**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**





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




**For
      the quarterly period ended December 31, 2006**




OR




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




Commission
      File Number 000-21825




**SMF
      ENERGY CORPORATION**





(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **65-0707824**(State
                of Incorporation)
            
            (IRS
                Employer Identification Number)





**200
                West Cypress Creek Road, Suite 400, Fort Lauderdale,
                Florida,**
            
            **33309**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(954)
      308-4200**





(Issuer's
      telephone number, including area code)




**STREICHER
      MOBILE FUELING, INC.**


(Former
      name, former address and former fiscal year, if changed since last
      report)





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 whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
      the
      Exchange Act) (Check one):


Large
      accelerated filer o  Accelerated
      filer o Non-accelerated
      filer x





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


Yes
o .
      No
x .





As
      of
      February 7, 2007 there were 10,526,143 shares of the registrant’s common stock
      outstanding.








**SMF
      ENERGY CORPORATION**




**FORM
      10-Q**




**INDEX**





Form
      10-Q Part and Item No.


Part
                  I
              Financial
                  Information:Item
                  1.
              Condensed
                  Unaudited Consolidated Financial StatementsCondensed
                  Consolidated Balance Sheets as of December 31, 2006 (unaudited)
                  and June
                  30, 2006
              3Condensed
                  Unaudited Consolidated Statements of Operations for the three-month
                  and
                  six-month periods ended December 31, 2006 and 2005
              4Condensed
                  Unaudited Consolidated Statements of Cash Flows for the six-month
                  periods
                  ended December 31, 2006 and 2005
              5Notes
                  to Condensed Unaudited Consolidated Financial Statements
              6Item
                  1A.
              Risk
                  Factors
              17Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              17Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              33Item
                  4.
              Controls
                  and Procedures
              34Part
                  II
              Other
                  InformationItems
                  1. thru 6.
              36
                  - 37Signature
                  Page
              38Certifications
              39
                  - 41




**SMF
      Energy Corporation and Streicher Mobile Fueling, Inc.**




Except
      where the context provides otherwise, references to the “Company,” “we,” “us,”
“our,” and similar terms mean SMF Energy Corporation and Streicher Mobile
      Fueling, Inc. When we refer to business and financial information relating
      to
      periods prior to the merger of Streicher Mobile Fueling, Inc. with and into
      SMF
      Energy Corporation, effective February 14, 2007, we are referring to the
      business and financial information of Streicher Mobile Fueling,
      Inc.





2


**SMF
      ENERGY CORPORATION (FORMERLY KNOWN AS STREICHER MOBILE FUELING,
      INC.)**


**AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**December
      31, 2006 and June 30, 2006**


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




**ASSETS**
            
            **December
                31, 2006**
            
            **June
                30,**
              **2006****(unaudited)**Current
                assets:Cash
                and cash equivalents
            
            $
            461
            
            $
            4,103Accounts
                receivable, less allowances of $1,251 and $1,252,
                respectively
            
            
            21,596
            
            
            24,345Inventories,
                less slow moving reserves of $276 at December 31, andJune
                30, 2006
            
            
            3,013
            
            
            3,321Prepaid
                expenses and other current assets
            
            
            367
            
            
            413Total
                current assets
            
            
            25,437
            
            
            32,182Property
                and equipment, net
            
            
            10,959
            
            
            11,739Identifiable
                intangible assets, net
            
            
            2,960
            
            
            3,148Goodwill
            
            
            228
            
            
            228Deferred
                debt costs, net
            
            
            628
            
            
            749Other
                assets
            
            
            69
            
            
            68Total
                assets
            
            $
            40,281
            
            $
            48,114





**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Current
                liabilities:Line
                of credit payable
            
            $
            12,869
            
            $
            15,612Accounts
                payable
            
            
            7,738
            
            
            10,367Accrued
                expenses and other liabilities
            
            
            2,776
            
            
            2,787Current
                portion of long-term debt
            
            
            3,204
            
            
            2,118Total
                current liabilities
            
            
            26,587
            
            
            30,884Long-term
                liabilities:Promissory
                notes, net of unamortized debt discount of $1,358and
                $1,652, respectively
            
            
            9,685
            
            
            10,993Capital
                lease obligations
            
            
            -
            
            
            25Long-term
                debt, net
            
            
            9,685
            
            
            11,018Deferred
                revenue
            
            
            523
            
            
            555Other
                long term liabilities
            
            
            121
            
            
            117Total
                liabilities
            
            
            36,916
            
            
            42,574Shareholders’
                equity:Common
                stock, par value $.01 per share; 50,000,000 shares
                authorized;
              10,526,143
                and 10,491,143 issued and outstanding at December 31, 2006 and June
                30,
                2006, respectively
            
            
            105
            
            
            105Additional
                paid-in capital
            
            
            20,072
            
            
            19,890Accumulated
                deficit
            
            
            (16,812
            )
            
            (14,455
            )Total
                shareholders’ equity
            
            
            3,365
            
            
            5,540Total
                liabilities and shareholders’ equity
            
            $
            40,281
            
            $
            48,114





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





3





**SMF
      ENERGY CORPORATION (FORMERLY KNOWN AS STREICHER MOBILE FUELING,
      INC.)**


**AND
      SUBSIDIARIES**


**CONDENSED
      UNAUDITED CONSOLIDATED** **STATEMENTS
      OF OPERATIONS**


**FOR
      THE THREE AND SIX MONTH PERIODS ENDED**


**DECEMBER
      31, 2006 and 2005**


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




**Three-Month
                Periods Ended**
            
            **Six-Month
                Periods Ended****December
                31,**
            
            **December
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Petroleum
                product sales and service revenues.
            
            $
            48,640
            
            $
            59,437
            
            $
            107,622
            
            $
            105,633Petroleum
                product taxes
            
            
            6,522
            
            
            7,314
            
            
            13,506
            
            
            13,914Total
                revenues
            
            
            55,162
            
            
            66,751
            
            
            121,128
            
            
            119,547Cost
                of petroleum product sales and service
            
            
            45,540
            
            
            55,608
            
            
            100,401
            
            
            97,991Petroleum
                product taxes
            
            
            6,522
            
            
            7,314
            
            
            13,506
            
            
            13,914Total
                cost of sales
            
            
            52,062
            
            
            62,922
            
            
            113,907
            
            
            111,905Gross
                profit
            
            
            3,100
            
            
            3,829
            
            
            7,221
            
            
            7,642Selling,
                general and administrative expenses
            
            
            4,149
            
            
            3,007
            
            
            7,799
            
            
            5,541Operating
                income (loss)
            
            
            (1,049
            )
            
            822
            
            
            (578
            )
            
            2,101Interest
                expense
            
            
            (835
            )
            
            (964
            )
            
            (1,785
            )
            
            (1,639
            )Interest
                and other income
            
            
            (11
            )
            
            —
            
            
            6
            
            
            11Income
                (loss) before income taxes
            
            
            (1,895
            )
            
            (142
            )
            
            (2,357
            )
            
            473


Income
                tax expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                income (loss)
            
            $
            (1,895
            )
            $
            (142
            )
            $
            (2,357
            )
            $
            473Basic
                net income (loss) per share
            
            $
            (0.18
            )
            $
            (0.01
            )
            $
            (0.22
            )
            $
            0.05Diluted
                net income (loss) per share
            
            $
            (0.18
            )
            $
            (0.01
            )
            $
            (0.22
            )
            $
            0.05Basic
                weighted average common shares outstanding
            
            
            10,522,529
            
            
            9,776,362
            
            
            10,509,023
            
            
            9,557,761Diluted
                weighted average common shares outstanding
            
            
            10,522,529
            
            
            9,776,362
            
            
            10,509,203
            
            
            10,453,356





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


4


**SMF
      ENERGY CORPORATION (FORMERLY KNOWN AS STREICHER MOBILE FUELING,
      INC.)**


**AND
      SUBSIDIARIES**


**CONDENSED
      UNAUDITED CONSOLIDATED STATEMENTS OF** **CASH
      FLOWS**


***(in
      000’s)***




**Six
                Months Ended December 31,****2006**
            
            **2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income (loss)
            
            $
            (2,357
            )
            $
            473Adjustments
                to reconcile net income (loss) to net:Cash
                provided by (used in) operating activities:Depreciation
                and amortization:Cost
                of sales
            
            
            880
            
            
            735Selling,
                general and administrative expense
            
            
            265
            
            
            199Amortization
                of deferred debt costs
            
            
            156
            
            
            182Amortization
                of intangible assets
            
            
            187
            
            
            ---Amortization
                of debt discount
            
            
            294
            
            
            334Stock
                based compensation expense
            
            
            151
            
            
            194Provision
                for allowance for doubtful accounts
            
            
            219
            
            
            86Changes
                in operating assets and liabilities, net of effects of acquisitions:Decrease
                (increase) in accounts receivable
            
            
            2,530
            
            
            (5,309
            )Decrease
                in inventories, prepaid expenses and other assets
            
            
            354
            
            
            1,056Decrease
                in accounts payable and other liabilities
            
            
            (2,665
            )
            
            (126
            )Net
                cash provided by (used in) operating activities
            
            
            14
            
            
            (2,176
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            (365
            )
            
            (970
            )Cash
                used in business acquisition
            
            
            ---
            
            
            (2,124
            )Net
                cash used in investing activities
            
            
            (365
            )
            
            (3,094
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                borrowings (repayments) on line of credit payable
            
            
            (2,743
            )
            
            1,741Net
                proceeds from exercise of common stock warrants
            
            
            31
            
            
            1,230Proceeds
                from issuance of promissory notes
            
            
            ---
            
            
            3,000Payments
                of debt issuance costs
            
            
            (44
            )
            
            (219
            )Repayments
                of promissory notes
            
            
            ---
            
            
            (452
            )Principal
                payment on promissory notes
            
            
            (452
            )
            
            (693
            )Capital
                lease payments
            
            
            (83
            )
            
            ----Net
                cash provided by (used in) financing activities
            
            
            (3,291
            )
            
            4,607NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (3,642
            )
            
            (663
            )CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            4,103
            
            
            4,108CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            461
            
            $
            3,445SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid for-Interest
            
            $
            1,091
            
            $
            628Income
                taxes
            
            $
            ---
            
            $
            ---




**Supplemental
      Cash Flow Information of Non-Cash Activities:**


During
      the six-month period ended December 31, 2005 the Company recorded unamortized
      debt discount of $605 related to the valuation of the common stock warrants
      issued in connection with the September 2005 issuance of private placement
      debt.


During
      the six-month period ended December 31, 2006 and 2005, the Company recorded
      amortization of stock compensation expense of $151,000 and $194,000,
      respectively.





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





5


**NOTES
      TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**





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





In
      December 2006, the shareholders of Streicher Mobile Fueling, Inc., a Florida
      corporation, approved changing the Company’s name to SMF Energy Corporation and
      the reincorporation of the Company in Delaware by merger into a wholly owned
      Delaware subsidiary. Notwithstanding shareholder approval of the merger, the
      transaction was not immediately effected at that time because the
      reincorporation merger and name change required the approval of the Company’s
      primary lender and other secured creditors. Effective February 14, 2007, as
      a
      result of the Company’s receipt of all necessary approvals, the Company merged
      with and into its wholly-owned subsidiary SMF Energy Corporation. The merger
      changed the legal domicile of the Company to Delaware and its name to SMF Energy
      Corporation.




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 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 emergency power generation systems .
      A wide
      variety of specialized petroleum products, lubricants and chemicals is also
      delivered 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 December 31, 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 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, lubricants and chemicals 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. The number of workdays in
      any given month will impact the quarterly 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 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.




In
      February 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
      related services.




In
      October 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. In addition to providing
      service to the greater Houston metropolitan area, the combined
      H & W operations also serve the Houston, Dallas/Fort Worth, Baton
      Rouge, Beaumont, Freeport, Longview, Lufkin, San Antonio, Waco and Waxahachie
      markets in Texas and the New Orleans market in Louisiana.




6
 
  **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**


**(****2****)**
            **BASIS
                OF PRESENTATION**





The
      condensed unaudited consolidated financial statements include the accounts
      of
      SMF Energy Corporation (formerly known as 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.





The
      condensed unaudited consolidated financial statements included herein have
      been
      prepared in accordance with the instructions of Form 10-Q and Rule 10-01 of
      Regulation S-X, and do not include all the information and footnotes required
      by
      generally accepted accounting principles; however, they do include all
      adjustments of a normal recurring nature which, in the opinion of management,
      are necessary to present fairly the results of operations of the Company for
      the
      interim periods presented. Certain amounts have been reclassified to conform
      with current period presentation. Operating results for the three and six months
      ended December 31, 2006 are not necessarily indicative of the results that
      may
      be expected for any subsequent period or the full year ending June 30, 2007.
      These interim financial statements should be read in conjunction with the
      Company’s audited consolidated financial statements and related notes included
      in the Company’s Annual Report on Form 10-K for the year ended June 30,
      2006.





**(3)**
            **RECLASSIFICATIONS**





Certain
      amounts have been reclassified to conform to current period 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. During the three-month
      and
      six-month periods ended December 31, 2005, respectively, revenues and cost
      of
      sales were reduced by $799,000 and $1.6 million, respectively, to report these
      petroleum product taxes on a net basis.





**(4)**
            **RECENT
                ACCOUNTING PRONOUNCEMENTS**





In
      June
      2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN
      No. 48 clarifies the accounting for uncertainty in income taxes by prescribing
      a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be 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.





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.





In
      September 2006, the SEC Office of the Chief Accountant and Divisions of
      Corporation Finance and Investment Management released SAB No. 108, “Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements” (SAB No. 108”), which provides interpretive
      guidance on how the effects of the carryover or reversal of prior year
      misstatements should be considered in quantifying a current year misstatement.
      The SEC staff believes that registrants should quantify errors using both a
      balance sheet and an income statement approach and evaluate whether either
      approach results in quantifying a misstatement that, when all relevant
      quantitative and qualitative factors are considered, is material. This guidance
      is effective for fiscal years ending after November 15, 2006. The Company does
      not expect the adoption of SAB No. 108 to have a material impact on its
      financial position, results of operations, or cash flows.





7
 
  **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**


**(5)**
            **CASH
                AND CASH EQUIVALENTS**





On
      December 31, 2006, the Company paid
      down $2.7 million on its line of credit payable reducing the balance to $12.9
      million. Total cash and cash availability was $4.2 million and $8.3 million
      at
      December 31, 2006 and June 30, 2006, respectively, and was $7.1 million at
      February 15, 2007, which includes the net proceeds from the $3.3 million private
      placement.





**(6)**
            **INVENTORIES**





The
      inventory balance at December 31, 2006 related principally to the lubricants
      warehouse in Texas. Inventories, consisting primarily of lubricants, diesel
      fuel, and gasoline, are stated at the lower of cost or market and include
      federal and state fuel taxes payable to vendors. Cost is determined on a
      first-in, first-out basis. At December 31, 2006, $276,000 was reserved for
      slow
      moving inventory.





**(7)**
            **LINE
                OF CREDIT PAYABLE**





The
      Company has a $25 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
      (at prime plus .75% or 9.0% at December 31, 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. The Company endeavors to manage its cash and
      cash equivalents in a manner that minimizes interest expense under the line
      of
      credit.





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
      certain supplier equipment.




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





As
      of
      December 31, 2006 and December 31, 2005, the Company had outstanding borrowings
      of $12.9 million and $15.6 million, respectively, under its line of credit.
      Based on eligible receivables outstanding at December 31, 2006, the Company
      had
      $3.7 million of cash availability on its bank line of credit, compared to $4.2
      million of availability on June 30, 2006, and was in compliance with the
      applicable financial covenant required by the loan and security agreement.





**(8)**
            **OTHER
                LONG-TERM LIABILITIES**





The
      Company accounts for asset retirement obligations in accordance with the
      provisions of FASB Statement No. 143, “ *Accounting
      for Asset Retirement Obligations*”. This
      Statement addresses financial accounting and reporting for obligations
      associated with the retirement of tangible long-lived assets and the associated
      asset 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, with an estimated liability associated with
      the
      asset retirement obligation of the tanks to be $121,000 at December 31,
      2006.





8
 
  **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**


**(9)**
            **DEFERRED
                REVENUE**





At
      December 31, 2006, the Company recorded deferred revenues of $523,000 relating
      to a 5 year supplier contract that expires December 31, 2010. For the quarter
      ended December 31, 2006 the Company recognized $14,400 on account of this
      contract as an increase to gross profit. Pursuant to this contract the Company
      is obligated to meet certain purchase requirements each year. If the quantities
      required by the supplier contract are not purchased, the Company may be
      obligated to refund a portion of the deferred revenue to the supplier.




**(10)**
            **NET
                INCOME (LOSS) PER SHARE**





Net
      income (loss) per share is determined by dividing net income (loss) by the
      weighted average common shares outstanding during the year. Basic income per
      share is computed by dividing the net income attributable to common shareholders
      by the weighted-average number of common shares outstanding during the period.
      Diluted income per share is computed by dividing income attributable to common
      shareholders by the weighted-average number of common shares outstanding during
      the period increased to include the number of additional common shares that
      would have been outstanding if the dilutive potential common shares had been
      issued. The dilutive effect of outstanding stock options and warrants is
      reflected in diluted earnings per share by application of the treasury stock
      method.





At
      December 31, 2006 and 2005, 3,167,417 and 2,665,175 shares of common stock
      equivalents, respectively, consisting of employee, director and unrelated third
      party stock options and common stock warrants, were outstanding at prices
      ranging from $1.00 to $7.63 per share. For the six-month period ended December
      31, 2005, 893,595 of these common stock equivalents were dilutive and included
      in the computation of diluted net income per share. For the three and six-month
      periods ended December 31, 2006 and the three-month period ended December 31,
      2005, none of these common stock equivalents were dilutive so they were not
      included in the computation of dilutive net income per share.





**(11)**
            **STOCK-BASED
                COMPENSATION**





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. No options to purchase shares
      of
      stock are currently available to be granted under the 1996 Plan and options
      to
      purchase 90,210 shares of stock are currently 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.





9


**NOTES
      TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS**


Information
      concerning both the 1996 and 2000 Plans for the six months ending December
      31,
      2006 is summarized as follows:





**Shares**
            
            **Weighted
                average exercise price**
            
            **Weighted
                average grant-date fair value**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                June 30, 2006
            
            
            1,443,852
            
            $
            2.05
            
            $
            1.86Granted
            
            
            127,000
            
            $
            1.91
            
            $
            1.74Exercised
            
            
            --
            
            $
            --
            
            $
            --Terminated
            
            
            (12,500
            )
            $
            3.04
            
            $
            2.62Outstanding
                December 31, 2006
            
            
            1,558,352
            
            $
            2.03
            
            $
            1.85
            
            $
            35,384Exercisable
                December 31, 2006
            
            
            1,032,852
            
            $
            1.85
            
            $
            1.70
            
            $
            28,920





The
      weighted average remaining contractual life for employee stock options
      outstanding and exercisable at December 31, 2006 is 6.0 years and 4.5 years,
      respectively. The weighted average remaining contractual life for 1,032,852
      options vested or expected to vest in future periods at December 31, 2006 is
      4.5
      years with a weighted average exercise price of $1.85.





A
      summary
      of the status of the Company’s nonvested employee stock options as of December
      31, 2006 is presented below:





**Shares**
            
            **Weighted
                average grant-date fair value**Nonvested
                at June 30, 2006
            
            
            497,900
            
            $
            2.21Granted
            
            
            127,000
            
            $
            1.74Vested
            
            
            (86,900
            )
            $
            1.89Forfeited
            
            
            (12,500
            )
            $
            2.62Nonvested
                at December 31, 2006
            
            
            525,500
            
            $
            2.14





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 whose efforts and judgment
      are
      important to the Company’s success by encouraging 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. Further, in accordance with the
      Directors Plan, additional options may be granted to non-employee directors
      from
      time to time. Options to purchase 298,650 shares of common stock are outstanding
      at December 31, 2006 under the Directors Plan and 51,350 shares of stock are
      available to be granted in the future. The weighted average grant date
      fair-value of director options granted during the six months ended December
      31,
      2006 was $1.56.





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 as of December 31, 2006 are vested. The weighted average
      remaining contractual life for 298,650 outstanding and vested director stock
      options is 6.1 years with a weighted average exercise price of $1.75.





10
 
  **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**   Information
          concerning the Director stock option plan for the three months ending December
          31, 2006 is summarized as follows:





**Shares**
            
            **Weighted
                average exercise price**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                June 30, 2006
            
            
            289,950
            
            $
            1.75Granted
            
            
            8,700
            
            $
            1.78Exercised
            
            
            --
            
            $
            --Terminated
            
            
            --
            
            $
            --Outstanding
                December 31, 2006
            
            
            298,650
            
            $
            1.75
            
            $
            9,869Exercisable
                December 31, 2006
            
            
            298,650
            
            $
            1.75
            
            $
            9,869





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      SFAS 123R, “Share-Based Payment,” a revision of SFAS 123. In March 2005,
      the SEC issued Staff Bulletin No. 107 (SAB 107) regarding its
      interpretation of SFAS 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 SFAS 123R on July 1, 2005 using the
      modified prospective method in which compensation cost is recognized beginning
      with the effective date (a) based on the requirements of SFAS 123R for all
      share-based payments granted after July 1, 2005 and (b) based on the
      requirements of SFAS 123R for all awards granted to employees prior to July
      1,
      2005 that remain unvested on July 1, 2005. The amortization of stock
      compensation expense for the three months and six months ended December 31,
      2006
      and 2005 was $124,000 and $151,000 and $102,000 and $194,000, respectively,
      and
      is included in selling, general and administrative expenses in the Company’s
      Condensed Consolidated Statement of Operations. As a result of adopting SFAS
      123R, there was a reduction of net income for the three months and six months
      ended December 31, 2006 and 2005 of $124,000 and $151,000 and $102,000 and
      $194,000, respectively, and a reduction in basic and diluted income per share
      of
      $0.01 for the three months ended December 31, 2006 and 2005 and $0.01 and $0.02
      for the six months ended December 31, 2006 and 2005 respectively.





The
      fair
      value of each option award is estimated on the date of grant using the
      Black-Scholes valuation model that uses 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 exercise
      and employee termination within the valuation model. The expected term of
      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 U.S. Treasury bonds. As of December 31, 2006
      there was $835,000 of total unrecognized compensation cost related to non-vested
      share-based compensation arrangements. The total unrecognized compensation
      cost
      will be expensed over the weighted average of 1.5 years. The fair value of
      the
      stock options is expensed on a uniform straight-line basis over the vesting
      period.





**Six
                Months Ended December 31, 2006,****2006**
            
            **2005**Assumptions:Risk
                free interest rate
            
            
            4.67
            %
            
            5.68
            %Dividend
                yield
            
            
            -0-
            
            
            -0-Expected
                volatility
            
            
            106
            %
            
            110
            %Expected
                life
            
            
            8.0
            
            
            8.8Forfeiture
                rate
            
            
            17.25
            
            
            14.63





11
 
  **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**(12)**
            **LONG-TERM
                DEBT**





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





**December
                31, 2006**
            
            **June
                30, 2006**September
                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, and thereafter semi-annually
                on
                February 28 and August 31; and a 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
            
            $
            3,000January
                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, and thereafter semi-annually on July
                24 and
                January 24; and a balloon payment of $2,440,000 due at maturity on
                January
                24, 2010; effective interest rate of 18.4% includes cost of warrants
                and
                other debt issue costs
            
            
            6,100
            
            
            6,100August
                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, and thereafter semi-annually
                on
                February 28 and August 28; and a balloon payment of $2,770,000
                due at maturity on August 28, 2008; effective interest rate of 18.4%
                includes cost of warrants and other debt issue costs
            
            
            5,088
            
            
            5,540Various
                capital leases; interest rates range from 5.27% to 15.24%; monthly
                principal and interest payments; leases expire February 2007 to March
                2008
            
            
            59
            
            
            148Unamortized
                debt discount, net of amortization
            
            
            (1,358
            )
            
            (1,652
            )Less:
                current portion
            
            
            (3,204
            )
            
            (2,118
            )Long-term
                debt, net
            
            $
            9,685
            
            $
            11,018





***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, 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, 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 to interest expense over the five-year life of the Notes.





12




**NOTES
        TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


***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 (the “Conversion Warrants”),
      exercisable for 90 days to certain note holders by which those note holders
      could exchange all or a portion of their promissory notes for the purchase
      of
      shares of the Company’s common stock at an exercise price of $2.54 per share.
      The note holders have the option to exercise the Conversion Warrants in
      consideration for the retirement of up to $2.6 million 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 25,787 warrants valued at $65,500. The
      issuance of the warrants created a modification to the notes by adding a
      conversion feature that did not previously exist under the original notes which
      substantially changed the instrument to have a non-cash conversion feature
      that
      was not in the original note, which substantially changed the debtor’s cash flow
      requirement. As a result of this modification, the effective interest rate
      of
      the January 2005 Notes and the August 2003 Notes changed from 19.7% and 23.6%,
      respectively, to 18.4%. The warrants were issued at the closing market price
      and
      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. At December 31, 2006, the warrants
      were
      not exercised. In addition, the Company recorded a mark-to-market adjustment
      related to the 2.5% penalty that reduced the June 30, 2006, $65,500 liability
      to
      approximately $27,100. The Company recorded a mark-to-market adjustment of
      $38,400. The closing price of the common stock at December 31, 2006 was $1.40
      per share. The Company trades on the NASDAQ under the stock ticker symbol
“FUEL.”





By
      previous amendments between the Company and the note holders, the exercise
      period of the Conversion Warrants had been extended to February 14, 2007. On
      February 14, 2007, the Company agreed to further extend the exercise period
      for
      the Conversion Warrants to March 31, 2007, and to lower the exercise price
      of
      the warrants to $1.52 per share, the market price on the date of the amendment,
      in exchange for a deferral of $200,200 of the Company’s next scheduled principal
      payment on the August 2003 Notes to August 28, 2007, at which point the Company
      will be required to pay the scheduled principal payment as well as the suspended
      portion of the principal payment.





***Other***




Unamortized
      debt discounts of $1.4 million at December 31, 2006 and $1.7 million at June
      30,
      2006 were recorded in connection with the August 2003 Notes, January 2005 Notes
      and September 2005 Notes and are being amortized as non-cash 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 $14.2 million and
      $14.6
      million of the notes at December 31, 2006 and June 30, 2006, 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 2005 Notes 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 the
      applicable financial covenant required by the loan and security
      agreement.





**(13)**
            **SHAREHOLDERS’
                EQUITY**





For
      the
      six-month period ended December 31, 2006 shareholder’s equity decreased by $2.2
      million due to: (1) $151,000 in stock compensation expense; (2) $31,000 from
      the
      exercise of common stock warrants; and (3) $2.4 million in net loss for the
      period. The following reflects the change in shareholders equity for six-month
      period ended December 31, 2006 (in thousands):


13


**NOTES
      TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




**Common**
              **Stock**
            
            **Additional**
              **Paid-in
                Capital**
            
            **Accumulated**
              **Deficit**
            
            **Total**
              **Shareholders’**
              **Equity**June
                30, 2006
            
            $
            105
            
            $
            19,890
            
            $
            (14,455
            )
            $
            5,540Exercise
                of common stock warrants
            
            
            —
            
            
            31
            
            
            —
            
            
            31Amortization
                of stock compensation expense
            
            
            —
            
            
            151
            
            
            —
            
            
            151Net
                loss
            
            
            —
            
            
            —
            
            
            (2,357
            )
            
            (2,357
            )December
                31, 2006
            
            $
            105
            
            $
            20,072
            
            $
            (16,812
            )
            $
            3,365





**(14)**
            **SHANK
                SERVICES AND H & W ACQUISITIONS**





**Shank
      Services Acquisition and Related Financing**




In
      its
      February 2005 acquisition of Shank Services, the Company 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. The Company did not assume any material Shank Services’
liabilities or debt.





The
      purchase price of this acquisition was $6.4 million, including acquisition
      costs
      of $639,000, of which the Company paid $5.8 million in cash.





In
      January 2005, in anticipation of the February closing of the Shank Services
      acquisition, the Company completed a $6.1 million private placement to fund
      the
      acquisition, to develop its operations and for other general corporate purposes.





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





In
      its
      October 2005 purchase of all the common stock of H &
      W, the Company acquired H & W’s Houston-based business of marketing
      and distributing branded and non-branded lubricants, fuels and other petroleum
      products in Texas. H & W acquired the operating assets and limited inventory
      of Houston-based Harkrider
      Distributing Company, Incorporated (“Harkrider”) immediately prior to the
      purchase by the Company including 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, Baton Rouge,
      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, primarily
      servicing 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 distributes solvents and specialty
      petroleum products to dry cleaners and industrial customers 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.




The
      H
& W purchase price was approximately $5.9 million, including the payments
      due upon collection of certain receivables totaling $2.0 million and was paid
      with a combination of cash, the assumption of specified liabilities and the
      issuance of two year 10% promissory notes totaling $2.5 million. The promissory
      notes are subject to an earn out provision based on the performance of H & W
      and Harkrider.




14
 
  **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


The
      following unaudited pro forma consolidated statement of operations has been
      prepared as if the acquisition of H & W occurred at July 1, 2005 (in
      thousands, expect per share data).




**Six
                Months**
              **Ended**
              **December
                31, 2005**Total
                revenues
            
            $
            126,080Total
                cost of sales and service
            
            
            117,734Gross
                profit
            
            
            8,346Net
                loss
            
            $
            (1,552
            )Basic
                and diluted net loss per share
            
            $
            (0.15
            )





**(15)**
            **IDENTIFIABLE
                INTANGIBLE ASSETS AND
                GOODWILL**





The
      following table summarizes the Company’s identifiable intangible assets and
      goodwill balances as of December 31, 2006 and June 30, 2006 (in
      thousands):





**December
                31, 2006**
            
            **June
                30, 2006****Gross**
              **Carrying**
              **Amount**
            
            **Accumulated
                Amortization**
            
            **Net**
              **Carrying**
              **Amount**
            
            **Gross**
              **Carrying**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
              **Carrying**
              **Amount**Amortized
                intangible assets:Customer
                relationships
            
            $
            1,768
            
            $
            268
            
            $
            1,500
            
            $
            1,768
            
            $
            121
            
            $
            1,647Favorable
                leases
            
            
            196
            
            
            34
            
            
            162
            
            
            196
            
            
            29
            
            
            167Trademarks
            
            
            687
            
            
            51
            
            
            636
            
            
            687
            
            
            34
            
            
            653Supplier
                contracts
            
            
            801
            
            
            139
            
            
            662
            
            
            801
            
            
            120
            
            
            681Total
            
            $
            3,452
            
            $
            492
            
            $
            2,960
            
            $
            3,452
            
            $
            304
            
            $
            3,148Goodwill
            
            
            
            
            
            
            
            $
            228
            
            
            
            
            
            
            
            $
            228





**(16)**
            **LEGAL
                PROCEEDINGS**





As
      previously reported, on October 10, 2006, the Company commenced a civil action
      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”), alleging that Kramer, FAS and KPS (collectively, the “Defendants”)
      induced the Company to engage FAS to provide services with respect to (a) the
      implementation of certain Information Technology (“IT”) functions;(b) the
      modernization and expansion of the Company’s accounting and business technology
      capabilities, and (c) compliance with public company accounting requirements
      and
      the Sarbanes-Oxley Act (the “IT Projects”) by making numerous misrepresentations
      concerning the experience, capabilities and background of FAS and FAS’
personnel. FAS subsequently filed a countersuit in the same court seeking
      payment of additional fees allegedly due from the Company which is being jointly
      administered by the court with the Company’s action. On January 25, 2007, the
      Company filed an amended complaint in its lawsuit by which Alex Zaldivar, the
      managing director and a principal of FAS, was added as an additional Defendant.
      In the amended complaint, the Company also made new claims for accounting
      malpractice, negligent training and supervision, and breach of fiduciary duty
      against the Defendants.





**(17)**
            **SUBSEQUENT
                EVENTS**




***Private
      Placement of Common Stock***





On
      February 15, 2007, the Company completed and funded a $3.3 million private
      placement offering of unregistered shares of common stock and common stock
      purchase warrants to a group of qualified institutional buyers and accredited
      investors. The offering price of $7.725 per Unit, comprised of five shares
      of
      common stock and one warrant per Unit, was based upon the market price of the
      common stock on February 14, 2007. The offering warrants were priced at $0.125
      per warrant, or $.025 per each share of common stock issued. The exercise price
      of the offering warrants is $1.90 per share, a 25% premium over the $1.52 market
      price. The offering warrants will terminate on the earlier of the fourth
      anniversary of the offering closing date or the week after the common stock
      trades at 200% of the exercise price for twenty consecutive days. The offering
      warrants have customary anti-dilution and underlying stock registration rights.
      The placement agent also purchased additional warrants to purchase 130,955
      shares of common stock.





15
 
  **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


The
      net
      proceeds of the offering were approximately $3.0 million, after payment of
      a
      $196,431 fee (6%) to the placement agent and related expense reimbursements,
      legal fees, blue sky fees and other costs of $75,000. The net proceeds will
      be
      used for repayment of $932,500 of principal on the Company’s August 2003 Notes
      on February 28, 2007, accrued interest on those notes and for working capital.





The
      private placement will result in an increase in shareholders’ equity of
      approximately $3.0 million and, following the principal repayment on the August
      2003 Notes on February 28, 2007, a reduction in long-term debt of $932,500,
      both of which will be reflected the Company’s financial statements for the
      quarter ending March 31, 2007.





***Amendments
      to Line of Credit Payable***





By
      an
      amendment dated February 15, 2007 to the Company’s credit facility, the
      Company’s primary lender approved the Company’s reincorporation in Delaware and
      name change to SMF Energy Corporation.




By
      a
      separate amendment to the Company’s credit facility with its primary lender on
      February 15, 2007, the Company and its primary lender agreed to extend the
      renewal date of the credit facility until June 30, 2008; lowered the monthly
      average excess availability requirement on the credit facility to an average
      of
      $1.5 million from February until June of 2007, when it will increase to $2.5
      million; and established the minimum excess availability requirement at
      $750,000 from February 15, 2007 to July 15, 2007, when it will
      increase to $2 million.





16




**ITEM
              1A.**
            **RISK
                FACTORS**




As
      discussed in the Risk Factors reported in our Form 10-K for the year ended
      June
      30, 2006, our losses in the first two quarters of fiscal 2007 and the scheduled
      principal payments due during the next twelve months on our secured debt
      financings, if not deferred, converted to equity or retired, have increased
      our
      need for additional capital. The February 2007 private placement of shares
      of
      common stock and warrants will help to alleviate that need although we may
      require additional capital in the future. We believe that we will be able to
      obtain additional capital if needed but there can be no assurance that we will
      do so or that such capital can be obtained on acceptable terms.





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




**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. The following important
      factors, in addition to the risk factors listed in
      Item
      1A of our Form 10-K for the year ended June 30, 2006, 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 line of credit;
                the $5.1 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




17


·
            our
                ability to retire or convert debt to
                equity




·
            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




·
            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




·
            our
                continuing ability to make acquisitions and diversify, including
                the
                availability of sufficient capital to finance 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




**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 December 31, 2006, we were conducting operations
      in
      Alabama, California, Florida, Georgia, Louisiana, Mississippi, North Carolina,
      South Carolina, Tennessee and Texas.




In
      February 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.




In
      October 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 and Baton Rouge markets in
      Louisiana.




18





We
      provide 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, 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 our customers for services on a per gallon basis at 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 our fiscal years ended June 30, 2006 and 2005, market prices
      for fuel reached unprecedented high levels. By comparison, fuel prices decreased
      moderately during the six-month period ended December 31, 2006.





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, however, 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 reliably 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 pricing for
      commercial mobile fueling, bulk fueling and fuel management services, as well
      as
      lubricants and chemicals will continue to increase despite price cutting by
      competitors attempting to offer similar services and gain market share. We
      intend to continue our efforts to retain existing customers and develop new
      business relationships by demonstrating that the quality of services we provide
      will result in net cost savings when compared to other refueling
      alternatives.





We
      believe that continuing opportunities exist to expand the services we provide,
      including commercial mobile and bulk fueling; integrated out-sourced fuel
      management; 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
      as well as customer retention, pricing, billing and specialized fuel utilization
      reporting. This growth is dependent upon a number of business and economic
      factors, including the success of our acquisition and diversification program
      and effectively integrating those acquisitions into our existing operations;
      the
      effectiveness of our sales and marketing programs and other business strategies;
      consistent and acceptable margin business in new and existing markets; retention
      of qualified personnel to provide the level of service required by customers;
      generation of increasing cash flow from operating activities; sufficient capital
      to meet our financing requirements; and favorable economic conditions in the
      transportation or petroleum industries, some of which factors are beyond our
      control.





Our
      long-term debt obligations require $3.2 million of principal payments and
      related interest payments of $1.3 million during the twelve-month period ending
      December 31, 2007. These payments must be funded by cash flow from operations,
      additional equity capital, refinancing currently outstanding promissory notes
      or
      a combination of these funding sources. In February 2007, we completed a $3.3
      million private placement of equity which will be used, in part, to satisfy
      these payment obligations. The interest expense associated with this debt has
      negatively impacted our net losses, materially reduced our shareholders’ equity
      and adversely affected the trading value of our common stock. We have made
      significantly reducing debt service costs a top priority objective of our senior
      management.




19




Selected
      Comparative Financial Information for the Quarters Ended December 31, September
      30, and


June
      30,
      2006 and December 31, 2005





***(All
        amounts in thousands of dollars, except share and volume
        data)***
 ***Three-Month
        Periods Ended***
 ***(unaudited)***




**Three-Month
                Periods Ended**
            
            **Increase
                (decrease)****December**
            
            **September**
            
            **June****12/31/2006**
            
            **12/31/2005(1)**
            
            **9/30/2006**
            
            **6/30/2006**
            
            **$**
            
            **%**
            
            **$**
            
            **%**
            
            **$**
            
            **%**Total
                revenues
            
            
            55,162
            
            
            66,751
            
            
            65,965
            
            
            70,558
            
            
            (11,589
            )
            
            (17
            )%
            
            (10,803
            )
            
            (16
            )%
            
            (15,396
            )
            
            (22
            )%Gross
                profit
            
            
            3,100
            
            
            3,829
            
            
            4,122
            
            
            2,509
            
            
            (729
            )
            
            (19
            )%
            
            (1,022
            )
            
            (25
            )%
            
            591
            
            
            24
            %Sales
                and general administrative expenses
            
            
            4,149
            
            
            3,007
            
            
            3,650
            
            
            4,152
            
            
            1,142
            
            
            38
            %
            
            499
            
            
            14
            %
            
            (3
            )
            
            0
            %Operating
                income (loss)
            
            
            (1,049
            )
            
            822
            
            
            472
            
            
            (1,643
            )
            
            (1,871
            )
            
            (228
            )%
            
            (1,521
            )
            
            (322
            )%
            
            594
            
            
            36
            %Interest
                expense
            
            
            (835
            )
            
            (964
            )
            
            (949
            )
            
            (1,481
            )
            
            129
            
            
            13
            %
            
            114
            
            
            12
            %
            
            646
            
            
            44
            %Interest
                and other income
            
            
            (11
            )
            
            --
            
            
            15
            
            
            (11
            )
            
            (11
            )
            
            (100
            )%
            
            (26
            )
            
            (173
            )%
            
            --
            
            
            0
            %Net
                income (loss)
            
            
            (1,895
            )
            
            (142
            )
            
            (462
            )
            
            (3,135
            )
            
            (1,753
            )
            
            (1,235
            )%
            
            (1,433
            )
            
            (310
            )%
            
            1,240
            
            
            40
            %EBITDA
                (2) (5)
            
            
            (258
            )
            
            1,455
            
            
            1,168
            
            
            (771
            )
            
            (1,713
            )
            
            (118
            )%
            
            (1,426
            )
            
            (122
            )%
            
            513
            
            
            67
            %Basic
                and diluted net loss per share
            
            
            (0.18
            )
            
            (0.01
            )
            
            (0.04
            )
            
            (0.30
            )Basic
                and diluted weightedaverage
                shares outstanding
            
            
            10,523
            
            
            9,776
            
            
            10,496
            
            
            10,350Depreciation
                and amortization (3)
            
            
            678
            
            
            531
            
            
            654
            
            
            652
            
            
            147
            
            
            28
            %
            
            24
            
            
            4
            %
            
            26
            
            
            4
            %Gallons
                sold (in thousands)
            
            
            21,385
            
            
            25,249
            
            
            23,429
            
            
            24,591
            
            
            (3,864
            )
            
            (15
            )%
            
            (2,044
            )
            
            (9
            )%
            
            (3,206
            )
            
            (13
            )%Net
                margin
            
            
            3,549
            
            
            4,226
            
            
            4,553
            
            
            3,050
            
            
            (677
            )
            
            (16
            )%
            
            (1,004
            )
            
            (22
            )%
            
            499
            
            
            16
            %Net
                margin per gallon (in cents) (4)
            
            
            16.60
            
            
            16.70
            
            
            19.40
            
            
            12.40
            
            
            (0.10
            )
            
            (1
            )%
            
            (2.8
            )
            
            (15
            )%
            
            4.2
            
            
            34
            %





***(All
      amounts in thousands of dollars, except share and volume
      data)***


***Six-Month
      Periods Ended December 31,***




**Six-Month
                Periods Ended (1)**
            
            **Increase
                (decrease)****2006**
            
            **2005
                (1)**
            
            **$**
            
            **%**Total
                revenues
            
            
            121,128
            
            
            119,547
            
            
            1,581
            
            
            1
            %Gross
                profit
            
            
            7,221
            
            
            7,642
            
            
            (421
            )
            
            (6)
            %Selling,
                general and administrative expenses
            
            
            7,799
            
            
            5,541
            
            
            2,258
            
            
            41
            %Operating
                income (loss)
            
            
            (578
            )
            
            2,101
            
            
            (2,679
            )
            
            (128
            )%


Interest
                expense, net
            
            
            (1,785
            )
            
            (1,639
            )
            
            (146
            )
            
            (9
            )%Other
                income
            
            
            6
            
            
            11
            
            
            (5
            )
            
            (45
            )%Net
                income (loss)
            
            
            (2,357
            )
            
            473
            
            
            (2,830
            )
            
            (598
            )%EBITDA
                (2) (5)
            
            
            911
            
            
            3,240
            
            
            (2,329
            )
            
            (72
            )%Basic
                net income (loss) per share
            
            
            (0.22
            )
            
            0.05Diluted
                net income (loss) per share
            
            
            (0.22
            )
            
            0.05Basic
                weighted average shares outstanding
            
            
            10,509
            
            
            9,558Diluted
                weighted average shares outstanding
            
            
            10,509
            
            
            10,453Depreciation
                and amortization (3)
            
            
            1,333
            
            
            934
            
            
            399
            
            
            43
            %Gallons
                sold (in thousands)
            
            
            44,814
            
            
            46,068
            
            
            (1,254
            )
            
            (3
            )%Net
                margin
            
            
            8,102
            
            
            8,377
            
            
            (275
            )
            
            (3
            )%Net
                margin per gallon (in cents) (4)
            
            
            18.00
            
            
            18.20
            
            
            (0.20
            )
            
            (1
            )%







1 Reflects
      the Company’s September 1, 2005 issuance of $3,000,000 in Five Year 10% Senior
      Subordinated Notes (the “September 2005 Notes”)
      and 360,000 four year stock purchase warrants at $2.28 per share and reflects
      the October 2005 acquisition of H & W, certain
      assets of which secure the payment of the September 2005 Notes.


2 Earnings
      before interest, taxes, depreciation and amortization and amortization of stock
      compensation expense


3 Depreciation and amortization included in cost of sales was $449,000 and
      $880,000 for the three and six months ended December 31, 2006
      and
      $397,000 and $735,000 for the three and six months ended December 31, 2005


4 Net
      margin per gallon equals gross profit plus cost of sales depreciation and
      amortization divided by number of gallons sold


5 See
      Non-GAAP measure EBITDA Reconciliation:





20


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


**(*****All
      amounts in thousands of dollars)***


Three-Month
      and Six-Month Periods Ended


(unaudited)





**Three-Month
                Periods Ended**
            
            **Increase
                (decrease)**
            
            **Increase
                (decrease)**
            
            **Increase**
              **(decrease)****December**
            
            **September**
            
            **June****12/31/2006**
            
            **12/31/2005**
            
            **9/30/2006**
            
            **6/30/2006**
            
            **$**
            
            **%**
            
            **$**
            
            **%**
            
            **$**
            
            **%**Net
                loss
            
            $
            (1,895
            )
            $
            (142
            )
            $
            (462
            )
            $
            (3,135
            )
            
            (1,753
            )
            
            (1,235)
            %
            
            (1,433
            )
            
            (310
            )%
            
            1,240
            
            
            40
            %Add
                back:Interest
                net
            
            
            835
            
            
            964
            
            
            949
            
            
            1,481
            
            
            (129
            )
            
            (13
            )%
            
            (114
            )
            
            (12
            )%
            
            (646
            )
            
            (44
            )%Depreciation
                and amortization:*Cost
                of sales*
            
            
            449
            
            
            397
            
            
            431
            
            
            540
            
            
            52
            
            
            13
            %
            
            18
            
            
            4
            %
            
            (91
            )
            
            (17
            )%*Sales,
                general and*
              *administrative*
            
            
            229
            
            
            134
            
            
            223
            
            
            112
            
            
            95
            
            
            71
            %
            
            6
            
            
            3
            %
            
            117
            
            
            104
            %Amortization
                of stock
              compensation
                expense
            
            
            124
            
            
            102
            
            
            27
            
            
            231
            
            
            22
            
            
            22
            %
            
            97
            
            
            359
            %
            
            (107
            )
            
            (46
            )%EBITDA
            
            $
            (258
            )
            $
            1,455
            
            $
            1,168
            
            $
            (771
            )
            
            (1,713
            )
            
            (118
            )%
            
            (1,426
            )
            
            (122
            )%
            
            513
            
            
            67
            %




**Six-Month
                Periods Ended**
            
            **Increase
                (decrease)****12/31/2006**
            
            **12/31/2005**
            
            **$**
            
            **%**Net
                loss
            
            $
            (2,357
            )
            $
            473
            
            
            (2,830
            )
            
            (598
            )%Add
                back:Interest,
                net
            
            
            1,785
            
            
            1,639
            
            
            146
            
            
            9
            %Depreciation
                and amortization:


*Cost
                of sales*
            
            
            880
            
            
            735
            
            
            145
            
            
            20
            %*Sales,
                general and administrative*
            
            
            452
            
            
            199
            
            
            253
            
            
            127
            %Amortization
                of stock compensation expense
            
            
            151
            
            
            194
            
            
            (43
            )
            
            (22
            )%EBITDA
            
            $
            911
            
            $
            3,240
            
            
            (2,329
            )
            
            (72
            )%





In
      the
      quarter ended December 31, 2006, revenues, gross profit, operating income and
      EBITDA decreased and net loss increased over the same period in the prior year
      by $11.6 million, $729,000, $1.9 million, $1.7 million and $1.8 million,
      respectively. These changes primarily related to a 15% decrease in gallons
      sold
      as discussed below. Selling, general and administrative expenses increased
      $1,142,000 due to a $661,000 increase in corporate infrastructure costs related
      to the development and implementation of a new fully integrated accounting,
      operations, internal control and management information system to support the
      Company’s diversification and acquisition strategy; increased public company
      reporting and compliance expenses, including legal and auditing fees of
      $264,000; a $22,000 increase in stock compensation expense; an increase in
      credit card fees of $65,000 and an increase in the provision for doubtful
      accounts of $187,000. These increases were offset by various other reductions
      that were not material when analyzed separately. The decrease in EBITDA was
      primarily due to the overall increase in net loss reduced by increases in
      depreciation and amortization, stock compensation expense and a decrease in
      interest expense.





Gross
      profit decreased $729,000, or 19%, in the current year quarter compared to
      the
      prior year quarter. This decrease was primarily due to the impact of the
      reduction in the higher gross profit attributable to emergency response services
      in the current year quarter as compared to those services provided in the prior
      year quarter in connection with Hurricanes Katrina, Rita and Wilma. While
      overall gross profit decreased, the gross profit attributable to all other
      diversified products and services exceeded the prior year quarter. Further,
      the
      net margin per gallon for the current and prior quarters of 16.6 cents and
      16.7
      cents, respectively, which includes emergency response services in the prior
      year quarter, demonstrates the emphasis we place on developing net new business
      with a higher overall net margin per gallon contribution. There can be no
      assurance that the gross profit and net margin trends will continue in the
      future or that they will not decrease as a result of increased competition,
      customer resistance to higher prices for our services and/or reduction in
      emergency response services.





Our
      commercial mobile and bulk fueling services business continues to be largely
      dependent on the number of gallons of fuel sold and the net margin per gallon
      achieved. The 3.9 million gallon reduction in the current quarter compared
      to
      the prior year quarter was primarily due to the termination of operations in
      our
      Baltimore location in March 2006, and in August 2006 we curtailed a portion
      of
      the low margin transport services business in our Mid-Continent division. In
      addition, we experienced a decrease in emergency response services volume in
      the
      current year quarter due to improved weather conditions compared to the severe
      2005 hurricane season.




21


For
      the
      quarter ended December 31, 2006, net margin per gallon was 16.6 cents per gallon
      compared to 16.7 cents per gallon for the prior year quarter. The slight
      decrease was the result of both lower fuel prices and the reduction in emergency
      response services. The current quarter net margin was 16.6 cents per gallon
      compared to 19.4 cents per gallon in our first quarter ending September 30,
      2006. This 2.8 cent per gallon decrease was the result of higher net margin
      new
      business in the first quarter as well as higher net margin emergency response
      preparation services in anticipation of Hurricane Ernesto. There can be no
      assurance that the higher net margins will continue in the future or that net
      margins will not decrease further as the result of increased competition or
      customer resistance to higher prices for our services and/or reduction in
      emergency response services **.**





Earnings
      before interest, taxes, depreciation and amortization, including amortization
      of
      stock compensation expense, “EBITDA”, a non-GAAP measure, decreased by $1.7
      million to a negative $258,000 for the current quarter compared to the prior
      year quarter. This decrease resulted related primarily from the decrease in
      gallons sold and the related effect on gross profit. EBITDA is determined before
      providing for debt service payments, depreciation and amortization, and capital
      expenditures, and is a key indicator used by 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 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.





**Our
      Acquisition and Diversification Strategy**




We
      intend
      to continue to acquire companies, assets or business operations that 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
      us
      with valuable market share, volumes and margins. Such acquisitions can enhance
      operational and administrative efficiencies, by economies of scale and
      otherwise, that in turn have a material positive impact on our cash flow and
      earnings. Our strategic plan is to identify and carefully evaluate suitable
      targets and negotiate acquisitions at fair prices and on reasonable and
      competitive 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 will be to achieve
      timely and cost-effective integration of 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 by providing a value-added
      service initiative to what is generally perceived as a commodity business.





The
      implementation of our new corporate infrastructure capability, particularly
      the
      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 us; more efficiently and effectively 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 valuable operating information
      to customers’ management on a virtual real time basis which we believe will
      further distinguish the level of our services from competitors.





The
      sales, general and administrative expenses included in the net loss for the
      current quarter and six-month period reflect our continued commitment to build
      an improved corporate infrastructure with the capability to support our current
      operations as well as to facilitate our future growth from acquisitions and
      diversification. These infrastructure expenses are treated as period costs,
      even
      though we also continue to bear substantially all of the expenses historically
      associated with our acquisitions and other operations. While it is costly to
      bear both the historical expenses 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 the historical
      expenses in the future, both for acquired companies and our existing operations.
      We accelerated these expenditures in the last two quarters of our 2006 fiscal
      year and the first two quarters of the current year, including strengthening
      our
      mid-management team; adding accounting, information technology and other support
      personnel; relocating our Fort Lauderdale corporate office to a larger, better
      equipped facility; integrating and consolidating Shank Services’ and H & W’s
      operations into a new Mid-Continent unit in Houston; and incurring other
      integration costs related to those acquisitions.





22


We
      expect
      that implementation of our ERP operating and accounting systems, replacing
      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 implementation of the ERP system
      did,
      however, experience a series of delays during the last two quarters of our
      fiscal year 2006 and the first quarter of the current year and in August 2006
      we
      terminated the vendor implementing the ERP system and engaged a new vendor.
      The
      new vendor reviewed the status of the project; identified the outstanding tasks
      and costs; and is completing the implementation process. We expect the system
      to
      be fully operational by the end of the third quarter of fiscal 2007.





When
      the
      corporate infrastructure project is fully completed and operational, we expect
      to realize enhanced profitability from resulting economies of scale; elimination
      of duplicate operating and administrative costs, together with an overall
      reduction in these expenses; increased operational efficiencies; and improved
      management of our present commercial and bulk fueling operations and those
      of
      acquired companies.





Since
      the
      acquisition of Shank Services and H & W, the delays in implementing our ERP
      system have slowed the pace of our acquisitions. We expect that, with the
      completion of the implementation of the ERP system, we will be in a position
      to
      make future acquisitions consistent with our long term strategy. We continue
      to
      evaluate prospective acquisitions but have not currently entered into any
      agreements or made any informal commitments to proceed with an
      acquisition.





As
      we
      continue to execute our acquisition and diversification strategy and emphasize
      our ability to serve more lubricants customers, we believe we will gain market
      share and recognition as the lubricants supplier of choice based on service
      dependability, technical knowledge and price acceptability.





**Our
      Marketing and Customers**




We
      market
      our commercial mobile and bulk fueling services and 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 provide the geographic market density that 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.




Our
      marketing efforts are focused 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.




We
      distribute diesel, gasoline, alternative fuels, lubricants, chemicals and other
      related products and services to approximately 4,000 customers. Although we
      have
      formal, length of service written contracts with certain larger customers,
      these
      types of agreements are not customary in our 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. We 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.





23


**Capital
      Resources and Liquidity**





At
      December 31, 2006 and June 30, 2006, we had a total of cash and cash
      availability on our line of credit of $4.2 million and $8.3 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. We endeavor to manage our cash and
      cash equivalents in a manner that minimizes interest expense under the line
      of
      credit. As of February 15, 2007, our cash and cash availability was $7.1
      million, including the net proceeds from its $3.3 million private
      placement.





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 of $300,000 commencing
      on
      August 31, 2007 and a 40% balloon payment on August 31, 2010. The payment of
      $300,000 due August 21, 2007 is included in the current portion of long-term
      debt included in our December 31, 2006 condensed consolidated balance sheet.
      In
      connection with this 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. At December
      31,
      2006, none of these warrants had been exercised.





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 first principal payment of $610,000 is due
      in
      January 2007 and the second principal payment of $610,000 is due in July 2007.
      Both of these principal payments are reflected in the current portion of
      long-term debt on our December 31, 2006 condensed 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. At December 31, 2006, the
      outstanding balance of these notes was $5.1 million, and 140,000 of these
      warrants had not been exercised.




While
      the
      September 2005, January 2005 and August 2003 financings initially strengthened
      our financial position, enabling us to achieve a stronger balance sheet, we
      have
      not yet retired or converted to equity the debt generated by those financings
      and, as a result, the interest associated with those financings has continued
      to
      contribute to our net losses and erode our shareholders’ equity. We believe that
      the growth achieved by the financings and related acquisitions enhanced our
      business credibility with present and prospective customers, fuel suppliers,
      trade creditors, other lenders and the investment community. Reducing or
      eliminating the debt service costs of these financings is one of our highest
      priorities. We intend to continue to seek additional equity capital and to
      pursue the conversion to equity or retirement of some or all of this debt in
      order to reduce the recurring interest costs, although a conversion or
      retirement of the debt will result in additional write-offs of the related
      debt
      discount and deferred debt costs.





During
      the quarter ended December 31, 2006, we recorded an increase in shareholders’
equity of $15,000 for the value of the 17,500 warrants exercised in connection
      with a May 2003 private placement. We recorded compensation expense for options
      issued of $124,000 as required by FAS 123R.





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 the 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.





24





During
      the six-month period ended December 31, 2006, our net cash provided by operating
      activities was $14,000, compared to $2,176,000 used in the prior year period,
      representing a positive change of $2,190,000.





This
      positive change between the two periods resulted from an increase in net loss
      of
      $2,830,000 in the current period; reduced by net non-cash depreciation,
      amortization, stock-based compensation and allowance for doubtful accounts
      aggregating $422,000; and reduced by a net decrease in operating assets and
      liabilities of $4,598,000, representing decreases in accounts receivable of
      $7,839,000 and inventories and prepaid expenses of $702,000 offset by a decrease
      in accounts payable and other liabilities of $2,539,000. The lower accounts
      receivable balance at December 31, 2006 was primarily due to the reduction
      in
      gallons sold and lower fuel prices compared to the prior year period and the
      decrease in accounts payable.





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





The
      ongoing expenditures for development of our 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 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
      December 31, 2006, we had a $25 million credit facility with a national
      financial institution, which permits us to borrow up to 85% of the total amount
      of eligible accounts receivable and 65% of eligible inventory. Interest is
      payable monthly (at an annual rate of prime plus .75% or 9.0% at December 31,
      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 December 31, 2006, the maturity date of the line of credit
      is
      September 26, 2007.





As
      of
      December 31, 2006 and June 30, 2006, we had outstanding borrowings of $12.9
      million and $15.6 million, respectively, under our line of credit. Based on
      eligible receivables outstanding at December 31, 2006, we had $3.7 million
      of
      cash availability on the line of credit, and we were in compliance with the
      applicable financial covenant required by the loan and security agreement.
      At
      February 7, 2007, the outstanding balance in the line of credit was $9.9
      million.





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 our base business.
      To accomplish growth via acquisition we would need to raise additional capital
      to execute our business plan and grow organically. 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 another lender at acceptable terms,
      or at all, or raise additional capital to execute our acquisition plan. 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.





25


**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 to fund the acquisition of H &
W, 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, 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 were $20,000 and were included in paid-in
      capital.




***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 (the “Conversion Warrants”),
      exercisable for 90 days to certain note holders by which those note holders
      could exchange all or a portion of their promissory notes for the purchase
      of
      shares of 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 up to $2.6 million 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 25,787 warrants valued at $65,500. The issuance of the
      warrants created a modification to the notes by adding a conversion feature
      that
      did not previously exist under the original notes which substantially changed
      the instrument to have a non-cash conversion feature that was not in the
      original note, which substantially changed the debtor’s cash flow requirement.
      As a result of this modification, the effective interest rate of the January
      2005 Notes and the August 2003 Notes changed from 19.7% and 23.6%, respectively,
      to 18.4%. The warrants were issued at the closing market price and 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. At December 31, 2006, the warrants
      were
      not exercised. In addition, the Company recorded a mark-to-market adjustment
      related to the 2.5% penalty that reduced the June 30, 2006, $65,500 liability
      to
      approximately $27,100. The Company recorded a mark-to-market adjustment of
      $38,400. The closing price of the common stock at December 31, 2006 was $1.40
      per share. The Company trades on the NASDAQ under the stock ticker symbol
“FUEL.”





By
      previous amendments between the Company and the note holders, the exercise
      period of the Conversion Warrants had been extended to February 14, 2007. On
      February 14, 2007, the Company agreed to further extend the exercise period
      for
      the Conversion Warrants to March 31, 2007, and to lower the exercise price
      of
      the warrants to $1.52 per share, the market price on the date of the amendment,
      in exchange for a deferral of $200,200 of the Company’s next scheduled principal
      payment on the August 2003 Notes to August 28, 2007, at which point the Company
      will be required to pay the scheduled principal payment as well as the suspended
      portion of the principal payment.




26


**Results
      of Operations**





The
      following is a summary of selected condensed unaudited consolidated results
      of
      operations for the three-month and six-month periods ending December 31, 2006
      and 2005 (in thousands):


**For
                  the Three-Month Periods Ended December 31**
              
              **For
                  the Six-Month Periods Ended December 31****Increase
                  (decrease)**
              
              
              
              
              
              **Increase
                  (decrease)****2006**
              
              **2005**
              
              **$**
              
              **%**
              
              **2006**
              
              **2005**
              
              **$**
              
              **%**Total
                  revenues
              
              $
              55,162
              
              $
              66,751
              
              $
              (11,589
              )
              
              (17
              )%
              $
              121,128
              
              $
              119,547
              
              $
              1,581
              
              
              1
              %Total
                  cost of sales and services
              
              
              52,062
              
              
              62,922
              
              
              (10,860
              )
              
              (17
              )%
              
              113,907
              
              
              111,905
              
              
              2,002
              
              
              2
              %Gross
                  profit
              
              
              3,100
              
              
              3,829
              
              
              (729
              )
              
              (19
              )%
              
              7,221
              
              
              7,642
              
              
              (421
              )
              
              (6
              )%Sales,
                  general and administrative expenses
              
              
              4,149
              
              
              3,007
              
              
              1,142
              
              
              38
              %
              
              7,799
              
              
              5,541
              
              
              2,258
              
              
              41
              %Interest
                  expense
              
              
              (835
              )
              
              (964
              )
              
              129
              
              
              13
              %
              
              (1,785
              )
              
              (1,639
              )
              
              (146
              )
              
              (9
              )%Interest
                  and other income
              
              
              (11
              )
              
              --
              
              
              (11
              )
              
              (100
              )%
              
              6
              
              
              11
              
              
              (5
              )
              
              (45
              )%Net
                  loss
              
              $
              (1,895
              )
              $
              (142
              )
              $
              (1,753
              )
              
              (1,235
              )%
              $
              (2,357
              )
              $
              473
              
              $
              (2,830
              )
              
              (598
              )%Gallons
                  sold
              
              
              21,385
              
              
              25,249
              
              
              (3,864
              )
              
              (15
              )%
              
              44,814
              
              
              46,068
              
              
              (1,254
              )
              
              (3
              )%Net
                  margin
              
              
              3,549
              
              
              4,226
              
              
              (677
              )
              
              (16
              )%
              
              8,102
              
              
              8,377
              
              
              (275
              )
              
              (3
              )%Net
                  margin per gallon (in cents)
              
              
              16.60
              
              
              16.70
              
              
              (0.10
              )
              
              (1
              )%
              
              18.00
              
              
              18.20
              
              
              (0.20
              )
              
              (1
              )%





**Comparison
      of Three Months Ended December 31, 2006 to December 31,
      2005**




***Revenues***





Revenues
      decreased $11.6 million, or 17%, in the current year quarter compared to the
      prior year quarter primarily due to a 3.9 million gallon decrease in gallons
      sold. The volume reduction caused $8.8 million of the revenue decrease and
      lower
      fuel prices resulted in the balance. In March 2006 we terminated operations
      in
      our Baltimore location and in August 2006 we curtailed a portion of the low
      margin fuel transport services business in our Mid-Continent division due to
      net
      margin contributions below acceptable levels. Both of these events impacted
      the
      current year quarter since the related revenues were included in the prior
      year
      quarter and not in the current year quarter. In addition, we experienced a
      decrease in emergency response services volume and related higher margins in
      the
      current year quarter due to improved weather conditions compared to the severe
      2005 hurricane season. The decrease in fuel prices was directly attributable
      to
      an increase in fuel supplies together with a lower global demand for petroleum
      products.





***Gross
      Profit***





Gross
      profit decreased $729,000, or 19%, in the current year quarter compared to
      the
      prior year quarter. This decrease was primarily due to the impact of the
      reduction in the higher gross profit attributable to emergency response services
      in the current year quarter as compared to those services provided in the prior
      year quarter in connection with Hurricanes Katrina, Rita and Wilma. While
      overall gross profit decreased, the gross profit attributable to all other
      diversified products and services exceeded the prior year quarter. Further,
      the
      net margin per gallon for the current and prior quarters of 16.6 cents and
      16.7
      cents, respectively, which includes emergency response services in the prior
      year quarter, demonstrates the emphasis we place on developing net new business
      with a higher overall net margin per gallon contribution. There can be no
      assurance that the gross profit and net margin trends will continue in the
      future or that they will not decrease as a result of increased competition,
      customer resistance to higher prices for our services and/or reduction in
      emergency response services.





27


***Selling,
      General and Administrative Expenses***




Selling,
      general and administrative expenses increased $1,142,000 or 38%, in the current
      quarter compared to the prior year quarter. This increase is attributable to
      the
      following:




Corporate
                infrastructure, including costs related to the development and
                implementation of a new fully integrated accounting, operations,
                internal
                control and management information system to support the diversification
                and acquisition strategy
            
            $
            661Public
                company compliance expenses, including legal and auditing fees, proxy
                statements and name incorporation changes
            
            
            264Stock
                compensation expense attributable to SFAS 123(R)
            
            
            22Credit
                card fees
            
            
            65Provision
                for doubtful accounts
            
            
            186Other,
                net of reductions
            
            
            (56
            )Total
                increase
            
            $
            1,142





The
      corporate infrastructure 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 considerations, they primarily support our
      long-term objective to enhance shareholder value by investing now to benefit
      future performance. The components of corporate infrastructure 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.




28


***Interest
      Expense***




As
      a
      result of $1.8 million in principal payments on our August 2003 Notes and a
      reduction in the amount of borrowings under our bank line of credit, related
      stated rate interest expense decreased $89,000, or 13%, in the current quarter
      compared to the prior year quarter. The components of interest expense are
      as
      follows (in thousands):





**Three
                Months Ended**
              **December
                31,****2006**
            
            **2005****Stated
                Rate Interest Expense**:Line
                of credit
            
            $
            269
            
            $
            276Long
                term debt
            
            
            319
            
            
            383Other
            
            
            27
            
            
            45**Total
                stated rate interest expense**
            
            
            **615**
            
            
            **704****Non-Cash
                Interest Amortization:**Amortization
                of deferred debt costs
            
            
            76
            
            
            90Amortization
                of debt discount
            
            
            144
            
            
            170**Total
                amortization of interest expense**
            
            
            **220**
            
            
            **260****Total
                interest expense**
            
            $
            835
            
            $
            964





***Income
      Taxes***





We
      recorded no income tax expense for the current year quarter. Our net operating
      loss carry forward at June 30, 2006 was $19 million.




***Net
      Loss***




The
      $1.8
      million increase in net loss for the current year quarter over the prior year
      quarter resulted primarily from the decreased gross profit of $729,000, the
      increase in sales, general and administrative expenses of $1,142,000 offset
      by
      lower interest expense of $129,000.




***EBITDA***




Earnings
      before interest, taxes, depreciation, and amortization (“EBITDA”) decreased by
      $1.7 million to a negative $258,000, or 118%, in the current year
      quarter ****** compared
      to the prior year quarter. This decrease was due to the $1.8 million increase
      in
      net loss increased by the reduction in total interest expense offset by
      increases in depreciation and amortization and amortization of stock
      compensation expense. Components of EBITDA for the quarters ended December
      31,
      2006 ****** and
      2005
      are as follows (in thousands):




**For
                the Three Months Ended****December
                31,****2006**
            
            **2005**Net
                income (loss)
            
            $
            (1,895
            )
            $
            (142
            )Add
                back:Interest
                expense
            
            
            615
            
            
            704Non-cash
                interest expense
            
            
            220
            
            
            260Depreciation
                and amortization expense:Cost
                of sales
            
            
            449
            
            
            397Selling,
                general and administrative
            
            
            229
            
            
            134Amortization
                of stock compensation expense
            
            
            124
            
            
            102EBITDA
            
            $
            (258
            )
            $
            1,455





29


**Comparison
      of Six Months Ended December 31, 2006 to December 31, 2005**




***Revenues***





Revenues
      increased $1.6 million, or 1%, in the current year period compared to the prior
      year period notwithstanding a 1.3 million gallon decrease, or 3%, in gallons
      sold. Total volume variance between the two periods was essentially flat,
      together with lower fuel prices which decrease was offset by the inclusion
      of
      lubricants and chemicals revenue in the first quarter ending September 30,
      2006,
      which was attributable to the acquisition of H & W that was not
      included in the first quarter ending September 30, 2005. In March 2006 we
      terminated operations in our Baltimore location and in August 2006 we curtailed
      a portion of the fuel transport business in our Mid-Continent division due
      to
      net margin contributions below acceptable levels. Both of these events impacted
      the current year period since the related revenues were included in the prior
      year period and not in the current year period. In addition, we experienced
      a
      decrease in emergency response services volume and related higher margins in
      the
      current year period due to improved weather conditions compared to the severe
      2005 hurricane season. A decrease in fuel prices was directly attributable
      to an
      increase in fuel supplies together with a lower global demand for petroleum
      products.





***Gross
      Profit***





Gross
      profit decreased $421,000, or 6%, in the current year period compared to the
      prior year period. This decrease was primarily due to the impact of the
      reduction in the higher gross profit attributable to emergency response services
      in the current year period as compared to those services provided in the prior
      year period in connection with Hurricanes Katrina, Rita and Wilma. While overall
      gross profit decreased, the gross profit attributable to all other diversified
      products and services exceeded the prior year period. Further, the net margin
      per gallon for the current and prior periods of 18.0 cents and 18.2 cents,
      respectively, which includes emergency response services in the prior year
      period, demonstrates the emphasis we place on maintaining a maximum overall
      margin contribution. There can be no assurance that the gross profit and net
      margin trends will continue in the future or that they will not decrease as
      a
      result of increased competition, customer resistance to higher prices for our
      services and/or reduction in emergency response services.





***Selling,
      General and Administrative Expenses***




Selling,
      general and administrative expenses increased $2,258,000 or 41%, in the current
      period compared to the prior year period. This increase is attributable to
      the
      following:




Corporate
                infrastructure, including costs related to the development and
                implementation of a new fully integrated accounting, operations,
                internal
                control and management information system to support the diversification
                and acquisition strategy
            
            $
            1,314Public
                company compliance expenses, including legal and auditing fees, proxy
                statements, and name incorporation changes
            
            
            388Stock
                compensation expense attributable to SFAS 123(R)
            
            
            (43
            )Credit
                card fees
            
            
            121Provision
                for doubtful accounts
            
            
            133Other,
                net of reductions
            
            
            345Total
                increase
            
            $
            2,258





30





The
      corporate infrastructure 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 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.





***Interest
      Expense***




As
      a
      result of the increase in the amount of borrowings under our bank line of
      credit, related stated rate interest expense increased $212,000, or 19%, in
      the
      current period compared to the prior year period. The components of interest
      expense are as follows (in thousands):





**Six
                Months Ended**
              **December
                31,****2006**
            
            **2005****Stated
                Rate Interest Expense**:Line
                of credit
            
            $
            606
            
            $
            344Long
                term debt
            
            
            674
            
            
            728Other
            
            
            55
            
            
            51**Total
                stated rate interest expense**
            
            
            **1,335**
            
            
            **1,123****Non-Cash
                Interest Amortization:**Amortization
                of deferred debt costs
            
            
            156
            
            
            182Amortization
                of debt discount
            
            
            294
            
            
            334**Total
                amortization of interest expense**
            
            
            **450**
            
            
            **516****Total
                interest expense**
            
            $
            1,785
            
            $
            1,639





***Income
      Taxes***





We
      recorded no income tax expense for the six months ended December 31, 2006.
      Our
      net operating loss carry forward at June 30, 2006 was $19 million.




***Net
      Income***




The
      $2.8
      million decrease in net income for the six-month period ended December 31,
      2006
      compared to the six-month period ended December 31, 2005 resulted primarily
      from
      the decrease in gross profit of $421,000, the increase in selling, general
      and
      administrative expenses of $2,258,000 and the increase in interest expense
      of
      $146,000.




***EBITDA***




Earnings
      before interest, taxes, depreciation, and amortization (“EBITDA”) decreased $2.3
      million, or 72%, in the current year period ****** compared
      to the prior year period. This decrease was primarily due to the $2.8 million
      decrease in net income, $146,000 increase in total interest expense, an increase
      in depreciation and amortization of $399,000 and a decrease in amortization
      of
      stock compensation expense of $43,000. Components of EBITDA for the six months
      ended December 31, 2006 and 2005 are as follows (in thousands):





31





**For
                the Six Months Ended****December
                31,****2006**
            
            **2005**Net
                income (loss)
            
            $
            (2,357
            )
            $
            473Add
                back:Interest
                expense
            
            
            1,335
            
            
            1,123Non-cash
                interest expense
            
            
            450
            
            
            516Depreciation
                and amortization expense:Cost
                of sales
            
            
            880
            
            
            735Selling,
                general and administrative
            
            
            452
            
            
            199Amortization
                of stock compensation expense
            
            
            151
            
            
            194EBITDA
            
            $
            911
            
            $
            3,240





***Pro
      forma EBITDA***




The
      following is a reconciliation of pro forma EBITDA, a non-GAAP measure:




**Three
                Months**
            
            **Six
                Months****Increase
                (decrease)**
            
            
            
            
            
            **Increase
                (decrease)****12/31/06**
            
            **9/30/06**
            
            **$**
            
            **%**
            
            **12/31/06**
            
            **6/30/06**
            
            **$**
            
            **%**EBITDA
            
            $
            (258
            )
            $
            1,168
            
            $
            (1,426
            )
            
            (122
            )%
            $
            911
            
            $
            (1,458
            )
            $
            2,369
            
            
            162
            %Add:Corporate
                infrastructure costs
            
            
            661
            
            
            653
            
            
            8
            
            
            1
            %
            
            1,314
            
            
            1,483
            
            
            (169
            )
            
            (11
            )%Non-cash
                provisions fordoubtful
                accounts and other
            
            
            187
            
            
            23
            
            
            164
            
            
            713
            %
            
            210
            
            
            318
            
            
            (108
            )
            
            (34
            )%Non-cash
                provisions forslow
                moving inventory
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            172
            
            
            (172
            )
            
            (100
            )%Pro
                forma EBITDA
            
            $
            590
            
            $
            1,844
            
            $
            (1,254
            )
            
            (68
            )%
            $
            2,435
            
            $
            515
            
            $
            1,920
            
            
            373
            %





This
      pro
      forma EBITDA information is an update of the information that was presented
      in
      our Form 10-K for the year ended June 30, 2006 and our Form 10-Q for the quarter
      ended September 30, 2006. It is intended to demonstrate the financial impact
      on
      our EBITDA of the incremental increase in corporate infrastructure costs we
      incurred during the current quarter and the first quarter ended September 30,
      2006, as well as the six-month periods ended December 31, 2006 and June 30,
      2006. 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 corporate infrastructure 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.





Although
      pro forma EBITDA is not a measure of financial performance under generally
      accepted accounting principles, we believe that the measure provides meaningful
      information relating to the use of resources in growing our business. We use
      pro
      forma EBITDA as an internal measure and believe it is also utilized as a measure
      of performance by the investment community. It is not meant to be considered
      a
      substitute or replacement for Net Income as prepared in accordance with
      generally accepted accounting principles and should be distinguished from
      conventional EBITDA which is also a non-GAAP measure.





32


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




**Three
                Months**
            
            **Six
                Months****Increase
                (decrease)**
            
            
            
            
            
            **Increase
                (decrease)****12/31/06**
            
            **9/30/06**
            
            **$**
            
            **%**
            
            **12/31/06**
            
            **6/30/06**
            
            **$**
            
            **%**Net
                loss
            
            $
            (1,895
            )
            $
            (462
            )
            $
            (1,433
            )
            
            (310
            )%
            $
            (2,357
            )
            $
            (5,351
            )
            $
            2,994
            
            
            56
            %Non-Cash
                Items:Depreciation
                - cost of sales
            
            
            449
            
            
            431
            
            
            18
            
            
            4
            %
            
            880
            
            
            932
            
            
            (52
            )
            
            (6
            )%Depreciation
                and amortization-
                SGA
            
            
            229
            
            
            223
            
            
            6
            
            
            3
            %
            
            452
            
            
            258
            
            
            194
            
            
            75
            %Amortization
                of deferred debt cost
            
            
            76
            
            
            79
            
            
            (3
            )
            
            (4
            )%
            
            156
            
            
            339
            
            
            (183
            )
            
            (54
            )%Amortization
                of debt discount
            
            
            144
            
            
            150
            
            
            (6
            )
            
            (4
            )%
            
            294
            
            
            675
            
            
            (381
            )
            
            (56
            )%Stock-based
                compensationExpense
            
            
            124
            
            
            27
            
            
            97
            
            
            359
            %
            
            151
            
            
            317
            
            
            (166
            )
            
            (52
            )%Other
                non-cash expenses
            
            
            —
            
            
            (9
            )
            
            9
            
            
            100
            %
            
            (9
            )
            
            79
            
            
            (88
            )
            
            (111
            )%Inventory
                reserve
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            172
            
            
            (172
            )
            
            (100
            )%Provision
                for allowance fordoubtful
                accounts
            
            
            187
            
            
            32
            
            
            155
            
            
            484
            %
            
            219
            
            
            318
            
            
            (99
            )
            
            (31
            )%Total
                non-cash items
            
            
            1,209
            
            
            933
            
            
            276
            
            
            30
            %
            
            2,143
            
            
            3,090
            
            
            (947
            )
            
            (31
            )%Net
                income (loss) before non-cashItems
            
            
            (686
            )
            
            471
            
            
            (1,157
            )
            
            (246
            )%
            
            (214
            )
            
            (2,261
            )
            
            2,047
            
            
            91
            %Add:
                Corporate infrastructure costs
            
            
            661
            
            
            653
            
            
            8
            
            
            1
            %
            
            1,314
            
            
            1,483
            
            
            (169
            )
            
            (11)
            %Net
                income (loss) before non-cashitems
                and corporateinfrastructure
                costs
            
            
            (25
            )
            
            1,124
            
            
            (1,149
            )
            
            (102
            )%
            
            1,100
            
            
            (778
            )
            
            1,878
            
            
            241
            %Add:
                Stated rate of interest(see
                interest expense table)
            
            
            615
            
            
            720
            
            
            (105
            )
            
            (15
            )%
            
            1,335
            
            
            1,293
            
            
            42
            
            
            3
            %Pro
                forma EBITDA
            
            $
            590
            
            $
            1,844
            
            $
            (1,254
            )
            
            (68
            )%
            $
            2,435
            
            $
            515
            
            $
            1,920
            
            
            373
            %





This
      reconciliation table reflects the significant impact that the non-cash items,
      corporate infrastructure costs have in the determination of pro forma EBITDA
      and
      is provided to demonstrate the material affect our financing, acquisition and
      corporate development programs had on the performance of our business during
      the
      quarters ended December 31, 2006 and September 30, 2006.





**ITEM
              3.**
            **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 notes, $6.1 million January 2005 promissory
      notes and our $6.925 million August 2003 promissory notes are fixed for the
      life
      of the notes at 10% per annum. The interest on our line of credit of up to
      $25
      million 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 quarter ended December 30, 2006 was $269,000, a decrease of
      $7,000 over the same quarter in 2005, due primarily to a decrease in the average
      outstanding line of credit balance offset by higher prime interest rate. 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.





33


**ITEM
              4.**
            **CONTROLS
                AND PROCEDURES**





*Disclosure
      Controls and Procedures.*





We
      have
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer and our Chief Financial
      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 Report on Form 10-Q. Based upon
      this
      evaluation, and in light of the previously identified material weakness in
      our
      internal control over financial reporting described below, the Chief Executive
      Officer and the Chief Financial Officer have concluded that, as of December
      31,
      2006, the Company’s disclosure controls and procedures were not effective in
      alerting them in a timely manner to material information required to be included
      in our periodic filings.  Notwithstanding such ineffectiveness, however,
      these officers and the Company believe that all necessary steps have
      been taken at the time of this filing to ensure the accuracy and completeness
      of
      the information contained in this report.




*Internal
      Control over Financial Reporting.*





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.





In
      connection with the audit of our financial statements for the year ended June
      30, 2006, our management identified a number of significant deficiencies in
      our
      internal controls that, taken together, amounted to a material weakness in
      those
      internal controls. 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,
      we concluded that there was a material weakness in our internal control over
      financial reporting.





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





Prior
      to
      June 30, 2006, and during the six-month period ended December 31, 2006, we
      implemented and have continued to implement measures to address the material
      weakness in our internal control over financial reporting and to improve the
      integrity of our reporting processes.





It
      is
      management’s objective to remediate the material weakness described above. The
      following describe the measures we have undertaken to improve overall internal
      control over financial reporting prior and subsequent to June 30, 2006, and
      which should materially affect our internal control over financial
      reporting:





·
            We
                have significantly strengthened our management team, including the
                following appointments: Senior Vice President of Information Services
                & Administration and Chief Information Officer (April 2006, promoted
                December 2006); Senior Vice President of Marketing & Sales and
                Investment Relations Officer (July 2005; promoted December 2006);
                Controller of Corporate Accounting (September 2006); Controller of
                General
                Ledger Accounting and Controls (December 2006); Director of Revenue,
                Inventory and Payable Accounting and Assistant Controller (May 2005);
                Mid-Continent Division Controller (May 2006); and several additional
                information technology, staff accounting and administrative
                personnel.




34


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





·
            We
                have initiated 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 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.





Except
      as
      described above, there were no significant changes to our internal controls
      over
      financial reporting nor any changes in other factors that could significantly
      affect such internal controls during the quarter ended December 31,
      2006.





35


**PART
      II. Other Information**





**ITEM
              1.**
            **LEGAL
                PROCEEDINGS**





As
      previously reported, on October 10, 2006, the Company commenced a civil action
      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”), alleging that Kramer, FAS and KPS (collectively, the “Defendants”)
      induced the Company to engage FAS to provide services with respect to (a) the
      implementation of certain Information Technology (“IT”) functions;(b) the
      modernization and expansion of the Company’s accounting and business technology
      capabilities, and (c) compliance with public company accounting requirements
      and
      the Sarbanes-Oxley Act (the “IT Projects”) by making numerous misrepresentations
      concerning the experience, capabilities and background of FAS and FAS’
personnel, FAS subsequently filed a countersuit in the same court seeking
      payment of additional fees allegedly due from the Company which is being jointly
      administered by the court with the Company’s action. On January 25, 2007, the
      Company filed an amended complaint in its lawsuit by which Alex Zaldivar, the
      managing director and a principal of FAS was added as an additional Defendant.
      In the amended complaint, the Company also made new claims for accounting
      malpractice, negligent training and supervision, and breach of fiduciary duty
      against the Defendants.





**ITEM
              2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS**





None.





**ITEM
              3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**





None.





**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**





The
      2006
      Annual Meeting of Shareholders of Streicher Mobile Fueling, Inc. was held at
      the
      Westin Hotel, Fort Lauderdale, 400 Corporate Drive, Ft. Lauderdale, Florida
      on
      December 8, 2006. At the meeting, the shareholders approved the following
      proposals with the vote as set forth thereunder:





·
            **Election
                of Board of Directors**




**Director**
            
            **Votes**
              **For**
            
            **Votes**
              **Withheld**Wendell
                W. Beard
            
            9,086,428
            
            447,284Richard
                E. Gathright
            
            9,145,603
            
            388,109Steven
                R. Goldberg
            
            9,114,313
            
            419,399Nat
                Moore
            
            9,113,613
            
            420,099Larry
                S. Mulkey
            
            9,110,643
            
            423,069C.
                Rodney O’Connor
            
            9,141,503
            
            392,209Robert
                S. Picow
            
            9,146,403
            
            387,309





·
            **Approval
                of the change of the Company’s name to SMF Energy Corporation**




**Votes**
              **For**
            
            **Votes**
              **Against**
            
            **Votes**
              **Abstain**9,236,688
            
            102,887
            
            194,136





36


Abstentions
      and broker non-votes were counted for purposes of establishing a quorum only.
      Only those votes cast for the proposals were counted as voted in favor or
      affirmative votes.





The
      December 8, 2006 meeting was adjourned until December 22, 2006 in order to
      permit shareholders to cast their vote on the proposal to approve the merger
      of
      the Company into our wholly-owned Delaware subsidiary for the sole purpose
      of
      changing the Company’s state of domicile. At the adjourned meeting on December
      22, 2006, the shareholders approved the reincorporation proposal by the
      following vote:




**Votes**
              **For**
            
            **Votes**
              **Against**
            
            **Votes**
              **Abstain**
            
            **Broker**
              **Non-Vote**5,446,534
            
            441,757
            
            251,429
            
            3,783,908





Once
      again, only those votes cast for the proposals were counted as voted in favor
      or
      affirmative votes.





**ITEM
              5.**
            **OTHER
                INFORMATION**





None.





**ITEM
              6.**
            **EXHIBITS**




**Exhibits**





Exhibit
              No.
            Description31.1
            Certificate
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            Certificate
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1
            Certificate
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002





37




**SIGNATURES**




Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned hereunto
        duly authorized.
  SMF
                  ENERGY CORPORATIONFebruary
                16, 2007
              By:
              /s/
                Richard E. GathrightRichard
                E. GathrightChief
                  Executive Officer and President
 By:
              /s/
                Michael S. ShoreMichael
                  S. ShoreChief
                  Financial Officer and Senior Vice
                  President
   38