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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 NOVEMBER 30, 2006



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



|     |  |                                                                            
|---- |  | ---------------------------------------------------------------------------
|LOGO |  | Commission File No. 333-35083  ___________________  UNITED REFINING COMPANY
|     |  | (Exact Name of Registrant as Specified in its Charter)                     



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Pennsylvania                                                   |  | 25-1411751                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|15 Bradley Street                                              |  |                                     
|Warren, Pennsylvania                                           |  | 16365                               
|(Address of Principal Executive Office)                        |  | (Zip Code)                          



814-723-1500

Registrants 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 reports), 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 a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



|                         |  |                    |  |                         
|------------------------ |  | ------------------ |  | ------------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer  x



Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ̈No  x



Number of shares outstanding of Registrants Common Stock as of January 16, 2007: 100.



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TABLE OF ADDITIONAL REGISTRANTS



|                                                   |  |                                            |  |                                  |  |                      
|-------------------------------------------------- |  | ------------------------------------------ |  | -------------------------------- |  | ---------------------
|Name                                               |  | State of OtherJurisdiction ofIncorporation |  | IRS EmployerIdentificationNumber |  | CommissionFile Number
|Kiantone Pipeline Corporation                      |  | New York                                   |  | 25-1211902                       |  | 333-35083-01         
|Kiantone Pipeline Company                          |  | Pennsylvania                               |  | 25-1416278                       |  | 333-35083-03         
|United Refining Company of Pennsylvania            |  | Pennsylvania                               |  | 25-0850960                       |  | 333-35083-02         
|United Jet Center, Inc.                            |  | Delaware                                   |  | 52-1623169                       |  | 333-35083-06         
|Kwik-Fill Corporation                              |  | Pennsylvania                               |  | 25-1525543                       |  | 333-35083-05         
|Independent Gas and Oil Company of Rochester, Inc. |  | New York                                   |  | 06-1217388                       |  | 333-35083-11         
|Bell Oil Corp.                                     |  | Michigan                                   |  | 38-1884781                       |  | 333-35083-07         
|PPC, Inc.                                          |  | Ohio                                       |  | 31-0821706                       |  | 333-35083-08         
|Super Test Petroleum, Inc.                         |  | Michigan                                   |  | 38-1901439                       |  | 333-35083-09         
|Kwik-Fil, Inc.                                     |  | New York                                   |  | 25-1525615                       |  | 333-35083-04         
|Vulcan Asphalt Refining Corporation                |  | Delaware                                   |  | 23-2486891                       |  | 333-35083-10         
|Country Fair, Inc.                                 |  | Pennsylvania                               |  | 25-1149799                       |  | 333-35083-12         





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FORM 10-Q  CONTENTS



|            |  |                                                                                                   |  |        
|----------- |  | ------------------------------------------------------------------------------------------------- |  | -------
|            |  |                                                                                                   |  | PAGE(S)
|            |  |                                                                                                  
|PART I.     |  | FINANCIAL INFORMATION                                                                             |  |        
|            |  |                                                                                                  
|Item 1.     |  | Financial Statements                                                                              |  |        
|            |  |                                                                                                  
|            |  | Consolidated Balance Sheets  November 30, 2006 (unaudited) and August 31, 2006                   |  | 4      
|            |  |                                                                                                  
|            |  | Consolidated Statements of Operations  Three Months Ended November 30, 2006 and 2005 (unaudited) |  | 5      
|            |  |                                                                                                  
|            |  | Consolidated Statements of Cash Flows  Three Months Ended November 30, 2006 and 2005 (unaudited) |  | 6      
|            |  |                                                                                                  
|            |  | Notes to Consolidated Financial Statements (unaudited)                                            |  | 7      
|            |  |                                                                                                  
|Item 2.     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations             |  | 14     
|            |  |                                                                                                  
|Item 3.     |  | Quantitative and Qualitative Disclosures about Market Risk                                        |  | 21     
|            |  |                                                                                                  
|Item 4.     |  | Controls and Procedures                                                                           |  | 21     
|            |  |                                                                                                  
|PART II.    |  | OTHER INFORMATION                                                                                 |  | 22     
|            |  |                                                                                                  
|Item 1.     |  | Legal Proceedings                                                                                 |  | 22     
|            |  |                                                                                                  
|Item 1A.    |  | Risk Factors                                                                                      |  | 22     
|            |  |                                                                                                  
|Item 2.     |  | Unregistered Sales of Equity Securities and Use of Proceeds                                       |  | 22     
|            |  |                                                                                                  
|Item 3.     |  | Defaults Upon Senior Securities                                                                   |  | 22     
|            |  |                                                                                                  
|Item 4.     |  | Submission of Matters to a Vote of Security Holders                                               |  | 22     
|            |  |                                                                                                  
|Item 5.     |  | Other Information                                                                                 |  | 22     
|            |  |                                                                                                  
|Item 6.     |  | Exhibits.                                                                                         |  | 22     
|            |  |                                                                                                  
|Signatures. |  |                                                                                                   |  | 23     





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PART I.    FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS.
|------- | ---------------------



UNITED REFINING COMPANY AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)



|                                                                                           |  |                             |         |   |                |   |         |  
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------- | - | -------------- | - | ------- | -
|                                                                                           |  | November 30,2006(Unaudited) |         |   | August 31,2006 |  
|Assets                                                                                     |  |                             |         |   |                |   |         |  
|Current:                                                                                   |  |                             |         |   |                |   |         |  
|Cash and cash equivalents                                                                  |  | $                           | 60,024  |   |                | $ | 59,197  |  
|Accounts receivable, net                                                                   |  |                             | 73,293  |   |                |   | 85,036  |  
|Inventories                                                                                |  |                             | 89,976  |   |                |   | 130,633 |  
|Prepaid expenses and other assets                                                          |  |                             | 31,824  |   |                |   | 21,809  |  
|Amounts due from affiliated companies, net                                                 |  |                             |        |   |                |   | 883     |  
|                                                                                           |  |                             |         |   |                |   |         |  
|Total current assets                                                                       |  |                             | 255,117 |   |                |   | 297,558 |  
|Property, plant and equipment, net                                                         |  |                             | 193,155 |   |                |   | 190,080 |  
|Investment in affiliated company                                                           |  |                             | 3,394   |   |                |   | 2,899   |  
|Deferred financing costs, net                                                              |  |                             | 5,343   |   |                |   | 5,643   |  
|Goodwill                                                                                   |  |                             | 1,349   |   |                |   | 1,349   |  
|Tradename                                                                                  |  |                             | 10,500  |   |                |   | 10,500  |  
|Amortizable intangible assets, net                                                         |  |                             | 2,526   |   |                |   | 2,665   |  
|Deferred turnaround costs and other assets, net                                            |  |                             | 5,505   |   |                |   | 6,077   |  
|                                                                                           |  |                             |         |   |                |   |         |  
|                                                                                           |  | $                           | 476,889 |   |                | $ | 516,771 |  
|                                                                                           |  |                             |         |   |                |   |         |  
|Liabilities and Stockholders Equity                                                       |  |                             |         |   |                |   |         |  
|Current:                                                                                   |  |                             |         |   |                |   |         |  
|Current installments of long-term debt                                                     |  | $                           | 499     |   |                | $ | 435     |  
|Accounts payable                                                                           |  |                             | 53,644  |   |                |   | 84,269  |  
|Accrued liabilities                                                                        |  |                             | 19,715  |   |                |   | 19,892  |  
|Income tax payable                                                                         |  |                             | 12,001  |   |                |   | 21,432  |  
|Sales, use and fuel taxes payable                                                          |  |                             | 18,086  |   |                |   | 20,144  |  
|Deferred income taxes                                                                      |  |                             | 4,663   |   |                |   | 4,663   |  
|Amounts due to affiliated companies, net                                                   |  |                             | 2,902   |   |                |   |        |  
|                                                                                           |  |                             |         |   |                |   |         |  
|Total current liabilities                                                                  |  |                             | 111,510 |   |                |   | 150,835 |  
|Long term debt: less current installments                                                  |  |                             | 227,828 |   |                |   | 227,579 |  
|Deferred income taxes                                                                      |  |                             | 8,909   |   |                |   | 8,624   |  
|Deferred gain on settlement of pension plan obligations                                    |  |                             | 431     |   |                |   | 485     |  
|Deferred retirement benefits                                                               |  |                             | 39,082  |   |                |   | 36,794  |  
|Other noncurrent liabilities                                                               |  |                             | 466     |   |                |   | 601     |  
|                                                                                           |  |                             |         |   |                |   |         |  
|Total liabilities                                                                          |  |                             | 388,226 |   |                |   | 424,918 |  
|                                                                                           |  |                             |         |   |                |   |         |  
|Commitments and contingencies                                                              |  |                             |         |   |                |   |         |  
|Stockholders equity:                                                                      |  |                             |         |   |                |   |         |  
|Common stock; $.10 par value per share  shares authorized 100; issued and outstanding 100 |  |                             |        |   |                |   |        |  
|Additional paid-in capital                                                                 |  |                             | 14,244  |   |                |   | 14,244  |  
|Retained earnings                                                                          |  |                             | 75,998  |   |                |   | 79,188  |  
|Accumulated other comprehensive loss                                                       |  |                             | (1,579  | ) |                |   | (1,579  | )
|                                                                                           |  |                             |         |   |                |   |         |  
|Total stockholders equity                                                                 |  |                             | 88,663  |   |                |   | 91,853  |  
|                                                                                           |  |                             |         |   |                |   |         |  
|                                                                                           |  | $                           | 476,889 |   |                | $ | 516,771 |  
|                                                                                           |  |                             |         |   |                |   |         |  



See accompanying notes
to consolidated financial statements.





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UNITED REFINING COMPANY AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)

(in thousands)



|                                                  |  |                                |         |   |      |   |         |  
|------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                  |  | Three Months EndedNovember 30, |        
|                                                  |  | 2006                           |         |   | 2005 |  
|Net sales                                         |  | $                              | 584,596 |   |      | $ | 573,992 |  
|Costs of goods sold                               |  |                                | 546,627 |   |      |   | 521,972 |  
|                                                  |  |                                |         |   |      |   |         |  
|Gross profit                                      |  |                                | 37,969  |   |      |   | 52,020  |  
|                                                  |  |                                |         |   |      |   |         |  
|Expenses:                                         |  |                                |         |   |      |   |         |  
|Selling, general and administrative expenses      |  |                                | 34,399  |   |      |   | 31,379  |  
|Depreciation and amortization expenses            |  |                                | 3,497   |   |      |   | 3,289   |  
|                                                  |  |                                |         |   |      |   |         |  
|Total operating expenses                          |  |                                | 37,896  |   |      |   | 34,668  |  
|                                                  |  |                                |         |   |      |   |         |  
|Operating income                                  |  |                                | 73      |   |      |   | 17,352  |  
|                                                  |  |                                |         |   |      |   |         |  
|Other income (expense):                           |  |                                |         |   |      |   |         |  
|Interest expense, net                             |  |                                | (5,155  | ) |      |   | (6,023  | )
|Other, net                                        |  |                                | (820    | ) |      |   | 613     |  
|Equity in net earnings of affiliate               |  |                                | 495     |   |      |   | 602     |  
|                                                  |  |                                |         |   |      |   |         |  
|                                                  |  |                                | (5,480  | ) |      |   | (4,808  | )
|                                                  |  |                                |         |   |      |   |         |  
|Income (loss) before income tax expense (benefit) |  |                                | (5,407  | ) |      |   | 12,544  |  
|Income tax expense (benefit)                      |  |                                | (2,217  | ) |      |   | 5,106   |  
|                                                  |  |                                |         |   |      |   |         |  
|Net income (loss)                                 |  | $                              | (3,190  | ) |      | $ | 7,438   |  
|                                                  |  |                                |         |   |      |   |         |  



See accompanying notes
to consolidated financial statements.





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UNITED REFINING COMPANY AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)

(in thousands)



|                                                                                                   |  |                    |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                   |  | Three Months Ended |        
|                                                                                                   |  | November 30,2006   |         |   | November 30,2005 |  
|Cash flows from operating activities:                                                              |  |                    |         |   |                  |   |         |  
|Net income (loss)                                                                                  |  | $                  | (3,190  | ) |                  | $ | 7,438   |  
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                    |         |   |                  |   |         |  
|Depreciation and amortization                                                                      |  |                    | 4,420   |   |                  |   | 4,463   |  
|Equity in net earnings of affiliate                                                                |  |                    | (495    | ) |                  |   | (602    | )
|Deferred income taxes                                                                              |  |                    | 285     |   |                  |   | 1,501   |  
|Gain on asset dispositions                                                                         |  |                    | (7      | ) |                  |   | (945    | )
|Cash provided by (used in) working capital items                                                   |  |                    | 3,879   |   |                  |   | (29,045 | )
|Change in operating assets and liabilities:                                                        |  |                    |         |   |                  |   |         |  
|Deferred retirement benefits                                                                       |  |                    | 2,288   |   |                  |   | 1,552   |  
|Other assets                                                                                       |  |                    | 8       |   |                  |   | (5      | )
|Other noncurrent liabilities                                                                       |  |                    | (135    | ) |                  |   | (251    | )
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Total adjustments                                                                                  |  |                    | 10,243  |   |                  |   | (23,332 | )
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Net cash provided by (used in) operating activities                                                |  |                    | 7,053   |   |                  |   | (15,894 | )
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Cash flows from investing activities:                                                              |  |                    |         |   |                  |   |         |  
|Additions to property, plant and equipment                                                         |  |                    | (6,433  | ) |                  |   | (5,912  | )
|Additions to deferred turnaround costs                                                             |  |                    | (55     | ) |                  |   | (44     | )
|Proceeds from asset dispositions                                                                   |  |                    | 7       |   |                  |   | 1,178   |  
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Net cash used in investing activities                                                              |  |                    | (6,481  | ) |                  |   | (4,778  | )
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Cash flows from financing activities:                                                              |  |                    |         |   |                  |   |         |  
|Proceeds from issuance of long term debt                                                           |  |                    | 461     |   |                  |   |        |  
|Dividend to stockholder                                                                            |  |                    |        |   |                  |   | (2,840  | )
|Principal reductions of long term debt                                                             |  |                    | (206    | ) |                  |   | (148    | )
|Deferred financing costs                                                                           |  |                    |        |   |                  |   | (72     | )
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Net cash provided by (used in) financing activities                                                |  |                    | 255     |   |                  |   | (3,060  | )
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                               |  |                    | 827     |   |                  |   | (23,732 | )
|Cash and cash equivalents, beginning of year                                                       |  |                    | 59,197  |   |                  |   | 43,204  |  
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Cash and cash equivalents, end of period                                                           |  | $                  | 60,024  |   |                  | $ | 19,472  |  
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Cash used in working capital items:                                                                |  |                    |         |   |                  |   |         |  
|Accounts receivable, net                                                                           |  | $                  | 11,743  |   |                  | $ | 19,751  |  
|Inventories                                                                                        |  |                    | 40,657  |   |                  |   | (46,742 | )
|Prepaid expenses and other assets                                                                  |  |                    | (10,015 | ) |                  |   | (15,751 | )
|Accounts payable                                                                                   |  |                    | (30,625 | ) |                  |   | 9,250   |  
|Accrued liabilities                                                                                |  |                    | (177    | ) |                  |   | 4,709   |  
|Income taxes payable                                                                               |  |                    | (9,431  | ) |                  |   | 2,708   |  
|Sales, use and fuel taxes payable                                                                  |  |                    | (2,058  | ) |                  |   | (3,453  | )
|Amounts due to affiliated companies, net                                                           |  |                    | 3,785   |   |                  |   | 483     |  
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Total change                                                                                       |  | $                  | 3,879   |   |                  | $ | (29,045 | )
|                                                                                                   |  |                    |         |   |                  |   |         |  
|Cash paid during the period for:                                                                   |  |                    |         |   |                  |   |         |  
|Interest                                                                                           |  | $                  | 105     |   |                  | $ | 189     |  
|Income taxes                                                                                       |  | $                  | 6,930   |   |                  | $ | 588     |  
|                                                                                                   |  |                    |         |   |                  |   |         |  



See accompanying notes
to consolidated financial statements.





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UNITED REFINING COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | Description of Business and Basis of Presentation
|-- | -------------------------------------------------



The consolidated financial statements include the accounts of United Refining Company and its subsidiaries, United Refining Company of Pennsylvania and
its subsidiaries, and Kiantone Pipeline Corporation (collectively, the Company). All significant intercompany balances and transactions have been eliminated in consolidation.



The Company is a petroleum refiner and marketer in its primary market area of Western New York and Northwestern
Pennsylvania. Operations are organized into two business segments: wholesale and retail.



The wholesale segment is responsible for the acquisition of crude oil, petroleum refining, supplying petroleum products to the retail segment and the marketing of petroleum products to wholesale and industrial
customers. The retail segment sells petroleum products under the Kwik Fill®, Citgo® and
Keystone® brand names through a network of
Company-operated retail units and convenience and grocery items through gasoline stations and convenience stores under the Red Apple Food Mart® and Country Fair® brand names.



The Company is a wholly-owned subsidiary of United Refining, Inc., a wholly-owned subsidiary of United Acquisition Corp., which in turn is a wholly-owned
subsidiary of Red Apple Group, Inc. (the Parent).



The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2006 are not necessarily indicative of the
results that may be expected for the year ending August 31, 2007. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Form 10-K for the fiscal year ended August 31,
2006.



|2. | Recent Accounting Pronouncements
|-- | --------------------------------



In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement
No. 109 (FIN No. 48). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with Statement No. 109, Accounting for Income
Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement classification, accounting for interest and penalties and accounting in interim periods and disclosure.



The provisions of FIN No. 48 are effective for fiscal
years beginning after December 15, 2006. The Company does not expect that the adoption of Interpretation 48 will have a material effect on its financial position or results of operations.



In September 2006, the FASB issued Staff Position No. AUG AIR-1,
Accounting for Planned Major Maintenance Activities (Position No. AUG AIR-1). Position No. AUG AIR-1 prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities.



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UNITED REFINING COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The provisions of Position No. AUG AIR-1 are effective for fiscal years beginning after
December 15, 2006. The Company does not expect that the adoption of Position No. AUG AIR-1 will have a material effect on its financial position or results of operations.



In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans (Statement 158), an amendment of Statements 87, 88, 106, and 132 (R). Statement 158 represents the completion of the FASBs first phase in its postretirement benefit accounting project. Statement 158
requires an entity to recognize in its statement of financial position an asset for a defined benefit postretirement plans overfunded status or a liability for a plans underfunded status, measure a defined benefit postretirement
plans assets and obligations that determine its funded status as of the end of the employers fiscal year, and recognize changes in the funded status of a defined benefit postretirement plan in comprehensive income in the year in which
the changes occur. Under Statement 158, the Company will be required to recognize the funded status of its defined benefit postretirement plans and to provide the required disclosures. Statement 158 is effective for fiscal years ending after
June 15, 2007. Because the actuarial valuation of the retirement plan obligations at year end has not been completed, and because the fair value of retirement plan assets is subject to change based on market fluctuations through August 31,
2007, the Company is not yet able to estimate the impact of Statement 158 on its balance sheet.



In September 2005, the EITF reached a consensus on EITF Issue No. 04-13, Accounting for Purchases and Sales of Inventory with the Same
Counterparty. EITF Issue No. 04-13 requires that two or more exchange transactions involving inventory with the same counterparty entered into in contemplation of one another should be reported net in the statement of operations. The adoption
of EITF Issue No. 04-13 had no impact on our financial position or results of operations.



|3. | Inventories
|-- | -----------



As of November 30, 2006 and August 31, 2006, the replacement cost of LIFO inventories exceeded their LIFO carrying values by approximately
$32,361,000 and $73,119,000, respectively. The November 30, 2006 LIFO calculation was computed using quantities and prices which are not necessarily indicative of the actual quantities and prices which will exist at fiscal year-end. Due to
anticipated fluctuations in inventory levels and the many factors which enter into the LIFO calculation which are beyond managements control, it is the policy of the Company to record the LIFO inventory adjustment only at fiscal year-end.



|4. | Subsidiary Guarantors
|-- | ---------------------



Certain of United Refining Companys (the issuer) subsidiaries function as guarantors under the terms of the $225,000,000 Senior
Unsecured Note Indenture due August 15, 2012. Financial information for the issuer and its wholly owned subsidiary guarantors is as follows:



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UNITED REFINING COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)



|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | --------------- | - | ------- | ------------ |  | - | ------------ | - |  | ------ | ------- | - | ---------- | - | ------- | ------------ |  | - | ------------ | - |  | - | -------- | - |  | - | ------- | -
|                                                                                         |  | November 30, 2006 |         |   | August 31, 2006 |  
|                                                                                         |  | Issuer            |         |   | Guarantors      |   |         | Eliminations |  |   | Consolidated |   |  | Issuer |         |   | Guarantors |   |         | Eliminations |  |   | Consolidated |  
|Assets                                                                                   |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Current:                                                                                 |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Cash and cash equivalents                                                                |  | $                 | 52,321  |   |                 | $ | 7,703   |              |  | $ |             |   |  | $      | 60,024  |   |            | $ | 52,375  |              |  | $ | 6,822        |   |  | $ |         |   |  | $ | 59,197  |  
|Accounts receivable, net                                                                 |  |                   | 50,792  |   |                 |   | 22,501  |              |  |   |             |   |  |        | 73,293  |   |            |   | 55,230  |              |  |   | 29,806       |   |  |   |         |   |  |   | 85,036  |  
|Inventories                                                                              |  |                   | 66,122  |   |                 |   | 23,854  |              |  |   |             |   |  |        | 89,976  |   |            |   | 103,996 |              |  |   | 26,637       |   |  |   |         |   |  |   | 130,633 |  
|Prepaid expenses and other assets                                                        |  |                   | 26,721  |   |                 |   | 5,103   |              |  |   |             |   |  |        | 31,824  |   |            |   | 17,418  |              |  |   | 4,391        |   |  |   |         |   |  |   | 21,809  |  
|Amounts due from affiliated companies, net                                               |  |                   |        |   |                 |   |        |              |  |   |             |   |  |        |        |   |            |   | 1,744   |              |  |   | (861         | ) |  |   |         |   |  |   | 883     |  
|Intercompany                                                                             |  |                   | 116,243 |   |                 |   | 20,046  |              |  |   | (136,289     | ) |  |        |        |   |            |   | 119,481 |              |  |   | 20,655       |   |  |   | (140,136 | ) |  |   |        |  
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Total current assets                                                                     |  |                   | 312,199 |   |                 |   | 79,207  |              |  |   | (136,289     | ) |  |        | 255,117 |   |            |   | 350,244 |              |  |   | 87,450       |   |  |   | (140,136 | ) |  |   | 297,558 |  
|Property, plant and equipment, net                                                       |  |                   | 122,126 |   |                 |   | 71,029  |              |  |   |             |   |  |        | 193,155 |   |            |   | 119,728 |              |  |   | 70,352       |   |  |   |         |   |  |   | 190,080 |  
|Investment in affiliated company                                                         |  |                   | 3,394   |   |                 |   |        |              |  |   |             |   |  |        | 3,394   |   |            |   | 2,899   |              |  |   |             |   |  |   |         |   |  |   | 2,899   |  
|Deferred financing costs, net                                                            |  |                   | 5,343   |   |                 |   |        |              |  |   |             |   |  |        | 5,343   |   |            |   | 5,643   |              |  |   |             |   |  |   |         |   |  |   | 5,643   |  
|Goodwill and other non-amortizable assets                                                |  |                   |        |   |                 |   | 11,849  |              |  |   |             |   |  |        | 11,849  |   |            |   |        |              |  |   | 11,849       |   |  |   |         |   |  |   | 11,849  |  
|Amortizable intangible assets, net                                                       |  |                   |        |   |                 |   | 2,526   |              |  |   |             |   |  |        | 2,526   |   |            |   |        |              |  |   | 2,665        |   |  |   |         |   |  |   | 2,665   |  
|Deferred turnaround costs & other assets                                                 |  |                   | 5,176   |   |                 |   | 1,500   |              |  |   | (1,171       | ) |  |        | 5,505   |   |            |   | 5,735   |              |  |   | 1,513        |   |  |   | (1,171   | ) |  |   | 6,077   |  
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|                                                                                         |  | $                 | 448,238 |   |                 | $ | 166,111 |              |  | $ | (137,460     | ) |  | $      | 476,889 |   |            | $ | 484,249 |              |  | $ | 173,829      |   |  | $ | (141,307 | ) |  | $ | 516,771 |  
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Liabilities and Stockholders Equity                                                     |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Current:                                                                                 |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Current installments of long-term debt                                                   |  | $                 | (110    | ) |                 | $ | 609     |              |  | $ |             |   |  | $      | 499     |   |            | $ | (84     | )            |  | $ | 519          |   |  | $ |         |   |  | $ | 435     |  
|Accounts payable                                                                         |  |                   | 38,623  |   |                 |   | 15,021  |              |  |   |             |   |  |        | 53,644  |   |            |   | 65,801  |              |  |   | 18,468       |   |  |   |         |   |  |   | 84,269  |  
|Accrued liabilities                                                                      |  |                   | 13,316  |   |                 |   | 6,399   |              |  |   |             |   |  |        | 19,715  |   |            |   | 14,022  |              |  |   | 5,870        |   |  |   |         |   |  |   | 19,892  |  
|Income taxes payable                                                                     |  |                   | 12,695  |   |                 |   | (694    | )            |  |   |             |   |  |        | 12,001  |   |            |   | 23,223  |              |  |   | (1,791       | ) |  |   |         |   |  |   | 21,432  |  
|Sales, use and fuel taxes payable                                                        |  |                   | 15,098  |   |                 |   | 2,988   |              |  |   |             |   |  |        | 18,086  |   |            |   | 16,833  |              |  |   | 3,311        |   |  |   |         |   |  |   | 20,144  |  
|Deferred income taxes                                                                    |  |                   | 5,644   |   |                 |   | (981    | )            |  |   |             |   |  |        | 4,663   |   |            |   | 5,644   |              |  |   | (981         | ) |  |   |         |   |  |   | 4,663   |  
|Amounts due to affiliated companies, net                                                 |  |                   | 3,173   |   |                 |   | (271    | )            |  |   |             |   |  |        | 2,902   |   |            |   |        |              |  |   |             |   |  |   |         |   |  |   |        |  
|Intercompany                                                                             |  |                   |        |   |                 |   | 136,289 |              |  |   | (136,289     | ) |  |        |        |   |            |   |        |              |  |   | 140,136      |   |  |   | (140,136 | ) |  |   |        |  
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Total current liabilities                                                                |  |                   | 88,439  |   |                 |   | 159,360 |              |  |   | (136,289     | ) |  |        | 111,510 |   |            |   | 125,439 |              |  |   | 165,532      |   |  |   | (140,136 | ) |  |   | 150,835 |  
|Long term debt: less current installments                                                |  |                   | 224,094 |   |                 |   | 3,734   |              |  |   |             |   |  |        | 227,828 |   |            |   | 224,065 |              |  |   | 3,514        |   |  |   |         |   |  |   | 227,579 |  
|Deferred income taxes                                                                    |  |                   | 3,971   |   |                 |   | 4,938   |              |  |   |             |   |  |        | 8,909   |   |            |   | 3,650   |              |  |   | 4,974        |   |  |   |         |   |  |   | 8,624   |  
|Deferred gain on settlement of pension plan obligations                                  |  |                   | 431     |   |                 |   |        |              |  |   |             |   |  |        | 431     |   |            |   | 485     |              |  |   |             |   |  |   |         |   |  |   | 485     |  
|Deferred retirement benefits                                                             |  |                   | 39,051  |   |                 |   | 31      |              |  |   |             |   |  |        | 39,082  |   |            |   | 36,826  |              |  |   | (32          | ) |  |   |         |   |  |   | 36,794  |  
|Other noncurrent liabilities                                                             |  |                   |        |   |                 |   | 466     |              |  |   |             |   |  |        | 466     |   |            |   |        |              |  |   | 601          |   |  |   |         |   |  |   | 601     |  
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Total liabilities                                                                        |  |                   | 355,986 |   |                 |   | 168,529 |              |  |   | (136,289     | ) |  |        | 388,226 |   |            |   | 390,465 |              |  |   | 174,589      |   |  |   | (140,136 | ) |  |   | 424,918 |  
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Commitment and contingencies                                                             |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Stockholders equity                                                                     |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Common stock, $.10 par value per shareshares authorized 100; issued and outstanding 100 |  |                   |        |   |                 |   | 18      |              |  |   | (18          | ) |  |        |        |   |            |   |        |              |  |   | 18           |   |  |   | (18      | ) |  |   |        |  
|Additional paid-in capital                                                               |  |                   | 4,746   |   |                 |   | 10,651  |              |  |   | (1,153       | ) |  |        | 14,244  |   |            |   | 4,746   |              |  |   | 10,651       |   |  |   | (1,153   | ) |  |   | 14,244  |  
|Retained earnings                                                                        |  |                   | 89,085  |   |                 |   | (13,087 | )            |  |   |             |   |  |        | 75,998  |   |            |   | 90,617  |              |  |   | (11,429      | ) |  |   |         |   |  |   | 79,188  |  
|Accumulated other comprehensive loss                                                     |  |                   | (1,579  | ) |                 |   |        |              |  |   |             |   |  |        | (1,579  | ) |            |   | (1,579  | )            |  |   |             |   |  |   |         |   |  |   | (1,579  | )
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Total stockholders equity                                                               |  |                   | 92,252  |   |                 |   | (2,418  | )            |  |   | (1,171       | ) |  |        | 88,663  |   |            |   | 93,784  |              |  |   | (760         | ) |  |   | (1,171   | ) |  |   | 91,853  |  
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|                                                                                         |  | $                 | 448,238 |   |                 | $ | 166,111 |              |  | $ | (137,460     | ) |  | $      | 476,889 |   |            | $ | 484,249 |              |  | $ | 173,829      |   |  | $ | (141,307 | ) |  | $ | 516,771 |  
|                                                                                         |  |                   |         |   |                 |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  



9



---

##### Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)



|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------------------------------ | - | ------- | ------------ |  | - | ------------ | - |  | ------ | ------- | - | ---------- | - | ------- | ------------ |  | - | ------------ | - |  | - | -------- | - |  | - | ------- | -
|                                                  |  | Three Months Ended November 30, 2006 |         |   | Three Months Ended November 30, 2005 |  
|                                                  |  | Issuer                               |         |   | Guarantors                           |   |         | Eliminations |  |   | Consolidated |   |  | Issuer |         |   | Guarantors |   |         | Eliminations |  |   | Consolidated |  
|Net sales                                         |  | $                                    | 426,860 |   |                                      | $ | 268,923 |              |  | $ | (111,187     | ) |  | $      | 584,596 |   |            | $ | 416,354 |              |  | $ | 273,107      |   |  | $ | (115,469 | ) |  | $ | 573,992 |  
|Costs of goods sold                               |  |                                      | 419,344 |   |                                      |   | 238,470 |              |  |   | (111,187     | ) |  |        | 546,627 |   |            |   | 396,590 |              |  |   | 240,851      |   |  |   | (115,469 | ) |  |   | 521,972 |  
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Gross profit                                      |  |                                      | 7,516   |   |                                      |   | 30,453  |              |  |   |             |   |  |        | 37,969  |   |            |   | 19,764  |              |  |   | 32,256       |   |  |   |         |   |  |   | 52,020  |  
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Expenses:                                         |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Selling, general and administrative expenses      |  |                                      | 5,677   |   |                                      |   | 28,722  |              |  |   |             |   |  |        | 34,399  |   |            |   | 6,029   |              |  |   | 25,350       |   |  |   |         |   |  |   | 31,379  |  
|Depreciation and amortization expenses            |  |                                      | 2,291   |   |                                      |   | 1,206   |              |  |   |             |   |  |        | 3,497   |   |            |   | 2,134   |              |  |   | 1,155        |   |  |   |         |   |  |   | 3,289   |  
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Total operating expenses                          |  |                                      | 7,968   |   |                                      |   | 29,928  |              |  |   |             |   |  |        | 37,896  |   |            |   | 8,163   |              |  |   | 26,505       |   |  |   |         |   |  |   | 34,668  |  
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Operating income (loss)                           |  |                                      | (452    | ) |                                      |   | 525     |              |  |   |             |   |  |        | 73      |   |            |   | 11,601  |              |  |   | 5,751        |   |  |   |         |   |  |   | 17,352  |  
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Other income (expense):                           |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Interest expense, net                             |  |                                      | (2,454  | ) |                                      |   | (2,701  | )            |  |   |             |   |  |        | (5,155  | ) |            |   | (3,928  | )            |  |   | (2,095       | ) |  |   |         |   |  |   | (6,023  | )
|Other, net                                        |  |                                      | (596    | ) |                                      |   | (224    | )            |  |   |             |   |  |        | (820    | ) |            |   | (511    | )            |  |   | 1,124        |   |  |   |         |   |  |   | 613     |  
|Equity in net earnings (loss) affiliate           |  |                                      | 495     |   |                                      |   |        |              |  |   |             |   |  |        | 495     |   |            |   | 602     |              |  |   |             |   |  |   |         |   |  |   | 602     |  
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|                                                  |  |                                      | (2,555  | ) |                                      |   | (2,925  | )            |  |   |             |   |  |        | (5,480  | ) |            |   | (3,837  | )            |  |   | (971         | ) |  |   |         |   |  |   | (4,808  | )
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Income (loss) before income tax expense (benefit) |  |                                      | (3,007  | ) |                                      |   | (2,400  | )            |  |   |             |   |  |        | (5,407  | ) |            |   | 7,764   |              |  |   | 4,780        |   |  |   |         |   |  |   | 12,544  |  
|Income tax expense (benefit)                      |  |                                      | (1,475  | ) |                                      |   | (742    | )            |  |   |             |   |  |        | (2,217  | ) |            |   | 3,073   |              |  |   | 2,033        |   |  |   |         |   |  |   | 5,106   |  
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  
|Net income (loss)                                 |  | $                                    | (1,532  | ) |                                      | $ | (1,658  | )            |  | $ |             |   |  | $      | (3,190  | ) |            | $ | 4,691   |              |  | $ | 2,747        |   |  | $ |         |   |  | $ | 7,438   |  
|                                                  |  |                                      |         |   |                                      |   |         |              |  |   |              |   |  |        |         |   |            |   |         |              |  |   |              |   |  |   |          |   |  |   |         |  



10



---

##### Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)



|                                                     |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|---------------------------------------------------- |  | ------------------------------------ | ------ | - | ------------------------------------ | - | ------ | ------------ |  | ------------ | - |  | ------ | ------ | - | ---------- | - | ------- | ------------ |  | ------------ | ------ | - |  | - | - |  | - | ------- | -
|                                                     |  | Three Months Ended November 30, 2006 |        |   | Three Months Ended November 30, 2005 |  
|                                                     |  | Issuer                               |        |   | Guarantors                           |   |        | Eliminations |  | Consolidated |   |  | Issuer |        |   | Guarantors |   |         | Eliminations |  | Consolidated |       
|Net cash provided by (used in) operating activities  |  | $                                    | 4,680  |   |                                      | $ | 2,373  |              |  | $            |  |  | $      | 7,053  |   |            | $ | (12,494 | )            |  | $            | (3,400 | ) |  | $ |  |  | $ | (15,894 | )
|                                                     |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|Cash flows from investing activities:                |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|Additions to property, plant and equipment           |  |                                      | (4,680 | ) |                                      |   | (1,753 | )            |  |              |  |  |        | (6,433 | ) |            |   | (4,555  | )            |  |              | (1,357 | ) |  |   |  |  |   | (5,912  | )
|Proceeds from asset dispositions                     |  |                                      |       |   |                                      |   | 7      |              |  |              |  |  |        | 7      |   |            |   |        |              |  |              | 1,178  |   |  |   |  |  |   | 1,178   |  
|Additions to deferred turnaround costs               |  |                                      | 1      |   |                                      |   | (56    | )            |  |              |  |  |        | (55    | ) |            |   | (41     | )            |  |              | (3     | ) |  |   |  |  |   | (44     | )
|                                                     |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|Net cash used in investing activities                |  |                                      | (4,679 | ) |                                      |   | (1,802 | )            |  |              |  |  |        | (6,481 | ) |            |   | (4,596  | )            |  |              | (182   | ) |  |   |  |  |   | (4,778  | )
|                                                     |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|Cash flows from financing activities:                |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|Proceeds from issuance of long-term debt             |  |                                      |       |   |                                      |   | 461    |              |  |              |  |  |        | 461    |   |            |   |        |              |  |              |       |   |  |   |  |  |   |        |  
|Dividend to stockholder                              |  |                                      |       |   |                                      |   |       |              |  |              |  |  |        |       |   |            |   | (2,840  | )            |  |              |       |   |  |   |  |  |   | (2,840  | )
|Principal reductions of long-term debt               |  |                                      | (55    | ) |                                      |   | (151   | )            |  |              |  |  |        | (206   | ) |            |   | (39     | )            |  |              | (109   | ) |  |   |  |  |   | (148    | )
|Deferred financing costs                             |  |                                      |       |   |                                      |   |       |              |  |              |  |  |        |       |   |            |   | (72     | )            |  |              |       |   |  |   |  |  |   | (72     | )
|                                                     |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|Net cash provided by (used in) financing activities  |  |                                      | (55    | ) |                                      |   | 310    |              |  |              |  |  |        | 255    |   |            |   | (2,951  | )            |  |              | (109   | ) |  |   |  |  |   | (3,060  | )
|                                                     |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents |  |                                      | (54    | ) |                                      |   | 881    |              |  |              |  |  |        | 827    |   |            |   | (20,041 | )            |  |              | (3,691 | ) |  |   |  |  |   | (23,732 | )
|Cash and cash equivalents, beginning of year         |  |                                      | 52,375 |   |                                      |   | 6,822  |              |  |              |  |  |        | 59,197 |   |            |   | 31,195  |              |  |              | 12,009 |   |  |   |  |  |   | 43,204  |  
|                                                     |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  
|Cash and cash equivalents, end of period             |  | $                                    | 52,321 |   |                                      | $ | 7,703  |              |  | $            |  |  | $      | 60,024 |   |            | $ | 11,154  |              |  | $            | 8,318  |   |  | $ |  |  | $ | 19,472  |  
|                                                     |  |                                      |        |   |                                      |   |        |              |  |              |   |  |        |        |   |            |   |         |              |  |              |        |   |  |   |   |  |   |         |  



11



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##### Table of Contents

UNITED REFINING COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|5. | Segments of Business
|-- | --------------------



Intersegment revenues are calculated using estimated market prices and are eliminated upon consolidation. Summarized financial information regarding the
Companys reportable segments is presented in the following tables (in thousands):



|                              |  |                                |         |   |      |   |        
|----------------------------- |  | ------------------------------ | ------- | - | ---- | - | -------
|                              |  | Three Months EndedNovember 30,
|                              |  | 2006                           |         |   | 2005
|Net Sales                     |  |                                |         |   |      |   |        
|Retail                        |  | $                              | 267,654 |   |      | $ | 271,841
|Wholesale                     |  |                                | 316,942 |   |      |   | 302,151
|                              |  |                                |         |   |      |   |        
|                              |  | $                              | 584,596 |   |      | $ | 573,992
|                              |  |                                |         |   |      |   |        
|Intersegment Sales            |  |                                |         |   |      |   |        
|Wholesale                     |  | $                              | 109,918 |   |      | $ | 114,203
|                              |  |                                |         |   |      |   |        
|Operating Income              |  |                                |         |   |      |   |        
|Retail                        |  | $                              | 1,521   |   |      | $ | 5,900  
|Wholesale                     |  |                                | (1,448  | ) |      |   | 11,452 
|                              |  |                                |         |   |      |   |        
|                              |  | $                              | 73      |   |      | $ | 17,352 
|                              |  |                                |         |   |      |   |        
|Depreciation and Amortization |  |                                |         |   |      |   |        
|Retail                        |  | $                              | 1,156   |   |      | $ | 1,105  
|Wholesale                     |  |                                | 2,341   |   |      |   | 2,184  
|                              |  |                                |         |   |      |   |        
|                              |  | $                              | 3,497   |   |      | $ | 3,289  
|                              |  |                                |         |   |      |   |        



|                                          |  |                  |         |                |   |        
|----------------------------------------- |  | ---------------- | ------- | -------------- | - | -------
|                                          |  | November 30,2006 |         | August 31,2006
|Total Assets                              |  |                  |         |                |   |        
|Retail                                    |  | $                | 137,366 |                | $ | 143,881
|Wholesale                                 |  |                  | 339,523 |                |   | 372,890
|                                          |  |                  |         |                |   |        
|                                          |  | $                | 476,889 |                | $ | 516,771
|                                          |  |                  |         |                |   |        
|Capital Expenditures (including non-cash) |  |                  |         |                |   |        
|Retail                                    |  | $                | 1,435   |                | $ | 5,161  
|Wholesale                                 |  |                  | 4,998   |                |   | 16,725 
|                                          |  |                  |         |                |   |        
|                                          |  | $                | 6,433   |                | $ | 21,886 
|                                          |  |                  |         |                |   |        



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UNITED REFINING COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|6. | Employee Benefit Plans
|-- | ----------------------



For the periods ended November 30, 2006 and November 30, 2005, net pension and other postretirement benefit costs were comprised of the
following:



|                                      |  |                                |        |   |                                |   |       |      |  |      |       |  |   |      
|------------------------------------- |  | ------------------------------ | ------ | - | ------------------------------ | - | ----- | ---- |  | ---- | ----- |  | - | -----
|                                      |  | Pension Benefits               |        |   | Other Post-Retirement Benefits
|                                      |  | Three Months EndedNovember 30, |        |   | Three Months EndedNovember 30,
|                                      |  | 2006                           |        |   | 2005                           |   |       | 2006 |  | 2005
|                                      |  | (in thousands)                
|Service cost                          |  | $                              | 657    |   |                                | $ | 736   |      |  | $    | 565   |  | $ | 592  
|Interest cost on benefit obligation   |  |                                | 1,053  |   |                                |   | 984   |      |  |      | 848   |  |   | 684  
|Expected return on plan assets        |  |                                | (1,066 | ) |                                |   | (907  | )    |  |      |      |  |   |     
|Amortization of transition obligation |  |                                | 35     |   |                                |   | 35    |      |  |      | 149   |  |   | 149  
|Amortization and deferral of net loss |  |                                | 186    |   |                                |   | 429   |      |  |      | 250   |  |   | 243  
|                                      |  |                                |        |   |                                |   |       |      |  |      |       |  |   |      
|Net periodic benefit cost             |  | $                              | 865    |   |                                | $ | 1,277 |      |  | $    | 1,812 |  | $ | 1,668
|                                      |  |                                |        |   |                                |   |       |      |  |      |       |  |   |      



As of
November 30, 2006, $6,160,000 of contributions have been made to the Company pension plans for the fiscal year ended August 31, 2007.



|7. | Derivative Financial Instruments
|-- | --------------------------------



At August 31, 2006, the Company had net open future positions of 1,400,000 barrels of crude oil, all of which were sold during the first quarter of
2007. The resulting gain on the sale of the future positions amounted to $4,114,000, which was recorded in cost of sales. The Company has no open future positions at November 30, 2006.



|8. | Debt
|-- | ----



In November 2006, we extended the term of our $100,000,000 Revolving Credit Facility from May 9, 2007 to November 27, 2011, and amended certain terms and provisions thereof, including a reduction in the
interest rate and a modification of certain covenants. Under the amended Revolving Credit Facility, interest is calculated as follows: (a) for base rate borrowings, at the greater of the Agent Banks prime rate less an applicable margin of
..5% to 0% or federal funds rate plus 1%; (b) for euro-rate borrowings, at the LIBOR rate plus an applicable margin of 1.25% to 1.75%. The applicable margin will vary depending on a formula calculating our average unused
availability under the facility. Under the Revolving Credit Facility in effect prior to the extension and amendment, interest was calculated as follows: (a) for base rate borrowings, at the greater of the Agent Banks
prime rate plus an applicable margin of .25% to .75% (8.50% at August 31, 2006) or federal funds rate plus 1%; (b) for euro-rate borrowings, at the LIBOR rate plus an applicable margin of 1.75% to 3.00%. The applicable
margin varied with our facility leverage ratio calculation.



The Revolving Credit Facility is secured primarily by certain cash accounts, accounts receivable and inventory. Until maturity, we may borrow on a borrowing base formula as set forth in the facility.



We had outstanding letters of credit of $433,000 as of November 30,
2006. As of November 30, 2006, outstanding borrowings under the Revolving Credit Facility were $0 resulting in net availability of $99,567,000.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------



Forward Looking Statements



This Quarterly Report on Form 10-Q contains certain statements that constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking statements may include, among other things, United Refining Company and its subsidiaries current expectations with respect to future operating results, future performance of its
refinery and retail operations, capital expenditures and other financial items. Words such as expects, intends, plans, projects, believes, estimates, may,
will, should, shall, anticipates, predicts, and similar expressions typically identify such forward looking statements in this Quarterly Report on Form 10-Q.



By their nature, all forward looking statements involve risk and
uncertainties. All phases of the Companys operations involve risks and uncertainties, many of which are outside of the Companys control, and any one of which, or a combination of which, could materially affect the Companys results
of operations and whether the forward looking statements ultimately prove to be correct. Actual results may differ materially from those contemplated by the forward looking statements for a number of reasons.



Although we believe our expectations are based on reasonable assumptions
within the bounds of its knowledge, investors and prospective investors are cautioned that such statements are only projections and that actual events or results may differ materially depending on a variety of factors described in greater detail in
the Companys filings with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, reports on Form 8-K, etc. In addition to the factors discussed elsewhere in this Quarterly Report on Form 10-Q, the Companys actual
consolidated quarterly or annual operating results have been affected in the past, or could be affected in the future, by additional factors, including, without limitation:



| |  |  | the demand for and supply of crude oil and refined products;
| | - |  | ------------------------------------------------------------



| |  |  | the spread between market prices for refined products and market prices for crude oil;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | repayment of debt;
| | - |  | ------------------



| |  |  | general economic, business and market conditions;
| | - |  | -------------------------------------------------



| |  |  | risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in our markets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the possibility of inefficiencies or shutdowns in refinery operations or pipelines;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the availability and cost of financing to us;
| | - |  | ---------------------------------------------



| |  |  | environmental, tax and tobacco legislation or regulation;
| | - |  | ---------------------------------------------------------



| |  |  | volatility of gasoline prices, margins and supplies;
| | - |  | ----------------------------------------------------



| |  |  | merchandising margins;
| | - |  | ----------------------



| |  |  | labor costs;
| | - |  | ------------



| |  |  | level of capital expenditures;
| | - |  | ------------------------------



| |  |  | customer traffic;
| | - |  | -----------------



| |  |  | weather conditions;
| | - |  | -------------------



| |  |  | acts of terrorism and war;
| | - |  | --------------------------



| |  |  | business strategies;
| | - |  | --------------------



| |  |  | expansion and growth of operations;
| | - |  | -----------------------------------





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| |  |  | future projects and investments;
| | - |  | --------------------------------



| |  |  | future exposure to currency devaluations or exchange rate fluctuations;
| | - |  | -----------------------------------------------------------------------



| |  |  | expected outcomes of legal and administrative proceedings and their expected effects on our financial position, results of operations and cash flows;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | future operating results and financial condition; and
| | - |  | -----------------------------------------------------



| |  |  | the effectiveness of our disclosure controls and procedures and internal control over financial reporting.
| | - |  | ----------------------------------------------------------------------------------------------------------



All subsequent written and oral forward looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any such forward
looking statements that may be made to reflect events or circumstances that occur, or which we becomes aware of, after the date of this Quarterly Report on Form 10-Q.



Recent Developments



The world crude market continues to remain volatile in fiscal year 2007 with prices on the New York Mercantile Exchange (NYMEX) ranging from a high of
$76.98/BBL in August to a low of $55.81/BBL in November. Crude oil prices for delivery in the second fiscal quarter of 2007 as of the end of December were averaging $60.85/BBL as compared to an average of $65.37/BBL for the first fiscal quarter of
2007, a 6.9% decrease.



Industry-wide wholesale margins of
gasoline rose in the second fiscal quarter of 2007 while distillate margins have significantly declined on warmer weather in the eastern part of the United States. As of December 29, 2006, margins, as indicated by the difference between prices
of crude oil contracts traded on the NYMEX and the prices of NYMEX gasoline and heating oil contracts, were averaging $6.67 and $10.07 respectively for the second fiscal quarter. This represents a $.24 or 3.7% increase in wholesale margins for
gasoline and a $1.26 or 11.1% decrease for heating oil as compared to the first fiscal quarter of 2007. The widely monitored 3/2/1 crackspread, consisting of two thirds gasoline margin and one third heating oil margin, has decreased $.26
or 3.2% in the second quarter of fiscal year 2007 as compared to the first quarter of fiscal year 2007. The average 3/2/1 crackspread for the second fiscal quarter of 2007 as compared to the second fiscal quarter of 2006 has declined by
$1.45 or 15.7%.



We continue to benefit from our ability to
process a significant percentage of heavy, high sulfur grades of crude oil. For the second quarter of fiscal 2007, as of December 29, 2006, our average crude cost is $8.64/BBL lower than the NYMEX average.



The company will undertake a 28-day turnaround of its Crude Tower and related
units in March of 2007. In addition to normal maintenance work, the project will allow the Company to increase the amount of crude oil it process to 70,000/BBL per day from its current capacity of 65,000/BBL per day, as well as allowing it
to process a higher percentage of its crude with less expensive heavy, sour crude.



Results of Operations



The Company is a
petroleum refiner and marketer in its primary market area of Western New York and Northwestern Pennsylvania. Operations are organized into two business segments: wholesale and retail.



The wholesale segment is responsible for the acquisition of crude oil, petroleum refining, supplying petroleum products to
the retail segment and the marketing of petroleum products to wholesale and industrial customers. The retail segment sells petroleum products under the Kwik Fill®, Citgo® and Keystone® brand names through a network of Company-operated retail units and convenience and grocery items through gasoline stations and convenience stores under the Red Apple Food Mart® and Country Fair® brand names.



15



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##### Table of Contents

A discussion and analysis of the factors contributing to the Companys results of operations are
presented below. The accompanying Consolidated Financial Statements and related Notes, together with the following information, are intended to supply investors with a reasonable basis for evaluating the Companys operations, but should not
serve as the only criteria for predicting the Companys future performance.



Retail Operations:



|                                       |  |                                |         |   |      |   |         |  
|-------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                       |  | Three Months EndedNovember 30, |        
|                                       |  | 2006                           |         |   | 2005 |  
|                                       |  | (dollars in thousands)         |        
|Net Sales                              |  |                                |         |   |      |   |         |  
|Petroleum                              |  | $                              | 216,945 |   |      | $ | 223,416 |  
|Merchandise and other                  |  |                                | 50,709  |   |      |   | 48,425  |  
|                                       |  |                                |         |   |      |   |         |  
|Total Net Sales                        |  |                                | 267,654 |   |      |   | 271,841 |  
|Costs of Goods Sold                    |  |                                | 236,386 |   |      |   | 239,614 |  
|                                       |  |                                |         |   |      |   |         |  
|Gross Profit                           |  |                                | 31,268  |   |      |   | 32,227  |  
|Operating Expenses                     |  |                                | 29,747  |   |      |   | 26,327  |  
|                                       |  |                                |         |   |      |   |         |  
|Segment Operating Income               |  | $                              | 1,521   |   |      | $ | 5,900   |  
|                                       |  |                                |         |   |      |   |         |  
|Petroleum Sales (thousands of gallons) |  |                                | 89,010  |   |      |   | 84,726  |  
|                                       |  |                                |         |   |      |   |         |  
|Gross Profit                           |  |                                |         |   |      |   |         |  
|Petroleum (a)                          |  | $                              | 17,602  |   |      | $ | 18,866  |  
|Merchandise and other                  |  |                                | 13,666  |   |      |   | 13,361  |  
|                                       |  |                                |         |   |      |   |         |  
|                                       |  | $                              | 31,268  |   |      | $ | 32,227  |  
|                                       |  |                                |         |   |      |   |         |  
|Petroleum margin ($/gallon) (b)        |  |                                | .1978   |   |      |   | .2227   |  
|Merchandise margin (percent of sales)  |  |                                | 26.9    | % |      |   | 27.6    | %

---

|(a) | Includes the effect of intersegment purchases from the Companys wholesale segment at prices which approximate market.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(b) | Company management calculates petroleum margin per gallon by dividing petroleum gross margin by petroleum sales volumes. Management uses fuel margin per gallon calculations to
compare profitability to other companies in the industry. Petroleum margin per gallon may not be comparable to similarly titled measures used by other companies in the industry.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Comparison of Fiscal Quarters Ended November 30, 2006 and November 30, 2005



Net Sales



Retail sales decreased during the fiscal quarter ended November 30,
2006 by $4.2 million or 1.5% from $271.8 million to $267.6 million under the comparable period in fiscal 2006. The retail sales decrease resulted from a $6.5 million decrease in petroleum sales offset by a $2.3 million increase in merchandise sales.
The petroleum sales decrease resulted from a 7.6% decrease in retail selling prices per gallon, offset by a 4.3 million gallon or 5.1% increase in retail petroleum volume. Merchandise sales increase is primarily due to increased prepared food,
beverages and cigarette sales due to promotional campaigns and increased selling prices.



Costs of Goods Sold



Retail costs of goods sold decreased during the fiscal quarter ended November 30, 2006 by $3.2 million or 1.3% for the comparable period in fiscal 2006 from $239.6 million to $236.4 million. The decrease of $3.2 million is due to the
following: petroleum purchases decreased $9.2 million due to a decrease in prices and



16



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##### Table of Contents

volume, offset by a fuel tax increase of $2.8 million, freight cost increase of $.4 million, merchandise cost increase of $1.9 million, as well as an
inventory valuation decrease of $.9 million due mainly to a decrease in petroleum product costs.



Gross Profit



Retail
gross profit decreased during the fiscal quarter ended November 30, 2006 by $.9 million or 3.0% over the comparable period in fiscal 2006. The Company decreased its petroleum margins by $1.2 million offset by a merchandise margin increase of
$.3 million.



Operating Expenses



Retail operating expenses increased during the fiscal quarter ended
November 30, 2006 by $3.4 million or 13.0% over the comparable period in fiscal 2006. The primary contributing factors were (i) increased payroll and related payroll costs of $.8 million, due in part to an increase in New York State
minimum wage from $6.00 to $6.75 an hour effective January 1, 2006 which affected about 500 retail employees and (ii) maintenance/environmental costs of $1.6 million, due primarily to environmental remediation liability issues. The
remaining increase was attributed to credit/customer service costs of $.4 million, advertising/promotional costs of $.2 million, insurance/utilities/tax cost of $.2 million and other miscellaneous costs of $.2 million.



Wholesale Operations:



|                                            |  |                                |         |   |      |   |        
|------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | -------
|                                            |  | Three Months EndedNovember 30,
|                                            |  | 2006                           |         |   | 2005
|                                            |  | (dollars in thousands)        
|Net Sales (a)                               |  | $                              | 316,942 |   |      | $ | 302,151
|Costs of Goods Sold                         |  |                                | 310,241 |   |      |   | 282,358
|                                            |  |                                |         |   |      |   |        
|Gross Profit                                |  | $                              | 6,701   |   |      | $ | 19,793 
|                                            |  |                                |         |   |      |   |        
|Operating Expenses                          |  |                                | 8,149   |   |      |   | 8,341  
|                                            |  |                                |         |   |      |   |        
|Segment Operating Income (Loss)             |  | $                              | (1,448  | ) |      | $ | 11,452 
|                                            |  |                                |         |   |      |   |        
|Crude throughput (thousand barrels per day) |  |                                | 67.3    |   |      |   | 67.1   
|                                            |  |                                |         |   |      |   |        



Refinery Product
Yield

(thousands of barrels)



|                                                                       |  |                                |   |  |       |  
|---------------------------------------------------------------------- |  | ------------------------------ | - |  | ----- | -
|                                                                       |  | Three Months EndedNovember 30, |  
|                                                                       |  | 2006                           |   |  | 2005  |  
|Gasoline and gasoline blendstock                                       |  | 2,770                          |   |  | 2,724 |  
|Distillates                                                            |  | 1,588                          |   |  | 1,686 |  
|Asphalt                                                                |  | 1,720                          |   |  | 1,715 |  
|Butane, propane, residual products, internally produced fuel and other |  | 525                            |   |  | 542   |  
|                                                                       |  |                                |   |  |       |  
|Total Product Yield                                                    |  | 6,603                          |   |  | 6,667 |  
|                                                                       |  |                                |   |  |       |  
|% Heavy Crude Oil of Total Refinery Throughput (b)                     |  | 55                             | % |  | 51    | %



17



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##### Table of Contents

Product Sales

(dollars in thousands) (a)



|                                 |  |                                |         |      |   |        
|-------------------------------- |  | ------------------------------ | ------- | ---- | - | -------
|                                 |  | Three Months EndedNovember 30,
|                                 |  | 2006                           |         | 2005
|Gasoline and gasoline blendstock |  | $                              | 115,360 |      | $ | 121,728
|Distillates                      |  |                                | 102,757 |      |   | 109,130
|Asphalt                          |  |                                | 93,743  |      |   | 66,376 
|Other                            |  |                                | 5,082   |      |   | 4,917  
|                                 |  |                                |         |      |   |        
|                                 |  | $                              | 316,942 |      | $ | 302,151
|                                 |  |                                |         |      |   |        



Product Sales

(thousand of barrels) (a)



|                                 |  |                                |  |      
|-------------------------------- |  | ------------------------------ |  | -----
|                                 |  | Three Months EndedNovember 30,
|                                 |  | 2006                           |  | 2005 
|Gasoline and gasoline blendstock |  | 1,699                          |  | 1,608
|Distillates                      |  | 1,337                          |  | 1,304
|Asphalt                          |  | 1,816                          |  | 1,993
|Other                            |  | 139                            |  | 122  
|                                 |  |                                |  |      
|                                 |  | 4,991                          |  | 5,027
|                                 |  |                                |  |      

---

|(a) | Sources of total product sales include products manufactured at the refinery located in Warren, Pennsylvania and products purchased from third parties.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The Company defines heavy crude oil as crude oil with an American Petroleum Institute specific gravity of 26 or less.
|--- | -----------------------------------------------------------------------------------------------------------------------



Comparison of Fiscal Quarters Ended November 30, 2006 and November 30, 2005



Net Sales



Wholesale sales increased during the three months ended November 30,
2006 by $14.8 million or 4.9% over the comparable period in fiscal 2006 from $302.1 million to $316.9 million. The wholesale sales increase was due to a 5.7% increase in wholesale prices offset by a .7% decrease in wholesale volume.



Costs of Goods Sold



Wholesale costs of goods sold increased during the three months ended November 30, 2006 by $27.9 million or 9.9% over
the comparable period in fiscal 2006 from $282.3 million to $310.2 million. The increase in wholesale costs of goods sold during this period was primarily due to a corresponding decrease in refined product and crude inventory valuations. This was
primarily attributed to a decrease in inventory pricing with a slight offset by an increase in inventory volumes.



Gross Profit



Wholesale gross profit decreased $13.1 million from $19.8 million for the fiscal quarter ended November 30, 2005 to $6.7 million for fiscal quarter
ended November 30, 2006. This decrease was primarily due to a narrowing of margins.



Operating Expenses



Operating expenses decreased during the three months ended November 30, 2006 by $.2 million over such expenses for the comparable period in fiscal 2006. This decrease was primarily due to decreased payroll and payroll costs.



18



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##### Table of Contents

Consolidated Expenses:



Interest Expense, net



Net interest expense (interest expense less interest income) for the three months ended November 30, 2006 decreased $.8 million or 13.3% to $5.2
million from $6.0 million for the comparable period in fiscal 2006, primarily due to a decrease in borrowings under the revolving credit facility.



Income Tax Expense / (Benefit)



The Companys effective tax rate for the three months ended November 30, 2006 was approximately 41.0% compared to a rate of 40.7% for the three
months ended November 30, 2005. The change is primarily due to a change in various permanent tax differences and an increase in corporate state income taxes.



Liquidity and Capital Resources



We operate in an environment where our liquidity and capital resources are impacted by changes in the price of crude oil and refined petroleum products,
availability of credit, market uncertainty and a variety of additional factors beyond our control. Included in such factors are, among others, the level of customer product demand, weather conditions, governmental regulations, worldwide political
conditions and overall market and economic conditions.



The
following table summarizes selected measures of liquidity and capital sources (in thousands):



|                          |  |                   |         |                 |   |        
|------------------------- |  | ----------------- | ------- | --------------- | - | -------
|                          |  | November 30, 2006 |         | August 31, 2006
|Cash and cash equivalents |  | $                 | 60,024  |                 | $ | 59,197 
|Working capital           |  | $                 | 143,607 |                 | $ | 146,723
|Current ratio             |  |                   | 2.3     |                 |   | 2.0    
|Debt                      |  | $                 | 228,327 |                 | $ | 228,014



Primary sources of
liquidity have been cash and cash equivalents, cash flows from operations and borrowing availability under a revolving line of credit. We believe available capital resources will be adequate to meet our working capital, debt service, and capital
expenditure requirements for existing operations.



Our cash and
cash equivalents consist of bank balances and investments in money market funds. These investments have staggered maturity dates, none of which exceed three months. They have a high degree of liquidity since the securities are traded in public
markets. During the three months ended November 30, 2006, cash provided from operations was $7.1 million, while significant uses of cash include $6.4 million for purchases of property, plant and equipment, $.1 million for additions to deferred
turnaround costs, $.2 million reductions to debt; offset by $.5 million proceeds from issuance of long term debt. Cash provided by working capital items totaled $3.9 million. This includes decreases in accounts receivable of $11.7 million,
inventories of $40.6 million, and increases in amounts due from affiliated companies of $3.8 million and cash used for prepaid expenses of $10.0 million. Also included are decreases in accounts payable of $30.6 million, income taxes payable of $9.4
million, sales, use and fuel taxes payable of $2.0 million and other accrued liabilities of $.2 million.



We require a substantial investment in working capital which is susceptible to large variations during the year resulting from purchases of inventory and
seasonal demands. Inventory purchasing activity is a function of sales activity and turnaround cycles for the different refinery units.



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Maintenance and non-discretionary capital expenditures have averaged approximately $4 million annually
over the last three years for the refining and marketing operations. Management does not foresee any increase in these maintenance and non-discretionary capital expenditures during fiscal year 2007.



Future liquidity, both short and long-term, will continue to be primarily
dependent on realizing a refinery margin sufficient to cover fixed and variable expenses, including planned capital expenditures. We expect to be able to meet our working capital, capital expenditure, contractual obligations, letter of credit and
debt service requirements out of cash flow from operations, cash on hand and borrowings under our Revolving Credit Facility with PNC Bank, N.A. as Agent Bank. In November 2006, we extended the term of our $100,000,000 Revolving Credit Facility
from May 9, 2007 to November 27, 2011, and amended certain terms and provisions thereof, including a reduction in the interest rate and a modification of certain covenants. Under the amended Revolving Credit Facility, interest is
calculated as follows: (a) for base rate borrowings, at the greater of the Agent Banks prime rate less an applicable margin of .5% to 0% or federal funds rate plus 1%; (b) for euro-rate borrowings, at the LIBOR rate plus an
applicable margin of 1.25% to 1.75%. The applicable margin will vary depending on a formula calculating our average unused availability under the facility. Under the Revolving Credit Facility in effect prior to the extension
and amendment, interest was calculated as follows: (a) for base rate borrowings, at the greater of the Agent Banks prime rate plus an applicable margin of .25% to .75% (8.50% at August 31, 2006) or federal funds rate plus
1%; (b) for euro-rate borrowings, at the LIBOR rate plus an applicable margin of 1.75% to 3.00%. The applicable margin varied with our facility leverage ratio calculation.



The Revolving Credit Facility is secured primarily by certain cash accounts,
accounts receivable and inventory. Until maturity, we may borrow on a borrowing base formula as set forth in the facility.



We had outstanding letters of credit of $433,000 as of November 30, 2006. As of November 30, 2006, outstanding borrowings under the Revolving
Credit Facility were $0 resulting in net availability of $99,567,000.



Although we are not aware of any pending circumstances which would change our expectation, changes in the tax laws, the imposition of and changes in federal and state clean air and clean fuel requirements and other changes in environmental
laws and regulations may also increase future capital expenditure levels. Future capital expenditures are also subject to business conditions affecting the industry. We continue to investigate strategic acquisitions and capital improvements to our
existing facilities.



Federal, state and local laws and
regulations relating to the environment affect nearly all of our operations. As is the case with all the companies engaged in similar industries, we face significant exposure from actual or potential claims and lawsuits involving environmental
matters. Future expenditures related to environmental matters cannot be reasonably quantified in many circumstances due to the uncertainties as to required remediation methods and related clean-up cost estimates. We cannot predict what additional
environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or interpreted with respect to products or activities to which they have not been
previously applied.



Seasonal Factors



Seasonal factors affecting the Companys business may cause variation
in the prices and margins of some of the Companys products. For example, demand for gasoline tends to be highest in spring and summer months, while demand for home heating oil and kerosene tends to be highest in winter months.



As a result, the margin on gasoline prices versus crude oil costs generally
tends to increase in the spring and summer, while margins on home heating oil and kerosene tend to increase in winter.



Inflation



The effect of inflation on the Company has not been significant during the last five fiscal years.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------



The Company uses its revolving credit facility to finance a portion of its operations. These on-balance sheet financial instruments, to the extent they
provide for variable rates, expose the Company to interest rate risk resulting from changes in the PNC Prime rate, the Federal Funds or LIBOR rate.



The Company has exposure to price fluctuations of crude oil and refined products. The Company does not manage the price risk related to all of its
inventories of crude oil and refined products with a permanent formal hedging program, but does manage its risk exposures by managing inventory levels.At August 31, 2006, the Company had net open future positions of 1,400,000 barrels of
crude oil, all of which were sold during the first quarter of 2007. The resulting gain on the sale of the future positions amounted to $4,114,000, which was recorded in cost of sales. The Company has no open future positions at November 30,
2006.



See also Recent Developments section of
Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations.



|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------



| | (a) | Based on an evaluation by management of the Companys disclosure controls and procedures (as defined in Rules 13(a)  15(e) and 15(d)  15(e) of the Securities
Exchange Act of 1934, as amended), as of the end of the Companys fiscal quarter ended November 30, 2006, (the Evaluation Date) the Companys Chief Executive Officer and Chief Financial Officer (its principal executive
officer and principal financial officer, respectively) have concluded that the Companys disclosure controls and procedures were effective as of the Evaluation Date .
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | There have not been any changes in the Companys internal controls over financial reporting that occurred during the Companys fiscal quarter ended November 30, 2006
that has materially affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART IIOTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------



| | None.
| | -----



|ITEM 1A. | RISK FACTORS.
|-------- | -------------



| | There have been no material changes in our Risk Factors disclosed in the Form 10-K for the year ended August 31, 2006.
| | ----------------------------------------------------------------------------------------------------------------------



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------



| | None.
| | -----



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------



| | None.
| | -----



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------



| | None.
| | -----



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------



| | None.
| | -----



|ITEM 6. | EXHIBITS.
|------- | ---------



| | Exhibit 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ------------ | --------------------------------------------------------------------------------------------------



| | Exhibit 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ------------ | --------------------------------------------------------------------------------------------------



| | Exhibit 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.



Date: January 16, 2007



UNITED REFINING COMPANY (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



KIANTONE PIPELINE CORPORATION (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



UNITED REFINING COMPANY OF PENNSYLVANIA (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




25



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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.



Date:
January 16, 2007



KIANTONE PIPELINE COMPANY (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




26



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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.



Date:
January 16, 2007



UNITED JET CENTER, INC. (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



KWIK-FILL CORPORATION (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



INDEPENDENT GASOLINE AND OIL COMPANY OF ROCHESTER, INC. (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



BELL OIL CORP. (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



PPC, INC. (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



SUPER TEST PETROLEUM, INC. (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



KWIK-FIL, INC. (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



VULCAN ASPHALT REFINING CORPORATION (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President/s/  James E. MurphyJames E. Murphy Chief Financial Officer




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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.



Date:
January 16, 2007



COUNTRY FAIR, INC. (Registrant)/s/  Myron L. TurfittMyron L. Turfitt President and Chief Operating Officer/s/  James E. MurphyJames E. Murphy Vice President  Finance




35