                       |                                       | Three months ended
September 30, |        
|---------------------------------------------------------------------- | ------------------------------------- | -------------------------------- | -------
|
|
|Historical Financial Statement Measures:                               |                                       |                                  |        
|Net operating margins:                                                 |                                       |                                  |        
|                                                                       | Supply, distribution, and marketing   |                                  | $      
|                                                                       | Terminals, pipelines, tugs and barges |                                  | $      
|EBITDA(1)                                                              |                                       | $                                | 16,040 
|Operating income                                                       |                                       | $                                | 10,497 
|Net earnings                                                           |                                       | $                                | 1,976  
|Net cash provided (used) by operating activities                       |                                       | $                                | (16,874
|Net cash provided (used) by investing activities                       |                                       | $                                | (7,419 
|Net cash provided (used) by financing activities                       |                                       | $                                | 14,268 
|Non-GAAP Financial Performance Measure:                                |                                       |                                  |        
|Operating results for debt covenant compliance(2)                      |                                       | $                                | 15,132 
|Reconciliation to Net Earnings:                                        |                                       |                                  |        
|Operating results for debt covenant compliance                         |                                       | $                                | 15,132 
|Gains recognized on beginning inventoriesdiscretionary volumes        |                                       |                                  | 5,855  
|Gains deferred on ending inventoriesdiscretionary volumes             |                                       |                                  | (3,067 
|Lower of cost or market write-down on base operating inventory volumes |                                       |                                  | (1,848 
|Lower of cost or market write-down on inventoriesminimum volumes      |                                       |                                  | (32    
|                                                                       |                                       |                                  |        
|EBITDA                                                                 |                                       |                                  | 16,040 
|Depreciation and amortization                                          |                                       |                                  | (5,537 
|Interest expense, net                                                  |                                       |                                  | (6,396 
|Other financing costs, net                                             |                                       |                                  | (813   
|Income tax expense                                                     |                                       |                                  | (1,318 
|                                                                       |                                       |                                  |        
|Net earnings                                                           |                                       | $                                | 1,976  
|                                                                       |                                       |                                  |        

---

33

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34

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Selected quarterly results of operations data for each of the three-month periods in the three months ended September 30, 2003 and the year ended June 30, 2003,
are summarized below (in thousands):

|                                                                                             |                                                                                                     | Three months ended
September 30, 2003 |        
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------- | -------
|
|Net operating margins:                                                                       |                                                                                                     |                                       |        
|                                                                                             | Supply, distribution and marketing                                                                  |                                       | $      
|                                                                                             | Terminals and pipelines                                                                             |                                       |        
|                                                                                             |                                                                                                     |                                       |        
|                                                                                             | Total net operating margins                                                                         |                                       |        
|Selling, general, and administrative                                                         |                                                                                                     |                                       | (10,371
|Depreciation and amortization                                                                |                                                                                                     |                                       | (5,537 
|                                                                                             |                                                                                                     |                                       |        
|                                                                                             | Operating income                                                                                    |                                       |        
|Other expense, net                                                                           |                                                                                                     |                                       | (7,203 
|Income tax expense                                                                           |                                                                                                     |                                       | (1,318 
|                                                                                             |                                                                                                     |                                       |        
|                                                                                             | Net earnings                                                                                        |                                       | $      
|                                                                                             |                                                                                                     |                                       |        
|Financial performance debt covenant test:                                                    |                                                                                                     |                                       |        
|Operating results for debt covenant compliance                                               |                                                                                                     | $                                     | 15,132 
|                                                                                             |                                                                                                     |                                       |        
|Fixed charges                                                                                |                                                                                                     | $                                     | 8,589  
|                                                                                             |                                                                                                     |                                       |        
|Fixed charge coverage ratio based on rolling four consecutive quarters                       |                                                                                                     |                                       | 214    
|                                                                                             |                                                                                                     |                                       |        
|Reconciliation of EBITDA and operating results for debt covenant compliance to net earnings: |                                                                                                     |                                       |        
|                                                                                             | Operating results for debt covenant compliance                                                      |                                       | $      
|                                                                                             | Gains recognized on beginning inventoriesdiscretionary volumes held for immediate sale or exchange |                                       |        
|                                                                                             | Gains deferred on ending inventoriesdiscretionary volumes held for immediate sale or exchange      |                                       |        
|                                                                                             | Lower of cost or market write-downs on base operating volumes                                       |                                       |        
|                                                                                             | Lower of cost or market write-downs on inventoriesminimum volumes                                  |                                       |        
|                                                                                             |                                                                                                     |                                       |        
|                                                                                             |                                                                                                     | EBITDA                                |        
|                                                                                             | Depreciation and amortization                                                                       |                                       |        
|                                                                                             | Interest expense, net                                                                               |                                       |        
|                                                                                             | Other financing costs, net                                                                          |                                       |        
|                                                                                             | Income tax expense                                                                                  |                                       |        
|                                                                                             |                                                                                                     |                                       |        
|                                                                                             |                                                                                                     | Net earnings                          |        
|                                                                                             |                                                                                                     |                                       |        

35

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|                                                                                             |                                                                                                     | Three months ended  |        |        |      
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------- | ------ | ------ | -----
|
|
|
|Net operating margins:                                                                       |                                                                                                     |                     |        |        |      
|                                                                                             | Supply, distribution and marketing                                                                  |                     | $      | 7,612  |      
|                                                                                             | Terminals, pipelines and tugs and barges                                                            |                     |        | 10,928 |      
|                                                                                             |                                                                                                     |                     |        |        |      
|                                                                                             | Total net operating margins                                                                         |                     |        | 18,540 |      
|Selling, general, and administrative                                                         |                                                                                                     |                     | (9,331 | )      |      
|Depreciation and amortization                                                                |                                                                                                     |                     | (4,256 | )      |      
|Corporate relocation and transition                                                          |                                                                                                     |                     | (1,084 | )      |      
|                                                                                             |                                                                                                     |                     |        |        |      
|                                                                                             | Operating income (loss)                                                                             |                     |        | 3,869  |      
|Other income (expense), net                                                                  |                                                                                                     |                     | (3,004 | )      |      
|Income tax (expense) benefit                                                                 |                                                                                                     |                     | (329   | )      |      
|Cumulative effect adjustment                                                                 |                                                                                                     |                     |       |        |      
|                                                                                             |                                                                                                     |                     |        |        |      
|                                                                                             | Net earnings (loss)                                                                                 |                     | $      | 536    |      
|                                                                                             |                                                                                                     |                     |        |        |      
|Financial performance debt covenant test:                                                    |                                                                                                     |                     |        |        |      
|                                                                                             | Operating results for debt covenant compliance                                                      |                     | $      | 8,499  |      
|                                                                                             |                                                                                                     |                     |        |        |      
|                                                                                             | Fixed charges                                                                                       |                     | $      | 5,740  |      
|                                                                                             |                                                                                                     |                     |        |        |      
|                                                                                             | Fixed charge coverage ratio                                                                         |                     |        |        |      
|                                                                                             |                                                                                                     |                     |        |        |      
|Reconciliation of EBITDA and operating results for debt covenant compliance to net earnings: |                                                                                                     |                     |        |        |      
|                                                                                             | Operating results for debt covenant compliance                                                      |                     | $      | 8,499  |      
|                                                                                             | Gains recognized on beginning inventoriesdiscretionary volumes held for immediate sale or exchange |                     |        |       |      
|                                                                                             | Gains deferred on ending inventoriesdiscretionary volumes held for immediate sale or exchange      |                     |        |       |      
|                                                                                             | Change in FIFO cost basis of base operating inventory volumes                                       |                     |        |       |      
|                                                                                             | Net margin recognized on sale of inventoriesminimum volumes                                        |                     |        |       |      
|                                                                                             | Lower of cost or market write-downs on base operating inventory volumes                             |                     |        |       |      
|                                                                                             | Lower of cost or market write-downs on inventoriesminimum volumes                                  |                     |        |       |      
|                                                                                             |                                                                                                     |                     |        |        |      
|                                                                                             |                                                                                                     | EBITDA              |        |        | 8,499
|                                                                                             | Depreciation and amortization                                                                       |                     |        | (4,256 | )    
|                                                                                             | Interest expense, net                                                                               |                     |        | (3,224 | )    
|                                                                                             | Other financing costs, net                                                                          |                     |        | (154   | )    
|                                                                                             | Income tax benefit (expense)                                                                        |                     |        | (329   | )    
|                                                                                             | Cumulative effect adjustment                                                                        |                     |        |       |      
|                                                                                             |                                                                                                     |                     |        |        |      
|                                                                                             |                                                                                                     | Net earnings (loss) |        | $      | 536  
|                                                                                             |                                                                                                     |                     |        |        |      

36

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THREE MONTHS ENDED SEPTEMBER 30, 2003 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2002

We reported net earnings of $2.0 million for the three months ended September 30, 2003, compared to net earnings of $0.5 million for the three months ended
September 30, 2002. After preferred stock dividends, the net earnings (loss) attributable to common stockholders was $1.3 million for the three months ended September 30, 2003,
compared to $(0.5) million for the three months ended September 30, 2002. Basic earnings (loss) per common share for the three months ended September 30, 2003 and 2002, was $0.03 and
$(0.01), respectively, based on 39.2 million and 39.0 million weighted average common shares outstanding, respectively. Diluted earnings (loss) per share for the three months ended
September 30, 2003 and 2002, was $0.03 and $(0.01), respectively, based upon 39.8 million and 39.0 million weighted average diluted shares outstanding, respectively.

Terminals, pipelines, and tugs and barges

In our terminals, pipelines, and tugs and barges operations, we provide distribution related services to wholesalers, distributors, marketers, retail gasoline station
operators, cruise-ship operators and industrial and commercial end-users of refined petroleum products and other commercial liquids. The net operating margins from our
terminals, pipelines, and tugs and barges operations for the three months ended September 30, 2003 were $14.7 million, compared to $10.9 million for the three months ended
September 30, 2002. The increase of $3.8 million in net operating margins was due principally to the addition of the Coastal Fuels assets. On February 28, 2003, we acquired the
Coastal Fuels assets, which include five terminals, a hydrant delivery system, and a tug and barge operation. The results of operations of the Coastal Fuels assets are included from the closing date
of the transaction (February 28, 2003). For the three months ended September 30, 2003, the Coastal Fuels assets generated net operating margins of approximately $3.6 million
attributable to our terminals, pipelines, and tugs and barges operations. The net operating margins from our terminals, pipelines, and tugs and barges operations are as follows (in thousands):

|                             |                                          | Three months ended
September 30, |      
|---------------------------- | ---------------------------------------- | -------------------------------- | -----
|
|
|Throughput fees              |                                          | $                                | 8,466
|Storage fees                 |                                          |                                  | 9,644
|Additive injection fees, net |                                          |                                  | 1,960
|Pipeline transportation fees |                                          |                                  | 1,696
|Tugs and barges              |                                          |                                  | 2,813
|Other                        |                                          |                                  | 2,442
|                             |                                          |                                  |      
|                             | Revenue                                  |                                  |      
|                             | Less direct operating costs and expenses |                                  |      
|                             |                                          |                                  |      
|                             |                                          | Net operating margins            |      
|                             |                                          |                                  |      

Throughput Fees.We own and operate a terminal infrastructure that handles products with transportation connections via
pipelines, barges, rail cars and trucks. We earn throughput fees for each barrel of product that is distributed at our terminals through our supply and marketing efforts, through exchange agreements,
or for third parties. Terminal throughput fees are based on the volume of products distributed at the facility's truck loading racks, generally at a standard rate per barrel of product.

37

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Exchange
agreements provide for the exchange of product at one delivery location for product at a different location. We generally receive a terminal throughput fee based on the volume of the product
exchanged, in addition to the cost of transportation from the receipt location to the exchange delivery location. For the three months ended September 30, 2003 and 2002, we averaged
approximately 58,000 and 47,000 barrels per day, respectively, of delivered volumes under exchange agreements.

Terminal
throughput fees were approximately $8.5 million and $7.2 million for the three months ended September 30, 2003 and 2002, respectively. For the three months ended
September 30, 2003 and 2002, we averaged approximately 460,000 barrels and 350,000 barrels per day of throughput volumes at our terminals, including volumes under exchange agreements. The
increase of $1.3 million in throughput fees was due principally to increases of approximately $0.6 million as a result of our acquisition of the Coastal Fuels assets, approximately
$0.3 million at our historical Florida facilities, approximately $0.5 million at our Baton Rouge dock and approximately $0.2 million at our Southeast facilities offset by a
decrease of approximately $0.5 million at our Upper River facilities.

Included
in the terminal throughput fees for the three months ended September 30, 2003 and 2002 are fees charged to TransMontaigne's supply, distribution and marketing segment of approximately
$7.3 million and $5.1 million, respectively.

Storage Fees.We lease storage capacity at our terminals to third parties and our supply, distribution and marketing segment. Terminal
storage fees generally are based on a per barrel of leased capacity per month rate and will vary with the duration of the storage agreement and the type of product stored.

Terminal
storage fees were approximately $9.6 million and $5.3 million for the three months ended September 30, 2003 and 2002, respectively. The increase of $4.3 million in
storage fees was due principally to an increase of approximately $4.5 million from our acquisition of the Coastal Fuels assets.

Included
in the terminal storage fees for the three months ended September 30, 2003 and 2002 are fees charged to TransMontaigne's supply, distribution and marketing segment of approximately
$2.7 million and $0.9 million, respectively.

Additive Injection Fees, Net.We provide injection services in connection with the delivery of product at our terminals. These fees
generally are based on the volume of product injected and delivered over the rack at our terminals.

Additive
injection fees, net were approximately $2.0 million and $1.9 million for the three months ended September 30, 2003 and 2002, respectively. The increase of
$0.1 million in additive injection fees, net was due principally to an increase of approximately $0.1 million from our acquisition of the Coastal Fuels assets.

Included
in additive injection fees, net for the three months ended September 30, 2003 and 2002 are fees charged to TransMontaigne's supply, distribution and marketing segment of approximately
$1.8 million and $1.5 million, respectively.

Pipeline Transportation Fees.We own an interstate products pipeline operating from Mt. Vernon, Missouri to Rogers, Arkansas (the
"Razorback Pipeline"), together with associated terminal facilities at Mt. Vernon and Rogers. We also own and operate a proprietary pipeline in Port Everglades/Ft. Lauderdale (the "hydrant system"),
which we use to deliver our product to cruise ships and other marine vessels for refueling, and a small intrastate crude oil gathering pipeline system, located in east

38

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Texas (the "CETEX pipeline"). We earn pipeline transportation fees based on the volume of product transported and the distance from the origin point to the delivery point.

For
the three months ended September 30, 2003 and 2002, we earned pipeline transportation fees of approximately $1.7 million and $1.5 million, respectively.

Included
in the pipeline transportation fees for the three months ended September 30, 2003 and 2002 are fees charged to TransMontaigne's supply, distribution and marketing segment of
approximately $1.5 million and $1.3 million, respectively.

Tugs and Barges.In Florida, we own and operate nine tugboats and 13 barges that deliver product to cruise ships and other marine vessels
for refueling and to transport third party product from our storage tanks to our customers' facilities. Our tugboats earn fees for providing docking and other ship-assist services to
cruise and cargo ships and other marine vessels. Bunkering fees are based on the volume and type of product sold, transportation fees are based on the volume of product that is shipped and the
distance to the delivery point, and docking and other ship-assist services are based on a per docking per tugboat basis.

For
the three months ended September 30, 2003, we earned bunkering fees, transportation fees, and other ship-assist services fees of approximately $2.8 million. We acquired
the tugs and barges operations on February 28, 2003 in connection with our acquisition of the Coastal Fuels assets.

Included
in the tugs and barges fees for the three months ended September 30, 2003 are fees charged to TransMontaigne's supply, distribution and marketing segment of approximately
$1.5 million.

Other Revenue.In addition to providing storage and distribution services at our terminal facilities, we also provide ancillary services
including heating and mixing of stored products and product transfer services. We also recognize gains from the sale of product to our supply, distribution and marketing operation resulting from the
excess of product deposited by third parties into our terminals over the amount of product that the customer is contractually permitted to withdraw from those terminals. For the three months ended
September 30, 2003 and 2002, other revenue from our terminals, pipelines, and tugs and barges operations was approximately $2.4 million and $1.6 million, respectively. The
increase of approximately $0.8 million in other revenue for 2003 as compared to 2002 was due principally to an increase of approximately $1.4 million from our acquisition of the Coastal
Fuels assets offset by decreases of approximately $0.3 million at our Brownsville, Texas facilities and approximately $0.2 million at our Upper River facilities.

Included
in other revenue for the three months ended September 30, 2003 and 2002, are fees charged to TransMontaigne's supply, distribution and marketing segment of approximately
$0.6 million and $0.8 million, respectively.

Direct Operating Costs and Expenses.The direct operating costs and expenses of the terminals, pipelines, and tugs and barges operations
include the directly related wages and employee benefits, utilities, communications, maintenance and repairs, property taxes, rent, vehicle expenses, environmental compliance costs, materials and
supplies. For the three months ended September 30, 2003 and 2002, the direct operating costs and expenses of the terminals, pipelines, and tugs and

39

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barges were approximately $12.3 million and $6.5 million, respectively. The direct operating costs and expenses of our terminals, pipelines, and tugs and barges operations are as
follows (in thousands):

|                                    |                                     | Three months ended
September 30, |      
|----------------------------------- | ----------------------------------- | -------------------------------- | -----
|
|
|Wages and employee benefits         |                                     | $                                | 6,053
|Utilities and communication charges |                                     |                                  | 1,206
|Repairs and maintenance             |                                     |                                  | 3,443
|Office, rentals and property taxes  |                                     |                                  | 1,656
|Vehicles and fuel costs             |                                     |                                  | 408  
|Environmental compliance costs      |                                     |                                  | (43  
|Other                               |                                     |                                  | 575  
|Lessreimbursed costs and expenses  |                                     |                                  | (972 
|                                    |                                     |                                  |      
|                                    | Direct operating costs and expenses |                                  | $    
|                                    |                                     |                                  |      

The increase of $5.8 million in direct operating costs and expenses was due principally to the addition of the Coastal Fuels assets which resulted in
approximately $6.0 million of additional direct operating costs and expenses offset by approximately $0.8 million of insurance recoveries received on claims for reimbursement of
environmental remediation costs.

Supply, distribution and marketing

The net operating margins from our supply, distribution and marketing operations for the three months ended September 30, 2003 were $11.7 million, compared to
$7.6 million for the three months ended September 30, 2002. The increase in net operating margins for 2003 as compared to 2002 is due
principally to increases of approximately $1.4 million in heavy oil margins due to our acquisition of the Coastal Fuels assets and approximately $4.7 million in margins from our trading
activities offset by a decrease of approximately $1.8 million in margins from our supply management services. The net operating margins from our supply, distribution and marketing operations are as
follows (in thousands):

|                                 |                                                                    | Three months ended
September 30,                  |           
|-------------------------------- | ------------------------------------------------------------------ | ------------------------------------------------- | ----------
|
|
|Rack sales                       |                                                                    | $                                                 | 482,834   
|Bulk sales                       |                                                                    |                                                   | 1,369,416 
|Contract sales                   |                                                                    |                                                   | 599,060   
|Supply management services       |                                                                    |                                                   | 72,243    
|                                 |                                                                    |                                                   |           
|                                 |                                                                    | Total revenue                                     |           
|Cost of product sold             |                                                                    |                                                   | (2,511,890
|                                 |                                                                    |                                                   |           
|                                 |                                                                    | Net margin before other direct costs and expenses |           
|Other direct costs and expenses: |                                                                    |                                                   |           
|                                 | Net losses on risk management activities                           |                                                   |           
|                                 | Change in unrealized gains (losses) on derivative contracts        |                                                   |           
|                                 | Lower of cost or market write-downs on base operating volumes      |                                                   |           
|                                 | Lower of cost or market write-downs on inventoriesminimum volumes |                                                   |           
|                                 |                                                                    |                                                   |           
|                                 |                                                                    | Net operating margins                             |           
|                                 |                                                                    |                                                   |           

40

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Our supply, distribution and marketing operations typically purchase products at prevailing prices from refiners and producers at production points and common trading
locations. Once we purchase these products, we schedule them for delivery to our terminals, as well as terminals owned by third parties with which we have storage or throughput agreements. From these
terminal locations, we then sell our products to customers primarily through three types of arrangements: rack sales, bulk sales and contract sales.

Rack Sales.Rack sales are spot sales to commercial and industrial end-users, independent retailers, cruise-ship
operators and jobbers that do not involve continuing contractual obligations to purchase or deliver product. Rack sales are priced and delivered on a daily basis through truck loading racks or marine
fueling equipment. Our selling price of a particular product on a particular day at a particular terminal is a function of our supply at that terminal, our estimate of the costs to replenish the
product at that terminal, our desire to reduce inventory levels at that terminal that day, and other factors. Rack sales are recognized as revenue when the product is delivered to the customer through
the truck loading rack or marine fueling equipment.

Rack
sales were approximately $482.8 million and $388.8 million for the three months ended September 30, 2003 and 2002, respectively. For the three months ended
September 30, 2003 and 2002, we averaged approximately 142,000 and 129,000 barrels per day, respectively, of delivered volumes under rack sales.

Bulk Sales.Bulk sales are sales of large quantities of product to wholesalers, distributors, and marketers in major cash markets. We also
make bulk sales of products prior to their scheduled delivery to us while the product is being transported in the common carrier pipelines or by barge or vessel. Bulk sales are recognized as revenue
when the title to the product is transferred to the customer, which generally occurs upon confirmation of the terms of the sale.

Bulk
sales were approximately $1,369.4 million and $992.7 million for the three months ended September 30, 2003 and 2002, respectively. For the three months ended
September 30, 2003 and 2002, we averaged approximately 401,000 and 339,000 barrels per day, respectively, of delivered volumes under bulk sales.

Contract Sales.Contract sales are sales to commercial and industrial end users, independent retailers, cruise-ship operators,
and jobbers that are made pursuant to negotiated contracts, generally ranging from one to six months in duration. Contract sales provide these customers with a specified volume of product during the
agreement term. At the customer's option, the pricing of the product delivered under a contract sale may be fixed at a stipulated price per gallon, or it may vary based on changes in published
indices. Contract sales are recognized as revenue when the product is delivered to the customer through the truck loading rack or marine fueling equipment.

Contract
sales were approximately $599.1 million and $310.7 million for the three months ended September 30, 2003 and 2002, respectively. For the three months ended
September 30, 2003 and 2002, we averaged approximately 178,000 and 103,000 barrels per day, respectively, of delivered volumes under contract sales.

Supply Management Services Contracts.We provide supply management services to companies and governmental entities that desire to outsource
their fuel supply function and to reduce the price volatility associated with their fuel supplies. We offer three types of supply management services: delivered fuel price management, retail price
management and logistical supply management services.

Sales
pursuant to supply management services contracts were approximately $72.2 million and $35.2 million for the three months ended September 30, 2003 and 2002, respectively. For
the three

41

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months ended September 30, 2003 and 2002, we averaged approximately 23,000 barrels and 12,000 barrels per day, respectively, of delivered volumes under supply management services contracts.

Cost of Product Sold.The cost of product sold includes the cost of the product inventory sold on a first-in,
first-out basis, pipeline transportation and other freight costs, terminal throughput, additive and storage costs, and commissions. Cost of product sold is approximately
$2,511.9 million and $1,686.8 million for the three months ended September 30, 2003 and 2002, respectively. Cost of product sold is as follows (in thousands):

|                                        |                      | Three months ended
September 30,
|--------------------------------------- | -------------------- | --------------------------------
|
|
|Inventory product costs                 |                      | $                               
|Transportation and related charges      |                      |                                 
|Throughput, storage and related charges |                      |                                 
|Other                                   |                      |                                 
|                                        |                      |                                 
|                                        | Cost of product sold |                                 
|                                        |                      |                                 

Net Losses on Risk Management Activities.Our risk management strategy generally is intended to maintain a balanced
position of forward sale and purchase commitments against our discretionary inventories held for immediate sale or exchange and future contractual delivery obligations, thereby reducing exposure to
commodity price fluctuations. We evaluate our exposure to commodity price risk from an overall portfolio basis that considers the continuous movement of discretionary inventory volumes held for
immediate sale or exchange and our obligations to deliver products at fixed prices through our sales contracts and supply management contracts. Our physical inventory position, which includes firm
commitments to buy and sell product, is offset with risk management contracts, principally futures contracts on the NYMEX.

When
we purchase refined petroleum products, we enter into futures contracts to sell a corresponding amount of product to protect against price fluctuations for the underlying commodity. When we
ultimately sell the underlying inventory to a customer, we unwind the related risk management contract. In order to effectively manage commodity price risk, we must predict when we will sell the
underlying product. If we fail to accurately predict the timing of those future sales, and the product remains in our inventory longer than the expiration date of the futures contract, we must settle
the old futures contract and enter into a new futures contract to sell the product to manage the commodity price risk against the same inventory. We refer to this as "rolling" the risk management
contracts. During a period of rising prices, our risk management contracts (i.e., short futures contracts) that are entered into to reduce our risk to commodity price changes associated with our
discretionary inventory volumes held for immediate sale or exchange will decline in value resulting in a loss.

Net
losses on risk management activities were approximately $0.4 million and $18.5 million for the three months ended September 30, 2003 and 2002, respectively.

Lower of Cost or Market Write-Downs on Base Operating Volumes.During the three months ended September 30, 2003, we recognized
impairment losses of approximately $1.8 million due to lower of cost or market write-downs on the base operating volumes due principally to declining prices at the end of the period. During the
three months ended September 30, 2002, we did not report any of our
inventory volumes as base operating volumes as our base operating volumes were a component of our minimum inventory volumes.

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Lower of Cost or Market Write-Downs on InventoriesMinimum Volumes.During the three months ended September 30, 2003 and
2002, we recognized impairment losses of approximately $32,000 and $nil, respectively, due to lower of cost or market write-downs on the minimum inventory volumes.

Costs and expenses

Selling, general and administrative expenses for the three months ended September 30, 2003 were $10.4 million, compared to $9.3 million for the three
months ended September 30, 2002. Selling, general and administrative expenses are as follows (in thousands):

|                                                  |                                              | Three months ended
September 30,
|------------------------------------------------- | -------------------------------------------- | --------------------------------
|
|
|Wages and employee benefits                       |                                              | $                               
|Office costs, utilities and communication charges |                                              |                                 
|Accounting and legal expenses                     |                                              |                                 
|Property and casualty insurance                   |                                              |                                 
|Other                                             |                                              |                                 
|                                                  |                                              |                                 
|                                                  | Selling, general and administrative expenses |                                 
|                                                  |                                              |                                 

Depreciation and amortization for the three months ended September 30, 2003 and 2002, was $5.5 million and $4.3 million, respectively. The
increase of $1.2 million in depreciation and amortization for 2003 as compared to 2002 is principally related to depreciation and amortization on recent additions to property, plant, and
equipment.

We
recognized special charges of $1.1 million during the three months ended September 30, 2002, related to our corporate relocation and transition. As of June 30, 2003 we had
completed the relocation of our employees from Atlanta, Georgia to Denver, Colorado and paid the remaining special termination benefits and transition bonuses.

Other income and expenses

Dividend income for the three months ended September 30, 2003 was $6,000, compared to $374,000 for the three months ended September 30, 2002.

Interest
income for the three months ended September 30, 2003 was $28,000, as compared to $0.1 million for the three months ended September 30, 2002. Pursuant to our cash
management practices, excess cash balances are used to pay down our outstanding borrowings under our working capital credit facility and commodity margin loan.

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Interest
expense for the three months ended September 30, 2003 was $6.4 million, compared to $3.3 million during the three months ended September 30, 2002. Interest expense
is as follows (in thousands):

|                                |                  | Three months ended
September 30,
|------------------------------- | ---------------- | --------------------------------
|
|
|Working capital credit facility |                  | $                               
|Senior subordinated notes       |                  |                                 
|Former bank credit facility     |                  |                                 
|Letters of credit               |                  |                                 
|Commodity margin loan           |                  |                                 
|Interest rate swap              |                  |                                 
|                                |                  |                                 
|                                | Interest expense |                                 
|                                |                  |                                 

Other financing costs, net for the three months ended September 30, 2003 were $0.8 million, compared to $0.2 million for the three months
ended September 30, 2002. The increase of $0.6 million in other financing costs, net was due principally to an increase of approximately $0.6 million in amortization of deferred
debt issuance costs and the absence of a gain on interest rate swap. During the three months ended September 30, 2002, we recognized an unrealized gain of $75,000 on our interest rate swap. On
February 28, 2003, we settled our obligations under the swap agreement when we repaid our former bank revolving credit facility.

Income taxes

Income tax expense was $1.3 million and $0.3 million for the three months ended September 30, 2003 and 2002, respectively, which represents an effective
combined federal and state income tax rate of 40.0% and 38.0%, respectively.

Preferred stock dividends

Preferred stock dividends on our Series A Convertible Preferred stock were $nil and $0.3 million for the three months ended September 30, 2003 and 2002,
respectively. The decrease in the current year dividend resulted from a reduction in the number of shares of Series A Convertible Preferred stock outstanding during the current period. On
June 30, 2003, we redeemed the remaining 24,421 shares of Series A Convertible Preferred stock and warrants that were outstanding for a cash payment of approximately
$24.4 million.

Preferred
stock dividends on our Series B Redeemable Convertible Preferred Stock were $0.7 million for each of the three months ended September 30, 2003 and 2002. At its issuance
(June 28, 2002), the fair value of the Series B Redeemable Convertible Preferred stock exceeded its liquidation value. The initial carrying amount of the Series B Redeemable
Convertible Preferred Stock of approximately $80.9 million will be decreased ratably over its 5-year term until it equals its liquidation value of approximately $72.9 million
with an equal reduction in the amount of preferred stock dividends recorded for financial reporting purposes. For each of the three months ended September 30, 2003 and 2002, the amount of the
dividend recognized for financial reporting purposes is composed of the amount of the dividend payable to the holders of the Series B Redeemable Convertible Preferred Stock of
$1.1 million, offset by the amortization of the premium on the carrying amount of the Series B Redeemable Convertible Preferred Stock of $0.4 million.

44

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LIQUIDITY, CAPITAL RESOURCES, AND COMMODITY PRICE RISK

At September 30, 2003, our current assets exceeded our current liabilities by $68.0 million, compared to $63.9 million at June 30, 2002. The
increase of $4.1 million in working capital is due principally to an increase in inventoriesdiscretionary volumes offset by a decrease in trade accounts receivable.

The
decrease in trade accounts receivable of $43.1 million is due principally to the timing of cash collections on sales made during the three months ended September 30, 2003. Our gross
revenues for the supply, distribution and marketing operations were approximately $777.8 million and $777.4 million for the one-month periods ended September 30, 2003
and June 30, 2003, respectively.

Our
inventoriesdiscretionary volumes are presented in the accompanying consolidated balance sheet as current assets and are carried at the lower of cost or market at September 30,
2003 and June 30, 2003. Inventoriesdiscretionary volumes are as follows (in thousands):

|                                            |  | September 30,
2003 |         | June 30,
2003
|------------------------------------------- |  | ------------------ | ------- | -------------
|
|
|Volumes held for immediate sale or exchange |  | $                  | 191,322 |              
|Volumes held for base operations            |  |                    | 94,578  |              
|                                            |  |                    |         |              
|Inventoriesdiscretionary volumes           |  | $                  | 285,900 |              
|                                            |  |                    |         |              

Our volumes held for immediate sale or exchange are subject to price risk management. During the three months ended September 30, 2003, we increased our
volumes held for immediate sale or exchange by approximately 2.1 million barrels principally to take advantage of favorable market conditions for distillate products.

Our
volumes held for base operations, representing in-transit volumes on common carrier pipelines, generally are not subject to price risk management. Based on the level of our current
operations, we have established our base operating inventory, exclusive of minimum volumes, at approximately 2.9 million barrels. Changes in our operation, such as the acquisition of additional
terminals, may result in changes in the volume of our base operating inventory. The activity in our volumes held for base operations, exclusive of minimum volumes, is summarized as follows (in
thousands):

|                                   |  | Amount |        | Barrels
|---------------------------------- |  | ------ | ------ | -------
|
|As of June 30, 2003                |  | $      | 96,426 |        
|Lower of cost or market write-down |  |        | (1,848 | )      
|                                   |  |        |        |        
|As of September 30, 2003           |  | $      | 94,578 |        
|                                   |  |        |        |        

Our inventoriesminimum volumes, which are limited to tank bottoms and line fill in proprietary pipelines, are not held for sale or exchange in the
ordinary course of business and, therefore, we do not manage the commodity price risks associated with this inventory. Our inventoriesminimum

45

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volumes are presented in the accompanying consolidated balance sheet as non-current assets and are carried at the lower of cost or market. Inventoriesminimum volumes are as
follows (in thousands):

|                            |  | September 30,
2003 |        | June 30,
2003
|--------------------------- |  | ------------------ | ------ | -------------
|
|
|Gasolines                   |  | $                  | 12,994 |              
|Distillates                 |  |                    | 7,449  |              
|No. 6 oil                   |  |                    | 1,542  |              
|                            |  |                    |        |              
|Inventoriesminimum volumes |  | $                  | 21,985 |              
|                            |  |                    |        |              

At September 30, 2003 and June 30, 2003, the weighted average adjusted cost basis of our inventoriesminimum volumes was $0.60 per
gallon. The activity in our inventoriesminimum volumes is summarized as follows (in thousands):

|                                   |  | Amount |        | Barrels
|---------------------------------- |  | ------ | ------ | -------
|
|As of June 30, 2003                |  | $      | 22,017 |        
|Lower of cost or market write-down |  |        | (32    | )      
|                                   |  |        |        |        
|As of September 30, 2003           |  | $      | 21,985 |        
|                                   |  |        |        |        

The following table indicates the maturities of our derivative contracts, including the credit quality of our counterparties to those contracts with unrealized
gains at September 30, 2003.

|                                       |                      | Fair value of contracts (in thousands) |        
|-------------------------------------- | -------------------- | -------------------------------------- | -------
|
|
|Unrealized gain positionasset         |                      |                                        |        
|                                       | Investment grade     |                                        | $      
|                                       | Non-investment grade |                                        |        
|                                       | No external rating   |                                        |        
|                                       |                      |                                        |        
|                                       |                      |                                        | 16,372 
|Unrealized loss positionliability     |                      |                                        | (15,944
|                                       |                      |                                        |        
|Net unrealized loss positionliability |                      | $                                      | 428    
|                                       |                      |                                        |        

At September 30, 2003, the unrealized gain on our derivative contracts with non-investment grade counterparties was approximately
$2.8 million. A single customer represented approximately $1.5 million of that unrealized gain. At September 30, 2003, we also had derivative contracts with that customer that
were in an unrealized loss position of approximately $3.0 million. Therefore, the net unrealized loss on all of our derivative contracts with that customer was approximately $1.5 million
at September 30, 2003.

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The
following table includes information about the changes in the fair value of our derivative contracts with that customer for the three months ended September 30, 2003 (in thousands):

|                                                                | 
|--------------------------------------------------------------- | 
|Fair value at June 30, 2003                                     | 
|Amounts realized or otherwise settled during the year           | 
|Change in fair value attributable to change in commodity prices | 
|                                                                | 
|Fair value at September 30, 2003                                | 
|                                                                | 

Capital expenditures for the three months ended September 30, 2003 were $6.3 million for terminal and pipeline facilities and assets to support
these facilities. Excluding acquisitions, capital expenditures for the remainder of the year ending June 30, 2004, are estimated to be less than $10.0 million. Future capital
expenditures will depend on numerous factors, including the availability, economics and cost of appropriate acquisitions which we identify and evaluate; the economics, cost and required regulatory
approvals with respect to the expansion and enhancement of existing systems and facilities; customer demand for the services we provide; local, state and federal governmental regulations;
environmental compliance requirements; and the availability of debt financing and equity capital on acceptable terms.

Our
Working Capital Credit Facility currently provides for a maximum borrowing line of credit that was the lesser of (i) $275 million and (ii) the borrowing base (as defined;
$423.0 million at September 30, 2003). The maximum borrowing amount is reduced by the amount of letters of credit that are outstanding. The borrowing base is a function of our cash,
accounts receivable, inventory, exchanges, margin deposits, open positions of energy services and risk management contracts, outstanding letters of credit, and outstanding indebtedness as defined in
the facility. At September 30, 2003, we had borrowings of $195 million outstanding and letters of credit of $15.3 million outstanding under the Working Capital Credit Facility. We
also had the ability to borrow an additional $64.7 million under the facility based on the borrowing base computation at September 30, 2003. All outstanding borrowings under the Working
Capital Credit Facility are due and payable on February 28, 2006.

On
May 30, 2003, we consummated the sale and issuance of $200 million aggregate principal amount of 91/8% Senior Subordinated Notes due 2010 ("Notes") and received
proceeds of $194.5 million (net of underwriters' discounts of $5.5 million). We used the net proceeds from the offering of the Notes to repay the Term Loan. The Notes mature on
June 1, 2010 and interest is payable semi-annually in arrears on each June 1 and December 1 commencing on December 1, 2003. The Notes are unsecured and
subordinated to all of our existing and future senior debt. Upon certain change of control events, each holder of the Notes may require us to repurchase all or a portion of its notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued interest.

We
believe that our current working capital position; future cash expected to be provided by operating activities; available borrowing capacity under our working capital credit facility and commodity
margin loan; and our relationship with institutional lenders and equity investors should enable us to meet our planned capital and liquidity requirements through at least the maturity date of our
Working Capital Credit Facility (February 2006).

Net
cash provided (used) by operating activities was $(16.9) million for the three months ended September 30, 2003, as compared to $28.7 million for the three months ended
September 30, 2002.

47

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Net cash provided (used) by investing activities was $(7.4) million for the three months ended September 30, 2003, as compared to $(2.7) million for the year ended
September 30, 2002.

Net
cash provided (used) by financing activities was $14.3 million for the three months ended September 30, 2003, as compared to $(41.3) million for the three months ended
September 30, 2002.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in Item 3 updates, and should be read in conjunction with, information set forth in Part II, Item 7A in our Annual Report on
Form 10-K for the year ended June 30, 2003, in addition to the interim consolidated financial statements, accompanying notes and management's discussion and analysis of
financial condition and results of operations presented in Items 1 and 2 of this Quarterly Report on Form 10-Q. There are no material changes in market risks faced by us from those
reported in our Annual Report on Form 10-K for the year ended June 30, 2003.

Relative
month-end commodity prices per gallon from June 30, 2001 to September 30, 2003 (NYMEX close on the last day of the month) are as follows:

|         |  | Crude oil |      | Heating oil |   | Gasoline
|-------- |  | --------- | ---- | ----------- | - | --------
|
|6/30/01  |  | $         | .625 |             | $ | .709    
|7/31/01  |  | $         | .627 |             | $ | .697    
|8/31/01  |  | $         | .648 |             | $ | .766    
|9/30/01  |  | $         | .558 |             | $ | .664    
|10/31/01 |  | $         | .504 |             | $ | .598    
|11/30/01 |  | $         | .463 |             | $ | .532    
|12/31/01 |  | $         | .472 |             | $ | .551    
|1/31/02  |  | $         | .464 |             | $ | .523    
|2/28/02  |  | $         | .518 |             | $ | .563    
|3/31/02  |  | $         | .626 |             | $ | .669    
|4/30/02  |  | $         | .650 |             | $ | .689    
|5/31/02  |  | $         | .603 |             | $ | .630    
|6/30/02  |  | $         | .640 |             | $ | .680    
|7/31/02  |  | $         | .643 |             | $ | .676    
|8/31/02  |  | $         | .690 |             | $ | .748    
|9/30/02  |  | $         | .725 |             | $ | .802    
|10/31/02 |  | $         | .648 |             | $ | .744    
|11/30/02 |  | $         | .640 |             | $ | .757    
|12/31/02 |  | $         | .743 |             | $ | .866    
|1/31/03  |  | $         | .798 |             | $ | .959    
|2/28/03  |  | $         | .871 |             | $ | 1.256   
|3/31/03  |  | $         | .739 |             | $ | .792    
|4/30/03  |  | $         | .614 |             | $ | .761    
|5/31/03  |  | $         | .704 |             | $ | .754    
|6/30/03  |  | $         | .719 |             | $ | .781    
|7/31/03  |  | $         | .727 |             | $ | .793    
|8/31/03  |  | $         | .752 |             | $ | .819    
|9/30/03  |  | $         | .695 |             | $ | .778    

Our risk management policy currently allows our management team the discretion to manage the commodity price risk relating to up to 500,000 barrels of our base
operating inventory volumes, which
would reduce the total unmanaged inventory (base operating volumes and minimum volumes) to approximately 3.3 million barrels, or to leave unmanaged up to 500,000 barrels of our discretionary

48

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inventory held for immediate sale or exchange, which would increase our total unmanaged inventory to approximately 4.3 million barrels. We decide whether to manage the commodity price risk
relating to a portion of our base operating inventory or to leave a portion of our discretionary inventory unmanaged depending on our expectations of future market changes. To the extent that we do
not manage the commodity price risk relating to a portion of our inventory and commodity prices move adversely, we could suffer losses on that inventory. If, however, prices move favorably, we would
realize a gain on the sale of the inventory that we would not realize if substantially all of our inventory was managed. At September 30, 2003, we were subject to commodity price risk on
approximately 157,000 barrels of discretionary inventories held for immediate sale or exchange because those barrels were not offset with risk management contracts or future contractual delivery
obligations.

When
we purchase refined petroleum products, we generally enter into NYMEX futures contracts to protect against price fluctuations for the underlying commodity. Futures contracts are obligations to
purchase or sell a specific volume of inventory at a fixed price at a future date. The NYMEX requires an initial margin deposit to open a futures contract. At September 30, 2003 and
June 30, 2003, we had approximately $7.2 million and $5.2 million, respectively, on deposit to cover our initial margin requirements on open NYMEX futures contracts. NYMEX futures
contracts also require daily settlements for changes in commodity prices. Unfavorable commodity price changes subject us to variation margin calls that require us to make cash payments to the NYMEX in
amounts that may be material. At September 30, 2003, a $0.05 per gallon unfavorable change in commodity prices would have required us to make a cash payment of approximately $2.1 million
to cover the variation margin. Conversely, a $0.05 per gallon favorable change in commodity prices would have permitted us to receive approximately $2.1 million. We use our credit lines to fund
these margin calls, but such funding requirements could exceed our ability to access capital. We have the contractual right to request that the counterparties to our supply management services
contracts post additional letters of credit or make additional cash deposits with us to assist us in meeting our obligations to cover our margin requirements.

At
September 30, 2003 and June 30, 2003, a $0.05 per gallon unfavorable change in commodity prices relative to our open positions in derivative sales and purchase contracts and risk
management contracts would have resulted in the recognition of a loss (realized and unrealized) of approximately $11.2 million and $6.0 million, respectively. However, the fair value of
our discretionary inventory held for immediate sale or exchange would have increased by approximately $11.5 million and $6.1 million at September 30, 2003 and June 30,
2003, respectively. The gain from the increase in the fair value of our discretionary inventory volumes held for immediate sale or exchange may not be recognized for financial reporting purposes until
those volumes have been sold to customers, which may be in an accounting period subsequent to the accounting period in which the losses on derivative contracts and risk management contracts are
recognized.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission's rules
and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officers (whom we refer to as our Certifying Officers), as
appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our

49

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Certifying Officers, the effectiveness of our disclosure controls and procedures as of September 30, 2003, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation,
our Certifying Officers concluded that, as of September 30, 2003, our disclosure controls and procedures were effective.

There
were no changes in our internal control over financial reporting that occurred subsequent to September 30, 2003 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

50

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---

Part II. Other information

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|    
|----
|10.1
|10.2
|31.1
|31.2
|32.1
|32.2

A
Current Report on Form 8-K filed on October 7, 2003 contained disclosures under Item 7, Financial Statements, Pro Forma Financial Information and Exhibits, Item 9,
Regulation FD Disclosure, and Item 12, Results of Operations and Financial Condition, reporting the Company's September 29, 2003 earnings press release for its fourth fiscal quarter and
year ended June 30, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.

|Dated November 14, 2003 |  | TRANSMONTAIGNE INC.(Registrant)
|----------------------- |  | -------------------------------
|                        |  | By:                            
|                        |  |                                

52

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EXHIBIT INDEX

|Exhibit
Number |  | Description of Exhibits                                                                                                                           
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|10.1           |  | Letter Agreement dated as of October 9, 2003 between LB I Group Inc. and TransMontaigne Inc.                                                      
|10.2           |  | Letter Agreement dated as of October 8, 2003 between First Reserve Corporation and TransMontaigne Inc.                                            
|31.1           |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|31.2           |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|32.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---