**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K**


(Mark
      One)


x
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




For
      the
      fiscal year ended: **June
      30, 2006**




**OR**




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




For
      the
      transition period from ____________________ to ____________________





Commission
      file number: **0-21825**





**STREICHER
      MOBILE FUELING, INC.**


(Exact
      name of registrant as specified in its charter)




**Florida**
                (State
                  or other jurisdictionof
                  incorporation or organization)
            **65-0707824**(I.R.S.
                EmployerIdentification
                No.)





**200
      West Cypress Creek Road, Suite 400, Fort Lauderdale, Florida
      33309**


(Address
      of principal executive offices) (Zip Code)


**(954)
      308-4200**


(Registrant’s
      telephone number, including area code)





Securities
      registered pursuant to Section 12(b) of the Act:




**Title
                of ClassCommon Stock, $.01 Par
                Value**
            **Name
                of exchange on which
                registeredNasdaq Capital
                Market**





Securities
      registered pursuant to Section 12(g) of the Act: **None**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No
x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o No
x




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 o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (Section 229.405 of this Chapter) is not contained herein, and
      will not be contained, to the best of registrant’s knowledge, in definitive
      proxy or information statements incorporated by reference in Part III of this
      Form 10-K or any amendment to this Form 10-K. o





Indicate
      by check mark whether the registrant is a large accelerated filer, accelerated
      filer or a non-accelerated filer. See definition of “accelerated filer and large
      accelerated filer” in Rule 12b-2 of the Exchange Act).




oLarge
      accelerated filer  o Accelerated
      filer  x Non-accelerated
      filer





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).


Yes
o No
x





The
      aggregate market value of the voting stock held by non-affiliates was
      $15,626,160. The aggregate market value was computed by reference to the last
      sale price of the registrant’s Common Stock on the Nasdaq Capital Market on
      October 11, 2006.





As
      of
      October 12, 2006 there were 10,508,643 shares of the Registrant’s Common
      Stock outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE:**




Certain
      Portions of Registrant’s Proxy Statement relating to the 2006 Annual Meeting of
      Shareholders are incorporated by reference into Part III.







**TABLE
      OF CONTENTS**




**PAGE****PART
                  I.**Item
                  1.
              Business
              1Item
                  1A.
              Risk
                  Factors
              10Item
                  1B.
              Unresolved
                  Staff Comments
              13Item
                  2.
              Properties
              13Item
                  3.
              Legal
                  Proceedings
              13Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              14**PART
                  II.**Item
                  5.
              Market
                  for Registrant’s Common Equity, Related Shareholder Matters and Issuer
                  Purchases of Equity Securities
              15Item
                  6.
              Selected
                  Financial Data
              15Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              18Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              38Item
                  8.
              Financial
                  Statements and Supplementary Data
              38Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              38Item
                  9A.
              Controls
                  and Procedures
              39Item
                  9B.
              Other
                  Information
              40**PART
                  III.**Item
                  10.
              Directors
                  and Executive Officers of the Registrant
              41Item
                  11.
              Executive
                  Compensation
              41Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              41Item
                  13.
              Certain
                  Relationships and Related Transactions
              41Item
                  14.
              Principal
                  Accounting Fees and Services
              41**PART
                  IV.**Item
                  15.
              Exhibits,
                  Financial Statement Schedules
              42









**PART
      I**




**Item
      1.  Business**




**SUMMARY**




Streicher
      Mobile Fueling, Inc., a Florida corporation formed in 1996, and its subsidiaries
      (“SMF”) provide petroleum product distribution services, transportation
      logistics and emergency response services to the trucking, manufacturing,
      construction, shipping, utility, energy, chemical, telecom and government
      services industries. SMF trades on the NASDAQ under the stock ticker symbol,
      “FUEL”.




The
      broad range of services we offer our customers includes commercial mobile and
      bulk fueling; the packaging, distribution and sale of lubricants; integrated
      out-sourced fuel management; transportation logistics and emergency response
      services. Our fleet of custom specialized tank
      wagons, tractor-trailer transports, box trucks and customized flatbed vehicles
      deliver diesel
      fuel and gasoline to customers’ locations on a regularly scheduled or as needed
      basis, refueling vehicles and equipment, re-supplying fixed-site and
      temporary bulk storage tanks, and emergency power generation systems ;
      and
      distribute a wide variety of specialized petroleum products, lubricants and
      chemicals to refineries, manufacturers and other industrial customers. In
      addition, our fleet of  special
      duty tractor-trailer units provides heavy and ultra-heavy haul transportation
      services over short and long distances to customers requiring the movement
      of
      over-sized or over-weight equipment
      and manufactured products.




Our
      sophisticated mobile fueling solutions include the use of our patented
      proprietary electronic fuel tracking control system to
      measure, record and track fuel dispensed to each vehicle and tank fueled at
      a
      customer location. This system allows customer verification of the amount and
      type of fuel delivered and provides customers with customized fleet fuel data,
      which data can be used for various types of management analysis as well as
      tax
      reporting. The commercial mobile
      fueling services we provide offer numerous advantages to customers, including:
      lower labor and administrative costs associated with fueling vehicles;
      centralized control over fuel inventories and usage; tax reporting benefits;
      elimination of costs and the risk of environmental liabilities associated with
      on-site fuel storage and dispensing facilities; lower risk of employee theft
      of
      fuel; and elimination of security risks associated with off-site fueling by
      employees.




As
      a
      result of our recent acquisition activity, we are now a leading distributor
      of
      both packaged and bulk branded lubricants and of other unbranded petroleum
      products and chemicals. Our acquisitions have also strengthened our historical
      business of providing emergency service and fuel delivery services in response
      to natural disasters and other widespread emergency conditions, including
      hurricanes, tropical storms, ice and snow storms, forest fires and earthquakes.
      We conducted extensive operations supporting the storm relief work in the
      aftermath of the September 2005 Hurricane Katrina and Rita
      disasters.





We
      presently operate 225 specialized commercial vehicles
      from 26 operating locations serving major metropolitan markets in Alabama, California, Florida, Georgia, Louisiana,
      Mississippi, North Carolina, South Carolina, Tennessee and Texas. Since our
      recent acquisitions, we have actively pursued measured and profitable growth
      in
      these markets by selling existing services to new clients, cross selling new
      services to existing clients, and offering existing and new services to new
      clients. In addition, we continue to pursue expansion through the strategic
      acquisition of similar or complementary businesses that meet our criteria for
      long term growth and profitability.





We
      also own over 800 fuel and lubricant storage tanks with over 1,700,000 gallons
      of capacity. These tanks include bulk storage tanks located at our facilities
      and portable tanks used for the temporary storage and dispensing of fuels and
      lubricants at a customer’s job site. Our portable tanks are delivered to the
      customer by our fleet of specialized flatbed trucks. In addition, we provide
      bulk fueling and lubricant services as well as transportation and delivery
      services for fuel and other petroleum products to customers who own their own
      storage facilities on a scheduled, or as needed basis.




Our
      recent acquisitions are (a) the February
      2005 purchase of substantially all of the assets and business operations of
      Shank C&E Investment s ,
      L.L.C.
      (“Shank Services”) a Houston, Texas based provider of commercial mobile
      and bulk fueling services ,
      petroleum lubricants packaging
      and distribution  and
      heavy
      and ultra-heavy haul transportation services serving
      the Houston, Dallas/Fort Worth, Austin and San Antonio markets; (b)
      the October
      2005 acquisition of H & W Petroleum Company, Inc. (“H & W”), a
      Houston based marketer and distributor of lubricants, commercial fuels and
      petroleum products; and (c) by virtue of a transaction by H & W immediately
      prior to our own acquisition of H & W, the October 2005 acquisition of the
      operating assets of Harkrider Distributing Company, Incorporated (“Harkrider”),
      a Houston based marketer and distributor of dry cleaning solvents, chemicals
      and
      petroleum products. In addition to providing service to the greater Houston
      metropolitan area, the combined H & W and Harkrider operations
      also serve the Beaumont, Dallas/Fort Worth, Freeport, Longview, Lufkin, San
      Antonio,  Waco and Waxahachie markets in Texas, and the New Orleans
      market in Louisiana. (See RECENT DEVELOPMENTS below).









**PRODUCTS
      AND SERVICES**




**Commercial
      Mobile** **and
      Bulk** **Fueling** **and Fuel Management Services**




Traditionally,
      businesses and other entities that operate fleets of vehicles and equipment
      have
      met their fueling requirements by either maintaining their own supply of fuel
      in
      on-site storage tanks or fueling vehicles at retail stations and other third
      party facilities.




On-site
      storage tanks and fueling facilities can be expensive to construct and maintain,
      and expose the property owner and operator to potential liability associated
      with fuel leaks or spills. In addition, increasingly stringent federal and
      state
      environmental regulation of underground storage tanks may require businesses
      that maintain their own fuel supplies to spend significant amounts to remove,
      retrofit and/or to maintain underground and aboveground storage tanks to meet
      regulatory standards. We believe that many fleet operators currently utilizing
      on-site storage tanks will choose to meet their fueling requirements by other
      means, including commercial mobile fueling, instead of investing in upgrading
      and/or maintaining existing facilities.




The
      fueling of vehicles at retail stations and other third party facilities by
      fleet
      operators can result in a higher cost of operations due to inefficient use
      of
      employee time, the creation of significant unnecessary paperwork and employee
      fraud. While large users may be able to negotiate favorable fuel pricing from
      retail stations or other fuel suppliers, the labor cost incurred in connection
      with employee fueling of vehicles and the costs associated with management
      and
      administration of fuel purchases, can exceed the benefits associated with price
      discounts.




Specifically,
      commercial mobile fueling and out-sourced fuel management services offer
      numerous benefits over traditional fueling methods:




·
            *Reduced
                Operating Costs and Increased Labor Productivity*.
                Fleet operators are able to reduce operating costs and lower payroll
                hours
                by eliminating the need for their employees to fuel vehicles either
                on-site or at local retail stations and other third party facilities.
                Overnight fueling prepares fleet vehicles for operation at the beginning
                of each workday and increases labor productivity by allowing employees
                to
                use their vehicles during time that would otherwise be spent fueling
                while
                maximizing vehicle use since fueling is conducted during non-operating
                hours. The fuel necessary to operate vehicles is reduced since fueling
                takes place at customer locations. The administrative burden required
                to
                manage fuel programs and monitor vehicle utilization is also reduced.




·
            *Centralized
                Inventory Control and Management*.
                Our fuel management system provides fleet operators with a central
                management data source. Web-based comprehensive reports detail, among
                other things, the location, description, fuel type and daily and
                weekly
                fuel consumption of each vehicle or piece of equipment that we fuel.
                This
                eliminates customers’ need to invest working capital to carry fuel
                supplies and allows customers to centralize fuel inventory controls
                as
                well as track and analyze vehicle movements and fuel consumption
                for
                management and fuel tax reporting
                purposes.




·
            *Tax
                Reporting Benefits*.
                Our fuel management system can track fuel consumption to specific
                vehicles
                and fuel tanks providing tax benefits to customers consuming fuel
                in uses
                that are tax-exempt, such as for off-road vehicles, government-owned
                vehicles and fuel used to operate refrigerator units on vehicles.
                For
                these uses, the customers receive reports which provide them with
                the
                information required to substantiate tax
                exemptions.




·
            *Elimination
                of Expenses and Liabilities of On-site Storage*.
                Fleet operators who previously satisfied their fuel requirements
                using
                on-site storage tanks can eliminate the capital and costs relating
                to
                installing, equipping and maintaining fuel storage and dispensing
                facilities, including the cost and price volatility associated with
                fuel
                inventories; complying with escalating environmental government
                regulations; and carrying increasingly expensive insurance. By removing
                on-site storage tanks and relying on commercial mobile fueling, customers
                are able to avoid potential liabilities related to both employees
                and
                equipment in connection with fuel storage and handling. Customers’
                expensive and inefficient use of business space and the diminution
                of
                property values associated with environmental concerns is also eliminated.




2




·
            *Lower
                Risk of Fuel Theft*.
                Fleet operators relying on employees to fuel vehicles, whether at
                on-site
                facilities or at retail stations, often experience shrinkage of fuel
                inventories or excess fuel purchases due to employee fraud. Our fuel
                management system prevents the risk of employee theft by dispensing
                fuel
                only to authorized vehicles. Utilizing our fueling services, rather
                than
                allowing employees to purchase fuel at local retail stations, also
                eliminates employee fraud due to credit card
                abuse.




·
            *Access
                to Emergency Fuel Supplies and Security*.
                Emergency preparedness, including fuel availability, is critical
                to the
                operation of governmental agencies, utilities, delivery services
                and
                numerous other fleet operators. We provide access to emergency fuel
                supplies at times and locations chosen by our customers, allowing
                them to
                react more quickly and effectively to emergency situations, such
                as severe
                weather conditions and related disasters. For example, SMF responded
                to
                Hurricanes Katrina and Rita by mobilizing personnel and our fleet
                of
                specialized trucks and equipment to provide emergency fuel supply
                and
                support services following the devastation caused by those storm
                systems.
                Fueling by fleet operators at their own on-site storage facilities,
                and/or
                at retail and other third party locations may be limited due to power
                interruptions, supply outages or access and other natural limitations.
                In
                addition, since security concerns of fleet operators to terrorism,
                hijacking and sabotage are increasing, fueling vehicles at customers’
                facilities eliminates security risks to the fleet operators’ employees and
                equipment rather than fueling at retail service stations and other
                third
                party facilities.




Historically,
      we have generated substantially all of our revenues from commercial mobile
      and
      bulk fueling and integrated out-sourced fuel management services. With the
      recent acquisitions of Shank Services, H & W and Harkrider, we have
      substantially increased the size of our commercial fueling operations and
      expanded our market area for those operations. The addition of lubricants and
      chemicals has diversified our products and services so that we can often meet
      all or substantially all of our customers’ requirements for petroleum
      products.




Some
      of
      our bulk fueling and lubricant services customers require the use of our
      portable storage tanks. We deliver these tanks to the customer’s job-site or
      other location and we reposition, re-supply and maintain them as required,
      on a
      scheduled or an as needed basis. We also provide bulk fueling services to
      customers who maintain their own above or below ground storage facilities.
      We
      also work with a number of nationwide fuel and card lock networks to provide
      an
      all-inclusive transportation fueling and fleet optimization solution for
      customers.




Our
      emergency response generator services program provides customers with ongoing
      fuel testing, treatment, filtration and top-off services to ensure that
      generators and other emergency power supply systems are fully fueled and that
      the fuel is in optimal condition for use at the onset of power outages. We
      then
      provide emergency fuel supplies to these customers for their generators and
      emergency power supply systems in a series of scheduled deliveries for the
      duration of power outages based on the consumption and utilization requirements
      of these systems.




**Packaging,
      Distribution and Sale of Lubricants, Other Petroleum Products and
      Chemicals**




As
      a
      result of its acquisition of Shank Services and H & W, SMF packages and
      distributes petroleum based lubricants to numerous customers from its Texas
      facilities. The acquisition of Harkrider further broadened the range of products
      distributed by SMF to include the dry cleaning solvents and other chemicals
      distributed by Harkrider.




**Transportation
      Logistics Services**




With
      the
      acquisition of Shank Services, we began to provide specialized transportation
      and logistics services utilizing a fleet of re-configurable tractor-trailer
      units to provide the delivery of specialized commodities, including heavy or
      ultra-heavy haul over-size and/or over-weight machinery and equipment throughout
      the U.S. and Canada.




3




Our
      heavy
      haul and ultra heavy haul customers range from construction companies, for
      whom
      we handle the movement of “yellow iron”, such as cranes, bulldozers, and road
      grading equipment, as well as prefabricated concrete and metal building
      materials, to petroleum refiners and chemical plant operators, for whom we
      transport large vessels, processing equipment and other equipment used in the
      construction or “turnaround” maintenance of their facilities.




**RECENT
      DEVELOPMENTS**




**Shank
      Services Acquisition and Related Financing**




In
      its
      February 2005 acquisition of Shank Services, SMF acquired a fleet of 24
      commercial fueling vehicles, including specialized fuel delivery, transport,
      oil
      and lubricant flatbed and tanker trucks and related support equipment; over
      600
      portable fuel and lubricant tanks with more than 500,000 gallons of capacity
      used by customers to store products provided by Shank Services; 15 heavy and
      ultra-heavy haul tractor-trailer units designed to transport heavy construction
      equipment and other over-sized and/or over weight loads weighing up to 250,000
      pounds; a limited quantity of fuel and lubricant inventories; office and
      computer equipment and related specialized software technology; customer lists
      and agreements; certain other intangible assets; and outstanding customer
      accounts receivable. We did not assume any material Shank Services’ liabilities
      or debt. Shank Services employs approximately 80 personnel. SMF continues to
      operate the business under the trade name Shank Services; and we have integrated
      our pre-existing Houston and Dallas/Fort Worth commercial mobile and bulk
      fueling operations with those of Shank Services and H & W.




We
      agreed
      to purchase Shank Services for $8.3 million, comprised of $5.8 million in cash,
      $1.9 million in a contingent two-year deferred payment promissory note, and
      $0.6
      million in acquisition costs. The payment of the promissory note was dependent
      on Shank Services meeting a specific target performance objective. Because
      the
      performance target was not achieved during the relevant time period, the $1.9
      million note was not required be paid and is of no further force or effect.
      See
      Note 11 to the consolidated financial statements.




In
      January 2005, in anticipation of the February closing of the Shank Services
      acquisition, we completed a $6.1 million private placement to fund the
      acquisition, to develop its operations and for other general corporate purposes.
      We issued $6.1 million in 10%, five-year Senior Secured Notes (the “January 2005
      Notes”) that require six semi-annual principal payments commencing January 24,
      2007 and a 40% balloon payment on January 24, 2010. The investors also received
      four year warrants to purchase 866,200 shares of our common stock at an exercise
      price of $1.60 per share, including customary redemption and registration
      rights. In addition, 140,300 warrants with substantially similar terms were
      issued to the financing placement agent. Results of Shank Services’ operations
      have been included in our consolidated financial statements since the
      acquisition date.




The
      January 2005 Notes are secured by a first priority security interest in the
      tangible assets acquired from Shank Services. In connection with the issuance
      of
      the January 2005 Notes and related security agreement, we entered into an
      indenture with a third party trustee for payment of the January 2005
      Notes.




The
      Shank
      Services acquisition materially extended SMF’s footprint in major Texas markets
      and provided a platform for further growth in the Southwest. SMF now provides
      commercial mobile fueling services to over 400 active Shank Services customers,
      including many in the construction, agriculture, energy, manufacturing and
      marine industries. This acquisition also expanded SMF’s business into related
      bulk commercial fueling operations, generator services and the marketing and
      distribution of lubricants and related petroleum products.




The
      Shank
      Services heavy and ultra-heavy haul transportation operations has provided
      us a
      new and growing opportunity to provide this specialized logistical service
      to
      numerous businesses that regularly transport heavy construction, refinery and
      chemical equipment, and other unusually large payloads, locally, regionally
      and
      nationally. It also gives us the opportunity to provide other products and
      services to these new customers, including commercial mobile and bulk fueling,
      fuel management and the sale and distribution of lubricants.




4




The
      Shank
      Services and H & W operating, marketing, sales and administrative functions
      are being integrated into SMF enabling cross-utilization of personnel in
      multiple geographic operating locations and combining all petroleum products
      and
      services functions and responsibilities. Since Shank Services is experienced
      in
      delivering emergency response fueling services in disaster relief situations,
      the acquisition also increased our capability to provide this vital support,
      regionally and nationally. By establishing a greater operating presence in
      the
      Texas market, together with continued growth in the Southeast and Mid-Atlantic
      states, the Shank Services and H & W acquisitions are expected to facilitate
      further acquisitions by SMF businesses in petroleum product distribution and
      sales, out-sourced fuel management services and transportation
      logistics.




**Acquisition
      of H & W Petroleum and Related Financing**




By
      our
      October 2005 acquisition of H &
      W, we obtained H & W’s longstanding business of marketing
      and distributing branded and non-branded lubricants, fuels and other petroleum
      products in Texas. Because H & W purchased the operating assets and limited
      inventory of Houston-based Harkrider
      Distributing Company, Incorporated (“Harkrider”) immediately prior to
      the SMF acquisition, we also obtained Harkrider’s business of marketing
      and distributing dry cleaning solvents, chemicals and petroleum products. H
&
W
      and Harkrider service the Houston, Beaumont, Dallas/Fort Worth, Freeport,
      Longview, Lufkin, San Antonio, Waco and Waxahachie markets in Texas, and
      the New Orleans market in Louisiana.




H
&
W
      provides lubricants and fueling services to over 3,800 customers, with its
      primary emphasis on those companies requiring large volumes of specialty
      industrial oils, motor and gear lubricants and greases that must adhere to
      rigid
      technical and performance specifications. Harkrider has distributed solvents
      and
      specialty petroleum products to dry cleaners and industrial customers in the
      Houston, Beaumont and San Antonio areas since 1946 and is one of the largest
      dry
      cleaning solvents distributors in those Texas markets with over 800 customers.
      H & W and Harkrider operate a combined fleet of 52 specialized
      lubricant, fuel and chemical delivery “bobtail” trucks; oil and lubricant
      flatbed and box trucks; tanker transports; and related support equipment,
      including approximately 200 storage tanks with over 1,200,000 gallons of
      capacity.




SMF
      agreed to purchase H & W and Harkrider for approximately $6.3 million, which
      was based on a multiple of 4.5 times a projected annualized EBITDA *(earnings
      before interest, taxes, depreciation and amortization - a non-GAAP financial
      measure)* of
      approximately $1.4 million, but the purchase price was adjusted at closing
      to
      $5.964 million by working capital and other closing adjustments. The purchase
      price was paid with a combination of cash, the assumption of specified
      liabilities and the issuance of two year 10% promissory notes totaling $2.463
      million, which are subject to an earn out provision based on the performance
      of
      H & W and Harkrider after the acquisition.




On
      September 1, 2005, in contemplation of the then pending H & W acquisition,
      we issued $3.0 million in five-year 10% redeemable promissory notes (the
“September 2005 Notes”) to a small group of institutions and other accredited
      lenders. Installment payments of six (6) equal semi-annual principal payments
      of
      ten percent (10%) of the principal amount of the September 2005 Notes will
      commence on August 31, 2007 and continue on February 28 and August 31 of each
      year thereafter, with the remaining balance of forty percent (40%), a $1.2
      million balloon payment, due at maturity on August 31, 2010. The amounts
      due under the September 2005 Notes will become due and payable immediately
      upon
      the occurrence of customary events of default. The September 2005 Notes are
      redeemable, in whole or in part, by payment of a percentage of the principal
      amount of the note, together with accrued but unpaid interest, if any, as
      follows: September 1, 2005 - August 31, 2006, 102%; September 1, 2006 - August
      31, 2007, 101%; and September 1, 2007 - August 31, 2010, 100%. A portion of
      the
      proceeds of the September 2005 Notes were used to fund the approximately $1.5
      million cash portion of the H & W acquisition purchase price. The
      balance of the proceeds were used to develop the operations of H & W and
      Harkrider, including the integration of the lubricant distribution operations
      of
      Shank Services and H & W, and for other general working capital purposes. In
      connection with the issuance of the September 2005 Notes and related security
      agreement, we entered into an indenture with a third party trustee for the
      payment of the September 2005 Notes.




The
      September 2005 Notes are secured by a first priority security interest in the
      vehicles, equipment and other physical assets, other than inventory, of H &
W. The H & W inventory is subject to the first priority security interest
      held by our primary lender.




5




In
      connection with the September 2005 Notes, we also issued 360,000 four-year
      warrants to purchase shares of common stock at $2.28 per share.




**ACQUISITION
      AND DIVERSIFICATION STRATEGY**




The
      operating, marketing, sales and some administrative functions of Shank Services
      and H & W have now been integrated into SMF, enabling cross-utilization of
      personnel in multiple geographic operating locations as well as combining all
      petroleum products and services functions and responsibilities. Since Shank
      Services is experienced in delivering emergency response fueling services in
      disaster relief situations, that acquisition also increased our capability
      to
      provide this vital support, regionally and nationally. By establishing a greater
      operating presence in the Texas market, together with continued growth in the
      Southeast and Mid-Atlantic states, the Shank Services and H & W acquisitions
      are expected to facilitate further acquisitions by SMF of other strategic
      businesses and assets, such as companies involved in petroleum product
      distribution and sales, out-sourced fuel management services and transportation
      logistics.




An
      objective of our business model is to become the leading “single source”
provider of petroleum products and services provider in the ten states in
      which we presently have operating locations, as well as additional markets
      in
      the Southeast, Mid-Atlantic and Mid-Continent regions, by offering to our
      end-user customers a diversified package of quality and reliable petroleum
      products service with 24 hour around
      the clock availability at competitive prices in order to meet their fueling,
      lubricants and chemicals requirements. In order to achieve this objective we
      have initiated an acquisition and diversification strategy to grow through
      selective acquisitions and organic growth.




We
      intend
      to acquire companies, assets or business operations which will compliment or
      offer diversified opportunities for us to grow in those markets where we have
      an
      established presence or that permit us to expand into new markets. We believe
      that carefully selected future acquisitions can provide SMF with valuable market
      share, volumes and margins. Such acquisitions can enhance operational and
      administrative efficiencies, by economies of scale and otherwise, that in turn
      has a material positive impact on our cash flow and earnings. Our strategic
      plan
      is to identify and evaluate suitable targets and negotiate acquisitions at
      fair
      prices and on reasonable business terms. While numerous factors will receive
      close consideration in determining the suitability of an acquisition, emphasis
      will be placed on market presence; growth potential of product and service
      lines; margin contribution; competition impact; customer loyalty and retention;
      management and other personnel commitment; integration efficiencies and
      controls; and transaction financing alternatives. An important objective is
      to
      achieve timely and cost-effective integration of all future
      acquisitions.




Our
      organic growth strategy is based on increasing market share in existing
      operating locations and geographically compatible areas through a concentrated
      market penetration and sales program aimed at offering a broader line of product
      services to both existing and prospective customers based on providing a
      value-added service initiative to what is generally perceived as a commodity
      business. The implementation of our new corporate infrastructure capability,
      including new ERP (Enterprise Resource Planning) operating systems
      technologies should enable us to reduce operating costs and administrative
      expenses; meet the compliance requirements of the Sarbanes-Oxley Act of 2002
      when they become applicable to SMF; more efficiently integrate new acquisitions;
      consolidate financial management reporting and analysis functions; improve
      management controls; and facilitate a paperless environment from data capture
      to
      accounting. It will also provide a wide range of operating information to
      customers’ management on a virtual real time basis which is anticipated to
      further distinguish the level of our services from competitors. Further, as
      we
      continue to emphasize our ability to serve more lubricants customers, we believe
      we will gain market share and recognition as the supplier of choice based on
      dependability, technical knowledge and price acceptability.




Shank
      Services and H & W were the initial acquisitions undertaken in our strategy
      to grow and diversify through acquisitions. During fiscal 2006 and the last
      half
      of fiscal 2005, we incurred substantial costs developing the infrastructure
      needed to support our acquisition, expansion and diversification strategy for
      growth. These incremental costs will continue into fiscal 2007 as we continue
      our infrastructure development as well as evaluate, negotiate and complete
      prospective acquisitions. We expect to incur additional costs during fiscal
      2007
      to retain and expand our senior and line management team; undertake new sales
      and marketing initiatives; introduce new and expected new services and products;
      evaluate and optimize our specialized routing equipment to achieve more
      efficiencies in our fuel delivery system; and redesign our accounting and
      information technology systems to reduce operating costs and improve our ability
      to rapidly integrate acquisitions.




6




Our
      interest costs will continue to increase to the extent that we incur additional
      debt to finance acquisitions and diversification, we will also continue to
      bear
      the risk of disruptions in our existing core business, causing possible higher
      costs, lower volumes and/or, lower margins. These types of disruptions, coupled
      with the infrastructure development costs needed to support our strategy, could
      lead to significant fluctuations in our results of operations in future
      reporting periods as indicated by the $1.04 and $2.3 million of selling, general
      and administrative expenses we incurred for corporate infrastructure and ongoing
      integration costs during the last quarter and year ended June 30,
      2006.




For
      future acquisitions, we expect to obtain a separate pool of capital to fund
      each
      transaction, as we did in connection with the Shank Services and H & W
      acquisitions. This capital may be in the form of equity, debt or a combination
      of both. While we expect to be able to satisfy these capital requirements,
      there
      is no assurance that we will be able to do so, and any such failure will
      necessarily impede the implementation of our growth strategy.




**MARKETING
      AND CUSTOMERS**




SMF
      markets its commercial mobile and bulk fueling services and its lubricant sales
      and distribution services to customers operating all size fleets of vehicles
      and
      equipment, including governmental agencies, utilities, trucking companies,
      bus
      lines, hauling and delivery services, courier services, construction companies
      and others. While large fleet operators offer immediate market penetration
      on a
      regional basis, small fleet operators can be equally important customers since
      they can provide the geographic market density which optimizes delivery
      efficiency and minimizes cost. Once engaged to provide commercial mobile fueling
      services, we are usually the exclusive service provider for the fueling of
      a
      customer’s entire fleet or a particular location of vehicles and equipment in a
      market which is consistent with the other products and services we provide
      to
      our expanding customer base.




We
      focus
      our marketing efforts on fleet operators within established service areas.
      Fleet
      size and type, fuel requirements, fueling logistics and credit worthiness are
      factors in identifying potential new customers for our services. Direct
      marketing is our primary method of developing new business. Referrals from
      existing customers and our personnel are also important sources of potential
      business. In addition, we are actively developing new service markets. A minimum
      level of business commitments in both volumes and margins is required prior
      to
      our entry into a new market. The ability to provide service to an existing
      customer in a new market and the prior identification of local new customers
      meeting our operating criteria are important considerations in a decision to
      enter a market.




As
      of
      June 30, 2006, SMF distributed diesel, gasoline, alternative fuels, lubricants,
      chemicals and other related products and services to approximately 4,000
      customers. Revenue (excluding petroleum product taxes) from one large customer,
      the United States Postal Service, totaled $15 million or 6.8%, $11.4 million
      or
      10.4% and $9.5 million or 14% of total petroleum product revenues in the fiscal
      years ended June 30, 2006, 2005 and 2004, respectively. Our current agreement
      with the United States Postal Service expires in August 2008. Although we have
      formal, length of service written contracts with certain larger customers,
      these
      types of agreements are not customary in the commercial mobile fueling business
      and we do not have them with the majority of our customers. Most customers
      can
      terminate our services at any time and for any reason, and we can similarly
      discontinue service to any customer. SMF will discontinue service to a customer
      if changes in service conditions or other factors cause us not to meet our
      minimum level of volumes and margins, and we are unable to re-negotiate a
      satisfactory arrangement with the customer.




**COMPETITION**




SMF
      competes with other distributors of fuels, lubricants and other petroleum
      products, including several large regional distributors and numerous small
      independent local operators. Our mobile fueling operations also compete with
      retail marketing outlets since fleet operators often have the option of fueling
      their own equipment at retail stations and other third-party service locations.
      In addition, our heavy and ultra-heavy haul transportation operations compete
      with other local, regional and national providers of these services. Our ability
      to compete effectively is dependent on numerous factors, including price,
      complexity and technical nature of the services required, delivery
      dependability, credit terms, service locations, as well as the type of reporting
      and invoicing services provided.




7




We
      believe that SMF has several competitive advantages, including a reputation
      for
      timely, efficient and reliable delivery of products and services; well trained
      drivers and support personnel available twenty-four hours a day, seven days
      a
      week; and strong business relationships with our principal suppliers that allow
      us to provide competitive pricing for our products and services.




**OPERATIONS**




**Truck
      Fleet, Equipment, Warehouses, Bulk-Tank Farms and Portable
      Trucks**




SMF
      currently provides commercial
      mobile and bulk fueling; packaging, distribution and lubricants sales;
      integrated out-sourced fuel management; heavy
      and
      ultra heavy haul transportation logistics and emergency response services from 26
      locations serving Alabama,
      California, Florida, Georgia, Louisiana, Mississippi, North Carolina, South
      Carolina, Tennessee and Texas.




Our
      fleet of 225 specialized commercial mobile fueling tank
      wagons, tractor-trailer transports, box trucks and customized flatbed vehicles
      deliver diesel
      fuel and gasoline to customers’ locations on a regularly scheduled or as needed
      basis, refueling vehicles and equipment, re-supplying fixed-site and
      temporary bulk storage tanks, as well as, emergency power generation
      systems ;
      and
      distribute a wide variety of specialized petroleum products and lubricants
      to
      refineries, manufacturers and other heavy industry customers. Our
      custom commercial mobile fueling trucks have multi-compartmented tanks with
      fuel
      carrying capacities ranging from 2,800 to 4,500 gallons. Generally, each truck
      services between five and fifteen customer locations per night or day, on
      specified delivery routes, depending on customer size and fueling logistics.
      The
      fuel supply to be delivered is acquired daily at local third-party terminal
      storage facilities. Each truck is operated by a “fueler/operator” driver who
      also handles the actual fueling of the customers’ vehicles.




As
      a result of the Shank Services and H & W acquisitions, SMF owns over 800
      fuel and lubricant storage tanks with over 1,700,000 gallons of capacity. These
      tanks include bulk storage tanks located at our facilities and portable tanks
      used for the temporary storage and dispensing of fuels and lubricants at a
      customer’s job site. Our portable tanks are delivered to the customer by our
      fleet of specialized flatbed trucks. In addition, we provide bulk fueling and
      lubricant services to customers who own their own storage facilities. We
      transport and deliver fuel and other petroleum products to these customers
      on a
      scheduled, or as needed, basis utilizing our fleet of customized tank wagons
      or
      7,500 gallon transports units.




Our
      fleet
      of 18 special
      duty tractor-trailer units provides specialized logistical heavy and ultra-heavy
      haul transportation services over short and long distances with 45,000 - 160,000
      pound capacities to customers requiring the movement of over-sized /over-weight loads
      of
      equipment and heavy manufactured products. These units consist of tractor and
      trailer combinations which can be reconfigured to meet the specific load and
      routing requirements.




**Fuel
      Tracking and Reporting System**




Our patented
      proprietary fuel tracking and reporting management system is widely used in
      SMF’s commercial mobile fueling operations. We own all patents covering the
      system, the rights to which are registered with the United States Patent and
      Trademark Office. Our system is specifically designed for use in commercial
      mobile fueling and is certified for accuracy by The National Conference on
      Weights and Measures. Data is derived from the Fuel Tracking Controller (“FTC”)
      Computer which is installed on each truck and is linked to the fueler/operator
      by a hand-held radio controlled scanning and transmitting device. The FTC
      Computer is programmed to control any variety of truck configurations, including
      single or multiple products and any number of pumps and hoses attached to the
      truck. The FTC fuel management system electronically records date, time,
      customer vehicle identification number, product type and volume of fuel
      delivered by SMF’s trucks into each customer vehicle. For security and tracking
      purposes, the FTC Computer will not permit fuel to be dispensed from our truck
      unless both the customer’s fleet yard and the individual vehicle or piece of
      equipment to be fueled are electronically verified by the FTC Computer
      registration. All fueling transactions are recorded on the truck’s FTC Computer,
      downloaded at our service locations and transmitted to our corporate
      headquarters where the data is assimilated into detailed service reports and
      invoices for the customer. This information can be delivered to the customer
      by
      a number of methods, including the internet, and data may also be delivered
      to
      the customer at his vehicle location at the time of fueling.




8




Because
      some service applications require both commercial mobile fueling and the use
      by
      the customer of his own on-site storage tanks, we have adapted the FTC Computer
      to track the use by the customer of its own fixed-site tanks. Upon installation
      of an FTC Computer, we service and manage fuel delivery to a customer’s on-site
      storage tank, providing reports detailing fuel dispensed from the tank into
      each
      of the customer’s vehicles, either alone or in combination with the customer’s
      mobile fueling use. SMF also utilizes third party systems as required for
      certain of its operations, applications and equipment.




**Fuel
      and Lubricant Supply**




Diesel
      fuel and gasoline are commodities which are refined and distributed by numerous
      sources. We purchase the fuel delivered to our customers from multiple suppliers
      at daily market prices and in some cases qualify for discounts. We monitor
      fuel
      prices and trends in each of our service markets on a daily basis and seek
      to
      purchase our supply at the lowest prices and under the most favorable terms.
      Commodity price risk is mitigated since we purchase and deliver fuel supplies
      daily and generally utilize cost-plus pricing when billing customers. We also
      deliver customer and third-party supplied fuel.




SMF
      purchases lubricants from branded and unbranded suppliers in bulk and in
      pre-packaged containers. H & W purchases substantially all of its lubricants
      from a single supplier pursuant to a long term supply arrangement, in which
      supplier offers marketing and financing assistance to H & W customers.
      Lubricants are distributed and sold to our customers in bulk, prepackaged or
      repackaged by us to meet customer needs. The pricing of lubricants to our
      customers is on a cost plus basis. Lubricants inventory generally is not subject
      to significant market price volatility like fuel, and the sales price per gallon
      is generally substantially higher than fuel. We provide to our customers a
      wide
      array of lubricant products, including gear oil, engine oil, heavy duty motor
      oil, hydraulic oil, transmission oil, specialty high temperature grease and
      synthetics.




**MANAGEMENT
      TEAM**




In
      order
      to successfully implement its acquisition and corporate development strategy
      (see “ACQUISITION AND DEVELOPMENT STRATEGY”), SMF has expanded the depth and
      breadth of its management team. We have augmented the existing core senior
      management of Richard Gathright, Chief Executive Officer; Michael Shore, Chief
      Financial Officer; Paul Vinger, Senior Vice President of Fleet Operations and
      Corporate Planning; Gary Williams, Senior Vice President of Commercial
      Operations; and Robert E. Creasman, Vice President of ESOH and Fleet Maintenance
      with three new executives. Robert W. Beard was named Vice President,
      Corporate Development in July 2005, and is now responsible for product line
      strategy and development as well as vendor, investor and public relations.
      In
      October 2005 in connection with the H & W acquisition, the President of H
& W, E. Wayne Wetzel, also became SMF’s Senior Vice President, Lubricants.
      Timothy E. Shaw was named Vice President of Information Systems Services and
      Chief Information Officer in April 2006 and is responsible for our systems
      infrastructure requirements.




We
      believe that with this senior management team we have the ability to effectively
      manage and operate SMF’s business and to execute and achieve its plan for future
      growth through acquisitions.




**EMPLOYEES**




At
      June
      30, 2006 and 2005, SMF had 326 and 250 full-time employees.




**AVAILABLE
      INFORMATION**




SMF
      maintains a website at www.mobilefueling.com. Our annual report on Form 10-K,
      quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments
      to those reports filed with the Securities Exchange Commission pursuant to
      Section 13(a) of the Securities Exchange Act of 1934 are available on the
“Investor Relations” section of our website shortly after we electronically file
      the reports with the Commission. Also available on our website is our Code
      of
      Business Conduct. All of these documents are available in print without charge
      to our shareholders who request them. Information on our website is not
      incorporated into this report.




9




**EFFECT
      OF GOVERNMENTAL REGULATION**




SMF’s
      operations are affected by numerous federal, state and local laws, regulations
      and ordinances, including those relating to protection of the environment and
      worker safety. Various federal, state and local agencies have broad powers
      under
      these laws, regulations and ordinances. In particular, the operation of our
      commercial mobile fueling fleet and its transportation of diesel fuel and
      gasoline are subject to extensive regulation by the U.S. Department of
      Transportation (“DOT”) under the Federal Motor Carrier Safety Act (“FMCSA”) and
      the Hazardous Materials Transportation Act (“HMTA”). We are subject to
      regulatory and legislative changes that can affect the economics of the industry
      by requiring changes in operating practices or influencing the demand for,
      and
      the cost of providing, its services. In addition, we depend on the supply of
      diesel fuel and gasoline from the oil and gas industry and, therefore, we are
      affected by changing taxes, price controls and other laws and regulations
      generally relating to the oil and gas industry. We cannot determine the extent
      to which our future operations and earnings may be affected by new legislation,
      new regulations or changes in existing regulations.




The
      technical requirements of these laws and regulations are becoming increasingly
      expensive, complex and stringent. These laws may impose penalties or sanctions
      for damages to natural resources or threats to public health and safety. Such
      laws and regulations may also expose us to liability for the conduct of or
      conditions caused by others, or for acts of which we were in compliance with
      all
      applicable laws at the time such acts were performed. Sanctions for
      noncompliance may include revocation of permits, corrective action orders,
      administrative or civil penalties and criminal prosecution. Certain
      environmental laws provide for joint and several liability for remediation
      of
      spills and releases of hazardous substances. In addition, we may be subject
      to
      claims alleging personal injury or property damage as a result of alleged
      exposure to hazardous substances, as well as damage to natural
      resources.




There
      can
      be no assurance that we will be able to comply with existing and future
      regulatory requirements in the future without incurring substantial costs or
      otherwise adversely affecting our operations.




**Item
      1A. Risk Factors**




**CERTAIN
      FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS**




The
      following important factors have affected, and may in the future continue to
      affect, our business results of operations and financial condition, and could
      cause operating results to differ materially from those expressed in any
      forward-looking statements made by or on behalf of us elsewhere in this report.




***No
      Assurances of Future Profitability; Losses from Operations; Need for
      Capital.*** SMF
      incurred net losses for the fiscal years ended June 30, 2006, 2005 and 2004.
      In
      order to generate profits in the future, we need to reduce cash and non-cash
      interest expense, increase volumes at profitable margins, control costs and
      generate sufficient cash flow to support working capital and debt service
      requirements. There is no assurance that our management will be able to
      accomplish our business plan or continue to raise capital at terms which are
      acceptable to us in order to support working capital requirements or debt
      service shortfalls during any business downturns. At June 30, 2006, our working
      capital was $1.3 million compared to $5.9 million on June 30, 2005. The $4.6
      million decrease primarily related to the costs of developing and maintaining
      our improved corporate infrastructure; continuing costs of integrating our
      recent acquisitions; capital expenditures related to the implementation of
      our
      new ERP system; corporate office leasehold improvements and other capital
      purchases; and principal payments on the August 2003 Notes; offset by proceeds
      from warrant exercises and an increase in net margin per gallon compared to
      the
      prior year. If operating results do not improve in fiscal 2007, the Company
      will
      require additional capital to fund acquisitions, significant diversification
      efforts and infrastructure development. While the Company believes that it
      will
      be able to obtain needed capital, there can be no assurance that it will do
      so
      or that such capital can be obtained on terms acceptable to the Company.




***Trading
      Market for Our Common Stock.*** During
      the year ended June 30, 2006, our common stock sometimes traded in large daily
      volumes and other times at much lower volumes, in many cases at wide price
      variances. This volatility, which could make it difficult for shareholders
      to
      sell shares at a predictable price or at specific times, is often due to factors
      beyond our control. Quarterly and annual operating results, changes in general
      conditions in the economy, the financial markets or other developments affecting
      us could cause the market price of our common stock to fluctuate.




10




***Growth
      Dependent Upon Future Expansion; Risks Associated With Expansion into New
      Markets.*** While
      we
      intend to continue to expand through acquisitions, our growth will also depend
      upon the ability to achieve greater penetration in existing markets and to
      successfully enter new markets in both additional major and secondary
      metropolitan areas. Such organic expansion will largely be dependent on our
      ability to demonstrate the benefits of our services and products to potential
      new customers; successfully establish and operate new locations; hire, train
      and
      retain qualified management, operating, marketing and sales personnel; finance
      acquisitions, capital expenditures and working capital requirements; secure
      reliable sources of product supply on a timely basis and on commercially
      acceptable credit terms; and successfully manage growth by effectively
      supervising operations, controlling costs and maintaining appropriate quality
      controls. There can be no assurance that we will be able to successfully expand
      our operations into new markets.




***Acquisition
      Availability; Integrating Acquisitions.*** SMF’s
      future growth strategy involves the acquisition of complementary businesses,
      such as wholesale fuel or petroleum lubricants marketers and distributors;
      wholesale fuel and other commercial mobile fueling companies; and transportation
      logistics services businesses. It is not certain that we will be able to
      identify or make suitable acquisitions on acceptable terms or that any future
      acquisitions will be effectively and profitably integrated into our operations.
      Acquisitions involve numerous risks that could adversely affect our operating
      results, including timely and cost effective integration of the operations
      and
      personnel of the acquired business; potential write downs of acquired assets;
      retention of key personnel of the acquired business; potential disruption of
      existing business; maintenance of uniform standards, controls, procedures and
      policies; additional capital needs, the effect of changes in management on
      existing business relationships; and profitability and cash flows
      generally.




***Effect
      of Material Weakness in Internal Controls.*** As
      of June 30, 2006, our management identified significant deficiencies
      related to policies and procedures to ensure accurate and reliable interim
      and
      annual consolidated financial statements which, considered together, constituted
      a material weakness in our internal controls. Specifically, we lacked (i)
      sufficient number of personnel with required technical accounting and SEC
      financial reporting experience; (ii) adequate segregation of duties
      among our accounting personnel; (iii) sufficient review controls over
      account reconciliations, account analyses and operating procedures, primarily
      in
      connection with acquired businesses; and (iv) policies and procedures requiring
      a timely and detailed review of information underlying amounts
      included in our financial statements and disclosures. We believe that the
      primary cause of this material weakness finding related to the integration
      of
      our Shank Services and H & W acquisitions, together with the delays in
      completing the implementation of our ERP System. While we have engaged in
      substantial efforts in order to address the material weakness in our internal
      controls over financial reporting and to improve the integrity of our reporting
      processes, including the development and implementation of our ongoing ERP
      infrastructure capability which we initiated in fiscal 2006, there is no
      assurance that our efforts will be successful. Those remediation
      efforts are explained in detail in Item 9A — Controls and
      Procedures of this report.  Even though our management has made the
      correction of the identified material weakness one of its very highest
      priorities for fiscal 2007, it is possible that, considering our size,
      limited capital resources and our need to continue
      to expand our business by acquisitions and
      diversification, we will not be able to promptly rectify all of
      the significant deficiencies that led to our conclusion of
      a material weakness in our internal controls. We
      have incurred and will continue to incur substantial expenses relating to the
      remediation of this material weakness. These expenses may materially affect
      our financial condition, results of operations and cash flows. In addition,
      even
      after the remedial measures discussed in Item 9A — Controls and
      Procedures are fully implemented, our internal controls may not prevent all
      potential error and fraud, because any control system, no matter how well
      designed, can only provide reasonable and not absolute assurance that the
      objectives of the control system will be achieved.





***Dependence
      on Key Personnel*** *.* The
      future success of SMF will be largely dependent on the continued services and
      efforts of Richard E. Gathright, our President and Chief Executive Officer,
      and
      on other key executive personnel. The loss of the services of Mr. Gathright
      or
      other executive personnel could have a material adverse effect on our business
      and prospects. Our success and plans for future growth will also depend on
      our
      ability to attract and retain additional qualified management, operating,
      marketing, sales and financial personnel. There can be no assurance that we
      will
      be able to hire or retain such personnel on terms satisfactory to us. We have
      entered into written employment agreements with Mr. Gathright and certain other
      key executive personnel. While Mr. Gathright’s employment agreement provides for
      automatic one year extensions unless either party gives notice of intent not
      to
      renew prior to such extension, there is no assurance that Mr. Gathright’s
      services or those of our other executive personnel will continue to be available
      to the Company.





11




***Fuel
      Pricing and Supply Availability; Effect on
      Profitability*** *.* Diesel
      fuel and gasoline are commodities which are refined and distributed by numerous
      sources. SMF purchases the fuel delivered to our customers from multiple
      suppliers at daily market prices and in some cases qualifies for certain
      discounts. We monitor fuel prices and trends in each of our service markets
      on a
      daily basis and seek to purchase our supply at the lowest prices and under
      the
      most favorable terms. Commodity price risk is mitigated since we purchase and
      deliver our fuel supply daily and generally utilize cost-plus pricing when
      billing our customers. If we cannot continue to utilize cost-plus pricing when
      billing our customers, margins would likely decrease and a loss could be
      incurred. ** We have
      not engaged in derivatives or futures trading to hedge fuel price movements.
      In
      addition, diesel fuel and gasoline may be subject to supply interruption due
      to
      a number of factors, including natural disasters, refinery and/or pipeline
      outages and labor disruptions. The reduction of available supplies could impact
      our ability to provide commercial mobile and bulk fueling, and emergency
      response services and impact profitability.




***Risks
      Associated with Customer Concentration; Absence of Written Agreements.*** Although
      SMF provides services to many customers, a significant portion of our revenues
      are generated from a few of our larger customers. While we have formal, length
      of service written contracts with some of our larger customers, these types
      of
      agreements are not customary and we do not have them with the majority of our
      customers. As a result, most of our customers can terminate our services at
      any
      time and for any reason, and we can similarly discontinue service to any
      customer. SMF may discontinue service to a customer if changes in the service
      conditions or other factors cause us not to meet our minimum level of margins
      and rates, and the pricing or delivery arrangements cannot be re-negotiated.
      As
      a result of this customer concentration and absence of written agreements,
      our
      business, results of operations and financial condition could be materially
      adversely affected if one or more of our large customers were lost or if we
      were
      to experience a high rate of service terminations.




***Management
      of Growth; Accounting and Information Technology Systems Implementation.*** SMF’s
      future growth strategy is dependent on effective operational, financial and
      other internal systems, and the ability to attract, train, motivate, manage
      and
      retain our employees. If we are unable to manage growth effectively, results
      of
      operations will be adversely affected. In particular, the results of operations
      will be influenced by the redesign and implementation of our accounting and
      information technology systems to reduce operating costs and improve our ability
      to effectively manage our business and integrate acquisitions. There can be
      no
      assurance that such redesign and implementation will be completed as planned,
      or
      that it will have the intended results.




***Competition.*** SMF
      competes with other service providers, including several large regional, and
      numerous small, local independent operators who provide services similar to
      those which we offer to our customers. In the mobile fueling area, we also
      compete with retail markets where fleet operators have the option of fueling
      their own equipment at retail stations and other third-party service locations
      such as card lock facilities. Our ability to compete is dependent on numerous
      factors, including price, complexity and technical nature of the services
      required, delivery dependability, credit terms, service locations as well as
      the
      type of reporting and invoicing services provided. There can be no assurance
      that we will be able to continue to compete successfully as a result of these
      or
      other factors.




***Operating
      Risks May Not Be Covered by Insurance.*** SMF’s
      operations are subject to the operating hazards and risks normally incidental
      to
      handling, storing and transporting diesel fuel and gasoline, which are
      classified as hazardous materials. We maintain insurance policies in amounts
      and
      with coverages and deductibles we believe are reasonable and prudent. However,
      there can be no assurance that our insurance will be adequate to protect us
      from
      liabilities and expenses that may arise from claims for personal and property
      damage arising in the ordinary course of business; that we will be able to
      maintain acceptable levels of insurance; or that insurance will be available
      at
      economical prices.




***Governmental
      Regulation.*** SMF’s
      operations are affected by numerous federal, state and local laws, regulations
      and ordinances, including those relating to protection of the environment and
      worker safety. There can be no assurance that we will be able to comply with
      existing and future regulatory requirements in the future without incurring
      substantial costs or otherwise adversely affecting our operations. ****** See
      the
      discussion of governmental regulations and their impact on SMF in
“Business-Effect of Governmental Regulation” above.




***Changes
      in Environmental Requirements*** *.* SMF
      expects to generate future business by converting certain fleet operators,
      currently utilizing underground fuel storage tanks for their fueling needs,
      to
      commercial mobile fueling. The owners of underground storage tanks have been
      required to remove or retrofit those tanks to comply with technical regulatory
      requirements pertaining to their construction and operation. If other more
      economical means of compliance are developed or adopted by owners of underground
      storage tanks, the opportunity to market our services to these owners may be
      adversely affected.




12




***Risk
      of Terrorism and Political Unrest in the Middle East may adversely affect the
      economy and the price and availability of petroleum
      products.*** Terrorist attacks, such as the attacks that occurred in New York, Pennsylvania
      and Washington, D.C. on September 11, 2001, and continuing political unrest
      in
      the Middle East may adversely impact the price and availability of fuel, our
      results of operations, our ability to raise capital and our future growth.
      The
      impact of terrorism on the oil industry in general, and on SMF in particular,
      is
      not known at this time. An act of terror could result in disruptions of crude
      oil or natural gas supplies and markets, the sources of our products, and our
      infrastructure facilities or our suppliers could be direct or indirect targets.
      Terrorist activity may also hinder our ability to transport fuel if the means
      of
      supply transportation, such as rail or pipelines, become damaged as a result
      of
      an attack. A lower level of economic activity following a terrorist attack
      could
      result in a decline in energy consumption, which could adversely affect our
      revenues or restrict our future growth. Instability in the financial markets
      as
      a result of terrorism could also impair our ability to raise capital. Terrorist
      activity could also lead to increased volatility in fuel prices, which could
      adversely affect our business generally.




**Item
      1B. Unresolved Staff Comments**





Not
      applicable.




**Item
      2. Properties**





The
      following table sets forth certain information concerning significant property
      and facilities we own or lease for use in our operations as of June 30,
      2006 **:**





******Description**
            ******Location**
            **Lease
                Expiration**Truck
                yard and office
            Gardena,
                California
            7/15/07Truck
                yard and office
            Bloomington,
                California
            3/31/07Corporate
                office
            Ft.
                Lauderdale, Florida
            7/31/12Truck
                yard and office
            Port
                Everglades, Florida
            2/28/07Truck
                yard and office
            Orlando,
                Florida
            11/1/09Truck
                yard and office
            Tampa,
                Florida
            OwnedTruck
                yard and office
            Doraville,
                Georgia
            1/1/08Truck
                yard and office
            Houston,
                Texas
            9/30/10Truck
                yard and office
            Ft.
                Worth, Texas
            12/31/06Truck
                yard and office
            Jacksonville,
                Florida
            8/31/15Truck
                yard and office
            Charlotte,
                NC
            12/31/06Truck
                yard and office
            Freeport,
                Texas
            9/30/10Truck
                yard and office
            Waxahachie,
                Texas
            9/30/10Truck
                yard and office
            Converse,
                Texas
            9/30/07Truck
                yard and office
            Lufkin,
                Texas
            9/30/10Truck
                yard and office
            Waco,
                Texas
            5/31/07Truck
                yard and office
            Gonzales,
                LA
            2/15/07




**Item
      3.  Legal Proceedings**


On
        October 10, 2006, the Company filed a civil complaint (the “Complaint”) in
        Broward County, Florida Circuit Court against Financial Accounting Solutions
        Group, Inc., (“FAS”), Kramer Professional Staffing, Inc., (“KPS”), and Mitchell
        Kramer, an officer, director, shareholder and control person of FAS and KPS
        (“Kramer”). The Complaint alleges that, in early 2005, Kramer, FAS and KPS
        (collectively, the “Defendants”) induced the Company to engage FAS to provide
        critical management consulting services with respect to (a) the implementation
        of certain Information Technology (“IT”) functions, including the integration of
        the Company’s IT system with those of its new subsidiaries, (b) the
        modernization and expansion of the Company’s accounting and business technology
        capabilities, and (c) ensuring compliance with public company accounting
        internal requirements and the Sarbanes-Oxley Act (the “IT Projects”). The
        Complaint further alleges that the Defendants made numerous misrepresentations
        to the Company concerning the experience, capabilities and background of
        FAS and
        FAS’ personnel, which misrepresentations were relied upon by the Company when
        it
        decided to hire FAS to undertake these tasks and subsequently to continue
        with
        the engagement. After persistent delays and failures to perform by FAS, the
        Company determined that FAS’ performance of the IT Projects was grossly
        inadequate and that FAS had violated various promises and agreements made
        by
        FAS, and the Company therefore terminated the engagement. The Complaint seeks
        damages from FAS for, among other things, its breach of its contractual
        obligations to the Company, failure to provide services in accordance with
        any
        reasonable standard of care within the IT industry, negligence, and unjust
        enrichment from inflated and fraudulent billing practices. The Complaint
        also
        seeks damages from all of the Defendants for negligent and fraudulent
        misrepresentations with respect to FAS’ experience, capabilities and background
        and seeks the return from FAS of an unspecified portion of the fees previously
        paid to FAS for the IT Projects.
 
 The
        amount of damages recoverable from the Defendants in this action will depend
        on
        a number of factors, including but not limited to the costs incurred by the
        Company in completing the IT Projects, the amount of consequential damages
        suffered by the Company as a result of the delays and poor performance by
        FAS in
        implementing the IT projects, potential counterclaims or countersuit by FAS
        for
        amounts billed to the Company which the Company has refused to pay, and the
        assessment by the Company, based on input from the new vendor engaged by
        the
        Company to replace FAS, of the estimated costs to complete the IT Projects.
        The
        Company has been advised by counsel that, based on all available information,
        the likelihood of FAS prevailing in any litigation against the Company is
        remote
        and the chance of recovery by FAS against the Company is slight.




13




**Item
      4.  Submission of Matters to a Vote of Security
      Holders**




No
      matters were submitted to a vote of the security holders, through the
      solicitation of proxies or otherwise, during the fourth quarter of fiscal year
      2006.


14


**PART
      II**




**Item
      5.  Market for Common Equity, Related Shareholder Matters and Issuer
      Purchases of Equity Securities**




Streicher
      Mobile Fueling, Inc. common stock, par value $.01 (“common stock”) and
      Redeemable Common Stock Purchase Warrants (“warrants”) have traded in the
      National Association of Securities Dealers Automated Quotation System (“NASDAQ”)
      Market under the symbols “FUEL” and “FUELW”, respectively, since
      December 11, 1996, the date of the Company’s initial public offering. The
      warrants have expired and ceased trading on December 27, 2005. The following
      table sets forth, for the periods indicated, the high and low bid prices for
      the
      common stock and warrants, as reported by NASDAQ.





**Common
                Stock**
            
            **Warrants****High**
            
            **Low**
            
            **High**
            
            **Low****Year
                Ended June 30, 2006**1st
                quarter
            
            
            $ 5.55
            
            
            $ 1.90
            
            
            N/A
            
            
            N/A2nd
                quarter
            
            
            $ 4.00
            
            
            $ 2.35
            
            
            N/A
            
            
            N/A3rd
                quarter
            
            
            $ 3.45
            
            
            $ 2.50
            
            
            N/A
            
            
            N/A4th
                quarter
            
            
            $ 4.60
            
            
            $ 2.24
            
            
            N/A
            
            
            N/A**Year
                Ended June 30, 2005**1st
                quarter
            
            
            $ 1.83
            
            
            $ 1.01
            
            
            $ 0.18
            
            
            $ 0.012nd
                quarter
            
            
            $ 2.86
            
            
            $ 1.08
            
            
            $ 0.25
            
            
            $ 0.013rd
                quarter
            
            
            $ 4.06
            
            
            $ 1.50
            
            
            $ 0.55
            
            
            $ 0.014th
                quarter
            
            
            $ 3.36
            
            
            $ 1.35
            
            
            $ 0.34
            
            
            $ 0.01





On
      June
      30, 2006, the closing bid price of the common stock was $2.60 per share. As
      of
      September 25, 2006, there were 43 holders of record of our common stock and
      over
      1,000 beneficial owners of our common stock.




We
      have
      never declared or paid any dividends on our common stock. The payment of
      dividends, if any, is within the discretion of the Board of Directors and will
      depend upon our earnings, our capital requirements and financial condition
      and
      other relevant factors. The Board of Directors does not intend to declare
      dividends in the foreseeable future and intends to retain any future earnings
      for use in our business operations.




**Item
      6.  Selected Financial Data**




The
      following selected financial data of SMF should be read in conjunction with
      the
      Consolidated Financial Statements and related notes and “Management’s Discussion
      and Analysis of Financial Condition and Results of Operations.” The selected
      financial table below is for each of the fiscal years ended June 30, 2006,
      2005,
      2004, 2003 and 2002. Except for the unaudited statistical information section,
      the selected financial data is derived from our audited Consolidated Financial
      Statements for the fiscal years ended June 30, 2006 2005, 2004, 2003 and
      2002.


15


*(in
      thousands, except net margin per gallon and per share data)*


**Year
                  Ended June 30,****2006**
              
              **2005**
              
              **2004**(5)
              
              **2003**
              
              **2002*****Selected
                  Income Statement Data:***Total
                  revenue (6)
              
              
              249,541
              
              
              133,563
              
              
              89,110
              
              
              71,365
              
              
              60,318Gross
                  profit
              
              
              12,409
              
              
              6,588
              
              
              4,298
              
              
              4,023
              
              
              4,591Selling,
                  general and administrative expense
              
              
              13,262
              
              
              6,145
              
              
              4,394
              
              
              4,716
              
              
              4,382Operating
                  (loss) income
              
              
              (853
              )
              
              443
              
              
              661
              
              
              (693
              )
              
              209Interest
                  expense, net
              
              
              4,025
              
              
              1,903
              
              
              1,361
              
              
              915
              
              
              1,175Beneficial
                  conversion of debt toequity
                  interest expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (241
              )Net
                  loss
              
              
              (4,878
              )
              
              (1,460
              )
              
              (698
              )
              
              (1,581
              )
              
              (1,162
              )***Share
                  Data:***Basic
                  and diluted net loss per share
              
              
              (0.50
              )
              
              (0.19
              )
              
              (0.10
              )
              
              (0.22
              )
              
              (0.20
              )Basic
                  and diluted weighted average commonshares
                  outstanding
              
              
              9,819
              
              
              7,857
              
              
              7,261
              
              
              7,221
              
              
              5,698***Selected
                  Balance Sheet Data:***Cash
                  and cash equivalents
              
              
              4,103
              
              
              4,108
              
              
              2,708
              
              
              211
              
              
              815Accounts
                  receivable, net
              
              
              24,345
              
              
              14,129
              
              
              8,280
              
              
              6,113
              
              
              6,382Line
                  of credit payable
              
              
              15,612
              
              
              4,801
              
              
              4,919
              
              
              4,410
              
              
              4,680Long-term
                  debt (including currentportion)
              
              
              13,136
              
              
              11,141
              
              
              5,558
              
              
              4,478
              
              
              5,152Shareholders’
                  equity
              
              
              5,540
              
              
              6,838
              
              
              5,348
              
              
              4,111
              
              
              5,676Total
                  Assets
              
              
              48,114
              
              
              30,125
              
              
              20,018
              
              
              16,011
              
              
              18,560***Financial
                  and Statistical Information:***EBITDA
                  (1)
              
              
              1,781
              
              
              2,278
              
              
              1,983
              
              
              737
              
              
              1,712Working
                  Capital (deficit) (4)
              
              
              1,298
              
              
              5,861
              
              
              2,472
              
              
              (2,430
              )
              
              (1,576
              )Net
                  Margin (2)
              
              
              14,076
              
              
              8,055
              
              
              5,428
              
              
              5,426
              
              
              6,049Net
                  Margin per gallon (in dollars) (3)
              
              
              0.149
              
              
              0.121
              
              
              0.099
              
              
              0.115
              
              
              0.122Total
                  Gallons
              
              
              94,738
              
              
              66,427
              
              
              54,594
              
              
              47,294
              
              
              49,500***Non-GAAP
                  Measure Reconciliation, EBITDA Calculation:***Net
                  loss
              
              
              (4,878
              )
              
              (1,460
              )
              
              (698
              )
              
              (1,581
              )
              
              (1,162
              )Add
                  back:Interest
                  expense, net (7)
              
              
              4,025
              
              
              1,903
              
              
              1,361
              
              
              915
              
              
              1,175Beneficial
                  conversion of debt toequity
                  interest expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              241Stock-based
                  compensation expense
              
              
              511
              
              
              -
              
              
              -
              
              
              -
              
              
              -Depreciation
                  and amortizationexpense
              
              
              2,123
              
              
              1,835
              
              
              1,320
              
              
              1,403
              
              
              1,458Subtotal
              
              
              6,659
              
              
              3,738
              
              
              2,681
              
              
              2,318
              
              
              2,874EBITDA
              
              
              1,781
              
              
              2,278
              
              
              1,983
              
              
              737
              
              
              1,712




(1)
            EBITDA
                = Earnings before interest, taxes, depreciation and amortization,
                and
                stock-based compensationexpense




(2)
            Net
                Margin = Gross profit plus cost of sales
                depreciation




(3)
            Net
                margin per gallon = Net margin divided by total gallons
                sold




(4)
            Working
                Capital (deficit) = current assets minus current
                liabilities




(5)
            Operating
                income, net income and EBITDA for the year ended June 30, 2004, includes
                a
                $757,000gain
                on extinguishment of debt




(6)
                In
                    the years ended June 30, 2005, 2004, 2003 and 2002 total revenue
                    and cost
                    of sales were reduced by $1.6 million, $887,000, $829,000 and
                    $531,000,
                    respectively, in order to record excise taxes on a net basis,
                    instead of
                    gross based on risk of
                    loss.


(7)
                      The
                          year ended June 30, 2006 includes $537,000 in interest
                          expense to
                          write-off of deferred debt costs, debt discount and a prepayment
                          penalty
                          related to the warrants issued on June 30, 2006, to convert
                          a portion of
                          the August 2003 and January 2005 Notes.




16




**Unaudited
      Quarterly Selected Financial Data for Years Ended June 30, 2006 and 2005:**


*(in
      thousands, except net margin per gallon and per share data)*




**June
                    30, 2006**
                
                **June
                    30, 2005 (5)*****Selected
                    Income Statement Data:***
                
                **Q1**
                
                **Q2**
                
                **Q3**
                
                **Q4**
                
                **YTD**
                  **2006**
                
                **Q1**
                
                **Q2**
                
                **Q3**
                
                **Q4**
                
                **YTD**
                  **2005**Total
                    revenue
                
                
                52,796
                
                
                66,751
                
                
                59,436
                
                
                70,558
                
                
                249,541
                
                
                28,705
                
                
                29,445
                
                
                32,735
                
                
                42,678
                
                
                133,563Gross
                    profit
                
                
                3,813
                
                
                3,829
                
                
                2,258
                
                
                2,509
                
                
                12,409
                
                
                1,800
                
                
                1,444
                
                
                1,042
                
                
                2,302
                
                
                6,588Operating
                    income (loss)
                
                
                1,279
                
                
                822
                
                
                (1,311
                )
                
                (1,643
                )
                
                (853
                )
                
                677
                
                
                212
                
                
                (830
                )
                
                384
                
                
                443Net
                    income (loss)
                
                
                615
                
                
                (142
                )
                
                (2,216
                )
                
                (3,135
                )
                
                (4,878
                )
                
                295
                
                
                (181
                )
                
                (1,349
                )
                
                (225
                )
                
                (1,460
                )***Per
                    Share Data:***Basic
                    net income (loss) per share
                
                
                .07
                
                
                (.01
                )
                
                (.23
                )
                
                (.30
                )
                
                (.50
                )
                
                .04
                
                
                (.02
                )
                
                (.17
                )
                
                (.03
                )
                
                (.19
                )Diluted
                    net income (loss) per share
                
                
                .06
                
                
                (.01
                )
                
                (.23
                )
                
                (.30
                )
                
                (.50
                )
                
                .04
                
                
                (.02
                )
                
                (.17
                )
                
                (.03
                )
                
                (.19
                )Basic
                    weighted average common shares outstanding
                
                
                9,339
                
                
                9,776
                
                
                9,814
                
                
                10,350
                
                
                9,819
                
                
                7,332
                
                
                7,436
                
                
                7,813
                
                
                8,859
                
                
                7,857Diluted
                    weighted average common  shares
                    outstanding
                
                
                10,197
                
                
                9,776
                
                
                9,814
                
                
                10,350
                
                
                9,819
                
                
                7,870
                
                
                7,436
                
                
                7,813
                
                
                8,859
                
                
                7,857***Selected
                    Balance Sheets Data:***Cash
                    and cash equivalents
                
                
                1,657
                
                
                3,445
                
                
                1,914
                
                
                4,103
                
                
                4,103
                
                
                3,213
                
                
                4,463
                
                
                3,759
                
                
                4,108
                
                
                4,108Accounts
                    receivable, net
                
                
                22,426
                
                
                25,625
                
                
                23,488
                
                
                24,345
                
                
                24,345
                
                
                10,654
                
                
                8,290
                
                
                12,705
                
                
                14,129
                
                
                14,129Line
                    of credit payable
                
                
                3,353
                
                
                13,236
                
                
                13,347
                
                
                15,612
                
                
                15,612
                
                
                6,278
                
                
                5,316
                
                
                3,707
                
                
                4,801
                
                
                4,801Long-term
                    debt (including currentportion)
                
                
                13,013
                
                
                14,583
                
                
                12,658
                
                
                13,136
                
                
                13,136
                
                
                5,639
                
                
                5,726
                
                
                11,057
                
                
                11,141
                
                
                11,141Shareholders’
                    equity
                
                
                9,305
                
                
                9,340
                
                
                7,191
                
                
                5,540
                
                
                5,540
                
                
                5,738
                
                
                5,620
                
                
                6,887
                
                
                6,838
                
                
                6,838Total
                    Assets
                
                
                35,579
                
                
                50,179
                
                
                45,553
                
                
                48,114
                
                
                48,114
                
                
                22,459
                
                
                21,537
                
                
                28,278
                
                
                30,125
                
                
                30,125***Financial
                    and Statistical Information:***EBITDA
                    (1)
                
                
                1,784
                
                
                1,455
                
                
                (687
                )
                
                (771
                )
                
                1,781
                
                
                992
                
                
                522
                
                
                (2
                )
                
                766
                
                
                2,278Working
                    Capital (Deficit) (4)
                
                
                10,382
                
                
                5,317
                
                
                2,309
                
                
                1,298
                
                
                1,298
                
                
                2,563
                
                
                2,792
                
                
                5,830
                
                
                5,861
                
                
                5,861Net
                    Margin (2)
                
                
                4,149
                
                
                4,226
                
                
                2,652
                
                
                3,049
                
                
                14,076
                
                
                2,071
                
                
                1,706
                
                
                1,653
                
                
                2,625
                
                
                8,055Net
                    Margin per gallon (in dollars) (3)
                
                
                0.199
                
                
                0.167
                
                
                0.110
                
                
                0.124
                
                
                0.149
                
                
                0.137
                
                
                0.115
                
                
                0.101
                
                
                0.131
                
                
                0.121Total
                    Gallons
                
                
                20,819
                
                
                25,249
                
                
                24,079
                
                
                24,591
                
                
                94,738
                
                
                15,153
                
                
                14,795
                
                
                16,402
                
                
                20,077
                
                
                66,427***Non-GAAP
                    Measure Reconciliation EBITDA Calculation:***Net
                    income/(loss)
                
                
                615
                
                
                (142
                )
                
                (2,216
                )
                
                (3,135
                )
                
                (4,878
                )
                
                295
                
                
                (181
                )
                
                (1,349
                )
                
                (225
                )
                
                (1,460
                )Add
                    back:Interest
                    expense, net (6)
                
                
                675
                
                
                964
                
                
                905
                
                
                1,481
                
                
                4,025
                
                
                382
                
                
                393
                
                
                519
                
                
                609
                
                
                1,903Stock-based
                    compensationexpense
                
                
                92
                
                
                102
                
                
                86
                
                
                231
                
                
                511
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Depreciation
                    and amortization:*Cost
                    of sales*
                
                
                336
                
                
                397
                
                
                394
                
                
                540
                
                
                1,667
                
                
                271
                
                
                262
                
                
                611
                
                
                323
                
                
                1,467*Sales,
                    general, and administrative**expense*
                
                
                66
                
                
                134
                
                
                144
                
                
                112
                
                
                456
                
                
                44
                
                
                48
                
                
                217
                
                
                59
                
                
                368EBITDA
                
                
                1,784
                
                
                1,455
                
                
                (687
                )
                
                (771
                )
                
                1,781
                
                
                992
                
                
                522
                
                
                (2
                )
                
                766
                
                
                2,278




(1)
            EBITDA
                = Earnings before interest, taxes, depreciation and amortization,
                and
                stock-based compensation expense




(2)
            Net
                Margin = Gross profit plus cost of sales depreciation; net margin
                is a
                non-GAAP measure




(3)
            Net
                margin per gallon = Net margin divided by total gallons
                sold




(4)
            Working
                Capital (deficit) = current assets minus current
                liabilities




(5)
            For
                the quarters and year ended June 30, 2005, total revenue and cost
                of sales
                were reduced in total by $1.6 million in order to record excise taxes
                on a
                net basis, instead of gross based on risk of
                loss




(6)
            The
                fourth quarter of the year ended June 2006 includes $537,000 in interest
                expense to write-off of deferred debt costs, debt discount and a
                prepayment penalty related to the warrants issued on June 30, 2006,
                to
                convert a portion of the August 2003 and January 2005 Notes




17




**Item
      7.  Management’s Discussion and Analysis of Financial Condition and
      Results of Operations**




The
      following discussion should be read in conjunction with SMF’s audited
      consolidated financial statements and related notes included elsewhere in this
      Form 10-K.




**FORWARD
      LOOKING STATEMENTS**




This
      report, including but not limited to this Item 2 and the footnotes to the
      financial statements in Section F, contains “forward looking statements”
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”). These statements concern expectations, beliefs,
      projections, future plans and strategies, anticipated events or trends and
      similar expressions concerning matters that are not historical facts. Statements
      proceeded by, followed by, or that include the words “believes,” “expects,”
“anticipates,” or similar expressions are generally considered to be
      forward-looking statements.





The
      forward-looking statements include, but are not limited, to the
      following:




·
            Our
                beliefs regarding our position in the commercial mobile fueling and
                bulk
                fueling; lubricant and chemical packaging, distribution and sales;
                integrated out-sourced fuel management services; and transportation
                logistics markets




·
            Our
                strategies, plan, objectives and expectations concerning our future
                operations, cash flows, margins, revenues, profitability, liquidity
                and
                capital resources




·
            Our
                efforts to improve operational, financial and management controls
                and
                reporting systems and procedures




·
            Our
                plans to expand and diversify our business through acquisitions of
                existing companies or their operations and customer
                bases




The
      forward-looking statements reflect our current view about future events and
      are
      subject to risks, uncertainties and assumptions. We caution readers of this
      report that certain important factors may have affected and could in the future
      affect our actual results and could cause actual results to differ significantly
      from those expressed in any forward-looking statement. In addition to the Risk
      Factors included
      in Part II, Item 1A, of this report, the inaccuracy of any of the following
      assumptions could
      prevent us from achieving our goals, and cause the assumptions underlying the
      forward-looking statements and the actual results to differ materially from
      those expressed in or implied by those forward-looking statements:





·
            the
                avoidance of future net losses




·
            the
                avoidance of adverse consequences relating to our outstanding
                debt




·
            our
                continuing ability to pay interest and principal on our bank line
                of
                credit; the $5.54 million of August 2003 Notes; the $6.1 million
                of
                January 2005 Notes; and the $3.0 million of September 2005 Notes;
                and to
                pay our accounts payable and other liabilities when
                due




·
            our
                continuing ability to comply with financial covenants contained in
                our
                credit agreements




·
            our
                continuing ability to obtain all necessary waivers of covenant violations,
                if any, in our debt agreements




·
            the
                avoidance of significant provisions for bad debt reserves on our
                accounts
                receivable




·
            the
                continuing demand for our products and services at competitive prices
                and
                acceptable margins




·
            the
                avoidance of negative customer reactions to new or existing marketing
                strategies




18




**·**
            the
                avoidance of significant inventory reserves for slow moving
                products




·
            our
                continuing ability to acquire sufficient trade credit from fuel and
                lubricants suppliers and other
                vendors




**·**
            the
                successful completion of the process of integrating the Shank Services
                and
                H & W operations into our existing operations, and enhancing the
                profitability of the integrated businesses




**·**
            the
                successful execution of our acquisition and diversification strategy,
                including the availability of sufficient capital to acquire additional
                businesses and to support the infrastructure requirements of a larger
                combined company




**·**
            the
                successful completion of the implementation of our new information
                management system




**·**
            the
                success in responding to competition from other providers of similar
                services




·
            the
                impact of generally positive economic and market
                conditions




·
            ability
                to retire or convert debt to equity




**OVERVIEW**




**Our
      Business**





We
      provide commercial mobile and bulk fueling; integrated out-sourced fuel
      management; packaging, distribution and sale of lubricants and chemicals;
      transportation logistics; and emergency response services. Our fleet of custom
      specialized tank wagons, tractor-trailer transports, box trucks and customized
      flatbed vehicles delivers diesel fuel and gasoline to customers’ locations on a
      regularly scheduled or as needed basis, refueling vehicles and equipment,
      re-supplying fixed-site and temporary bulk storage tanks, and providing fuel
      for
      emergency power generation systems; and distributes a wide variety of
      specialized petroleum products, lubricants and chemicals to refineries,
      manufacturers and other industrial customers. In addition, our fleet
      of special duty tractor-trailer units provides heavy and ultra-heavy haul
      transportation logistics services over short and long distances to customers
      requiring the movement of over-sized and/or over-weight equipment and heavy
      manufactured products. At June 30 2006, we were conducting operations in
      Alabama, California, Florida, Georgia, Louisiana, Mississippi, North
      Carolina, South Carolina, Tennessee and Texas.




On
      February 18, 2005, we acquired substantially all of the assets and business
      operations of Shank Services, a Houston, Texas based provider of commercial
      fuel, petroleum lubricants distribution and sales and heavy haul transportation
      services in the Houston, Dallas/Fort Worth, Austin and San Antonio markets
      in
      Texas.




On
      October 1, 2005, we acquired all of the stock of H & W, a Houston,
      Texas based marketer and distributor of lubricants, commercial fuels and
      petroleum products. Prior to closing this acquisition, H & W acquired the
      operating assets of Harkrider Distributing Company, a Houston based marketer
      and
      distributor of dry cleaning solvents, chemicals and petroleum products. The
      combined H & W and Harkrider operations serve the Houston, Dallas/Fort
      Worth, Freeport, Longview, Lufkin, San Antonio, Beaumont, Waco and
      Waxahachie markets in Texas, and the New Orleans market in Louisiana. The
      purchase price was based on a multiple of 4.5 times projected annualized EBITDA *(earnings
      before interest, taxes, depreciation and amortization - a non-GAAP financial
      measure)* of
      approximately $1.4 million and was adjusted to $5.964 million at closing by
      working capital and other closing adjustments.




We
      provide our commercial mobile and bulk fueling and other services at a
      competitive rate for those services plus the cost of products and procurement,
      generally based on market prices of fuels and lubricants. As a result, revenue
      levels for much of our operations are largely dependent on the upward or
      downward movement of petroleum product prices in each market and are not as
      significantly influenced by the revenues derived from the service component
      of
      our fuel and lubricant based business. Although fuel price volatility can affect
      customers’ demand for fuel and can also increase the fuel costs of operating our
      fleet of trucks and equipment, our gross profit on sales is generally not
      directly affected by fuel price fluctuations since we pass on fuel price changes
      to customers and we charge customers for our services on a per gallon basis
      based on a targeted rate per hour. While there may be a short term correlation
      between customer resistance to paying higher service charges when fuel prices
      rise sharply, we believe that we market labor savings, fuel theft reduction
      and
      other benefits of our services which reduce or limit the overall cost of our
      customers’ fuel supplies. During the years ended June 30, 2006 and 2005 market
      prices for fuel reached unprecedented high levels which increased by 55 cents
      between June 2005 and June 2006. Our delivered volumes and revenues during
      the
      year ended June 30, 2006 increased primarily due to the addition of new
      accounts, market expansion, the acquisitions of Shank Services and H & W and
      the increase in emergency response services related to Hurricanes Dennis,
      Katrina, Rita and Wilma. The increase in our revenue, while significant, was
      not
      as meaningful as the increase in delivered gallons, since we pass through
      petroleum product price increases to customers.





19




Our
      business is highly competitive with numerous large and small distributors,
      jobbers and others offering services in the same markets in which we also
      provide services. We believe that these markets offer us opportunities for
      consolidation as customers increasingly demand one-stop shopping for their
      fueling and specialty lubricants requirements as well as assured supply
      deliveries particularly to prevent business interruptions during emergencies,
      both of which we can provide. Competitors, many of which are family owned and
      operated, are frequently unable to provide the level of services required due
      to
      capital constraints, supplier credit limitations, out-dated technology and
      after-sale support services.





We
      believe that continuing opportunities exist to expand the services we provide,
      including: commercial mobile and bulk fueling; integrated out-sourced fuel
      management; the packaging, distribution and sale of lubricants; emergency
      response services; and transportation logistics. The growth of our petroleum
      related services would result in increased volumes of fuel and lubricants sold
      and delivered. Marketing and sales efforts are responsible for growing our
      business. This growth is dependent upon a number of business and economic
      factors, including the success of our sales and marketing programs and other
      business strategies; sufficient and consistent margin business in new and
      existing markets; retention of qualified personnel to provide the level of
      service required by customers; generation of acceptable cash flow from operating
      activities; sufficiency of debt or equity capital to meet our financing
      requirements; and changes in economic conditions in the transportation or
      petroleum industries, some of which factors are beyond our control.




20


**Financial
      Performance**




**Selected
      comparative financial information for the three months and year ended June
      30,
      2006 and 2005:**





**(All
                amounts in thousands of dollars, except share
                data)****Three
                Months Ended (Unaudited)**
            
            **Year
                Ended****Increase**
            
            **Increase**
            
            
            
            
            
            **Increase**
            
            **Increase****6/30/2006**
            
            **6/30/2005**
            
            **(Decrease)**
            
            **(Decrease)**
            
            **6/30/2006**
            
            **6/30/2005**
            
            **(Decrease)**
            
            **(Decrease)**Total
                revenues6
            
            
            70,558
            
            
            42,678
            
            
            27,880
            
            
            65
            %
            
            249,541
            
            
            133,563
            
            
            115,978
            
            
            87
            %Gross
                profit1
            
            
            2,509
            
            
            2,302
            
            
            207
            
            
            9
            %
            
            12,409
            
            
            6,588
            
            
            5,821
            
            
            88
            %Selling,
                general and administrativeexpense
            
            
            4,152
            
            
            1,918
            
            
            2,234
            
            
            116
            %
            
            13,262
            
            
            6,145
            
            
            7,117
            
            
            116
            %Operating
                (loss) income
            
            
            (1,643
            )
            
            384
            
            
            (2,027
            )
            
            (528
            )%
            
            (853
            )
            
            443
            
            
            (1,296
            )
            
            (293
            )%Interest
                expense, net
            
            
            (1,481
            )
            
            (609
            )
            
            (872
            )
            
            (143
            )%
            
            (4,025
            )
            
            (1,903
            )
            
            (2,122
            )
            
            (112
            )%Net
                loss
            
            
            (3,135
            )
            
            (225
            )
            
            (2,910
            )
            
            1,293
            %
            
            (4,878
            )
            
            (1,460
            )
            
            (3,418
            )
            
            234
            %EBITDA2
            
            
            (771
            )
            
            766
            
            
            (1,537
            )
            
            (201)
            %
            
            1,781
            
            
            2,278
            
            
            (497
            )
            
            (22
            )%Net
                Margin3
            
            
            3,049
            
            
            2,625
            
            
            424
            
            
            16
            %
            
            14,076
            
            
            8,055
            
            
            6,021
            
            
            75
            %Basic
                and diluted net loss per share
            
            
            (0.30
            )
            
            (0.03
            )
            
            (0.27
            )
            
            900
            %
            
            (0.50
            )
            
            (0.19
            )
            
            (0.31
            )
            
            163
            %Weighted
                avg shares outstanding
            
            
            10,350
            
            
            8,859
            
            
            1,491
            
            
            17
            %
            
            9,819
            
            
            7,857
            
            
            1,962
            
            
            25
            %Depreciation
                and amortization4
            
            
            652
            
            
            382
            
            
            270
            
            
            71
            %
            
            2,123
            
            
            1,835
            
            
            288
            
            
            16
            %Total
                assets
            
            
            48,114
            
            
            30,125
            
            
            17,989
            
            
            60
            %
            
            48,114
            
            
            30,125
            
            
            17,989
            
            
            60
            %Shareholders’
                equity
            
            
            5,540
            
            
            6,838
            
            
            (1,298
            )
            
            (19
            )%
            
            5,540
            
            
            6,838
            
            
            (1,298
            )
            
            (19
            )%Gallons
                sold
            
            
            24,591
            
            
            20,077
            
            
            4,514
            
            
            22
            %
            
            94,738
            
            
            66,427
            
            
            28,311
            
            
            43
            %Net
                margin per gallon (in cents)5
            
            
            12.4
            
            
            13.1
            
            
            (.7
            )
            
            (5)
            %
            
            14.9
            
            
            12.1
            
            
            2.8
            
            
            23
            %





1
              Gross
                  profit is defined as total revenues less total cost of
                  sales.




2
            EBITDA
                is defined as earnings before interest, taxes, depreciation and
                amortization, and stock-based compensation expense. EBITDA is
                anon-GAAP measure.




3
            Net
                margin is defined as gross profit plus cost of sales depreciation.
                Net
                margin is a non-GAAP measure.




4
            Depreciation
                and amortization included in cost of sales was $540,000, $323,000,
                $1,667,000 and $1,467,000 for the periods noted.




5
            Net
                margin per gallon equals net margin divided by number of gallons
                sold.




6
            In
                the quarter and year ended June 30, 2005, total revenue and cost
                of sales
                were reduced by $849,000 and $1.6 million, respectively, in order
                to
                recordexcise
                tax on a net basis, instead of gross based on risk of
                loss.





**Non-GAAP
      Measure Reconciliation - EBITDA and Net Margin Reconciliation
      Table:**





**Three
                Months Ended (unaudited)**
            
            **Year
                Ended****6/30/2006**
            
            **6/30/2005**
            
            **Increase**
              **(Decrease)**
            
            **Increase**
              **(Decrease)**
            
            **6/30/2006**
            
            **6/30/2005**
            
            **Increase**
              **(Decrease)**
            
            **Increase**
              **(Decrease)****EBITDA:**Net
                loss
            
            
            (3,135
            )
            
            (225
            )
            
            (2,910
            )
            
            1,293
            %
            
            (4,878
            )
            
            (1,460
            )
            
            (3,418
            )
            
            234
            %Add:Interest,
                net
            
            
            1,481
            
            
            609
            
            
            872
            
            
            143
            %
            
            4,025
            
            
            1,903
            
            
            2,122
            
            
            112
            %Stock-based
                compensationexpense
            
            
            231
            
            
            —
            
            
            231
            
            
            100
            %
            
            511
            
            
            —
            
            
            511
            
            
            100
            %Depreciation
                and amortization:*Cost
                of sales*
            
            
            540
            
            
            323
            
            
            217
            
            
            67
            %
            
            1,667
            
            
            1,467
            
            
            200
            
            
            14
            %*Sales,
                general, and**administrative
                expense*
            
            
            112
            
            
            59
            
            
            53
            
            
            90
            %
            
            456
            
            
            368
            
            
            88
            
            
            24
            %EBITDA
            
            
            (771
            )
            
            766
            
            
            (1,537
            )
            
            (201
            )%
            
            1,781
            
            
            2,278
            
            
            (497
            )
            
            (22
            )%**Net
                Margin:**Gross
                Profit
            
            
            2,509
            
            
            2,302
            
            
            207
            
            
            9
            %
            
            12,409
            
            
            6,588
            
            
            5,821
            
            
            88
            %Add
                back:Cost
                of sales depreciation andamortization
            
            
            540
            
            
            323
            
            
            217
            
            
            67
            %
            
            1,667
            
            
            1,467
            
            
            200
            
            
            14
            %Net
                Margin
            
            
            3,049
            
            
            2,625
            
            
            424
            
            
            16
            %
            
            14,076
            
            
            8,055
            
            
            6,021
            
            
            75
            %




21




During
      the quarter and twelve months ended June 30, 2006, total revenues increased
      by
      65% and 87% and gross profit increased 9% and 88% primarily as a result of
      the
      acquisitions of Shank Services and H & W; our ongoing marketing and sales
      programs; and the additional business from emergency response services in the
      aftermath of the devastating hurricanes of 2005. These factors resulted in
      4.5
      million and 28.3 million increase in gallons sold for the three and twelve
      month
      periods, respectively, and related average net margin increases of $424,000
      (16%) and $6.0 million (75%) for the quarter and full year. The net margin
      per
      gallon declined 7 cents per gallon for the quarter and increased 2.8 cents
      for
      the twelve month period. The decrease in net margin per gallon for the quarter
      was primarily related to a $172,000 charge recorded in cost of sales for a
      slow
      moving inventory reserve.




Our
      results of operations for the quarter and the twelve months, however, were
      adversely impacted by a significant increase in selling, general and
      administrative (“SG&A”) expense. This increase was largely attributable to
      the continuing burden of the SG&A expense of Shank Services and H &
W while we were also making substantial ongoing expenditures in developing
      a
      new, integrated operations and accounting management system that, when fully
      implemented, is expected to reduce our overall SG&A expense.




The
      total
      increase in SG&A expense for the fourth quarter and the year versus the same
      period in the prior year were $2.2 million and $7.1 million. Major components
      of
      the increase are as follows:




**DESCRIPTION**
            
            **Increase
                in Quarter Ended**
              **June
                30, 2006**
              **Compared
                to**
              **June
                30, 2005**
            
            **Increase
                in**
              **Year
                Ended**
              **June
                30, 2006**
              **Compared
                to**
              **June
                30, 2005**Acquired
                SG&A from purchase of Shank Services and H & W
            
            $
            866,000
            
            $
            3,594,000Corporate
                infrastructure and ongoing integration costs
            
            
            1,044,000
            
            
            2,298,000FAS
                123R stock based compensation expense
            
            
            231,000
            
            
            511,000Bad
                debt expense
            
            
            50,000
            
            
            472,000Credit
                card fees
            
            
            43,000
            
            
            242,000Total
            
            $
            2,234,000
            
            $
            7,117,000





SG&A
      expense was affected by the unexpected bankruptcy of two customers which
      contributed to the $472,000 increase in bad debt expense for the year as well
      as
      changes in accounting for stock-based compensation expense (FAS 123R) of
      $231,000 for the quarter and $511,000 for the year and charges for higher credit
      card fees of $43,000 for the quarter and $242,000 for the year.




We
      also
      had an increase in interest expense of $872,000 for the quarter and $2.1 million
      for the fiscal year. The increase reflects (i) a non-cash write-off of deferred
      debt costs and debt discount and an accrued pre-payment penalty totaling
      $537,000 resulting from the June 30, 2006 issuance of warrants to convert a
      portion of our August 2003 and January 2005 Notes to equity; (ii) interest
      expense of $1.5 million during the year on the January 2005 and September 2005
      Notes issued in connection with to the Shank Services and H & W
      acquisitions; and (iii) interest on the increased balance of our line of credit
      resulting from our acquisition of $7.1 million of H & W’s line of
      credit on October 1, 2005. During the current quarter and the year, we also
      amortized some of our deferred debt costs and debt discount as interest expense.
      We continue to pursue retirement of this debt, or conversion of a substantial
      portion of the debt to shareholders’ equity, in order to reduce our interest
      carrying costs, although any such transaction would likely result in additional
      one-time, non-cash write-offs of the related debt discount and deferred debt
      costs like that recorded upon the issuance of the June 30, 2006
      warrants.




For
      the
      current quarter and twelve month period, gross profit increased over last year
      by $207,000 and $5.8 million, which increases were more than offset by the
      increase in SG&A expense of $2.2 million and $7.1 million and interest
      expense of $872,000 and $2.1 million. The net losses of $3.1 million and $4.9
      million for the quarter and twelve month period represent increases of $2.9
      million and $3.4 million over the prior year. We believe our net margins and
      volume gains for the twelve month period reflect progress; however, the results
      of our operations were adversely affected by the significant surge in the prices
      of fuel and other petroleum products, which depressed demand for our products
      and services and led to lower than expected sales volumes, at least on a short
      term basis. While delivered volumes and gross profit increased from year ago
      levels, those increases were not as much as we had anticipated achieving during
      the last two quarters or for the entire year. The sharp increase in petroleum
      prices during the quarter also contributed to other related incremental costs,
      ranging from higher running fuel and other delivery costs to increased credit
      card fees and bad debt expense resulting from customer
      bankruptcies.




22




The
      SG&A expense included in the net loss for the quarter and year reflect our
      continued commitment to build a new and improved corporate infrastructure with
      the capability to support our current operations as well as our future growth
      from acquisitions and diversification. These infrastructure expenses are treated
      as period costs, even though we continue to bear substantially all of the
      SG&A expense burden historically associated with Shank Services, H & W
      and our other operations. While it is costly to bear both the historical
      SG&A expense of our individual operating units as well as the expenses of
      developing a new integrated infrastructure, we believe that the additional
      expenses we are incurring now will enable us to reduce historical SG&A
      expense in the future, both for acquired companies and our exiting operations.
      We accelerated these expenditures in the last two quarters, including the
      strengthening our mid-management team; adding accounting, information technology
      and other support personnel; relocating our Fort Lauderdale corporate office
      in
      January 2006 to a larger, better equipped facility; moving Shank Services’
operations to H & W’s regional Houston location; and incurring
      other integration costs related to those acquisitions. Further, we expect that
      full implementation of our new Enterprise Resource Planning (ERP) operating
      and
      accounting systems, replacing our three legacy systems, will enable us to
      realize economies of scale and eliminate duplicative costs while creating an
      improved capability to integrate future acquisitions on an accelerated basis.




The
      net
      margin for the current quarter was less than anticipated since the increased
      volumes delivered related primarily to petroleum products sold at lower gross
      margins, as well as continuing reduced volumes resulting from below cost pricing
      practices by a competitor attempting to gain market share in California. In
      addition, we have not yet converted several large former H & W lubricant
      customers to our new principal branded lubricants supplier due to the technical
      nature of these customers’ testing procedures which are required to be performed
      in order to meet viscosity and other specifications. We anticipate that the
      conversion for some or all of these customers will occur during the first half
      of fiscal 2007. We also incurred additional operating costs during the quarter
      and the year, most of which related to driver turnover and higher compensation
      as well as continuing to carry specific operating personnel in anticipation
      of
      the conversion of the former lubricants customers to our branded products which
      has been delayed. Costs for truck repairs and maintenance, running fuel,
      regulatory compliance and security expenses also continued to increase. Some
      of
      these additional costs were intentionally absorbed with a view toward generating
      greater efficiencies and other improvements in our driver workforce, vehicle
      usage and other operating equipment that will yield a net benefit over
      time.





Our
      earnings before interest, taxes, depreciation and amortization (“EBITDA”)
      decreased $1.5 million in the quarter to $(771,000) and $497,000 to $1.8 million
      for the twelve month period. EBITDA is determined before providing for debt
      service payments and capital expenditures. EBITDA, while a non-GAAP measure,
      is
      a key indicator used by our management and the financial community to gauge
      financial performance of the actual operations of a business without considering
      the impact of non-cash charges for equipment aging, debt financing expenses,
      stock-based compensation expense and income taxes. EBITDA isolates actual
      financial performance of operations independent of the utilization of capital
      resources, level of debt financing and the tax position of the business owning
      those operations.




23


The
      following is a Non-GAAP Measure Reconciliation - Proforma EBITDA Reconciliation
      Table (unaudited):




**Three
                Months Ended**
            
            **Year
                Ended****6/30/2006**
            
            **6/30/2005**
            
            **Increase**
              **(Decrease)**
            
            **Increase**
              **(Decrease)**
            
            **6/30/2006**
            
            **6/30/2005**
            
            **Increase**
              **(Decrease)**
            
            **Increase**
              **(Decrease)**EBITDA
            
            
            (771
            )
            
            766
            
            
            (1,537
            )
            
            (201
            )%
            
            1,781
            
            
            2,278
            
            
            (497
            )
            
            (22
            )%Add:Corporate
                infrastructure and on-going
                integration costs
            
            
            1,044
            
            
            —
            
            
            1,044
            
            
            100
            %
            
            2,298
            
            
            165
            
            
            2,133
            
            
            —Non-cash
                provisions for bad debtand
                slow moving inventory
            
            
            328
            
            
            (104
            )
            
            432
            
            
            415
            %
            
            576
            
            
            (59
            )
            
            635
            
            
            —Proforma
                EBITDA
            
            
            601
            
            
            662
            
            
            (61
            )
            
            (9
            )%
            
            4,655
            
            
            2,384
            
            
            2,271
            
            
            95
            %





This
      proforma EBITDA information is intended to demonstrate the financial impact
      of
      the corporate infrastructure and ongoing integration costs incurred during
      the
      past quarter and fiscal year on our EBITDA. These costs which are required
      to be
      expensed under GAAP, are directly related to executing our business plan; were
      anticipated by management; and represent a commitment to our future growth,
      both
      organically and by selective acquisitions. While a portion of these costs may
      have been incurred absent infrastructure and integration considerations, they
      primarily support our long-term objective to enhance shareholder value by
      investing now to benefit future performance. The components of these corporate
      infrastructure and ongoing integration costs include management and support
      personnel additions and retention, placement fees, information technology
      consulting, accounting support, acquisition strategies and analyses, facility
      leasing, legal assistance and integration travel and ancillary expenses.




Proforma
      EBITDA is a non-GAAP measure provided for information purposes only and should
      be distinguished from conventional EBITDA which is also a non-GAAP measure.




We
      consider the implementation of our new operations, accounting and information
      management system to be essential to our efforts to fully integrate and manage,
      on an ongoing basis, both the acquired Shank and H & W operations as well as
      future acquisitions. We believe that this new system will increase operational
      efficiencies, facilitate integration and improve management of our pre-existing
      commercial mobile and bulk fueling operations and those of the acquired
      companies and will help control operating costs and improve profitability.
      When
      this new system is fully implemented, we believe that we will have the
      information available to achieve new efficiencies and reduce the overhead costs
      of our operations.




Implementation
      of the new operations, accounting and information system experienced extensive
      delays during the last two quarters of the year ended June 30, 2006 and, as
      a
      result, in August 2006 we terminated the business arrangement with the third
      party Value Added Reseller (“VAR”) which had been providing implementation
      services to us and engaged another vendor in connection with this
      implementation. The new VAR is in the process of reviewing the present status
      of
      the project and identifying the items, cost and related timeline to complete
      the
      implementation. Our expectation is that the system will be operational during
      the third quarter of the year ending June 30, 2007. At June 30, 2006, we had
      capitalized $1.7 million in property and equipment related to its design and
      installation with a total estimated cost of $ 2.0 to $2.5 million to
      complete.




**Organic
      Growth Opportunities**




In
      addition to our ongoing commitment to evaluate existing operations, one of
      our
      primary business objectives continues to be the expansion of our market presence
      in the packaging, distribution and sale of lubricant products in the areas
      where
      we presently have operating locations. As one of the largest Chevron Texaco
      lubricant distributors in the United States, we believe that H & W provides
      us with an opportunity to grow our specialized lubricant volumes and revenues
      at
      higher margins than those typically generated from commercial mobile and bulk
      fueling businesses. On the other hand, we also believe that our existing fueling
      customers, as well as our new business development initiatives, will be integral
      to the growth we hope to achieve in our lubricant program.




Because
      of effective advance planning and preparation we were able to successfully
      respond to the emergency fueling service demands and opportunities which
      resulted from the unprecedented 2005 hurricane season. We were able to mobilize
      and deliver uninterrupted fuel supplies to utilities, governmental agencies,
      communication services and numerous others at margins which fairly compensated
      us for the emergency, and frequently hazardous services provided. We consider
      our emergency response services to be an increasingly important part of our
      business, which has been bolstered by the acquisitions of Shank Services and
      H
& W. These acquisitions have given us greater depth in personnel, equipment
      and facilities so that we could respond more efficiently to emergency
      conditions. While weather conditions are unpredictable, we expect that emergency
      response services, especially in the Gulf Coast area, will be a recurring source
      of higher margin business for SMF.




24


We
      recognize that our internal growth will largely depend on a well organized
      and
      effectively implemented marketing and sales effort and we are committing the
      necessary financial resources and personnel to achieve targeted volume and
      margin objectives. Our operations in several of the fastest growing business
      and
      population centers in the United States offers us the opportunity to grow
      without incurring significant incremental start-up and overhead
      costs.




**Expansion
      and Diversification Through Acquisitions**




Our
      business model reflects an acquisition program to further develop our existing
      business and diversify into other energy products and related services markets.
      Our objective is to selectively identify and evaluate those companies which
      would immediately be accretive to our cash flow and earnings goals; would
      provide compatible and capable management to further grow the acquired
      businesses; would enable us to expand into markets which offer an opportunity
      to
      become a leading product and service provider; and can be acquired on terms
      and
      prices which recognize our value as a growing public company.




We
      intend
      to follow the Shank Services and H & W acquisitions with the addition of
      other businesses which can be efficiently integrated into our corporate
      structure resulting in specific, realizable operating and administrative cost
      reduction synergies. Our new operations, accounting and information management
      system that has been partially implemented, is currently under development
      and
      will enable us to rapidly integrate future acquisitions without incurring
      significant incremental costs or experiencing business disruptions. We recognize
      that acquisitions will likely involve business operations which have both
      different management styles as well as operating procedures and reporting
      systems. Our objectives will be to achieve cost-effective and controlled
      integration of each acquisition.




Our
      acquisition plan could be affected by the size, nature, cost, contribution
      and
      availability of acquisition targets; debt and equity financing alternatives;
      regulatory reporting and compliance considerations; and overall market and
      economic conditions.




**Challenges
      to Progress**




The
      present highly competitive business environment requires that we have an
      understanding of the markets in which we operate; that we effectively utilize
      our management skills and financial resources; that we remain committed to
      and
      focused on our strategic growth plan; and that our organization is structured
      for effective and efficient performance. Our senior management is responsible
      for decisions relating to overall business strategy, business acquisitions,
      cash
      management, risk management, debt and equity financing and information,
      reporting and internal control systems. As our operations expand we expect
      to
      incur costs to retain existing executive management and add to our senior group
      those additional experienced individuals who will increase our management depth
      and expertise.




We
      view
      the future of our business optimistically yet realistically and recognize that
      continuing improvements, modifications and upgrading will be necessary in order
      to successfully compete, grow and enhance the value of our shareholders’
investment. We intend to:




·
            Continue
                our aggressive marketing and sales
                programs




·
            Re-engineer
                our financial position by reducing debt, increasing shareholder equity
                and
                decreasing interest expense




·
            Identify,
                acquire, finance and integrate diversified business
                opportunities




25




·
            Compete
                effectively with both larger and smaller companies without adversely
                affecting our service quality, margins or customer
                retention




·
            Control
                our operating and administrative costs at all
                levels




·
            Manage
                our cash requirements and expand our credit
                lines




**CAPITAL
      RESOURCES AND LIQUIDITY**




At
      June
      30, 2006 and June 30, 2005, we had a total of cash and cash availability on
      our
      line of credit of $8.3 million and $9.3 million. On September 26, 2006, we
      increased our line of credit from $20 to $25 million. Our line of credit
      facilitates financing the timing difference between petroleum product purchases
      payable generally in 10 days and collecting receivables from our customers
      generally in 30 to 45 days. As of October 11, 2006, our cash and cash
      availability was $6.7 million.





In
      September 2005, we closed a $3.0 million private debt placement with
      institutional and other accredited investors (the “September 2005 Notes”) in
      order to fund the H & W acquisition, develop our operations and for other
      general working capital purposes. We issued $3.0 million in 10% five-year Senior
      Secured Notes that require six semi-annual payments commencing on August 31,
      2007 and a 40% balloon payment on August 31, 2010. The September 2005 Notes
      are
      redeemable by us, in whole or in part, by payment of a percentage of the
      principal amount, together with accrued but unpaid interest, if any, as follows:
      September 1, 2005 - August 31, 2006, 102%; September 1, 2006 - August 31, 2007,
      101%; and September 1, 2007 - August 31, 2010, 100%. The September 2005 Notes
      are secured by a first priority interest in the vehicles, equipment and other
      physical assets, other than inventory of H & W. The H & W inventory is
      subject to the first priority security interest held by the primary lender.
      In
      connection with the financing, we also issued four year warrants to purchase
      a
      total of 360,000 shares of our common stock at an exercise price of $2.28 per
      share, including customary redemption and registration rights.





In
      January 2005, we raised $6.1 million from the issuance of five-year 10%
      promissory notes (the “January 2005 Notes”) and 1,006,500 four-year warrants to
      purchase our common stock at $1.60 per share. The funding provided by the
      January 2005 Notes was used for the Shank Services acquisition and for other
      general corporate purposes. The January 2005 Notes are secured by a first
      priority security interest in the Shank Services’ assets. Our first principal
      payment of $610,000 will be due in January 2007 and is included in the current
      portion of long-term debt on our June 30, 2006 consolidated balance
      sheet.





In
      August
      2003, we raised $6.925 million from the issuance of five-year 10% promissory
      notes (the “August 2003 Notes”) and issued 2,008,250 five-year warrants to
      purchase our common stock at $1.00 per share. The August 2003 Notes are
      collateralized by a first priority security interest in our truck fleet and
      related equipment and by the patents on our proprietary fuel management system.
      The liquidity impact of this financing transaction was the repayment of all
      outstanding equipment and subordinated debt; the generation of $2.8 million
      of
      additional working capital for business expansion; and a $2.8 million
      improvement in cash flow resulting from a moratorium of principal payments
      during the first two years of the five-year term of the August 2003 Notes.
      We
      made two semi-annual principal payments totaling $1.385 million during the
      year
      ended June 30, 2006; no principal payments were due a year ago.




The
      September 2005, January 2005 and August 2003 financings significantly
      strengthened our financial position, enabling us to achieve a stronger balance
      sheet and, we believe, has enhanced our business credibility with present and
      prospective customers, fuel suppliers, trade creditors, other lenders and the
      investment community, as well as our ability to compete more effectively. On
      the
      other hand, the increased interest burden associated with these financings,
      including the imputed non-cash interest charges resulting from our issuance
      of
      common stock purchase warrants in connection with those financings, has
      negatively affected our reported earnings since that time. As noted previously,
      we are actively pursuing the conversion to equity or retirement of some or
      all
      of this debt to reduce recurring interest costs, although we will likely incur
      one-time, non-cash write-offs of the related debt discount and deferred debt
      costs.




During
      the year ended June 30, 2006, we recorded an increase in shareholders’ equity of
      $585,000 for the value of the 360,000 warrants issued in connection with the
      September 2005 Notes, net of $20,000 in professional fees related to the
      registration of the warrants. Also, during the year ended June 30, 2006,
      warrants issued in connection with the January and September 2005 and August
      2003 Notes were exercised resulting in cash proceeds of approximately $2.5
      million which was recorded in shareholders’ equity.




26




On
      December 6, 2005, we extended from December 11, 2005 to December 27, 2005 the
      exercise period for 1,349,900 outstanding common stock warrants related to
      the
      December 11, 1996 initial public offering. In addition, we lowered the exercise
      price to $3.50 per share. Prior to the expiration date of December 27, 2005,
      240
      of these warrants were exercised for gross proceeds of $840. The remaining
      warrants expired unexercised on December 27, 2005 and are no longer
      outstanding.





Our
      debt
      agreements have covenants establishing certain financial requirements and
      operating restrictions. Our failure to comply with any covenant or material
      obligation contained in these debt agreements, absent a waiver or forbearance
      from the lenders, would result in an event of default which could accelerate
      debt repayment terms under the debt agreements. Due to cross-default provisions
      contained in its debt agreements, an event of default under one agreement could
      accelerate repayment terms under the other agreements, which would have a
      material adverse effect on our liquidity and capital resources. We are in
      compliance of our debt covenants as of the filing date of this
      report.





Our
      business requires us to use substantial working capital for fuel, labor and
      equipment costs prior to receiving payments from customers. The fuel we purchase
      for resale to customers generally must be paid for within 10 to 15 days of
      purchase, with labor costs and taxes paid bi-weekly and equipment related costs
      generally paid within 30 days. We invoice customers both daily and weekly and
      generally collect on our accounts within 30 to 45 days.




During
      the year ended June 30, 2006, our cash used in operating activities was $2.7
      million compared to cash provided by operations of $1.3 million in the prior
      year, representing a change of $4.0 million. This change in the use of net
      cash
      in the current year compared to the prior year related to the increase in net
      loss of $3.4 million; an increase in accounts receivable of $2.2 million; and
      a
      decrease in accounts payable and other liabilities of $2.2 million; offset
      by an
      increase in depreciation and amortization of $1.1 million, stock based
      compensation expense of $.5 million, an inventory reserve of $.2 million, and
      a
      provision for doubtful accounts of $.4 million and decreases in inventory of
      $.7
      million and prepaid expenses and other assets of $1.0 million. The change in
      receivables did not include accounts receivable acquired from H & W on
      October 1, 2005. The higher receivable balance at June 30, 2006 compared to
      June
      30, 2005, was primarily due to the higher market price for petroleum products
      sold. Adjustments to reconcile the net loss to net cash used in/provided by
      operating activities, (“Non-Cash Items”) totaled $4,819,000, $2,471,000 and
      $945,000 in the years ended 2006, 2005 and 2004.




27




The
      following is a reconciliation table of net loss before non-cash items and
      corporate infrastructure and ongoing integration costs to proforma EBITDA,
      both
      of which are non-GAAP measures:




**Year
                Ended June 30,****2006**
            
            **2005**
            
            **2004**Net
                loss
            
            $
            (4,878
            )
            $
            (1,460
            )
            $
            (698
            )Non-Cash
                Items:Depreciation -
                cost of sales
            
            
            1,667
            
            
            1,467
            
            
            1,130Depreciation
                and amortization - SGA
            
            
            456
            
            
            368
            
            
            190Amortization
                of deferred debt cost
            
            
            521
            
            
            270
            
            
            195Amortization
                of debt discount
            
            
            1,009
            
            
            425
            
            
            241Stock-base
                compensation expense
            
            
            511
            
            
            —
            
            
            —Gain
                on extinguishment of debt
            
            
            —
            
            
            —
            
            
            (757
            )Other
                non-cash expenses
            
            
            79
            
            
            —
            
            
            —Inventory
                reserve
            
            
            172
            
            
            —
            
            
            —Provision
                for allowance of doubtful accounts
            
            
            404
            
            
            (59
            )
            
            (54
            )Total
                non-cash items
            
            
            4,819
            
            
            2,471
            
            
            945Net
                (loss) income before non-cash items
            
            
            (59
            )
            
            1,011
            
            
            247Add:
                Corporate infrastructure and ongoing integration costs
            
            
            2,298
            
            
            165
            
            
            —Net
                income before non-cash items and corporateinfrastructure
                and ongoing integration costs
            
            
            2,239
            
            
            1,176
            
            
            247Add:
                Stated rate interest expense (See interest expense table)
            
            
            2,416
            
            
            1,216
            
            
            933Proforma
                EBITDA
            
            $
            4,655
            
            $
            2,392
            
            $
            1,180





This
      reconciliation table reflects the significant impact that the non-cash items,
      corporate infrastructure and ongoing integration costs have in the determination
      of proforma EBITDA and is provided to demonstrate the material affect our
      financing, acquisition and corporate development programs have on the
      performance of our business.





During
      the fiscal year ended June 30, 2006, SMF’s material financial commitments, other
      than fuel purchases, payroll and general expenses, primarily related to
      maintaining its bank line of credit and servicing the August 2003, January
      2005
      and September 2005 Notes.





***Contractual
      Obligations and Commitments***




The
      following table summarizes our contractual obligations and commitments as of
      June 30, 2006.




**PAYMENTS
                DUE BY PERIOD (in 000’s)****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than 1 Year**
            
            **2-3
                Years**
            
            **4-5
                Years**
            
            **More
                than 5 Years**Long-term
                debt
            
            $
            14,640
            
            $
            1,995
            
            $
            7,795
            
            $
            4,850
            
            $
            —Operating
                leases for real estate and equipment
            
            
            4,466
            
            
            1,101
            
            
            1,703
            
            
            1,331
            
            
            331Capital
                lease obligations
            
            
            148
            
            
            123
            
            
            25
            
            
            —
            
            
            —Line
                of credit
            
            
            15,612
            
            
            15,612
            
            
            —
            
            
            —
            
            
            —**Total**
            
            $
            34,866
            
            $
            18,831
            
            $
            9,523
            
            $
            6,181
            
            $
            331





In
      fiscal
      2005, the Company amended its employment agreement with the President and Chief
      Executive Officer to provide for automatic one year extensions unless either
      party gives notice of intent not to renew prior to such extension. The annual
      contractual obligation for this agreement is estimated to be
      $337,000.





28




The
      contractual obligations and commitments should be read in conjunction with
      the
      notes to our consolidated financial statements. To highlight the table
      above:





·
            Long-term
                debt principal payments are described above. Anticipated interest
                payments
                associated with long-term debt obligations are not included in the
                table
                above.




·
            The
                payment obligations shown in the table for real estate and equipment
                operating leases are lower in future years due to the short-term
                nature of
                the current contracted operating leases. The largest operating lease
                payment is for the new corporate office located in Fort Lauderdale,
                Florida, which has a lease term of 78 months and began on January
                23,
                2006.




·
            We
                have a $25,000,000 line of credit security agreement until September
                25,
                2007 with a financial institution that is collateralized by substantially
                all SMF’s assets other than its truck fleet and related equipment. The
                line of credit balance fluctuates daily and can differ significantly
                from
                the June 30, 2006 balance shown above. The line of credit bears interest
                at variable interest rates although the table above does not reflect
                any
                anticipated future payments of interest. We anticipate renewing the
                line
                of credit with the same or another financial institution under similar
                terms and conditions. While there can be no assurance that we will
                be able
                to renew this bank line of credit or that any renewal will be on
                terms
                acceptable to us, any new line of credit will likely extend past
                the
                present termination date when it is renewed. Although the line of
                credit
                expires on September 25, 2007, the amount outstanding as of June
                30, 2006
                is shown as due in less than one year due to certain provisions within
                the
                agreement related to subjective acceleration clauses and due to the
                agreement requiring us to maintain a lockbox arrangement whereby
                cash
                deposits are automatically utilized to reduce amounts outstanding
                under
                the line of credit.




·
            The
                employment agreement anticipates the compensation payable to our
                Chief
                Executive Officer, including $14,000 of payroll taxes and health
                insurance
                costs.




Our
      material financial commitments, other than fuel purchases, payroll and general
      expenses, are primarily related to maintaining our line of credit and servicing
      the September 2005, the January 2005 and August 2003 Notes.





Our
      liquidity and ability to meet financial obligations is dependent on, among
      other
      things, the generation of cash flow from operating activities; obtaining or
      maintaining sufficient trade credit from vendors; complying with our debt
      covenants; and/or raising any required additional capital through the issuance
      of debt or equity securities or additional borrowings.





We
      believe the additional liquidity derived from the January 2005 and the August
      2003 Notes; our line of credit; and the two-year principal payment moratorium
      on
      the January 2005 and September 2005 Notes should satisfy our anticipated
      liquidity requirements for the foreseeable future. On the other hand, the
      ongoing expenditures for development of the corporate infrastructure, including
      the new operating, accounting and information management system for the recent
      acquisitions and integration of any future acquisitions, coupled with our higher
      debt service requirements, may cause us to seek additional capital in the future
      if the debt service burden is not reduced and anticipated cost savings do not
      materialize in the amounts or at the times we currently anticipate. Cash flow
      deficiencies from adverse business conditions or a new acquisition requiring
      a
      cash investment could also cause us to seek additional capital. There is no
      assurance, however, that any such additional capital would be available to
      us on
      acceptable terms, or at all. Moreover, if we fail to comply with the covenants
      in our debt agreements, or if adequate funds are not available to fund our
      operations or to pay debt service obligations as they become due, we may be
      required to make substantial changes to our capital structure or significantly
      alter our operations or both *.*





***$25
      Million Credit Facility***





As
      of
      June 30, 2006, we had a $20 million credit facility with a national financial
      institution, which permitted us to borrow up to 85% of the total amount of
      eligible accounts receivable and 65% of H & W’s eligible inventory. Interest
      is payable monthly (8.75% at June 30 2006) and outstanding borrowings under
      the
      line of credit are secured by substantially all of our assets other than our
      truck fleet and related equipment. As of June 30, 2006, the maturity date of
      the
      line of credit was September 26, 2007.





29




On
      February 18, 2005, the credit facility was again amended in connection with
      the
      issuance of the January 2005 Notes and the Shank Services acquisition. This
      amendment (1) lowered the requirements on the fixed charge covering ratio;
      (2)
      eliminated the effective net worth requirement except when availability is
      below
      $1.0 million; (3) extended the term to September 25, 2006; (4) reduced the
      unused line fee from .75% to .25% after September 25, 2005, and (5) imposes
      a
      .50% fee if we terminate the line of credit after September 26, 2005, but prior
      to September 26, 2006.




Concurrently
      with the October 1, 2005 H & W Acquisition, in order to finance the acquired
      accounts receivable and inventory, we and our primary lender amended the credit
      facility. Among other changes, the amendment (1) added H & W as a borrower;
      (2) increased the facility to $20 million; (3) provided financing for the
      acquired and ongoing accounts receivable and inventory resulting from the H
      & W Acquisition; (4) extended the term of the original loan and security
      agreement to September 26, 2007; (5) reduced the interest rate to prime plus
      0.75% per annum; (6) eliminated the effective net worth covenant; and (7)
      lowered the fixed charge coverage ratio covenant to 1.0 to 1.0, and made such
      covenant effective only when there is less than $3 million available on the
      facility.




As
      of
      June 30, 2006 and June 30, 2005, we had outstanding borrowings of $15.6 million
      and $4.8 million, respectively, under our $20 million (at June 30, 2005 it
      was
      $10 million) bank line of credit. Based on eligible receivables outstanding
      at
      June 30, 2006, we had $4.2 million of cash availability on the line of credit,
      and we were in compliance with all financial covenants required by the loan
      and
      security agreement.




On
      September 26, 2006, we amended our credit facility which, among other things
      increased the maximum amount for revolving loans from $20,000,000 to
      $25,000,000; modified a covenant which limits our loans and advances to other
      persons to permit loans to customers for certain purchases of equipment;
      effective March 31, 2006, added a LIBOR interest rate option; added certain
      leased vehicles and equipment to the excluded assets from the collateral; and
      amended the capital expenditures covenant of the agreement.




Although
      there can be no assurance, management believes that our line of credit and
      cash
      on hand should provide the working capital needed to maintain and grow our
      business and to accomplish our business plan. If additional financing is
      required, there can be no assurance that we will be able to obtain such
      financing from our present line of credit or from another lender or investor
      at
      acceptable terms, or at all. Since borrowings under the line of credit bear
      interest at variable interest rates and represent a large portion of outstanding
      debt, our financial results could be materially affected by significant
      increases or decreases in interest rates.




**Debt
      Securities**




***September
      2005 Promissory Notes***





On
      September 1, 2005,  we closed a $3.0 million private debt placement with
      institutional  and other  accredited  investors  in 
order  to  fund  the H & W Acquisition, develop our
      operations and for other general working capital purposes. We issued $3.0
      million in 10% five-year Senior Secured Notes that require six semi-annual
      payments commencing on August 31, 2007 and a 40% balloon payment on August
      31,
      2010. The September 2005 Notes are redeemable by us, in whole or in part, by
      payment of a percentage of the principal amount, together with accrued but
      unpaid interest, if any, as follows: September 1, 2005 - August 31, 2006, 102%;
      September 1, 2006 - August 31, 2007, 101%; and September 1, 2007 - August 31,
      2010, 100%. In connection with the financing, we also issued four year warrants
      to purchase a total of 360,000 shares of our common stock at an exercise price
      of $2.28 per share, including customary redemption and registration rights.
      Total transaction costs related to the registration of the warrants was $20,000
      and was included in additional paid-in capital.





30




***January
      2005 Promissory Notes***




On
      January 25, 2005, we closed an offering of $6.1 million five year 10% promissory
      notes and four-year warrants to purchase 1,006,500 shares of our common stock
      at
      $1.60 to a limited group of institutions and other accredited investors in
      connection with the acquisition of the assets and business of Shank Services.
      The January 2005 Notes provide for (1) no principal payments until January
      24,
      2007; (2) six $610,000 semi-annual principal payments commencing on January
      24,
      2007 through July 24, 2009; (3) a balloon payment of $2,440,000 at maturity
      on
      January 24, 2010; and (4) semi-annual interest payments on July 24 and January
      24, which payments commenced on July 24, 2005. The funding provided by the
      January 2005 Notes was used for the Shank Services acquisition and for other
      general corporate purposes. The net cash proceeds from the financing were $5.8
      million, after payment of related fees and expenses, professional fees and
      other
      costs totaling $282,000. The total transaction costs were $471,000, including
      $291,000 cash costs and non-cash broker commission warrants valued at $180,000,
      which are being amortized over the five-year term of the notes. The January
      2005
      Notes are secured by a first priority security interest in the Shank Services
      assets.




***August
      2003 Promissory Notes***




On
      August
      29, 2003, we closed a $6.9 million offering to institutions and other accredited
      lenders consisting of five-year 10% promissory notes and issued five-year
      warrants to purchase a total of 2,008,250 shares of our common stock at $1.00
      per share. The August 2003 Notes are collateralized by a first priority security
      interest in our specialized fueling truck fleet and related equipment and by
      patents on our proprietary fuel management system. The August 2003 Notes provide
      for (1) no principal payments until August 28, 2005; (2) six $692,500
      semi-annual principal payments commencing on August 28, 2005 through February
      28, 2008; (3) a balloon payment of $2,770,000 at maturity on August 28, 2008;
      (4) semi-annual interest payments on June 30 and December 31,  which
      payments commenced on December 31, 2003; and (5) a right to call after August
      1,
      2005 at 105% of par plus accrued but unpaid interest. The net cash proceeds
      from
      the financing were $2.8 million, after payment of related fees and expenses
      and
      repayment of all outstanding equipment and subordinated debt. The transaction
      costs, including commissions, professional fees and other costs, totaled
      $824,000 and are being amortized over the five-year term of the notes.




***Warrants
      to Convert a Portion of August 2003 Notes and January 2005 Notes to
      Equity***




On
      June
      30, 2006, the Company issued 1,057,283 warrants, exercisable for 90 days, to
      certain note holders to purchase the Company’s common stock at an exercise price
      of $2.54 per share. The note holders have the option to exercise these warrants
      in consideration for the retirement of $2,620,000 of existing August 2003 and
      January 2005 notes. In addition, the Company agreed to pay 50% of the 5% call
      penalty or a 2.5% penalty with warrants totaling 25,787, valued at $65,500.
      The issuance of the warrants created a modification to the notes specifically
      related to adding a conversion feature that did not previously exist under
      the
      original note thus substantially changing the instrument to have a non-cash
      conversion feature from the original note which substantially changes the
      debtor’s cash flow requirement. The warrants were issued at the closing market
      price and they are non-detachable. If the warrants are exercised they can only
      be settled by satisfaction of the Notes. The 25,787 warrants are accounted
      for
      as a liability with mark to market feature adjustments. On June 30, 2006, the
      Company wrote-off $317,000 and $155,000 of debt discount and deferred debt
      costs, respectively, to interest expense related to the notes at the time the
      notes were modified. In addition, the Company accrued $65,500 to interest
      expense for the amount associated with the pre-payment penalty. At June 30,
      2006, the warrants were not exercised. The exercise period of the warrants
      was
      extended until November 30, 2006 in exchange for a corresponding extension
      of the suspension of the Company’s obligation to make principal payments until
      November 30, 2006.





**NEW
      ACCOUNTING STANDARDS AND CRITICAL ACCOUNTING POLICIES AND
      ESTIMATES**




***Recent
      Accounting Pronouncements***




In
      June
      2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 190” (“FIN No. 48”). FIN
      No. 48 clarifies the accounting for uncertainty in income taxes by prescribing
      a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to taken in
      a
      tax return. The interpretation also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods, and
      disclosure. FIN No. 48 is effective for fiscal years beginning after December
      15, 2006. We are in the process of evaluating the impact of FIN No. 48 on our
      financial condition and results of operations.





31




In
      September 2006, FASB issued FASB Statement No. 157 “Fair Value Measurements”
(“FAS 157”). This new standard provides guidance for using fair value to measure
      assets and liabilities. Under FAS 157, fair value refers to the price that
      would
      be received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the reporting
      entity transacts. In this standard, the FASB clarifies the principle that fair
      value should be based on the assumptions market participants would use when
      pricing the asset or liability. In support of this principle, FAS 157
      establishes a fair value hierarchy that prioritizes the information used to
      develop those assumptions. The fair value hierarchy gives the highest priority
      to quoted prices in active markets and the lowest priority to unobservable
      data,
      for example, the reporting entity’s own data. Under the standard, fair value
      measurements would be separately disclosed by level within the fair value
      hierarchy. The provisions of FAS 157 are effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. The Company has not yet determined the impact that
      the adoption of FAS 157 will have on its consolidated financial position,
      results of operations or cash flows.





***Critical
      Accounting Policies and Estimates***





We
      have
      identified the policies outlined below as critical to our business operations
      and an understanding of the results of operations. The listing is not intended
      to be a comprehensive list of all accounting policies. In many cases, the
      accounting treatment of a particular transaction is specifically dictated by
      accounting principles generally accepted in the United States, with no need
      for
      management's judgment in their application. The impact and any associated risks
      related to these policies on business operations are discussed throughout
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations where such policies affect reported and expected financial results.
      For a detailed discussion on the application of these and other accounting
      policies, see Note 2 in the Notes to the Consolidated Financial Statements
      in
      Item 8 on Form 10-K. Note that the preparation of this Form 10-K requires
      management to make estimates and assumptions that affect the reported amount
      of
      assets and liabilities, disclosure of contingent assets and liabilities at
      the
      date of the financial statements, and the reported amounts of revenue and
      expenses during the reporting period. There can be no assurance that actual
      results will not differ from those estimates.




Revenue
      Recognition





We
      recognize revenue when fuel and other products are delivered and the customer
      takes ownership and assumes risk of loss or when services are performed.
      Collections are reasonably assured at the time of delivery. The Company accounts
      for petroleum product taxes collected from its customers that are assessed
      from
      government authorities, on a gross basis, in accordance with Emerging Issues
      Task Force 06-03 (“EITF Issue 06-03”) “How Taxes Collected from Customers and
      Remitted to Governmental Authorities Should be Presented in the Income Statement
      (That Is, Gross Versus Net Presentation”) when we bear the risk of
      loss.





Accounts
      Receivable and Allowance for Doubtful Accounts





We
      perform ongoing credit evaluations of our customers and adjust credit limits
      based upon payment history and the customers' current credit worthiness, as
      determined by a review of their current credit information. Management
      continuously monitors collections and payments from customers and maintains
      a
      provision for estimated credit losses based upon historical experience and
      any
      specific customer collection issues that are identified. While such credit
      losses have historically been within expectations and the provisions
      established, we cannot assure that we will continue to experience the same
      credit loss rates that have occurred in the past. Our accounts receivable as
      of
      June 30, 2006 and 2005 were $24.3 and $14.1 million, respectively, net of an
      allowance for doubtful accounts of $1.3 million and $1.8 million. The increase
      in accounts receivable relates to higher prices, more volume being delivered
      and
      the acquisition of Shank Services and H & W in February and October 2005,
      respectively.




32




Inventory
      Valuation Reserves





With
      the
      acquisition of H & W in October 2005, our inventory levels have increased
      from $495,000 at June 30, 2005 to $3.3 million net of an inventory reserve
      of
      $276,000, at June 30, 2006. We make estimates relating to the net
      realizable value of inventories, based upon our assumptions about future demand,
      historical trends and market conditions. If we estimate that the net realizable
      value of inventory is less than the cost of the inventory recorded on our books,
      we record a reserve for the difference between the cost of the inventory and
      the
      estimated net realizable value. This reserve is recorded as a charge to cost
      of
      sales.





Property
      and Equipment




We
      record
      property and equipment at cost and depreciate that cost over the estimated
      useful life of the asset on a straight-line basis. Ordinary maintenance and
      repairs are expensed as incurred and improvements that significantly increase
      the useful life of property and equipment are capitalized.




We
      test
      property and equipment for impairment whenever events or changes in
      circumstances indicate that the carrying value of an asset may not be
      recoverable. The conditions that would trigger an impairment assessment of
      property, plant and equipment would include, but not be limited to, a
      significant, sustained negative trend in operating results or cash flows; a
      decrease in demand for our services; a change in the competitive environment;
      and other industry and economic factors. Recoverability of assets to be held
      and
      used is measured by a comparison of the carrying amount of the asset to future
      net cash flows expected to be generated by the asset. If such assets are deemed
      to be impaired, the impairment to be recognized is measured by the amount by
      which the carrying amount of the assets exceeds the fair value of the assets
      based on the projected net cash flows discounted at a rate commensurate with
      the
      risk of the assets.




Goodwill
      and Other Intangible Assets




In
      accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”),
      goodwill and intangible assets with indefinite lives are not amortized but
      instead are measured for impairment at least annually in the fourth fiscal
      quarter, or when events indicate that an impairment exists. As required by
      FAS
      142, in our impairment test for goodwill and other indefinite-lived intangible
      assets, we compare the estimated fair value of goodwill and other intangible
      assets to the carrying value. If the carrying value exceeds our estimate of
      fair
      value, we calculate impairment as the excess of the carrying value over our
      estimate of fair value. Our estimates of fair value utilized in goodwill and
      other indefinite-lived intangible asset tests may be based upon a number of
      factors, including our assumptions about the expected future operating
      performance of our reporting units. Our estimates may change in future periods
      due to, among other things, political and economic conditions and changes to
      our
      business operations or inability to meet business plans. Such changes may result
      in impairment charges recorded in future periods.




Intangible
      assets that are determined to have definite lives are amortized over their
      useful lives and are measured for impairment only when events or circumstances
      indicate the carrying value may be impaired. In these cases, we estimate the
      future undiscounted cash flows to be derived from the asset to determine whether
      or not a potential impairment exists. If the carrying value exceeds our estimate
      of future undiscounted cash flows, we then calculate the impairment as the
      excess of the carrying value of the asset over our estimate of its fair value.




Income
      Taxes




In
      connection with the preparation of our financial statements, income taxes are
      required to be estimated. This process involves estimating actual current tax
      exposure together with assessing temporary differences resulting from differing
      treatment of items for tax and accounting purposes. These differences result
      in
      deferred tax assets and liabilities, which are included on the balance sheet.
      The likelihood that deferred tax assets will be recovered from future taxable
      income is assessed and to the extent that recovery is not likely, a valuation
      allowance is established. To the extent a valuation allowance is established
      or
      an increase in the allowance is recorded in a period, a tax expense is provided
      in the statement of operations. Management judgment is required in determining
      the provision for income taxes, the deferred tax assets and liabilities and
      any
      valuation allowance recorded against net deferred tax assets. A valuation
      allowance of approximately $6.7 million was recorded as of June 30, 2006, due
      to
      uncertainties related to utilizing some of the deferred tax assets, primarily
      consisting of certain net operating losses carried forward, before they expire.
      The valuation allowance is based on estimates of taxable income and the period
      over which deferred tax assets will be recoverable. In the event that actual
      results differ from these estimates, or these estimates are adjusted in future
      periods, it may be necessary to establish an additional valuation allowance
      which could materially impact the Company’s financial position and results of
      operations. The net deferred tax asset as of June 30, 2006 was zero, net of
      the
      valuation allowance.




33




**RESULTS
      OF OPERATIONS:**





**Comparison
      of Year Ended June 30, 2006 to Year Ended June 30, 2005**





***Revenues***





Revenues
      increased $116 million, or 87%, to $249.5 million for the year ended June 30,
      2006 from $133.6 million for the year ended June 30, 2005. This increase was
      principally due to the acquisitions of Shank Services and H & W and higher
      fuel prices, which averaged 55 cents per gallon higher in the year ended June
      30, 2006, when compared to June 30, 2005. We sold 94.7 million gallons of fuel
      during the year ended June 30, 2006, compared to 66.4 million gallons during
      the
      prior year representing an increase of 28.3 million gallons or 43%. The results
      for the year ended June 30, 2006 includes revenues of $61.3 million and gallons
      sold of 23.1 million from Shank Services acquired in February 2005, and revenues
      of $47.6 million and gallons sold of 16.8 million from H & W which was
      acquired in October 2005. The increase in fuel prices was directly attributable
      to the volatility of world fuel markets and uncertain Middle East economic
      and
      political conditions, including unprecedented escalation in crude oil prices
      and
      greater global fuel demand.





***Gross
      Profit***





Gross
      profit was $12.4 million for the year ended June 30, 2006 compared to $6.6
      million for the year ended June 30, 2005, an increase of $5.8 million or 88%.
      This improvement resulted primarily from the acquisitions of Shank Services
      and
      H & W which accounted for most of the increase of 30.9 million gallons in
      net new business sold offset by a reduction of 2.6 million gallons resulting
      from the closure of certain operating locations. The overall average net margin
      per gallon was 14.9 cents and 12.1 cents for the years ended June 30, 2006
      and
      2005, an increase of 2.8 cents or 23%. The increase in gross profit is also
      the
      direct result of customer price increases and management’s diversification
      strategy associated with adjusting the sales mix of lubricant and chemical
      products sold and heavy haul services provided. There can be no assurance that
      the gross and net margin improvement trends will continue in the future or
      that
      margins will not decrease as a result of increased competitive, customer
      resistance to higher prices for our services and/or a reduction in emergency
      response services.





***Selling,
      General and Administrative Expense***




Selling,
      general and administrative expense were $13.3 million for the year ended June
      30, 2006, compared to $6.1 million for the year ended June 30, 2005, an increase
      of $7.2 million. The acquisitions of Shank Services in February 2005 and H
&
W in October 2005 accounted for approximately $3.6 million of the increase.
      The
      remaining increase in selling, general and administrative expense is primarily
      attributable to $2.3 million incurred for corporate infrastructure and
      integration costs; $511,000 in stock-based compensation expense; an increase
      in
      bad debt expense of $472,000; and an increase in credit card fees of
      $242,000.




34




***Interest
      Expense***




Interest
      expense increased $2.1 million for the year ended June 30, 2006 compared to
      the
      year ended June 30, 2005 primarily as a result of the issuance of the
      September 2005 Notes and increased borrowings on our line of credit due to
      the H
& W acquisition and our assuming $7.1 million of the H & W line of
      credit on October 1, 2005. In addition, on June 30, 2006 we wrote-off deferred
      debt costs and debt discount and recorded a pre-payment penalty totaling
      $537,000 related to the June 30, 2006 issuance of warrants to convert a portion
      of our August 2003 and January 2005 Notes. The components of interest expense
      are as follows (in thousands):




**Year
                Ended****June
                30,****2006**
            
            **2005****Stated
                Rate Interest Expense**:Line
                of credit
            
            $
            870
            
            $
            239Long
                term debt
            
            
            1,471
            
            
            959Other
            
            
            75
            
            
            18**Total
                stated rate interest expense**
            
            
            **2,416**
            
            
            **1,216****Non-Cash
                Interest Amortization:**Amortization
                of deferred debt costs
            
            
            521
            
            
            270Amortization
                of debt discount
            
            
            1,074
            
            
            425Other
            
            
            14
            
            
            —**Total
                amortization of interest expense**
            
            
            **1,609**
            
            
            **695****Total
                interest expense**
            
            $
            4,025
            
            $
            1,911





***Income
      Taxes***




No
      income
      tax expense was recorded for the year ended June 30, 2006 or for the year ended
      June 30, 2005. The net operating loss carryforward at June 30, 2006 was $19.1
      million which includes a $2.2 million net operating loss carryforward acquired
      in connection with the H & W acquisition.




***Net
      Loss***




The
      $4.9
      million net loss for the year ended June 30, 2006, was $3.4 million higher
      than
      the $1.5 million net loss for the year ended June 30, 2005. During the year
      ended June 30, 2006, we incurred additional interest expense of $2.1 million
      and
      additional selling, general and administrative expenses of $7.1 million which
      were offset by an increase in gross profit of $5.8 million.




***EBITDA
      - Non-GAAP Measure***




Earnings
      before interest, taxes, depreciation, amortization and stock-based compensation
      expenses (“EBITDA”) was $1.8 million for the year ended June 30, 2006 compared
      to $2.3 million the year ended June 30, 2005, a decrease of $497,000 or 22%.
      The
      decrease was primarily due to the increase in net loss of $3.4 million offset
      by
      an increase in interest expense of $2.1 million, $511,000 in stock-based
      compensation expense and an increase of $288,000 in depreciation and
      amortization expense.




35




The
      components of EBITDA are as follows (in thousands):


**Year
                  ended**
                **June
                  30,****2006**
              
              **2005**Net
                  loss
              
              $
              (4,878
              )
              $
              (1,460
              )Add back:Interest
                  expense, net of interest income
              
              
              2,416
              
              
              1,208Non-cash
                  interest expense
              
              
              1,609
              
              
              695Stock-based
                  compensation expense
              
              
              511
              
              
              —Depreciation
                  and amortization expense (*):Cost
                  of sales
              
              
              1,667
              
              
              1,467Selling,
                  general and administrative expenses
              
              
              456
              
              
              368EBITDA
              
              $
              1,781
              
              $
              2,278
 (*)
          The
          Year ended June 30, 2005, includes $461 of depreciation expense of excess
          equipment abandoned after fleet rerouting following the Shank Services
          acquisition and accelerated depreciation expense of computer software for
          changes in infrastructure technology.


**Comparison
      of Year Ended June 30, 2005 to Year Ended June 30, 2004**





***Revenues***





Revenues
      increased $44.5 million, or 50.0%, in the year ended June 30, 2005 compared
      to
      the year ended June 30, 2004. This increase was primarily due to: (1) the
      acquisition of Shank Services in February 2005; (2) higher average fuel price
      per gallon; and (3) greater number of gallons of fuel sold. Revenues were $133.6
      million and $89.0 million for the year ended June 30, 2005 and 2004,
      respectively. The acquisition of Shank Services in February 2005 contributed
      $20.6 million of the increase in revenues, as well as an additional 9.0 million
      gallons of fuel sold. Not including the effect of the Shank Services
      acquisition, we sold fuel at a 35 cent per gallon higher average price which
      resulted in an approximately $18.8 million increase in revenues. The increase
      in
      fuel prices was directly attributable to the volatility of the world fuel market
      and economic conditions, including higher crude oil prices, greater global
      fuel
      demand and refiner fuel supply limitations. Not including the gallons from
      the
      Shank Services acquisition, we sold 2.8 million more gallons of fuel in the
      current year representing a 5.2% increase in net new business. Not including
      the
      gallons from the Shank Services acquisition, we sold 57.4 million gallons of
      fuel in the current year compared to 54.6 million gallons sold in the prior
      year
      accounting for approximately $5.7 million additional revenues.




***Gross
      Profit***





Gross
      profit was $6.6 million for the year ended June 30, 2005 compared to $4.3
      million for the year ended June 30, 2004, an increase of $2.3 million or 53.4%.
      The acquisition of Shank Services in February 2005 contributed approximately
      $0.8 million of the increase. Gross profit increased $1.8 million due to higher
      margins generated from services provided including emergency response services
      related to the four hurricanes impacting parts of Florida and the southeastern
      United States during August and September 2004. The increase in gross profit
      was
      reduced by increased depreciation expense of $0.3 million due to the write-down
      of excess equipment abandoned after reevaluating fleet utilization requirements
      following the Shank Services acquisition. Net margin per gallon during the
      current year was 12.1 cents per gallon compared to 9.9 cents per gallon for
      the
      prior year, an increase of 2.2 cents or 22.2%.





36




***Selling,
      General and Administrative Expense***




Selling,
      general and administrative expense were $6.1 million for the year ended June
      30,
      2005 compared to $4.4 million for the year ended June 30, 2004, an increase
      of
      $1.7 million or 38.6%. The acquisition of Shank Services in February 2005 caused
      approximately $0.7 million of the increase. In addition, credit card fees
      increased approximately $0.4 million due to a major customer’s switch to a
      credit card method of payment. We also incurred higher accounting and legal
      fees
      of approximately $0.2 million due to increased costs related to public company
      reporting requirements. Further, $0.2 million of the increase was due to the
      write-down and acceleration of depreciation for the shortened useful lives
      of
      computer software.




***Interest
      Expense***




Interest
      expense increased $550,000 primarily as a result of the issuance of the
      September 2005 Notes for the year ended June 30, 2005, compared to the year
      ended June 30, 2004. The components of interest expense are as follows (in
      thousands):





**Year
                Ended June 30,****2005**
            
            **2004****Stated
                Rate Interest Expense**:Bank
                line of credit
            
            $
            239
            
            $
            246Long
                term debt
            
            
            959
            
            
            623Subordinated
                debt
            
            
            —
            
            
            20Other
            
            
            18
            
            
            44**Total
                stated rate interest expense**
            
            
            **1,216**
            
            
            **933****Non-Cash
                Interest Amortization:**Amortization
                of deferred debt costs
            
            
            270
            
            
            187Amortization
                of debt discount
            
            
            425
            
            
            241**Total
                amortization of interest expense**
            
            
            **695**
            
            
            **428****Total
                interest expense**
            
            $
            1,911
            
            $
            1,361




***Income
      Taxes***




No
      income
      tax expense was recorded for the years ended June 30, 2005 and 2004. The net
      operating loss carryforward at June 30, 2005 was $15.1 million.




***Net
      Loss***




The
      $1.460 million net loss for the year ended June 30, 2005 was $0.762 higher
      than
      the $0.698 million net loss for the year ended June 30, 2004. During the year
      ended June 30, 2004 we recorded a gain of $0.757 million for the extinguishment
      of debt in connection with our August 2003 financing; the absence of that gain
      in the year ended June 30, 2005 was a primary reason for the increase in the
      net
      loss. While we also experienced increases in selling, general and administrative
      expense, as well as interest expense, in the current year, these increases
      were
      offset by the increase in our gross profit.




37




***EBITDA
      - Non-GAAP Measure***




Earnings
      before interest, taxes, depreciation, and amortization (“EBITDA”) was $2.278
      million for the year ended June 30, 2005 compared to $1.983 million the year
      ended June 30, 2004, an increase of $0.295 million or 14.9%. Although the
      current year net loss increased by $0.762 million, a larger component of the
      net
      loss was interest expense and depreciation and amortization expense, which
      increased by $0.550 million and $0.515 million, respectively. These expenses
      are
      add backs to the net loss in determining EBITDA. The components of EBITDA are
      as
      follows (in thousands):




**Year
                ended**
              **June
                30,****2005**
            
            **2004**Net
                loss
            
            $
            (1,460
            )
            $
            (698
            )Add
                back:Interest
                expense, net of interest income
            
            
            1,208
            
            
            933Non-cash
                interest expense
            
            
            695
            
            
            428Depreciation
                and amortization expense (*):Cost
                of sales
            
            
            1,467
            
            
            1,130Selling,
                general and administrative expenses
            
            
            368
            
            
            190EBITDA
            
            $
            2,278
            
            $
            1,983


(*)
        For
        the year ended June 30, 2005, includes $461 of depreciation expense of excess
        equipment abandoned after fleet rerouting following the Shank Services
        acquisition and accelerated depreciation expense of computer software for
        changes in infrastructure technology.




**Item
      7A.  Quantitative and Qualitative Disclosures About Market
      Risk**





Our
      exposure to market risk is limited primarily to the fluctuating interest rates
      associated with variable rate debt outstanding to finance working requirements.
      This debt bears interest at the United States prime interest rate plus a fixed
      markup and is subject to change based upon interest rate changes in the United
      States. We do not currently use, and have not historically used, derivative
      instruments to hedge against such market interest rate risk. Increases or
      decreases in market interest rates could have a material impact on our financial
      condition, results of operations and cash flows. The interest on our $3.0
      million September 2005 promissory note, $6.1 million January 2005 promissory
      notes and our August 2003 $6.925 promissory notes are fixed for the life of
      the
      notes at 10% per annum. The interest on our line of credit of up to $20,000,000
      is variable and may increase or decrease with future changes in interest rates
      but interest rates are not the only factor which could affect interest expense
      on the line of credit. For example, interest expense on the line of credit
      for
      the year ended June 30, 2006 was $870,000, an increase of $631,000 over the
      prior year, due primarily to an increase in the average outstanding line of
      credit balance. If our line of credit average outstanding balance were $15.0
      million, an increase of 1% in the variable interest rate would result in
      additional interest expense of $150,000 per annum.





**Item
      8.  Financial Statements and Supplementary Data**





Our
      financial statements required by Form 10-K are attached following Part III
      of
      this report, commencing on page F-1.





**Item
      9.  Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure**





None.




38




**Item
      9A. Controls and Procedures**





*Evaluation
      of disclosure controls and procedures.*





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including the Chief Executive Officer, the Chief Financial
      Officer and the Chief Information Officer of the effectiveness of the design
      and
      operation of our disclosure controls and procedures pursuant to Exchange Act
      Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this Annual
      Report on Form 10-K. Based upon this evaluation and the material weakness
      described below, the Chief Executive Officer and the Chief Financial Officer
      concluded that the Company’s disclosure controls and procedures were not
      effective as of June 30, 2006.





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as that term is defined In Exchange Act Rule
      13a-15(f). Our internal control over financial reporting is a process designed
      to provide reasonable assurance regarding the reliability of our financial
      reporting and the preparation of our financial statements for external purposes
      in accordance with U.S. generally accepted accounting principles. Our control
      environment is the foundation for our system of internal control over financial
      reporting. Internal control over financial reporting includes those policies
      and
      procedures that (i) pertain to the maintenance of records that, in reasonable
      detail, accurately and fairly reflect our transactions and dispositions of
      our
      assets; (ii) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of our financial statements in accordance with
      generally accepted accounting principles, and that our receipts and expenditures
      are being made only in accordance with authorizations of our management and
      directors; and (iii) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use or disposition of our assets that
      could have a material effect on our financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. In addition, projections of any evaluation
      of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions or that the degree of compliance
      with the policies or procedures may deteriorate.





Notwithstanding
      that the Company is not subject to Section 404 of the Sarbanes-Oxley Act of
      2002, the Company is required to report a material weakness as defined in the
      Public Company Accounting Oversight Board’s Auditing Standard #2 in its public
      company filings. In connection with the audit for the year ended June 30, 2006,
      we and the independent auditors identified a material weakness. A material
      weakness as defined in the Public Company Accounting Oversight Board’s Auditing
      Standard #2 is a control deficiency, or a combination of control deficiencies,
      that results in more than a remote likelihood that a material misstatement
      of
      our annual or interim financials statements will not be prevented or detected
      on
      a timely basis.





*Material
      weakness in internal control.*





Our
      management identified significant deficiencies related to policies and
      procedures to ensure accurate and reliable interim and annual consolidated
      financial statements. Specifically, we lacked (i) sufficient personnel with
      the
      required technical accounting and SEC financial reporting experience relating
      to
      our business to enable us to maintain adequate controls over our financial
      reporting and processes which control deficiency resulted in our recording
      certain adjustments prior to the issuance of our audited consolidated financial
      statements for the year ended June 30, 2006; (ii) adequate segregation of duties
      among accounting personnel; (iii) sufficient review controls over account
      reconciliations, account analyses and operating procedures primarily in
      connection with acquired businesses; and (iv) policies and procedures requiring
      a detailed review on a timely basis of underlying information supporting amounts
      included in the annual and interim consolidated financial statements and
      disclosures. As a result of the aggregation of these significant deficiencies,
      the Company has concluded that a material weakness exists.





*Remediation
      of Material Weakness in Internal Control over Financial
      Reporting.*





We
      have
      engaged in substantial efforts in order to address the material weakness in
      our
      internal control over financial reporting and to improve the integrity of our
      reporting processes.





39




It
      is
      management’s objective to remediate the material weakness described above. The
      following describe the changes to our internal control over financial reporting
      prior and subsequent to June 30, 2006 that should materially affect our internal
      control over financial reporting:





·
            We
                have significantly strengthened our management team, including the
                appointments of a new Vice President of Information Services Systems
                (April 2006); Divisional Controller (May 2006); Assistant Corporate
                Controller (May 2006); Vice President of Corporate Administration
                and
                Development (July 2006); Corporate Controller (September 2006); and
                several additional information technology, staff accounting and
                administrative personnel.





·
            We
                have invested over $1.5 million during the calendar year 2006 in
                the
                development and implementation of a new fully integrated accounting
                and
                operations internal control and management information system. In
                connection with this project we found it necessary to terminate in
                August
                2006 the third party implementer for its inability to meet deliverables
                timelines and budget commitments and to retain a more experienced
                and
                qualified replacement.





·
            We
                have expanded our corporate infrastructure in order to upgrade and
                improve
                all internal accounting procedures and processes supporting our existing
                business and anticipated
                acquisitions.





·
            We
                are currently implementing a program to develop and improve policies
                and
                procedures in connection with the operational performance of our
                internal
                finance and accounting processes and underlying information and reporting
                systems; establish greater organizational accountability and lines
                of
                responsibility and approval; and to better support our processes
                operations.





·
            We
                have improved our organizational structure to help achieve the proper
                number of, and quality of our, accounting, finance and information
                technology functions, including the proper segregation of duties
                among
                accounting personnel.





·
            We
                have refined our period-end financial reporting processes to improve
                the
                quality and timeliness of our financial
                information.





**Item
      9B. Other Information**





None




40




**PART
      III**




**Item
      10.  Directors, Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(a) of the Exchange Act**





The
      information required by this item is incorporated by reference from our
      Definitive Proxy Statement in connection with its 2006 Annual Meeting of
      Shareholders to be filed with the Commission pursuant to Regulation 14A not
      later than 120 days after the end of the fiscal year covered by this
      report.





**Item
      11.  Executive Compensation**





The
      information required by this item is incorporated by reference from our
      Definitive Proxy Statement in connection with its 2006 Annual Meeting of
      Shareholders to be filed with the Commission pursuant to Regulation 14A not
      later than 120 days after the end of the fiscal year covered by this
      report.





**Item
      12.  Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters**





The
      information required by this item is incorporated by reference from our
      Definitive Proxy Statement in connection with its 2006 Annual Meeting of
      Shareholders to be filed with the Commission pursuant to Regulation 14A not
      later than 120 days after the end of the fiscal year covered by this
      report.





**Item
      13.  Certain Relationships and Related
      Transactions**





The
      information required by this item is incorporated by reference from our
      Definitive Proxy Statement in connection with its 2006 Annual Meeting of
      Shareholders to be filed with the Commission pursuant to Regulation 14A not
      later than 120 days after the end of the fiscal year covered by this
      report.





**Item
      14.  Principal Accounting Fees and Services**





The
      information required by this item is incorporated by reference from our
      Definitive Proxy Statement in connection with its 2006 Annual Meeting of
      Shareholders to be filed with the Commission pursuant to Regulation 14A not
      later than 120 days after the end of the fiscal year covered by this
      report.




41




**PART
      IV**




**Item
      15.  Exhibits and Financial Statement Schedules.**




**(a)
      Exhibits**




**Exhibits**
            
            **Description**2.1
            
            Asset
                Purchase Agreement by and among Streicher Mobile Fueling, Inc., SMF
                Services, Inc., Shank C&E Investments, L.L.C., Jerry C. Shanklin and
                Claudette Shanklin dated January 25, 2005 filed as Exhibit 2.1 to
                the
                Company’s Form 8-K dated January 25, 2005 and incorporated by reference
                herein.2.2
            
            Supplemental
                Agreement dated February 18, 2005 to the Asset Purchase Agreement
                by and
                among Streicher Mobile Fueling, Inc., SMF Services, Inc., Shank C&E
                Investments, L.L.C., Jerry C. Shanklin and Claudette Shanklin dated
                January 25, 2005 filed as Exhibit 2.1 to the Company’s Form 8-K dated
                February 18, 2005 and incorporated by reference herein.2.3
            
            Stock
                Purchase Agreement by and among Streicher Mobile Fueling, Inc., H
& W
                Petroleum Co., Inc., Eugene Wayne Wetzel, Mary Kay Wetzel, Sharon
                Harkrider, William M. Harkrider II, W. M. Harkrider Testamentary
                Trust,
                Harkrider Distributing Company, Inc. and W & H Interests dated
                September 7, 2005 filed as Exhibit 2.1 to the Company’s Form 8-K dated
                September 1, 2005 and incorporated by reference herein.3.1
            
            Restated
                Articles of Incorporation filed as Exhibit 3.1 to the Company’s Form 10-K
                for the fiscal year ended June 30, 2003 and incorporated by reference
                herein.3.2
            
            Amended
                and Restated Bylaws filed as Exhibit 3.2 to the Company’s Form 10-Q for
                the quarter ended December 31, 2003 and incorporated by reference
                herein.4.1
            
            Form
                of Common Stock Certificate filed as Exhibit 4.1 to the Company’s
                Registration Statement on Form SB-2 (No. 333-11541) and incorporated
                by
                reference herein.4.2
            
            Form
                of Redeemable Common Stock Purchase Warrant filed as Exhibit 4.2
                to the
                Company’s Registration Statement on Form SB-2 (No. 333-11541) and
                incorporated by reference herein.4.3
            
            Underwriters’
                Purchase Option Agreement between the Company and Argent Securities,
                Inc.
                filed as Exhibit 4.3 to the Company’s Registration Statement on Form SB-2
                (No. 333-11541) and incorporated by reference
                herein.




42




4.4
            
            Warrant
                Agreement between the Company and American Stock Transfer & Trust
                Company filed as Exhibit 4.4 to the Company’s Registration Statement on
                Form SB-2 (No. 333-11541) and incorporated by reference herein.10.1
            
            Registrant’s
                1996 Stock Option Plan filed as Exhibit 10.2 to the Company’s Registration
                Statement on Form SB-2 (No. 333-1154) and incorporated by reference
                herein.10.2
            
            2000
                Stock Option Plan filed as Exhibit 10.6 to the Company’s Form 10-K for the
                fiscal year ended January 31, 2001 and incorporated by reference
                herein.10.3
            
            Promissory
                Note, dated July 7, 2000, between the Registrant and C. Rodney O’Connor
                filed as Exhibit 10.8 to the Company’s Form 10-K for the fiscal year ended
                January 31, 2001 and incorporated by reference herein.10.4
            
            Form
                of Convertible Subordinated Promissory Note filed as Exhibit 10.9
                to the
                Company’s Form 10-K for the fiscal year ended January 31, 2001 and
                incorporated by reference herein.10.5
            
            2001
                Directors Stock Option Plan filed as Appendix A to the Company’s Proxy
                Statement for the Annual Meeting of Shareholders on December 9, 2004
                and
                incorporated by reference herein.10.6
            
            Loan
                and Security Agreement with Congress Financial Corporation dated
                September
                26, 2002 filed as Exhibit 99.1 to the Company’s Form 8-K dated September
                30, 2002 and incorporated by reference herein.10.7
            
            First
                Amendment to Loan and Security Agreement with Congress Financial
                Corporation dated March 31, 2003 filed as Exhibit 10.13 to the Company’s
                Form 10-K for the fiscal year ended June 30, 2003 and incorporated
                by
                reference herein.10.8
            
            Indenture
                with The Bank of Cherry Creek dated August 29, 2003 filed as Exhibit
                10.14
                to the Company’s Form 10-K for the fiscal year ended June 30, 2003 and
                incorporated by reference herein.10.9
            
            Security
                Agreement with The Bank of Cherry Creek dated August 29, 2003 filed
                as
                Exhibit 10.14 to the Company’s Form 10-K for the fiscal year ended June
                30, 2003 and incorporated by reference herein.10.10
            
            Second
                Amendment to Loan and Security Agreement with Congress Financial
                Corporation dated August 29, 2003 filed as Exhibit 10.1 to the Company’s
                Form 10-Q for the quarter ended September 30, 2003 and incorporated
                by
                reference herein.10.11
            
            Third
                Amendment to Loan and Security Agreement with Congress Financial
                Corporation dated August 3, 2003 filed as Exhibit 10.1 to the Company’s
                Form 10-Q for the quarter ended December 31, 2004 and incorporated
                by
                reference herein.10.12
            
            Form
                of Securities Purchase Agreement dated January 25, 2005 filed as
                Exhibit
                10.1 to the Company’s Form 8-K dated January 25, 2005 and incorporated by
                reference herein.




43




10.13
            
            Form
                of 10% Promissory Note dated January 25, 2005 filed as Exhibit 10.2
                to the
                Company’s Form 8-K dated January 25, 2005 and incorporated by reference
                herein.10.14
            
            Form
                of Investor Warrant dated January 25, 2005 filed as Exhibit 10.3
                to the
                Company’s Form 8-K dated January 25, 2005 and incorporated by reference
                herein.10.15
            
            Indenture
                Agreement with American National Bank dated January 25, 2005 filed
                as
                Exhibit 10.4 to the Company’s Form 8-K dated January 25, 2005 and
                incorporated by reference herein.10.16
            
            Form
                of Placement Agent Warrants dated January 25, 2005 filed as Exhibit
                10.5
                to the Company’s Form 8-K dated January 25, 2005 and incorporated by
                reference herein.10.17
            
            Fourth
                Amendment to Loan and Security Agreement by and among Streicher Mobile
                Fueling, Inc., SMF Services, Inc. and Wachovia Bank, National Association,
                successor by merger to Congress Financial Corporation (Florida) dated
                February 18, 2005 filed as Exhibit 10.1 to the Company’s Form 8-K dated
                February 18, 2005 and incorporated by reference herein.10.18
            
            Subordination
                Agreement by, between and among Shank C&E Investments, L.L.C.,
                Wachovia Bank, National Association, successor by merger to Congress
                Financial Corporation (Florida), SMF Services, Inc. and Streicher
                Mobile
                Fueling, Inc. dated February 18, 2005 filed as Exhibit 10.2 to the
                Company’s Form 8-K dated February 18, 2005 and incorporated by reference
                herein.10.19
            
            Amended
                and Restated Employment Agreement by and between Streicher Mobile
                Fueling,
                Inc. and Richard E. Gathright executed May 14, 2005, effective as
                of March
                1, 2005 filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter
                ended March 31, 2005, and incorporated by reference
                herein.10.20
            
            Form
                of Note for Stock Purchase Agreement in Exhibit 2.3 herein filed
                as
                Exhibit 10.1 to the Company’s Form 8-K dated September 1, 2005 and
                incorporated by reference herein.10.21
            
            Form
                of Note Purchase Agreement filed as Exhibit 10.2 to the Company’s Form 8-K
                dated September 1, 2005 and incorporated by reference
                herein.10.22
            
            Form
                of 10% Promissory Note filed as Exhibit 10.3 to the Company’s Form 8-K
                dated September 1, 2005 and incorporated by reference
                herein.10.23
            
            Form
                of Investor Warrant filed as Exhibit 10.4 to the Company’s Form 8-K dated
                September 1, 2005 and incorporated by reference herein.10.24
            
            Form
                of Indenture Agreement filed as Exhibit 10.5 to the Company’s Form 8-K
                dated September 1, 2005 and incorporated by reference
                herein.10.25
            
            Form
                of Security Agreement filed as Exhibit 10.6 to the Company’s Form 8-K
                dated September 1, 2005 and incorporated by reference
                herein.


44





10.26
            
            Fifth
                Amendment to Loan and Security Agreement by among Streicher Mobile
                Fueling, Inc., SMF Services, Inc. and Wachovia Bank, National Association,
                successor by merger to Congress Financial Corporation (Florida) dated
                October 1, 2005. Filed as Exhibit 10.1 to the Company’s Form 8-K
                dated October 1, 2005 and incorporated by reference
                herein.10.27
            
            Subordination
                Agreement executed effective as of the 1st day of October, 2005,
                by,
                between and among Eugene Wayne Wetzel, Mary Kay Wetzel, Sharon Harkrider,
                William M. Harkrider II, W. M. Harkrider Testamentary Trust, Harkrider
                Distributing Company, Inc. and W & H Interests, Wachovia Bank,
                National Association, successor by merger to Congress Financial
                Corporation (FLORIDA), and Streicher Mobile Fueling, Inc. Filed as
                Exhibit
                10.2 to the Company’s Form 8-K dated October 1, 2005 and incorporated by
                reference herein.10.28
            
            Warrant
                Purchase Agreement dated June 30, 2006. Filed as Exhibit 10.1 to
                the
                Company’s Form 8-K dated June 30, 2006 and incorporated by reference
                herein.10.29
            
            Form
                of Stock Purchase Warrant. Filed as Exhibit 10.2 to the Company’s Form 8-K
                dated June 30, 2006 and incorporated by reference
                herein.10.30
            
            Sixth
                Amendment to Loan and Security Agreement by among Streicher Mobile
                Fueling, Inc., SMF Services, Inc., H & W Petroleum Company, Inc. and
                Wachovia Bank, National Association, successor by merger to Congress
                Financial Corporation (Florida) dated September 22, 2006 and effective
                March 31, 2006. Filed as Exhibit 10.1 to the Company’s Form 8-K dated
                September 26, 2006 and incorporated by reference
                herein.10.31
            
            Seventh
                Amendment to Loan and Security Agreement by among Streicher Mobile
                Fueling, Inc., SMF Services, Inc., H & W Petroleum Company, Inc. and
                Wachovia Bank, National Association, successor by merger to Congress
                Financial Corporation (Florida) effective September 22, 2006. Filed
                as
                Exhibit 10.2 to the Company’s Form 8-K dated September 26, 2006 and
                incorporated by reference herein.10.32
            
            Amendment
                to Warrant Purchase Agreement and Stock Purchase Warrant between
                Streicher
                Mobile Fueling, Inc. and the Purchasers dated September 28, 2006.
                Filed as
                Exhibit 10.1 to the Company’s Form 8-K dated September 28, 2006 and
                incorporated by reference herein.*21.1
            
            Subsidiaries
                of the Company.*23.1
            
            Consent
                of KPMG LLP*23.2
            
            Consent
                of Grant Thornton LLP


45





*31.1
            
            Certificate
                of Chief Executive Officer pursuant to Section 302 of
                the Sarbanes-Oxley Act of 2002*31.2
            
            Certificate
                of Chief Financial Officer pursuant to Section 302 of
                the Sarbanes-Oxley Act of 2002*32.1
            
            Certificate
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of The Sarbanes-Oxley Act of 2002




*Filed
      herewith





**(b)**  **Financial
      Statements and Schedule**




Our
      financial statements are attached following Part III of this report, commencing
      on page F-1. Financial statement schedules have been omitted since they are
      not
      required, not applicable, or the information is otherwise included.




46




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.




Dated:
              October 13, 2006
            **STREICHER
              MOBILE FUELING, INC.**By:
            /s/
              Richard
              E. GathrightRichard
                E. Gathright, Chief Executive Officer and
                President




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




**Name**
            
            **Title**
            
            **Date**By:/s/
                Richard E. Gathright
            
            Chairman
                of the Board, Chief Executive Officer and President
            
            October
                13, 2006Richard
                E. Gathright
            
            (Principal
              Executive Officer)By:/s/
                Michael S. Shore
            
            Chief
                Financial Officer and Senior Vice President
            
            October
                13, 2006Michael
                S. Shore
            
            (Principal
              Financial and Accounting Officer)By:/s/
                Wendell R. Beard
            
            Director
            
            October
                13, 2006Wendell
                R. BeardBy:/s/
                Stephen R. Goldberg
            
            Director
            
            October
                13, 2006Steven
                R. GoldbergBy:/s/
                Nat Moore
            
            Director
            
            October
                13, 2006Nat
                MooreBy:/s/
                Larry S. Mulkey
            
            Director
            
            October
                13, 2006Larry
                S. MulkeyBy:/s/
                C. Rodney O’Connor
            
            Director
            
            October
                13, 2006C.
                Rodney O’ConnorBy:/s/
                Robert S. Picow
            
            Director
            
            October
                13, 2006Robert
                S. Picow





47


**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Page**Reports
                of Independent Registered Public Accounting Firms
            F-2Consolidated
                Balance Sheets as of June 30, 2006 and 2005
            F-4Consolidated
                Statements of Operations for the Years Ended June 30, 2006, 2005
                and
                2004
            F-5Consolidated
                Statements of Shareholders’ Equity for the Years Ended June 30, 2006, 2005
                and 2004
            F-6Consolidated
                Statements of Cash Flows for the Years Ended June 30, 2006, 2005
                and
                2004
            F-7Notes
                to Consolidated Financial Statements
            F-9




F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




Board
      of
      Directors and


Shareholders
      of Streicher Mobile Fueling, Inc.




We
      have
      audited the accompanying consolidated balance sheets of Streicher Mobile
      Fueling, Inc. and subsidiaries as of June 30, 2006 and June 30, 2005, and the
      related consolidated statements of operations, stockholders' equity, and cash
      flows for each of two years in the period ended June 30, 2006.  These
      consolidated financial statements are the responsibility of the Company's
      management.  Our responsibility is to express an opinion on these
      consolidated financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





I n
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Streicher Mobile Fueling,
      Inc. and subsidiaries as of June 30, 2006 and June 30, 2005, and the results
      of
      their operations and their cash flows for the year then ended in conformity
      with
      accounting principles generally accepted in the United States of
      America.





As
      discussed in Note 2, the Company adopted Statement of Financial Accounting
      Standard No. 123R, “Share-Based Payment,” effective July 1, 2005.





/s/
      Grant
      Thornton LLP







Fort
      Lauderdale, Florida


October
      6, 2006




F-2


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  
  The
        Board
        of Directors and Shareholders
 Streicher
        Mobile Fueling, Inc.:
 
 We
        have
        audited the accompanying consolidated statement of operations, shareholders’
equity, and cash flows for the period ended June 30, 2004. These consolidated
        financial statements are the responsibility of the Company’s management. Our
        responsibility is to express an opinion on these consolidated financial
        statements based on our audit.
  We
        conducted our audits in accordance with the standards of
        the
        Public Company Accounting Oversight Board ( United
        States ).
        Those
        standards require that we plan and perform the audit to obtain reasonable
        assurance about whether the financial statements are free of material
        misstatement. An audit includes consideration of internal control over financial
        reporting as a basis for designing audit procedures that are appropriate
        in the
        circumstances, but not for the purpose of expressing an opinion on the
        effectiveness of the Company’s internal control over financial reporting.
        Accordingly, we express no such opinion. An audit includes examining, on
        a test
        basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion. We believe that our audit provides a
        reasonable basis for our opinion.
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the results of its operations and its cash flows
        for
        the period ended June 30, 2004, in conformity with U.S. generally accepted  accounting
        principles.
  
 /s/
        KPMG
        LLP
 
 Ft.
        Lauderdale, Florida
 September
        13, 2004
 Certified
        Public Accountants




F-3





**STREICHER
      MOBILE FUELING, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


***(
      in 000’s, except share and per share data)***




**June
                  30, 2006**
              ****
              **June
                  30, 2005****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              4,103
              
              $
              4,108Accounts
                  receivable, less allowances of $1,252 and $1,806
              
              
              24,345
              
              
              14,129Inventories,
                  less reserve of $276
              
              
              3,321
              
              
              495Prepaid
                  expenses and other current assets
              
              
              413
              
              
              660Total
                  current assets
              
              
              32,182
              
              
              19,392Property
                  and equipment, net
              
              
              11,739
              
              
              9,555Identifiable
                  intangible assets, net
              
              
              3,148
              
              
              100Goodwill
              
              
              228
              
              
              —Deferred
                  debt costs, net
              
              
              749
              
              
              991Other
                  assets
              
              
              68
              
              
              87Total
                  assets
              
              $
              48,114
              
              $
              30,125**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**Current
                  liabilities:Bank
                  line of credit payable
              
              $
              15,612
              
              $
              4,801Accounts
                  payable
              
              
              10,367
              
              
              5,540Accrued
                  expenses and other liabilities
              
              
              2,787
              
              
              1,805Current
                  portion of long-term debt
              
              
              2,118
              
              
              1,385Total
                  current liabilities
              
              
              30,884
              
              
              13,531Long-term
                  liabilities:Promissory
                  notes, net of unamortized debt discount of $1,652and
                  $2,056
              
              
              10,993
              
              
              9,584Note
                  payable
              
              
              —
              
              
              172Capital
                  lease obligation
              
              
              25
              
              
              —Long-term
                  debt, net
              
              
              11,018
              
              
              9,756Other
                  long-term liabilities
              
              
              117
              
              
              —Deferred
                  revenues
              
              
              555
              
              
              —Total
                  liabilities
              
              
              42,574
              
              
              23,287Shareholders’
                  equity:Common
                  stock, par value $.01 per share; 50,000,000 shares authorized;10,491,143
                  and 8,953,444 issued and outstanding at June 30, 2006and
                  2005, respectively
              
              
              105
              
              
              90Additional
                  paid-in capital
              
              
              19,890
              
              
              16,325Accumulated
                  deficit
              
              
              (14,455
              )
              
              (9,577
              )Total
                  shareholders’ equity
              
              
              5,540
              
              
              6,838Total
                  liabilities and shareholders’ equity
              
              $
              48,114
              
              $
              30,125




**The
      accompanying notes to consolidated financial statements are an integral part
      of
      these consolidated balance sheets.**






F-4




**STREICHER
      MOBILE FUELING, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


** ***(in 000’s, except share and per share data)***




**Year
                Ended June 30,****2006**
            
            **2005**
            
            **2004**Petroleum
                product sales and service revenues
            
            $
            220,235
            
            $
            109,207
            
            $
            67,663Petroleum
                product taxes
            
            
            29,306
            
            
            24,356
            
            
            21,447Total
                revenues
            
            
            249,541
            
            
            133,563
            
            
            89,110Cost
                of petroleum product sales and service
            
            
            207,826
            
            
            102,619
            
            
            63,365Petroleum
                product taxes
            
            
            29,306
            
            
            24,356
            
            
            21,447Total
                cost of sales
            
            
            237,132
            
            
            126,975
            
            
            84,812Gross
                profit
            
            
            12,409
            
            
            6,588
            
            
            4,298Selling,
                general and administrative expenses
            
            
            13,262
            
            
            6,145
            
            
            4,394Gain
                on extinguishment of debt
            
            
            —
            
            
            —
            
            
            757Operating
                (loss) income
            
            
            (853
            )
            
            443
            
            
            661Interest
                expense
            
            
            (4,025
            )
            
            (1,911
            )
            
            (1,361
            )Interest
                and other income
            
            
            —
            
            
            8
            
            
            2Loss
                before income taxes
            
            
            (4,878
            )
            
            (1,460
            )
            
            (698
            )Income
                tax expense
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            $
            (4,878
            )
            $
            (1,460
            )
            $
            (698
            )Basic
                and diluted net loss per share
            
            $
            (0.50
            )
            $
            (0.19
            )
            $
            (0.10
            )Basic
                and diluted weighted average common shares outstanding
            
            
            9,818,623
            
            
            7,857,434
            
            
            7,261,372








**The
      accompanying notes to consolidated financial statements are an integral part
      of
      these consolidated statement of operations.**




F-5




**STREICHER
      MOBILE FUELING, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY**


***(in
      000’s except share data)***




**Common
                Stock**
            
            **Additional**
              **Paid-in**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit**
            
            **Total****BALANCE
                at June 30, 2003**
            
            
            7,234,168
            
            $
            72
            
            $
            11,458
            
            $
            (7,419
            )
            $
            4,111Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (698
            )
            
            (698
            )Issuance
                of stock in lieu of debt
            
            
            14,292
            
            
            —
            
            
            14
            
            
            —
            
            
            14Exercise
                of warrants
            
            
            69,500
            
            
            1
            
            
            68
            
            
            —
            
            
            69Issuance
                of warrants
            
            
            —
            
            
            —
            
            
            1,866
            
            
            —
            
            
            1,866Cost
                associated with registration of shares
            
            
            —
            
            
            —
            
            
            (14
            )
            
            —
            
            
            (14
            )**BALANCE
                at June 30, 2004**
            
            
            7,317,960
            
            $
            73
            
            $
            13,392
            
            $
            (8,117
            )
            $
            5,348Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,460
            )
            
            (1,460
            )Exercise
                of warrants and stock options
            
            
            1,635,484
            
            
            17
            
            
            1,640
            
            
            —
            
            
            1,657Issuance
                of warrants
            
            
            —
            
            
            —
            
            
            1,293
            
            
            —
            
            
            1,293**BALANCE
                at June 30, 2005**
            
            
            8,953,444
            
            $
            90
            
            $
            16,325
            
            $
            (9,577
            )
            $
            6,838Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (4,878
            )
            
            (4,878
            )Exercise
                of warrants & stock options
            
            
            1,537,699
            
            
            15
            
            
            2,469
            
            
            —
            
            
            2,484Issuance
                of warrants
            
            
            —
            
            
            —
            
            
            585
            
            
            —
            
            
            585Stock-based
                compensation expense
            
            
            —
            
            
            —
            
            
            511
            
            
            —
            
            
            511**BALANCE
                at June 30, 2006**
            
            
            10,491,143
            
            $
            105
            
            $
            19,890
            
            $
            (14,455
            )
            $
            5,540








**The
      accompanying notes to consolidated financial statements are an integral part
      of
      these consolidated statements of shareholders’ equity.**




F-6




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOW**
 ***(in
        000’s except supplemental disclosure)***




**Year
                Ended June 30,****2006**
            
            **2005**
            
            **2004****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (4,878
            )
            $
            (1,460
            )
            $
            (698
            )Adjustments
                to reconcile net loss to netCash
                (used in) provided by operating activities:Depreciation
                and amortization:Cost
                of sales
            
            
            1,667
            
            
            1,467
            
            
            1,130Selling,
                general and administrative
            
            
            456
            
            
            368
            
            
            190Amortization
                of deferred debt cost
            
            
            521
            
            
            270
            
            
            195Amortization
                of debt discount
            
            
            1,009
            
            
            425
            
            
            241Stock-
                based compensation expense
            
            
            511
            
            
            —
            
            
            —Gain
                on extinguishment of debt
            
            
            —
            
            
            —
            
            
            (757
            )Other
            
            
            79
            
            
            —
            
            
            —Inventory
                reserve
            
            
            172
            
            
            —
            
            
            —Provision
                for allowance for doubtful accounts
            
            
            404
            
            
            (59
            )
            
            (54
            )Changes
                in operating assets and liabilities, net of effects ofacquisitions:Decrease
                in restricted cash
            
            
            —
            
            
            13
            
            
            65Increase
                in accounts receivable
            
            
            (4,681
            )
            
            (2,454
            )
            
            (2,225
            )Decrease
                (increase) in prepaid expenses and other assets
            
            
            515
            
            
            (268
            )
            
            (6
            )Decrease
                (increase) in inventories
            
            
            567
            
            
            (162
            )
            
            (15
            )Increase
                in accounts payable and other liabilities
            
            
            914
            
            
            3,152
            
            
            1,196Net
                cash (used in) provided by operating activities
            
            
            (2,744
            )
            
            1,292
            
            
            (738
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Cash
                used in business acquisitions, net of cash acquired
            
            
            (1,798
            )
            
            (6,436
            )
            
            —Purchases
                of property and equipment
            
            
            (2,392
            )
            
            (811
            )
            
            (175
            )Proceeds
                from disposal of equipment
            
            
            7
            
            
            28
            
            
            112Decrease
                note receivable from related party
            
            
            —
            
            
            —
            
            
            52Net
                cash used in investing activities
            
            
            (4,183
            )
            
            (7,219
            )
            
            (11
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                from issuance of promissory notes
            
            
            3,000
            
            
            6,100
            
            
            6,925Net
                proceeds from exercise of common stock options and
                warrants
            
            
            2,484
            
            
            1,656
            
            
            55Net
                borrowings (repayments) on line of credit payable
            
            
            3,273
            
            
            (118
            )
            
            509Payments
                of debt issuance costs
            
            
            (279
            )
            
            (311
            )
            
            —Capital
                lease payments
            
            
            (134
            )
            
            —
            
            
            —Repayments
                on subordinated promissory notes
            
            
            —
            
            
            —
            
            
            (522
            )Repayment
                of subordinated debt
            
            
            —
            
            
            —
            
            
            (1,034
            )Principal
                payments on long-term debt
            
            
            —
            
            
            —
            
            
            (2,687
            )Registration
                costs, issue of warrants
            
            
            (20
            )
            
            —
            
            
            —Repayment
                of note payable
            
            
            (17
            )
            
            —
            
            
            —Principal
                payment on promissory notes
            
            
            (1,385
            )
            
            —
            
            
            —Net
                cash provided by financing activities
            
            
            6,922
            
            
            7,327
            
            
            3,246NET
                (DECREASE) INCREASE CASH AND CASH EQUIVALENTS
            
            
            (5
            )
            
            1,400
            
            
            2,497CASH
                AND CASH EQUIVALENTS,beginning
                of year
            
            
            4,108
            
            
            2,708
            
            
            211CASH
                AND CASH EQUIVALENTS,end
                of year
            
            $
            4,103
            
            $
            4,108
            
            $
            2,708







**The
      accompanying notes to consolidated financial statements are an integral part
      of
      these consolidated statements of cash flows.**




F-7




**STREICHER
          MOBILE FUELING, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOW**
 ***(in
          000’s except supplemental disclosure)***




**(Continued)**
            
            **Year
                Ended June 30****2006**
            
            **2005**
            
            **2004****SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                paid for:Interest
            
            $
            2,264
            
            $
            876
            
            $
            826Income
                taxes
            
            $
            —
            
            $
            —
            
            $
            —





**SUPPLEMENTAL
      DISCLOSURE OF NON-CASH ACTIVITIES:**





**Year
      ended June 30, 2006:**





The
      Company recorded unamortized debt discount of $605,000 related to the valuation
      of common stock warrants issued in connection with the September 2005 private
      placement of debt.





**Year
      ended June 30, 2005:**





In
      connection with the issuance of the January 2005 promissory notes, the Company
      issued warrants resulting in $1.113 million of non-cash debt discount costs
      and
      $180,000 non-cash deferred debt costs.





**Year
      ended June 30, 2004:**





In
      connection with the August 2003 refinancing, the Company issued warrants
      resulting in $1.61 million of non-cash debt discount costs and $257,000 non-cash
      deferred debt costs. The Company also issued 14,292 shares of common stock
      in
      lieu of payments on convertible promissory notes.




**The
      accompanying notes to consolidated financial statements are an integral part
      of
      these consolidated statements of cash flows.**




F-8


**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**(** **1** **)**  **NATURE
      OF OPERATIONS**




Streicher
      Mobile Fueling, Inc., a Florida corporation (the “Company”) was formed in
      1996.




The
      Company provides commercial mobile and bulk fueling; integrated out-sourced
      fuel
      management; packaging, distribution and sale of lubricants and chemicals;
      transportation logistics and emergency response services. The Company’s fleet of
      custom specialized tank
      wagons, tractor-trailer transports, box trucks and customized flatbed vehicles
      deliver diesel
      fuel and gasoline to customers’ locations on a regularly scheduled or as needed
      basis, refueling vehicles and equipment and re-supplying fixed-site and
      temporary bulk storage tanks, and emergency power generation systems.
      A wide
      variety of specialized petroleum products, lubricants and chemicals are also
      distributed to refineries, manufacturers and other industrial customers. In
      addition, the Company’s fleet of  special
      duty tractor-trailer units provides heavy and ultra-heavy haul transportation
      logistics services over short and long distances to customers requiring the
      movement of over-sized and/or over-weight equipment
      and heavy manufactured products. At June 30, 2006, the Company was conducting
      operations in Alabama, California, Florida, Georgia, Louisiana, Mississippi,
      North Carolina, South Carolina, Tennessee and Texas.




The
      Company has historically generated substantially all of its revenues from
      commercial mobile and bulk fueling and integrated out-sourced fuel management
      services. As a result of the Shank Services and H & W Petroleum
      Company, Inc. acquisitions, discussed below, the Company now generates revenues
      from packaging, distribution and sales of lubricants and chemicals and provides
      transportation logistic services in addition to commercial mobile and bulk
      fueling and fuel management services. Revenues are comprised primarily of
      delivery service charges; the related sale of diesel fuel, gasoline, lubricants
      and chemicals products and charges for transportation logistics services. Cost
      of sales is comprised primarily of the cost of fuel and lubricants and direct
      operating expenses. Included in both revenues and cost of sales are federal
      and
      state fuel taxes, which are collected by the Company from customers, when
      required, and then remitted to the appropriate taxing authorities or their
      collecting agent. The Company accounts for taxes collected from its customers
      that are assessed from government authorities on a gross basis if the Company
      bears risk of loss.





The
      Company’s commercial mobile fueling operations include the use of its patented
      proprietary electronic fuel tracking control system to measure, record and
      track
      fuel dispensed to each vehicle and tank fueled at a customer’s location,
      allowing verification of the amount and type of fuel delivered and providing
      customers with customized fleet fuel data for management analysis and tax
      reporting. The Company makes a majority of the commercial mobile and bulk
      fueling service deliveries on workdays, Monday through Friday, to coincide
      with
      customers’ fuel service requirements. Thus, the number of workdays in any given
      month will impact the monthly financial performance of the Company. In addition,
      a downturn in customer demand generally takes place on and/or in conjunction
      with national holidays, resulting in decreased volumes of fuel delivered. This
      downturn may be offset during the fiscal year by emergency mobile fueling
      services and fuel deliveries resulting from impending or actual severe
      meteorological or geological events, including hurricanes, tropical storms,
      ice
      and snow storms, forest fires and earthquakes.





On
      February 18, 2005, the Company acquired substantially all of the assets and
      business operations of Shank C&E Investments, L.L.C. (“Shank Services”) a
      Houston, Texas based provider of commercial fuel, petroleum lubricants
      distribution and sales and heavy haul transportation services. Shank Services,
      which conducts its operations in the Company’s subsidiary, SMF Services, Inc.,
      generates revenues from the sale of commercial fuel, petroleum lubricants and
      heavy haul operations in the Houston, Dallas/Fort Worth, Austin and San Antonio
      markets in Texas. See Note (11) for additional information regarding the Shank
      Services acquisition.





On
      October 1, 2005, the Company acquired all of the stock of H & W Petroleum
      Company, Inc. (“H & W”), a Houston, Texas based marketer and
      distributor of lubricants, commercial fuels and petroleum products. Immediately
      prior to the consummation of this transaction, H & W acquired the operating
      assets of Harkrider Distributing Company, Incorporated (“Harkrider”), a Houston
      based marketer and distributor of dry cleaning solvents, chemicals and petroleum
      products, which was related to H & W through some common shareholder
      ownership (together with the acquisition of the shares of H & W., the “H
& W Acquisition”). In addition to providing service to the greater Houston
      metropolitan area, the combined H & W and Harkrider operations
      also serve the Beaumont, Freeport, Longview, Lufkin, San Antonio, Waco and
      Waxahachie markets in Texas and the New Orleans market in Louisiana. See Note
      (11) for additional information regarding the H & W
      acquisition.





F-9




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**(** **2** **)** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





Basis
                of Presentation





The
                consolidated financial statements include the accounts of Streicher
                Mobile
                Fueling, Inc. and its wholly owned subsidiaries, SMF Services, Inc.,
                H
                & W Petroleum Company, Inc. and Streicher Realty, Inc. All significant
                intercompany balances and transactions have been eliminated in
                consolidation.





Cash
                and Cash Equivalents




The
      Company considers all highly liquid investments with original maturities of
      three months or less to be cash equivalents. Cash and cash equivalents in the
      accompanying consolidated balance sheets are $4,103,000 and $4,108,000 as of
      June 30, 2006 and 2005, respectively. The Company has cash deposited with a
      financial institution above the FDIC insurance coverage limit.




Accounts
                Receivable




Accounts
      receivable are due from customers within a broad range of industries and are
      generally unsecured. Additionally, accounts receivable includes refunds due
      from
      state and federal governments for petroleum product taxes which are not billable
      to certain customers yet have been paid to vendors by the Company. The carrying
      amount of accounts receivable is reduced by an allowance for doubtful accounts
      that reflects management’s best estimate of the amounts that will not be
      collected. The Company provides for credit losses based on management's
      evaluation of collectibility including current and historical performance,
      credit worthiness and experience of each customer and from state and federal
      governments from whom refunds are expected.




A
      roll-forward of the activity in the allowance for doubtful accounts for the
      indicated periods is as follows (in thousands):




**June
                30,****2006**
            
            **2005**
            
            **2004**Balance
                - beginning of period
            
            $
            1,806
            
            $
            426
            
            $
            530Acquisitions
            
            
            714
            
            
            1,877
            
            
            —Increase
                (decrease) in provisionfor
                bad debts
            
            
            404
            
            
            (59
            )
            
            (54
            )Write-offs,
                net of recoveries
            
            
            (1,672
            )
            
            (438
            )
            
            (50
            )Balance
                - end of period
            
            $
            1,252
            
            $
            1,806
            
            $
            426




The
      write-offs in the year ended June 30, 2006 of $1,672,000 relate primarily to
      receivables acquired as part of the Shank Services and H & W acquisitions
      that were fully reserved for at the time of acquisition and had no impact on
      the
      consolidated statement of operations.




F-10
 
  **STREICHER
          MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**


Inventories




Inventories,
      consisting primarily of lubricants, chemicals, diesel fuel and gasoline, are
      stated at the lower of cost or market and include federal and state petroleum
      product taxes payable to vendors. Cost is determined using the first-in,
      first-out method. Inventories of $3,321,000 and $495,000 at June 30, 2006 and
      2005 are net of $276,000 and $0, respectively, in reserves for slow moving
      inventory.




Property
                and Equipment




Property
      and equipment are stated at cost less accumulated depreciation and amortization.
      Ordinary maintenance and repairs are expensed as incurred. Improvements which
      significantly increase the value or useful life of property and equipment are
      capitalized. Property and equipment are depreciated or amortized using the
      straight-line method over the asset’s estimated useful lives. Leasehold
      improvements are depreciated over the lesser of the useful life of the assets
      or
      the lease term using the straight-line method. Depreciation expense was
      $1,820,000, $1,835,000 and $1,320,000 for the years ended June 30, 2006, 2005
      and 2004, respectively. Property and equipment balances and the estimated useful
      lives were as follows at the indicated dates (in thousands):




**June
                30,**
            
            **Estimated
                Useful****2006**
            
            **2005**
            
            **Life**Fuel
                trucks, tanks and vehicles
            
            $
            17,877
            
            $
            16,747
            
            
            5
                - 25 yearsMachinery
                and equipment
            
            
            1,078
            
            
            443
            
            
            3
                - 5 yearsFurniture
                and fixtures
            
            
            433
            
            
            274
            
            
            5
                - 10 yearsLeasehold
                improvements
            
            
            408
            
            
            30
            
            
            Lesser
                of lease term or useful lifeSoftware
            
            
            1,675
            
            
            276
            
            
            3
                - 5 yearsLand
            
            
            67
            
            
            67
            
            
            —21,538
            
            
            17,837Less:
                Accumulated depreciationand
                amortization
            
            
            (9,799
            )
            
            (8,282
            )Property
                and equipment, net
            
            $
            11,739
            
            $
            9,555






F-11


**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




In
      accordance with Statement of Position 98-1, “Accounting for the Costs of
      Computer Software Developed or Obtained for Internal Use,” the Company
      capitalizes certain costs used in the development of internal use software.
      These costs include the costs associated with the implementation, coding and
      software configuration. In February 2005, the Company engaged a consulting
      firm
      to implement its new ERP system. At June 30, 2006 and 2005 the capitalized
      cost
      relating to internal use software is $1,675,000 and $276,000, respectively.
      In
      August 2006, the Company terminated the relationship with the consulting firm.
      The Company is evaluating with its new ERP implementer the remaining costs
      and
      time necessary to complete the implementation.





Advertising
      costs





The
      Company follows the provisions of Statement of Position (“SOP”) 93-7, “Reporting
      on Advertising Costs,” in accounting for advertising costs. Advertising costs
      are charged to expense as incurred and included in selling, general and
      administrative expenses.





Income
                Taxes




Income
      taxes are accounted for under the asset and liability method, in accordance
      with
      Statement of Financial Accounting Standards No. 109, “Accounting for Income
      Taxes” (SFAS 109). Deferred tax assets and liabilities are recognized for the
      future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax basis and operating loss and tax credit carryforwards. Deferred
      tax liabilities are measured using enacted tax rates expected to apply to
      taxable income in the years in which those temporary differences are expected
      to
      be recovered or settled. The effect on deferred tax assets and liabilities
      of a
      change in tax rates is recognized in income in the period that includes the
      enactment date.




Revenue
                Recognition




The
      Company recognizes revenues at the time services are performed which is when
      petroleum and other products and services are delivered and the customer takes
      ownership and assumes risk of loss. Collections are reasonably assured at the
      time of delivery.




The
      Company accounts for petroleum product taxes collected from its customers that
      are assessed from government authorities, on a gross basis, in accordance with
      Emerging Issues Task Force 06-03 (“EITF Issue 06-03”) “How Taxes Collected from
      Customers and Remitted to Governmental Authorities Should be Presented in the
      Income Statement (That Is, Gross Versus Net Presentation”), if the Company bears
      risk of loss.




Use
                of Estimates




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions.
      These assumptions, if not realized, could affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities at the
      date
      of the financial statements and the reported amounts of revenue and expenses
      during the reporting period. Actual results could differ from those estimates.




F-12




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




Fair
                Value of Financial Instruments




The
      Company's financial instruments, primarily consisting of cash and cash
      equivalents, accounts receivable, accounts payable, bank line of credit payable,
      promissory notes, equipment debt and long-term debt, approximate fair value
      due
      to their short-term nature or interest rates that approximate current market
      rates.




Deferred
      Debt Cost and Debt Discount




The
                Company is amortizing as interest expense its deferred debt costs
                and debt
                discount over the respective term of the debt issued under the effective
                interest method. Amounts related to the deferred debt costs and debt
                discount are as follows (in
                thousands):




**June
                30, 2006**
            
            **June
                30, 2005**Deferred
                debt costs:Cost
            
            $
            1,605
            
            $
            1,481Less
                accumulated amortization
            
            
            856
            
            
            490Net
            
            
            749
            
            
            991Interest
                expense
            
            
            521
            
            
            270Debt
                discount:Cost
            
            $
            3,010
            
            $
            2,722Less
                accumulated amortization
            
            
            1,358
            
            
            666Net
            
            
            1,652
            
            
            2,056Interest
                expense
            
            
            1,009
            
            
            425




At
      June
      30, 2006, the Company wrote-off $155,000 in deferred debt costs and $317,000
      in
      debt discount related to the June 30, 2006 issuance of warrants to convert
      a
      portion of the August 2003 and January 2005 Notes. See Note 9.





Net
      Loss Per Share





Net
      loss
      per share is determined by dividing net loss by the weighted average common
      shares outstanding during the year. Common stock equivalents, consisting of
      stock options and common stock warrants, in the amount of 3,079,217, 4,251,793
      and 4,675,402 for the years ended June 30, 2006, 2005 and 2004, respectively,
      were antidilutive and were not included in the computation of net loss per
      share
      in those fiscal years.




The
      following table sets forth the computation of basic and diluted loss per share
      (in thousands, except per share amounts):




**Year
                Ended June 30,****2006**
            
            **2005**
            
            **2004**Net
                loss
            
            $
            (4,878
            )
            $
            (1,460
            )
            $
            (698
            )Weighted
                average shares outstanding:Basic
                and diluted
            
            
            9,819
            
            
            7,857
            
            
            7,261Net
                loss per common share - basic and diluted
            
            $
            (0.50
            )
            $
            (0.19
            )
            $
            (0.10
            )






F-13
 
 **STREICHER
          MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**


Impairment
                or Disposal of Long-Lived
                Assets




The
      Company accounts for long-lived assets in accordance with the provisions of
      Statement of Financial Accounting Standards (“FAS”) No. 144, “Accounting for the
      Impairment or Disposal of Long-Lived Assets” (“FAS 144”). This Statement
      requires that long-lived assets be reviewed for impairment whenever events
      or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable. Recoverability of assets to be held and used is measured by
      a
      comparison of the carrying amount of an asset to future net cash flows expected
      to be generated by the asset. If the carrying amount of an asset exceeds its
      estimated future cash flows, an impairment charge is recognized by the amount
      by
      which the carrying amount of the asset exceeds the fair value of the asset
      based
      on the projected net cash flows discounted at a rate commensurate with the
      risk
      of the asset. Assets to be disposed of are reported at the lower of their
      carrying amount or fair value less costs to sell.




Identifiable
      Intangible Assets and Goodwill




In
      accordance with FAS No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”),
      goodwill and intangible assets with indefinite lives are not amortized but
      instead are measured for impairment at least annually in the fourth quarter,
      or
      when events indicate that an impairment exists. As required by FAS 142, in
      the
      Company’s impairment test of goodwill, the Company compares the fair value of
      the applicable reporting unit to its carrying value.




Intangible
      assets that are determined to have definite lives are amortized over their
      useful lives and are measured for impairment only when events or circumstances
      indicate the carrying value may be impaired in accordance with FAS 144 discussed
      above.




Asset
      Retirement Obligation




The
      Company accounts for asset retirement obligations in accordance with the
      provisions of FAS No. 143 “Accounting for the Impairment or Disposal of
      Long-Lived Assets” (“FAS 143”). This statement addresses financial accounting
      and reporting for obligations associated with the retirement of tangible
      long-lived assets and the associated retirement costs. Retirement is defined
      as
      the other-than-temporary removal of a long-lived asset from service. The term
      encompasses sale, abandonment, recycling or disposal in some other manner.
      The
      Company has estimated an associated liability for the removal and clean-up
      of
      three underground fuel storage tanks and has estimated the remaining useful
      life
      of those tanks to be ten years.




Stock-Based
                Compensation




In
      December 2004, FAS No. 123R “Share-Based Payment”, (“FAS 123R”), a revision of
      FAS 123 was issued. In March 2005, the SEC issued Staff Bulletin No. 107 (FAB
      107”) regarding its interpretation of FAS 123R. The standard requires companies
      to expense the grant-date fair value of stock options and other equity-based
      compensation granted to employees. The Company adopted FAS 123R on July 1,
      2005
      using the modified prospective method in which stock-based compensation cost
      is
      recognized beginning with the effective date (a) based on the requirements
      of
      FAS 123R for all share-based payments granted after July 1, 2005 and (b) based
      on the requirements of FAS 123R for all awards granted to employees prior to
      July 1, 2005 that remain unvested on July 1, 2005.




F-14


**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




Stock-based
      compensation expense for the year ended June 30, 2006 was $511,000, and is
      included in selling, general and administrative expenses in the Consolidated
      Statement of Operations for the year ended June 30, 2006. The effect of this
      accounting change is reflected prospectively; therefore no stock-based
      compensation expense was recognized in the Company’s Consolidated Statement of
      Operations for the years ended June 30, 2005 and 2004. Supplemental disclosure,
      as if the change had been retroactively applied is as follows (dollars in
      thousands, except per share data):




**Year
                Ended June 30,****2005**
            
            
            **2004**Net
                loss, as reported
            $
            (1,460
            )
            $
            (698
            )Stock-based
                employee compensation expense not included in reported net loss, net
                of tax
            
            (107
            )
            
            (194
            )Net
                loss - pro forma
            $
            (1,567
            )
            $
            (892
            )Basic
                and diluted net loss per share - as Reported
            $
            (0.19
            )
            $
            (0.10
            )Basic
                and diluted net loss per share - Proforma
            $
            (0.20
            )
            $
            (0.12
            )





The
      fair
      value of each option is estimated on the date of grant using the Black-Scholes
      valuation model that utilizes the assumptions noted in the table below. Expected
      volatilities are based on the historical volatility of the Company’s stock. The
      Company uses historical data to estimate option exercises and employee
      terminations within the valuation model. The expected term of the options
      granted is derived from the output of the option valuation model and represents
      the period of time that options granted are expected to be outstanding. The
      risk-free rate for periods within the contractual life of the option is based
      on
      the rate for 10 year U.S. Treasury Bonds. The fair value of the stock options
      are expensed on a straight-line basis over the vesting period.





**Year
                Ended June 30,****2006**
            
            **2005**
            
            **2004**Assumptions:Risk
                free interest rate
            
            
            5.2
            %
            
            4.3
            %
            
            3
            %Dividend
                yield
            
            
            0
            %
            
            0
            %
            
            0
            %Expected
                volatility
            
            
            108.1
            %
            
            107.6
            %
            
            100
            %Expected
                life
            
            
            7.9
                years
            
            
            8.6
                years
            
            
            10
                years





Reclassifications





Certain
      prior year amounts have been reclassified to conform to the fiscal year 2006
      presentation. These changes had no impact on previously reported results of
      operations or shareholders’ equity. The Company has reclassified its treatment
      of reporting for taxes on petroleum products that are sold to customers for
      which it does not bear risk of loss from a gross basis to a net basis. In fiscal
      year 2005 and 2004, revenues and cost of sales were reduced by $1.6 million
      and
      $887,000, respectively, to report these petroleum product taxes on a net basis.





Recent
      Accounting Pronouncements





In
      June
      2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 190” (“FIN No. 48”). FIN
      No. 48 clarifies the accounting for uncertainty in income taxes by prescribing
      a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to taken in
      a
      tax return. The interpretation also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods, and
      disclosure. FIN No. 48 is effective for fiscal years beginning after December
      15, 2006. We are in the process of evaluating the impact of FIN No. 48 on our
      financial condition and results of operations.





F-15




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




In
      September 2006, FASB issued FASB Statement No. 157 “Fair Value Measurements”
(“FAS 157”). This new standard provides guidance for using fair value to measure
      assets and liabilities. Under FAS 157, fair value refers to the price that
      would
      be received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the reporting
      entity transacts. In this standard, the FASB clarifies the principle that fair
      value should be based on the assumptions market participants would use when
      pricing the asset or liability. In support of this principle, FAS 157
      establishes a fair value hierarchy that prioritizes the information used to
      develop those assumptions. The fair value hierarchy gives the highest priority
      to quoted prices in active markets and the lowest priority to unobservable
      data,
      for example, the reporting entity’s own data. Under the standard, fair value
      measurements would be separately disclosed by level within the fair value
      hierarchy. The provisions of FAS 157 are effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. The Company has not yet determined the impact that
      the adoption of FAS 157 will have on its consolidated financial position,
      results of operations or cash flows.




F-16




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**(3)** **IDENTIFIABLE
      INTANGIBLE ASSETS AND GOODWILL**





The
      following table summarizes the Company’s identifiable intangible assets and
      goodwill balances as of June 30, 2006 and 2005 (in thousands):





**June
                30, 2006**
            
            **June
                30, 2005****Gross**
              **Carrying**
              **Amount**
            
            **Accumulated
                Amortization**
            
            **Net**
              **Carrying**
              **Amount**
            
            **Gross**
              **Carrying**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
              **Carrying**
              **Amount**Amortized
                intangible assets:Customer
                relationships
            
            $
            1,768
            
            $
            121
            
            $
            1,647
            
            $
            100
            
            $
            —
            
            $
            100Favorable
                leases
            
            
            196
            
            
            29
            
            
            167
            
            
            —
            
            
            —
            
            
            —Trademarks
            
            
            687
            
            
            34
            
            
            653
            
            
            —
            
            
            —
            
            
            —Supplier
                contracts
            
            
            801
            
            
            120
            
            
            681
            
            
            —
            
            
            —
            
            
            —Total
            
            $
            3,452
            
            $
            304
            
            $
            3,148
            
            $
            100
            
            $
            —
            
            $
            100Goodwill
            
            
            
            
            
            
            
            $
            228
            
            
            
            
            
            
            
            $
            —




Amortization
      expense is computed using the straight-line method over the useful lives of
      the
      assets, which range from four to fifteen years. Amortization expense for the
      five succeeding fiscal years and thereafter is as follows (in
      thousands):




Fiscal
                year:2007
            
            $
            3812008
            
            
            3812009
            
            
            3712010
            
            
            3562011
            
            
            208Thereafter
            
            
            1,451$
            3,148





**(4)**
            **LINE
                OF CREDIT PAYABLE**





The
      Company has a $20 million credit facility with a national financial institution,
      which permits the Company to borrow up to 85% of the total amount of eligible
      accounts receivable and 65% of eligible inventory. Interest is payable monthly
      (8.75% at June 30, 2006) and outstanding borrowings under the line are secured
      by substantially all of the Company assets other than its truck fleet and
      related equipment. The credit facility maturity was extended by mutual consent
      of the Company and the financial institution from September 25, 2006 to
      September 26, 2007. Although
      the line of credit expires on September 26, 2007, under EITF 95-22 it is
      classified as a current liability due to certain provisions in the agreement
      related to subjective acceleration clauses and due to an agreement requiring
      the
      Company to maintain a lockbox arrangement whereby cash deposits are
      automatically utilized to reduce amounts outstanding under the line of credit.
      The line of credit agreement was amended subsequent to June 30, 2006. See
      Note 16.





In
      February 2005, the Company and its bank line of credit lender amended the loan
      and security agreement for the credit facility in connection with the Company’s
      issuance of the 2005 Notes and the Shank Services acquisition. This amendment
      1)
      lowered the requirements on the fixed charge covering ratio; 2) eliminated
      the
      effective net worth requirement except when availability is below $1.0 million;
      3) extended the term to September 25, 2006; 4) reduced the unused line fee
      from
      .75% to .25% after September 25, 2005; and 5) if the Company terminates the
      line
      of credit after September 26, 2005, but prior to September 26, 2006, imposes
      a
      .50% fee.





F-17




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




Concurrently
      with the October 1, 2005 H & W Acquisition, in order to finance the acquired
      accounts receivable and inventory, the Company and its bank line of credit
      lender amended the credit facility. Among other changes, the amendment (1)
      added
      H & W as a borrower; (2) increased the facility to $20 million; (3) provided
      financing for the acquired and ongoing accounts receivable and inventory
      resulting from the H & W Acquisition; (4) extended the term of the original
      loan and security agreement to September 26, 2007; (5) reduced the interest
      rate
      to prime plus 0.75% per annum; (6) eliminated the effective net worth covenant;
      and (7) lowered the fixed charge coverage ratio covenant to 1.0 to 1.0 and
      made
      such covenant effective only when there is less than $3 million available on
      the
      facility.





Effective
      March 31, 2006, the Company and its line of credit lender amended the credit
      facility to, among other things, (1) add (a) an interest rate option based
      on
      the London interbank offered rate (LIBOR) and (b) exclude certain lease vehicles
      and equipment from the collateral, and (2) amend the capital expenditures
      covenant of the agreement.





As
      of
      June 30, 2006 and 2005, the Company had outstanding borrowings of $15.6 and
      $4.8
      million, respectively, under its $20 million bank line of credit. Based on
      eligible receivables and inventories outstanding at June 30, 2006, the Company
      had $4.2 million of cash availability on the bank line of credit compared to
      $5.2 availability at June 30, 2005. The Company is in compliance with all
      financial covenants required by the loan and security agreement.





**(5)** **ACCRUED
      EXPENSES AND OTHER LIABILITIES**





Accrued
      expenses and other liabilities include the following (in
      thousands):




**June
                30,****2006**
            
            **2005**Accrued
                expenses
            
            $
            736
            
            $
            303Compensation
                and benefits, including taxes
            
            
            733
            
            
            428Taxes,
                other than income taxes
            
            
            549
            
            
            482Interest
            
            
            430
            
            
            266Other
            
            
            339
            
            
            326$
            2,787
            
            $
            1,805





F-18




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**(6)** **LONG-TERM
      DEBT**





Long-term
      debt consists of the following (in thousands):





**June
                30,****2006**
            
            **2005**August
                2003 promissory notes (the “August 2003 Notes”) (10% interest due
                semi-annually, December 31 and June 30); principal payments of
                $692,500 due beginning August 28, 2005, semi-annually on August 28
                and February 28; balloon payment of $2,770,000 due at maturity on
                August
                28, 2008; effective interest rate of 23.6% includes cost of warrants
                and
                other debt issue costs
            
            $
            5,540
            
            $
            6,925January
                2005 promissory notes (the “January 2005 Notes”) (10% interest due
                semi-annually, July 24 and January 24); principal payments of $610,000
                due
                beginning January 24, 2007, semi-annually on January 24 and July
                24;
                balloon payment of $2,440,000 due at maturity on January 24, 2010;
                effective interest rate of 19.7% includes cost of warrants and other
                debt
                issue costs
            
            
            6,100
            
            
            6,100September
                2005 promissory notes (the “September 2005 Notes) (10% interest due
                semi-annually, February 28 and August 31); principal payments of
                $300,000
                due beginning August 31, 2007, semi-annually on August 31 and February
                28;
                balloon payment of $1,200,000 due at maturity on August 31, 2010;
                effective interest rate of 19.9% includes cost of warrants and other
                debt
                issue costs
            
            
            3,000
            
            
            —Various
                capital leases, interest rates range from 5.27% to 15.24%, monthly
                principal and interest payments, leases expire August 2006 to March
                2008
            
            
            148
            
            
            —Note
                Payable
            
            
            —
            
            
            172Unamortized
                debt discount, net of amortization
            
            
            (1,652
            )
            
            (2,056
            )Less:
                current portion
            
            
            (2,118
            )
            
            (1,385
            )Long-term
                debt, net
            
            $
            11,018
            
            $
            9,756




Future
      principal payments on long-term debt are due as follows as of June 30, 2006
      (in
      thousands):




**Year
                Ended June 30,**2007
            
            $
            2,1182008
            
            
            3,2302009
            
            
            4,5902010
            
            
            3,6502011
            
            
            1,200Total
            
            $
            14,788





***September
      2005 Promissory Notes***




On
      September 1, 2005, the Company closed a $3.0 million private debt placement
      (the
“September 2005 Notes”) with institutional and other accredited investors in
      order to fund the H & W acquisition discussed in Note 11, develop its
      operations and for other general working capital purposes. The Company issued
      $3.0 million in 10% five-year Senior Secured Notes that require six semi-annual
      payments commencing on August 31, 2007 and a 40% balloon payment on August
      31,
      2010. The September 2005 Notes are redeemable by the Company, in whole or in
      part, by payment of a percentage of the principal amount, together with accrued
      but unpaid interest, if any, as follows: September 1, 2005 - August 31, 2006,
      102%; September 1, 2006 - August 31, 2007, 101%; and September 1, 2007 - August
      31, 2010, 100%. The September 2005 Notes are secured by a first priority
      interest in the vehicles, equipment and other physical assets, other than
      inventory of H & W. The H & W inventory is subject to the first priority
      security interest held by the primary lender. In connection with the financing,
      the Company also issued four year warrants to purchase a total of 360,000 shares
      of the Company’s common stock at an exercise price of $2.28 per share, including
      customary redemption and registration rights. These warrants were valued at
      $605,000, using Black-Scholes option pricing model and recorded as an increase
      to additional paid in capital, and the imputed interest is being amortized
      into
      interest expense over the five-year life of the Notes. The Company incurred
      $20,000 in professional fees related to the registration of the
      warrants.





F-19




**STREICHER
          MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**


***January
      2005 Promissory Notes***





On
      January 25, 2005, the Company closed an offering of $6.1 million five year
      10%
      promissory notes (the “January 2005 Notes”) and four-year warrants to purchase
      1,006,500 shares of the Company’s common stock at $1.60 to a limited group of
      institutions and other accredited investors in connection with the acquisition
      of the assets and business of Shank Services. The January 2005 Notes are secured
      by a first priority security interest in the Shank Services assets. The January
      2005 Notes provide for (1) no principal payments until January 24, 2007;
      (2) six $610,000 semi-annual principal payments commencing on January 24, 2007
      through July 24, 2009; (3) a balloon payment of $2,440,000 at maturity on
      January 24, 2010; and (4) semi-annual interest payments on July 24, and January
      24, which commenced on July 24, 2005. The funding provided by the January 2005
      Notes was used for the Shank Services acquisition (Note 11) and for other
      general corporate purposes. The net cash proceeds from the financing were $5.8
      million, after payment of related fees and expenses, professional fees and
      other
      costs totaling $282,000. The total transaction costs were $471,000, inclusive
      of
      the $291,000 cash costs and non-cash broker commission warrants valued at
      $180,000, which are being amortized into interest expense over the
      five-year term of the notes.





***August
      2003 Promissory Notes***




On
      August
      29, 2003, the Company closed a $6.925 million offering to institutions and
      other
      accredited lenders consisting of five-year 10% promissory notes and five-year
      warrants to purchase a total 2,008,250 shares of the Company’s common stock at
      $1.00 per share (the “August 2003 Notes”). The August 2003 Notes are
      collateralized by a first priority security interest in its specialized fueling
      truck fleet and related equipment and by patents on its proprietary fuel
      management system. The August 2003 Notes provide for (1) six $692,500
      semi-annual principal payments which commenced on August 28, 2005 through
      February 28, 2008; (2) a balloon payment of $2,770,000 due at maturity on August
      28, 2008; (3) semi-annual interest payments on June 30 and December
      31  which
      commenced on December 31, 2003; and (4) the Company’s right to call after August
      1, 2005 at 105% of par plus accrued but unpaid interest. The net cash proceeds
      from the financing was $2.8 million, after payment of related fees and expenses
      and repayment of all outstanding equipment and subordinated debt. The
      transaction costs related to these promissory notes included commissions,
      professional fees and other costs, totaling $824,000 and are being amortized
      over the five-year term of the notes.





***Note
      Payable***





In
      connection with the Shank Services acquisition on February 18, 2005, the Company
      issued a contingent two-year deferred payment promissory note due March 31,
      2007, in the amount of $1,913,000. As of June 30, 2005, this contingent
      liability had been recorded under purchase accounting only to the extent of
      negative goodwill of $172,000 associated with the acquisition. The payment
      of
      the note was dependent on Shank Services meeting a specific target performance
      objective at December 31, 2005. This performance objective was not achieved
      and
      the note was allocated to the identifiable assets (intangible assets, property,
      plant and equipment) acquired. Additionally, the Company was obligated to pay
      the previous owner 50% of collections on receivables deemed ineligible at the
      time of acquisition. During fiscal year 2006, $17,000 was paid to the previous
      owner for collections on ineligible receivables.




F-20




**STREICHER
          MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**


***Other***





Unamortized
      debt discounts of $1,652,000 and $2,056,000 in 2006 and 2005, respectively,
      were
      recorded in connection with the August 2003, January 2005 and September 2005
      Notes and are being amortized as interest expense over the respective term
      of
      the debt issued under the effective interest method. These are non-cash
      discounts related to the valuation of the common stock warrants issued to the
      note holders and the placement agent in the financing transactions that do
      not
      reduce the amount of principal cash repayments required to be made by the
      Company for the outstanding balance of $14,640,000 and $13,025,000 of the notes
      at June 30, 2006 and June 30, 2005, respectively. The common stock warrants
      were
      valued using the Black-Scholes option pricing model and recorded as an increase
      to additional paid in capital.





The
      Company’s debt agreements for its line of credit facility and for the August
      2003 Notes, January and September 2005 Notes have covenants establishing certain
      financial requirements and operating restrictions. The Company’s failure to
      comply with any covenant or material obligation contained in these debt
      agreements, absent a waiver or forbearance from the lenders, would result in
      an
      event of default which could accelerate the Company’s debt repayment obligations
      under the debt agreements. Due to cross-default provisions contained in its
      debt
      agreements, an event of default under one agreement could accelerate repayment
      terms under the other agreements. A default under any of the debt agreements
      would have a material adverse effect on the Company’s liquidity and capital
      resources. The Company is in compliance with all covenants required by the
      debt
      agreements.





**(7)** **ASSET
      RETIREMENT OBLIGATIONS**





On
      October 1, 2005, the Company recorded an asset retirement obligation which
      is
      classified as “Other long-term liabilities” associated with the acquisition of H
& W. This asset retirement obligation relates to the removal of three
      underground fuel storage tanks and has a remaining useful life of ten years
      and
      is accounted for in accordance with FAS 143. A roll-forward of the activity
      in
      the Asset Retirement Obligation was as follows (in thousands):





**June
                30, 2006**Balance
                at beginning of year
            
            $
            —Additions
                - due to acquisition
            
            
            103Accretion
                expense
            
            
            14Balance
                at end of year
            
            $
            117





**(8)**  **DEFERRED
      REVENUE**





At
      June
      30, 2006, deferred revenues of $555,000 were recorded and relate to a 5 year
      supplier contract that expires December 31, 2010. For the period ended June
      30,
      2006 the Company recognized $45,000 as an increase to gross profit. Pursuant
      to
      this contract the Company is obligated to certain purchase requirements each
      year. If the quantities stated in the contract are not purchased by the
      contract’s requirements, the Company may be obligated to refund the balance
      remaining in deferred revenue to the supplier. At June 30, 2006, no refund
      was
      due under the contract provisions.




F-21




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**(9)** **WARRANTS
      AND UNDERWRITER’S OPTION**





(a)  Public
      Offering Warrants




The
      Company issued 1,150,000 common stock warrants in conjunction with its initial
      public offering in December 1996. Each warrant entitled the holder to purchase
      one share of common stock at a exercise price of $6.90 per share. In November
      2004, the Company extended the expiration date of the warrants to December
      11,
      2005. On December 6, 2005, the Company extended the expiration date from
      December 11, 2005 to December 27, 2005. In addition, the Company lowered the
      exercise price of the warrants to $3.50 per share. Prior to the expiration
      date
      of December 27, 2005, 240 of these warrants were exercised for gross proceeds
      of
      $840. The remaining warrants expired unexercised on December 27, 2005 and are
      no
      longer outstanding. The offer and sale of the common stock underlying the
      warrants was registered with the Securities and Exchange Commission.




(b) Underwriter’s
          Option




In
      connection with the initial public offering the Company sold the underwriter
      an
      option to purchase up to 100,000 shares of common stock at $9.30 per share
      and
      warrants at an exercise price of $.19375 to purchase an additional 100,000
      shares, at an exercise price of $9.30 per share. The underwriter's option was
      extended concurrent with the warrants and they expired unexercised on December
      27, 2005.




(c)  May
      2003
      Warrants




On
      May
      20, 2003, the Company issued $235,500 of subordinated promissory notes to
      officers, directors and certain shareholders. The notes were due on November
      19,
      2003 and bore interest at an annual rate of 14%. The Company also issued
      non-detachable warrants to purchase 82,425 shares of common stock exercisable
      at
      $0.86 per share in connection with the notes. The Company repaid these notes
      in
      September 2003 with the proceeds of the August 2003 refinancing. As of June
      30,
      2006, 35,000 warrants were remaining to be exercised.





(d) August
      2003 Warrants





As
      a
      result of the August 2003 refinancing, the Company raised $6.925 million and
      issued 2,008,250 five-year warrants to purchase the Company’s common stock at
      $1.00 per share. During the year ended June 30, 2006, 280,491 warrants were
      exercised for gross proceeds of $280,491. At June 30, 2006, 140,000 warrants
      were remaining to be exercised.





(e) January
      2005 Warrants





On
      January 25, 2005, the Company raised $6.1 million and issued 1,006,500 four-year
      warrants to purchase the Company’s common stock at an exercise price of $1.60
      per share. During the year ended June 30, 2006, 969,208 warrants were exercised
      for gross proceeds of $1,550,733. At June 30, 2006, 37,292 warrants were
      remaining to be exercised.





(f)  September
      2005 Warrants





On
      September 1, 2005, the Company raised $3.0 million and issued 360,000 four-year
      warrants to purchase the Company’s common stock at an exercise price of $2.28
      per share. During the year ended June 30, 2006, 284,160 warrants were exercised
      for gross proceeds of $647,885. At June 30, 2006, 75,840 warrants were remaining
      to be exercised.





F-22




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


(g) June
      2006
      Warrants





On
      June
      30, 2006, the Company issued 1,057,283 warrants, exercisable for 90 days, to
      certain note holders to purchase the Company’s common stock at an exercise price
      of $2.54 per share. The note holders have the option to exercise these warrants
      in consideration for the retirement of $2,620,000 of existing August 2003 and
      January 2005 notes. In addition, the Company agreed to pay 50% of the 5% call
      penalty or 2.5% penalty with warrants totaling 25,787, valued at $65,500. The
      Company accounted for these warrants in accordance with EITF 96-19 “Debtor’s
      Accounting for a Modification or Exchange of Debt Instruments,” EITF 00-19
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in a Company’s Own Stock” and EITF 98-05 “Accounting for Convertible
      Securities with Beneficial Conversion Features or Contingently Adjustable
      Conversion Ratios.” The issuance of the warrants created a modification to the
      notes specifically related to adding a conversion feature that did not
      previously exist under the original note thus substantially changing the
      instrument to have a non-cash conversion feature from the original note which
      substantially changes the debtor’s cash flow requirement. The warrants were
      issued at the closing market price and they are non-detachable. If the warrants
      are exercised they can only be settled by satisfaction of the Notes. The 25,787
      warrants are accounted for as a liability with mark to market feature
      adjustments. On June 30, 2006, the Company wrote-off $317,000 and $155,000
      of
      debt discount and deferred debt costs, respectively, to interest expense related
      to the notes at the time the notes were modified. In addition, the Company
      accrued $65,500 to interest expense for the pre-payment penalty. At June 30,
      2006, the warrants were not exercised. The exercise period of the warrants
      was
      extended until November 30, 2006 in exchange for a corresponding extension
      of the suspension of the Company’s obligation to make principal payments until
      November 30, 2006.




F-23




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**(10)** **STOCK
      OPTIONS**





(a) Employee
          Stock Options





The
      Company has adopted two stock option plans (the “1996 Plan” and the “2000 Plan”)
      under which options to purchase shares of the Company’s common stock may be
      granted to employees. The purpose of the 1996 Plan and the 2000 Plan is to
      provide an incentive to attract, motivate and retain qualified competent
      employees whose efforts and judgment are important to the Company’s success
      through the encouragement of the ownership of stock by such
      persons.





Under
      the
      1996 Plan 500,000 shares of common stock are reserved for issuance upon exercise
      of options granted. Under the 2000 Plan, 1,000,000 shares of common stock are
      reserved for issuance upon the exercise of options, with the amount reserved
      being increased each year by ten percent of the total shares subject to the
      2000
      Plan at the end of the previous calendar year. Options to purchase 0 shares
      of
      stock are outstanding under the 1996 Plan and options to purchase 204,710 shares
      of stock are available to be granted under the 2000 Plan. The Board of Directors
      has determined that no additional options will be granted under the 1996 Plan.




Options
      granted under the 1996 Plan and the 2000 Plan generally vest over three years
      of
      continuous service and expire no later than ten years from the date of grant.
      Options granted under the 1996 Plan and the 2000 Plan are not exercisable after
      the period or periods provided in the respective option agreements.




The
      following table summarizes the stock option transactions under the plans
      discussed above:




**1996
                and 2000Plans**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
            
            **Aggregate**
              **Intrinsic**
              **Value**
              **($000)**Outstanding
                at June 30, 2003
            
            
            987,452
            
            $
            1.88Granted
            
            
            120,000
            
            
            1.30Cancelled
            
            
            (22,500
            )
            
            3.95Exercised
            
            
            —
            
            
            —Outstanding
                at June 30, 2004
            
            
            1,084,952
            
            
            1.77Granted
            
            
            235,000
            
            
            1.66Cancelled
            
            
            (44,000
            )
            
            1.58Exercised
            
            
            (69,800
            )
            
            1.37Outstanding
                at June 30, 2005
            
            
            1,206,152
            
            
            1.78
            
            
            6.33
            
            $
            479Granted
            
            
            408,500
            
            
            2.94Cancelled
            
            
            (167,200
            )
            
            2.34Exercised
            
            
            (3,600
            )
            
            1.24Outstanding
                at June 30, 2006
            
            
            1,443,852
            
            $
            2.05
            
            
            6.14
            
            $
            1,179Exercisable
            
            
            945,952
            
            $
            1.81
            
            
            4.63
            
            $
            958Available
                for future grant(2000
                Plan only)
            
            
            204,710




F-24




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


The
      weighted average grant date fair value of stock options granted during the
      year
      ended June 30, 2006, was $2.63. The total intrinsic value of options exercised
      during the year ended June 30, 2006 was $7,400. For the year ended June 30,
      2006, 3,600 stock options were exercised and the Company received $4,464 in
      cash
      proceeds.





A
      summary
      of the status of the Company’s nonvested shares as of June 30, 2006, and changes
      during the year ended June 30, 2006, is presented below:





**Shares**
            
            **Weighted
                Average Grant Date Fair Value**Nonvested
                at July 1, 2005
            
            
            319,000
            
            $
            1.51Granted
            
            
            408,500
            
            
            2.63Vested
            
            
            (130,600
            )
            
            1.79Forfeited
            
            
            (99,000
            )
            
            2.14Nonvested
                at June 30, 2006
            
            
            497,900
            
            $
            2.24




As
      of
      June 30, 2006, there was $809,000 of total unrecognized compensation cost
      related to nonvested share-based compensation arrangements granted under the
      plans. The cost is expected to be recognized over a weighted-average period
      of 3
      years. The total fair value of shares vested during the year ended June 30,
      2006
      was $231,000.





The
      following table summarizes information about stock options outstanding under
      both plans as of June 30, 2006:





**Options
                Outstanding**
            
            **Options
                Exercisable****Exercise**
              **Price**
            
            **Number
                Outstanding**
            
            **Weighted****Average**
              **Remaining
                Contractual**
              **Life
                (years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number**
              **of
                Shares Exercisable**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$
                .94 to $1.90
            
            1,018,900
            
            5.60
            
            1.45
            
            834,500
            
            1.45$1.90
                to $2.85
            
            80,500
            
            9.34
            
            2.50
            
            —
            
            —$2.85
                to $3.80
            
            305,952
            
            7.48
            
            3.38
            
            72,952
            
            3.67$3.80
                to $4.75
            
            15,000
            
            2.81
            
            4.13
            
            15,000
            
            4.13$5.70
                to $6.65
            
            4,000
            
            2.98
            
            6.56
            
            4,000
            
            6.56$7.60
                to $8.54
            
            19,500
            
            3.26
            
            7.63
            
            19,500
            
            7.63**Totals**
            
            1,443,852
            
            
            
            
            
            945,952





(b) Director
      Stock Options





The
      Company adopted effective as of May 2001 a separate stock option plan for
      non-employee members of the Company’s Board of Directors (the “Directors’
Plan”). The purpose of the Directors’ Plan is to provide an additional incentive
      to attract and retain qualified competent directors upon whose efforts and
      judgment are important to the Company’s success through the encouragement of the
      ownership of stock by such persons.




Under
      the
      Directors’ Plan, 350,000 shares of common stock are reserved for issuance upon
      the exercise of options granted. Each non-employee who serves as a member of
      the
      Company’s board of directors as of the effective date of the Directors’ Plan,
      and each non-employee who is elected or otherwise appointed as one of the
      Company’s directors thereafter, will receive a fully vested option to purchase
      20,000 shares of stock. On the last day of each fiscal quarter while the
      Directors’ Plan is in effect, each non-employee director will receive an
      additional grant of an option to purchase 725 shares of stock, increased from
      625 shares per quarter beginning March 31, 2006. Further, in accordance with
      the
      Directors’ Plan, additional options may be granted to non-employee directors
      from time to time. Options to purchase 289,950 shares of common stock are
      outstanding at June 30, 2006 under the Directors’ Plan and 60,050 shares of
      stock are available to be granted in the future.




F-25




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Options
      granted under the Directors Plan expire no later than ten years from the date
      of
      grant and are with limited exceptions exercisable as of the grant date. All
      outstanding options under the Directors Plan as of June 30, 2006 are
      vested.




The
      following table summarizes the stock option activity under the Directors’ Plan
      for the periods indicated:




**2001
                Plan**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
            
            **Aggregate**
              **Intrinsic**
              **Value**
              **($000)**Outstanding
                at June 30, 2003
            
            
            185,000
            
            $
            1.51Granted
            
            
            34,375
            
            
            1.41Cancelled
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Outstanding
                at June 30, 2004
            
            
            219,375
            
            
            1.50Granted
            
            
            14,375
            
            
            1.93Cancelled
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Outstanding
                at June 30, 2005
            
            
            233,750
            
            
            1.52
            
            
            6.78
            
            $
            155Granted
            
            
            56,200
            
            
            2.73Cancelled
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Outstanding
                at June 30, 2006
            
            
            289,950
            
            $
            1.75
            
            
            6.51
            
            $
            253Exercisable
            
            
            289,950
            
            $
            1.75
            
            
            6.51
            
            $
            253Available
                for future grant
            
            
            60,050





The
      weighted average grant date fair value of Directors’ stock options granted
      during the year ended June 30, 2006 was $2.39.




F-26




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


The
      following table summarizes information about the Directors’ stock options
      outstanding under the Plan as of June 30, 2006:





**Options
                Outstanding**
            
            **Options
                Exercisable****Exercise**
              **Price**
            
            **Number
                Outstanding**
            
            **Weighted**
              **Average**
              **Remaining
                Contractual**
              **Life
                (years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number**
              **of
                Shares Exercisable**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$0.00
                to $0.95
            
            3,125
            
            6.75
            
            .92
            
            3,125
            
            .92$0.95
                to $1.90
            
            233,750
            
            5.68
            
            1.51
            
            233,750
            
            1.51$1.90
                to $2.85
            
            55,575
            
            9.45
            
            2.58
            
            55,575
            
            2.58$2.85
                to $3.80
            
            7,500
            
            9.38
            
            3.30
            
            7,500
            
            3.30**Totals**
            
            289,950
            
            
            
            
            
            289,950





**(11)** **ACQUISITIONS**





**(a)**
            **H
                & W Petroleum Company,
                Inc.**





On
      October 1, 2005, the
      Company acquired
      all of the stock of H & W Petroleum Company, Inc. (“H & W”), a
      Houston, Texas based marketer and distributor of lubricants, commercial fuels
      and petroleum products. Immediately prior to the consummation of this
      transaction , H &
W acquired the operating assets of Harkrider Distributing Company, Incorporated
      (“Harkrider”), a Houston based marketer and distributor of dry cleaning
      solvents, chemicals and petroleum products, which was related to H & W
      through some common shareholder ownership (together
      with the acquisition of the shares of H & W, the “H & W
      Acquisition”) .
      In
      addition to providing service to the greater Houston metropolitan area, the
      combined H & W and Harkrider operations also serve the Dallas/Fort Worth,
      Freeport, Longview, Lufkin, San Antonio, Beaumont, Waco and
      Waxahachie markets in Texas, and the New Orleans market in
      Louisiana.





H
&
W
      provides lubricants and fueling services to over 3,800 customers, with its
      primary emphasis on those companies requiring large volumes of specialty
      industrial oils, motor and gear lubricants and greases subject to rigid
      technical and performance specifications. Harkrider, a division of H & W,
      has distributed solvents and specialty petroleum products to dry cleaners and
      industrial customers in the Houston, Beaumont and San Antonio areas, which
      trade
      name was established in 1946. Harkrider has over 800 customers in the respective
      Texas markets. Together, H & W and Harkrider operate a combined
      fleet of 52 specialized lubricant, fuel and chemical delivery “bobtail” trucks;
      oil  and  lubricant flatbed  and  box trucks; tanker
      transports; and related support equipment,  including approximately 
200 storage tanks with over  1,200,000  gallons of  capacity. The
 H & W and Harkrider operations currently employ approximately 86
      personnel.




The
      purchase price of approximately $5.9 million, which includes the payments due
      upon collection of certain receivables totaling $1.964 million, was paid with
      a
      combination of cash, the assumption of specified liabilities and the issuance
      of
      two year 10% promissory notes totaling $2.463 million. The promissory notes
      are
      subject to an earn out provision based on the performance of H & W and
      Harkrider after the H & W acquisition. During the fourth quarter, the
      Company reallocated its preliminary purchase price estimates. To reflect the
      excess purchase price over the estimated fair value of the tangible net assets
      acquired, the purchase price allocation is summarized as follows (in
      thousands):




F-27




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




Cash
                at closing
            
            $
            82Borrowings
                under line of credit
            
            
            1,454Acquisition
                costs — direct
            
            
            654Contingent
                earnout
            
            
            2,463Total
                purchase price
            
            
            
            
            $
            4,653Less:
                Fair value of identifiable assets acquired:Cash
            
            $
            392Plant,
                property and equipment
            
            
            1,767Accounts
                receivable (Includes $250 from Harkrider)
            
            
            5,961Inventory
            
            
            3,565Other
                current assets
            
            
            249Fair
                value of identifiable assets acquired
            
            
            
            
            $
            11,934Plus:
                Fair value of liabilities assumed:Line
                of credit payable (Includes $387 from Harkrider)
            
            $
            7,086Accounts
                payable and other liabilities
            
            
            5,510Capital
                lease obligations
            
            
            282Current
                portion of long-term debt
            
            
            452$
            13,330Less:
                Contingent earnout not achieved
            
            
            
            
            $
            2,463Excess
                of purchase price over fair value of net assets acquired to be allocated
                among intangible assets and goodwill
            
            
            
            
            $
            3,586




The
      following is the allocation of the fair value of net assets acquired over cost
      (in thousands):




Amortizable
                intangible assets:Customer
                relationships
            
            $
            1,674Supplier
                contracts
            
            
            801Trademarks
            
            
            687Favorable
                leases
            
            
            196Total
                amortizable intangible assets
            
            $
            3,358Goodwill
            
            $
            228





The
      following unaudited pro forma condensed consolidated statements of operations
      have been prepared as if the H & W and Shank Services acquisitions had
      occurred on July 1, 2004 (in thousands, except per share data). ****




**Year
                ended June 30,****2006**
            
            **2005**Petroleum
                product, tax and service revenue
            
            $
            266,820
            
            $
            189,814Cost
                of petroleum products tax and service
            
            
            252,978
            
            
            178,372Gross
                Profit
            
            $
            13,842
            
            $
            11,442Net
                loss
            
            $
            (5,150
            )
            $
            (1,988
            )Basic
                and diluted net loss per share
            
            $
            (0.52
            )
            $
            (0.25
            )





F-28




**STREICHER
          MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**


The
      pro
      forma information is presented for informational purposes only and is not
      necessarily indicative of the results of operations that actually would have
      been achieved had the H & W Acquisition been consummated as of those dates,
      nor is it intended to be a projection of future results.





**(b)**  **Shank
      Services**





On
      February 18, 2005, the Company acquired substantially all of the assets and
      related business of Shank Services, a Houston, Texas-based provider of
      commercial fueling and heavy haul transportation services for a purchase price
      of approximately $8.3 million, which included a $1.9 million performance based
      contingency and $639,000 in acquisition costs. Cash paid at closing was $5.8
      million. The Company did not assume any material Shank Services’ liabilities or
      debt. The $1.9 million performance based contingency was dependent on Shank
      Services meeting a specific target performance objective. Additionally, as
      part
      of the asset purchase agreement the Company was obligated to the previous owner
      for 50% of collections on receivables deemed ineligible at the time of
      acquisition. During fiscal year ended June 2006, the Company paid $17,000 to
      the
      previous owner for collections on ineligible receivable.





The
      purchase price of the acquisition at closing was less than the fair value of
      the
      assets acquired, which created negative goodwill of $172,000 at June 2005 and
      was recorded as a note payable. As required under FAS 141, “Business
      Combinations,” the negative goodwill has been offset against the contingent
      two-year deferred payment promissory note that was issued by the Company. The
      payment of the note was dependent on Shank Services achieving a specific
      performance objective through the fiscal year ended December 31, 2005 and would
      not be recorded as a liability by the Company until and unless the performance
      objective’s achievement was probable. The performance objective was not achieved
      as of December 31, 2005, and the remaining note payable balance of $155,000
      was
      allocated to the fair value of identifiable assets acquired.





To
      reflect the excess estimated fair value of tangible net assets acquired, the
      purchase price and the purchase price allocation are summarized as follows
      (in
      thousands):





**June
                30****2006**
            
            **2005**Cash
                at closing
            
            $
            5,797
            
            $
            5,797Acquisition
                costs — direct
            
            
            639
            
            
            639Contingent
                earnout
            
            
            —
            
            
            1,913Total
                purchase price
            
            $
            6,436
            
            $
            8,349Less:
                Fair value of identifiable assets acquired:Plant,
                property and equipment
            
            $
            2,855
            
            $
            3,005Accounts
                receivable
            
            
            3,319
            
            
            3,336Inventory
            
            
            150
            
            
            150Other
                current assets
            
            
            17
            
            
            17Intangible
                assets
            
            
            95
            
            
            100Fair
                value of identifiable assets acquired
            
            $
            6,436
            
            $
            6,608Less:Contingent
                earnout not achieved
            
            $
            —
            
            $
            1,913Excess
                of cost over fair value of net assets acquired; negative goodwill,
                recorded as Note Payable on the Consolidated Balance Sheet
            
            $
            —
            
            $
            (172
            )






F-29




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**(12)**  **SIGNIFICANT
      CUSTOMERS AND VENDORS**





Revenues
      (excluding petroleum product taxes) from one significant customer, the United
      States Postal Service, totaled $15 million or 6.8%, $11.4 million or 10.4%
      and
      $9.5 million or 14%, of total petroleum product revenues in the fiscal years
      ended June 30, 2006, 2005 and 2004, respectively. The Company’s current
      agreement with the United States Postal Service expires in August
      2008. Two vendors
      provide the Company petroleum products each representing more than 10% of cost
      of sales under a noncontractual, at will business arrangement which can be
      terminated by either party at any time. During the fiscal years 2006, 2005
      and
      2004 these two vendors accounted for 27%, 44% and 34% of total cost of sales,
      respectively.




**(13)** **INCOME
      TAXES**





The
      actual tax benefit of the Company for the years ended June 30, 2006, 2005 and
      2004 differs from the statutory Federal tax rate of 34% due to the following
      (in
      thousands):




**Year
                Ended June 30,****2006**
            
            **2005**
            
            **2004**Expected
                  benefit (provision) for income taxes at the statutory Federal income
                  tax
                  rate of 34%
            
            $
            1,659
            
            $
            496
            
            $
            237Net
                operating loss carryforward adjustment
            
            
            —
            
            
            —
            
            
            133Change
                in tax rate
            
            
            —
            
            
            (12
            )
            
            172State
                income taxes, net of federal benefit
            
            
            180
            
            
            53
            
            
            59Other
            
            
            104
            
            
            34
            
            
            14Nondeductible
                expenses
            
            
            (48
            )
            
            (10
            )
            
            (12
            )Deferred
                tax valuation allowance
            
            
            (1,895
            )
            
            (561
            )
            
            (603
            )Benefit
                (provision) for income taxes
            
            $
            —
            
            $
            —
            
            $
            —





Deferred
      income taxes reflect the net effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      their income tax bases, and operating loss carryforwards.




As
      a
      result of the Company’s acquisition of H & W, assets increased by $818,000,
      which is offset by a full valuation allowance.




F-30




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




The
      tax
      effects of temporary differences and net operating loss carryforwards that
      give
      rise to the significant portions of the deferred tax assets and liabilities
      at
      June 30, 2006 and 2005 are presented below (in thousands):




**June
                30,****2006**
            
            **2005**Deferred
                tax assets:Net
                operating loss carryforwards
            
            $
            7,574
            
            $
            5,995Asset
                basis adjustment for Section 357 gain
            
            
            189
            
            
            222Reserves
                and allowances
            
            
            360
            
            
            —Stock-based
                compensation expense
            
            
            203
            
            
            —Accrued
                expenses and deferred income
            
            
            412
            
            
            131Other
            
            
            126
            
            
            2Total
                gross deferred tax assets
            
            
            8,864
            
            
            6,350Less:
                valuation allowance
            
            
            (6,740
            )
            
            (4,027
            )Total
                deferred tax assets
            
            
            2,124
            
            
            2,323Deferred
                tax liabilities:Property
                and equipment
            
            
            (2,124
            )
            
            (2,286
            )Software
                development costs
            
            
            —
            
            
            (1
            )Allowance
                for doubtful accounts
            
            
            —
            
            
            (6
            )Deductible
                contingent payment
            
            
            —
            
            
            (30
            )Total
                deferred tax liabilities
            
            
            (2,124
            )
            
            (2,323
            )Net
                deferred tax assets
            
            $
            —
            
            
            —





Realization
      of deferred tax assets is dependent upon generating sufficient taxable income
      in
      future periods. FAS No. 109 requires a valuation allowance to reduce the
      deferred tax assets reported, if, based on management’s analysis, it is more
      likely than not that some portion or all of the deferred tax assets will not
      be
      realized. After consideration of all the information available, management
      has
      determined that a $6,740,000 and $4,027,000 valuation allowance at June 30,
      2006
      and 2005, respectively, is necessary to reduce the deferred tax assets to the
      amount that will likely be realized.





In
      2006,
      the Internal Revenue Service audited the Company’s tax return for the tax year
      ended December 31, 2004 and adjusted the net operating loss claimed on the
      return by $103,000. Management agreed with the determination of the corrected
      amount. As a result of the audit adjustment, the NOL carryover acquired by
      the
      Company was subject to this change. There were no additional taxes assessed
      as a
      result of the tax audit.





As
      of
      June 30, 2006, the Company has Federal net operating loss carryforwards of
      approximately $19 million which will begin to expire in the year 2011. The
      acquired net operating loss of approximately $2 million from the stock
      acquisition of H & W is subject to the Internal Revenue Code Section 382
      limitation related to ownership changes. Additionally, the Company has state
      net
      operating loss carryforwards which expire in varying years.





F-31




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**(14)**  **COMMITMENTS
      AND CONTINGENCIES**





(a)  Operating
      Leases





Rent
      expense amounted to approximately $1,025,000, $594,000 and $480,000 for the
      years ended June 30, 2006, 2005 and 2004, respectively. The Company leases
      real
      property and equipment under operating leases that expire at various times
      through the year 2015. Certain leases contain escalative clauses. Future minimum
      lease payments under non-cancelable operating leases as of June 30, 2006 are
      (in
      thousands):




**Year
                ended**
              **June
                30,**
            
            **Operating
                Lease**
              **Payments**2007
            
            $
            1,1012008
            
            
            8632009
            
            
            8402010
            
            
            7632011
            
            
            568Thereafter
            
            
            331$
            4,466





The
      Company is obligated to certain of the former owners of H & W Petroleum
      Company, Inc., of which one is currently an officer of the Company, under five
      operating leases covering property utilized for the division operating
      facilities, which expire September 30, 2010. Rent expense paid to the former
      owners was $197,020 for the year ended June 30, 2006.




(b)
            Governmental
                Regulation




Numerous
      federal, state and local laws, regulations and ordinances, including those
      relating to protection of the environment and worker safety, affect the
      Company’s operations. Various federal, state and local agencies have broad
      powers under these laws, regulations and ordinances. In particular, the
      operation of the Company’s mobile fueling fleet and its transportation of diesel
      fuel and gasoline are subject to extensive regulation by the U.S. Department
      of
      Transportation (“DOT”) under the Federal Motor Carrier Safety Act (“FMCSA”) and
      the Hazardous Materials Transportation Act (“HMTA”). The Company is subject to
      regulatory and legislative changes that can affect the economics of the industry
      by requiring changes in operating practices or influencing the demand for,
      and
      the cost of providing, its services. On January 4, 2004, new federal safety
      rules took effect reducing the number of hours truck drivers can be on duty,
      including any time spent fueling their trucks or equipment. In addition, the
      Company depends on the supply of diesel fuel and gasoline from the oil and
      gas
      industry and, therefore, is affected by changing taxes, price controls and
      other
      laws and regulations generally relating to the oil and gas industry. The Company
      cannot determine the extent to which its future operations and earnings may
      be
      affected by new legislation, new regulations or changes in existing
      regulations.




Complying
      with the technical requirements of these laws and regulations is becoming
      increasingly expensive, complex and stringent. These laws may impose penalties
      or sanctions for damages to natural resources or threats to public health and
      safety. Such laws and regulations may also expose the Company to liability
      for
      the conduct of or conditions caused by others, or for acts of the Company that
      were in compliance with all applicable laws at the time such acts were
      performed. Sanctions for noncompliance may include revocation of permits,
      corrective action orders, administrative or civil penalties and criminal
      prosecution. Certain environmental laws provide for joint and several liability
      for remediation of spills and releases of hazardous substances. In addition,
      the
      Company may be subject to claims alleging personal injury or property damage
      as
      a result of alleged exposure to hazardous substances, as well as damage to
      natural resources.




In
      the
      opinion of management, the Company is in substantial compliance with existing
      laws and regulations, although there can be no assurance that substantial costs
      for compliance will not be incurred in the future. Moreover, it is possible
      that
      other developments, such as stricter environmental laws, regulations and
      enforcement policies thereunder, could result in additional, presently
      unquantifiable, costs or liabilities to the Company.




F-32
 
 **STREICHER
          MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**


(c)
            Employment
                Agreements




The
      Company entered into an employment agreement with Richard E. Gathright on
      October 26, 2000, pursuant to which Mr. Gathright serves as Chief Executive
      Officer and President of the Company. That agreement had a term of three years,
      commencing on October 26, 2000. On September 25, 2003, the Company and Mr.
      Gathright amended the terms of the agreement extending it from three to four
      years and increased his annual base salary to $323,000. On September 23, 2004,
      the Company and Mr. Gathright extended the term of the agreement until October
      31, 2005. In March 2005, the agreement was amended and restated and further
      extended to February 28, 2006, and providing for automatic one year extensions
      thereafter unless either party gives notice of intent not to renew prior to
      such
      extension. As amended and restated, the agreement provides for a minimum annual
      base salary of $323,000, participation with other members of management, in
      a
      bonus program, whereby up to 10% of the Company’s pretax profits will be set
      aside for bonus payments, and the grant of 500,000 options to purchase shares
      of
      the Company’s Common Stock at a price of $1.50 per share. The agreement further
      provides that it may be terminated by the Company at any time and for any
      reason. If the agreement is terminated by the Company without cause, Mr.
      Gathright shall be due the greater of all base salary payable through the
      remaining term of the agreement or eighteen months base salary, subject to
      the
      limitations on severance payments imposed by the American Jobs Creation Act
      of
      1986 and Section 409A of the Internal Revenue Code, which generally require
      that
      any such severance payments cannot begin until six months after the termination
      of the executive’s employment. In the event Mr. Gathright’s severance payments
      are so deferred, however, he will not be bound by the post-employment
      restrictions on non-competitive employment, provided, however, that the Company
      has the option of electing, at the time of termination, to pay Mr. Gathright
      an
      amount equal to his salary for such six month period in exchange for his being
      immediately bound by the non-competition covenant. If the agreement is
      terminated for cause, as defined, Mr. Gathright will not be entitled to the
      severance payments specified.




The
      Company has also entered into written employment agreements with certain other
      officers and employees. The agreements vary in length of term and may provide
      for severance payments upon termination without cause or for automatic renewal
      for successive periods unless notice of termination is given prior to a renewal
      period.




(d)
            Absence
                of Written Agreements




Most
      of
      the Company's customers do not have written agreements with the Company and
      can
      terminate the Company's services at any time and for any reason. If the Company
      were to experience a high rate of terminations, the Company's business and
      financial performance could be adversely affected.




(e)
            Litigation




The
      Company may be subject to legal proceedings and claims which arise in the
      ordinary course of its business. In the opinion of management, after consulting
      with legal counsel, no litigation or claims exist that should have a material
      effect on the consolidated financial position or results of operations of the
      Company as of June 30, 2006.




F-33


**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**(15)** **RELATED
      PARTY**





The
      Company paid in ordinary commercial terms $80,000, $78,000 and $71,500 for
      the
      years ended June 30, 2006, 2005 and 2004, respectively, to a provider of
      investor relations and public relations services whose Chief Executive Officer
      is a member of the Company’s Board of Directors.





The
      Company is obligated to certain of the former owners of H & W Petroleum
      Company, Inc. under five operating leases covering property utilized for the
      division operating facility, which expire September 30, 2010. These leases
      were
      negotiated prior to the acquisition of H & W as an arms length transaction.
      One of the former owners of H & W was hired after the acquisition and is
      currently an officer of the Company.





**(16)** **SUBSEQUENT
      EVENTS**





Seventh
      Amendment to Credit Facility





On
      September 26, 2006, the Company and its primary lender entered into the Seventh
      Amendment to its credit facility, effective September 22, 2006, that increased
      the maximum amount for revolving loans from $20 million to $25 million and
      modified the covenant in the agreement which limits the Company’s loans and
      advances to other persons to permit loans to customers for their purchases
      of
      Chevron Texaco equipment.





401(k)





Effective
      October 1, 2006, The Company is implementing a 401(k) Plan through a third
      party
      administrator, that is being offered to all eligible employees who work at
      least
      1,000 hours per year. The Plan Year will be on a calendar year basis and there
      will be no employer match.




Legal
      Proceedings




On
      October 10, 2006, the Company filed a civil complaint (the “Complaint”) in
      Broward County, Florida Circuit Court against Financial Accounting Solutions
      Group, Inc., (“FAS”), Kramer Professional Staffing, Inc., (“KPS”), and Mitchell
      Kramer, an officer, director, shareholder and control person of FAS and KPS
      (“Kramer”). The Complaint alleges that, in early 2005, Kramer, FAS and KPS
      (collectively, the “Defendants”) induced the Company to engage FAS to provide
      critical management consulting services with respect to (a) the implementation
      of certain Information Technology (“IT”) functions, including the integration of
      the Company’s IT system with those of its new subsidiaries, (b) the
      modernization and expansion of the Company’s accounting and business technology
      capabilities, and (c) ensuring compliance with public company accounting
      internal requirements and the Sarbanes-Oxley Act (the “IT Projects”). The
      Complaint further alleges that the Defendants made numerous misrepresentations
      to the Company concerning the experience, capabilities and background of FAS
      and
      FAS’ personnel, which misrepresentations were relied upon by the Company when it
      decided to hire FAS to undertake these tasks and subsequently to continue with
      the engagement. After persistent delays and failures to perform by FAS, the
      Company determined that FAS’ performance of the IT Projects was grossly
      inadequate and that FAS had violated various promises and agreements made by
      FAS, and the Company therefore terminated the engagement. The Complaint seeks
      damages from FAS for, among other things, its breach of its contractual
      obligations to the Company, failure to provide services in accordance with
      any
      reasonable standard of care within the IT industry, negligence, and unjust
      enrichment from inflated and fraudulent billing practices. The Complaint also
      seeks damages from all of the Defendants for negligent and fraudulent
      misrepresentations with respect to FAS’ experience, capabilities and background
      and seeks the return from FAS of an unspecified portion of the fees previously
      paid to FAS for the IT Projects.




**(17)** **QUARTERLY
      FINANCIAL DATA (unaudited)**





The
      following tables contain selected unaudited consolidated statement of operations
      data for each quarter of the year ended June 30, 2006 and 2005 (in thousands,
      except per share amounts):




**Fiscal
                2006 Quarter Ended****September
                30,**
            
            
            **(1)**
                  **December
                    31,**
            
            
            **(2)**
                  **March
                    31,**
            
            
            **(2)**
                  **June
                    30,**Total
                revenue
            $
            52,796
            
            $
            66,751
            
            $
            59,436
            
            $
            70,558Gross
                profit
            
            3,813
            
            
            3,829
            
            
            2,258
            
            
            2,509Selling,
                general and administrative
            
            2,534
            
            
            3,007
            
            
            3,569
            
            
            4,152Operating
                income (loss)
            
            1,279
            
            
            822
            
            
            (1,311
            )
            
            (1,643
            )Interest
                expense, net (3)
            
            (675
            )
            
            (964
            )
            
            (905
            )
            
            (1,481
            )Net
                income (loss)
            
            615
            
            
            (142
            )
            
            (2,216
            )
            
            (3,135
            )Net
                income (loss) per share:Basic
            $
            0.07
            
            $
            (0.01
            )
            $
            (0.23
            )
            $
            (0.30
            )Diluted
            $
            0.06
            
            $
            (0.01
            )
            $
            (0.23
            )
            $
            (0.30
            )Weighted
                average shares outstanding:Basic
            
            9,339
            
            
            9,776
            
            
            9,814
            
            
            10,350Diluted
            
            10,197
            
            
            9,776
            
            
            9.814
            
            
            10,350








F-34




**STREICHER
        MOBILE FUELING, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**Fiscal
                2005 Quarter Ended****September
                30,**
            
            
            **December
                31,**
            
            
            **March
                31,**
            
            
            ******(4)**
                  **June
                    30,**Total
                revenue
            $
            28,705
            
            $
            29,445
            
            $
            32,735
            
            $
            42,678Gross
                profit
            
            1,800
            
            
            1,444
            
            
            1,042
            
            
            2,302Selling,
                general and administrative
            
            1,123
            
            
            1,232
            
            
            1,872
            
            
            1,918Operating
                income (loss)
            
            677
            
            
            212
            
            
            (830
            )
            
            384Interest
                expense, net
            
            (382
            )
            
            (393
            )
            
            (519
            )
            
            (609
            )Net
                income (loss)
            
            295
            
            
            (181
            )
            
            (1,349
            )
            
            (225
            )Net
                income (loss) per share:Basic
            $
            0.04
            
            $
            (0.02
            )
            $
            (0.17
            )
            $
            (0.03
            )Diluted
            $
            0.04
            
            $
            (0.02
            )
            $
            (0.17
            )
            $
            (0.03
            )Weighted
                average shares outstanding:Basic
            
            7,332
            
            
            7,436
            
            
            7,813
            
            
            8,859Diluted
            
            7,870
            
            
            7,436
            
            
            7,813
            
            
            8,859





(1)
            The
                Company acquired H & W Petroleum on October 1,
                2005.




(2)
            The
                Company incurred a net loss of $2,216,000 and $3,135,000 for the
                quarters
                ended March 31, 2006 and June 30, 2006, respectively, primarily due
                to increased selling, general and administrative costs and interest
                expense associated with the H & W acquisition, corporate
                infrastructure development and relocation and integration
                costs.




(3)
            The
                Company recorded additional non-cash interest expense of $537,000
                during
                the quarter ended June 30, 2006 associated with the write-off of
                deferred
                debt costs, debt discount and a prepayment penalty related to the
                June 30,
                2006 issuance of warrants to convert a portion of the August 2003
                and
                January 2005 Notes.




(4)
            The
                Company acquired Shank Services on February 18, 2005. During the
                quarter
                ended March 31, 2005, the Company incurred a net loss of $1,349,000
                primarily due to increased period costs of $291,000 related to operations
                expenses for payroll, running fuel, repairs and maintenance; additional
                depreciation expense of $297,000 associated with the write-down of
                abandoned equipment; increased sales and marketing expenses of $125,000;
                increased depreciation for accounting and information systems of
                $164,000;
                and higher interest expense of $182,000 primarily related to the
                January
                2005 Notes.




F-35