**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 March 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




**STREICHER
      MOBILE**


**FUELING,
      INC.**


(Exact
      name of registrant as specified in its charter)







**Florida**
            
            **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)







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 .


**NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**




As
      of May
      15, 2006 there were 10,491,143 shares of the registrant’s common stock
      outstanding.




2
 **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**


**STREICHER
      MOBILE FUELING, INC.**




**FORM
      10-Q**




**INDEX**




Form
      10-Q Part and Item No.




Part
                  I:
              Financial
                  InformationItem
                  1.
              Condensed
                  Unaudited Consolidated Financial StatementsCondensed
                  Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and
                  June 30,
                  2005
              4Condensed
                  Unaudited Consolidated Statements of Operations for the three-month
                  and
                  nine-month periods ended March 31, 2006 and 2005
              5Condensed
                  Unaudited Consolidated Statements of Cash Flows for the nine-month
                  periods
                  ended March 31, 2006 and 2005
              6Notes
                  to Condensed Unaudited Consolidated Financial Statements
              7Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              17Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              34Item
                  4.
              Controls
                  and Procedures
              34Part
                  II
              Other
                  InformationItems
                  1.thru
                  6.
              35
                  - 38Signature
                  Page
              39Certifications
              40
                  - 42




3


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


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**MARCH
      31, 2006 and JUNE 30, 2005**


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




**ASSETS**
              
              **March
                  31,**
                **2006**
              
              **June
                  30,2005**Current
                  assets:
              
              **(Unaudited)**Cash
                  and cash equivalents
              
              $
              1,914
              
              $
              4,108Accounts
                  receivable, less allowances of $2,844 and $1,806
              
              
              23,488
              
              
              14,129Inventories,
                  net
              
              
              3,522
              
              
              495Prepaid
                  expenses and other current assets
              
              
              403
              
              
              660Total
                  current assets
              
              
              29,327
              
              
              19,392Property
                  and equipment, net
              
              
              11,515
              
              
              9,555Goodwill
                  and intangible assets
              
              
              3,689
              
              
              100Deferred
                  debt costs, net
              
              
              950
              
              
              991Other
                  assets
              
              
              72
              
              
              87Total
                  assets
              
              $
              45,553
              
              $
              30,125**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**Current
                  liabilities:Bank
                  line of credit payable
              
              $
              13,347
              
              $
              4,801Accounts
                  payable and other liabilities
              
              
              11,676
              
              
              7,345Current
                  portion of long-term debt
              
              
              1,995
              
              
              1,385Total
                  current liabilities
              
              
              27,018
              
              
              13,531Long-term
                  liabilities:Promissory
                  notes, net of unamortized debt discount of $2,143 and
                  $2,056
              
              
              10,502
              
              
              9,584Note
                  payable
              
              
              161
              
              
              172Long-term
                  debt, net
              
              
              10,663
              
              
              9,756Other
                  long-term liabilities
              
              
              103
              
              
              —Deferred
                  revenues
              
              
              578
              
              
              —Total
                  liabilities
              
              
              38,362
              
              
              23,287Shareholders’
                  equity:Common
                  stock, par value $.01 per share; 50,000,000 shares authorized;
                  9,814,202
                  and 8,953,444 issued and outstanding at March 31, 2006 and June
                  30, 2005,
                  respectively
              
              
              98
              
              
              90Additional
                  paid-in capital
              
              
              18,413
              
              
              16,325Accumulated
                  deficit
              
              
              (11,320
              )
              
              (9,577
              )Total
                  shareholders’ equity
              
              
              7,191
              
              
              6,838Total
                  liabilities and shareholders’ equity
              
              $
              45,553
              
              $
              30,125




**See
        accompanying notes to condensed unaudited consolidated financial
        statements.**




4




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


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


**FOR
      THE THREE AND NINE-MONTH PERIODS ENDED**


**MARCH
      31, 2006 and 2005**


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




**Three-Month
                    Periods
                    Ended**
                
                **Nine-Month
                    Periods
                    Ended****March
                    31,**
                
                **March
                    31,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Petroleum
                    product sales and service revenues
                
                $
                51,946
                
                $
                26,609
                
                $
                157,547
                
                $
                72,695Fuel
                    taxes
                
                
                8,235
                
                
                6,474
                
                
                23,795
                
                
                18,944Total
                    revenues
                
                
                60,181
                
                
                33,083
                
                
                181,342
                
                
                91,639Cost
                    of petroleum product sales and service
                
                
                49,688
                
                
                25,567
                
                
                147,650
                
                
                68,409Fuel
                    taxes
                
                
                8,235
                
                
                6,474
                
                
                23,795
                
                
                18,944Total
                    cost of sales
                
                
                57,923
                
                
                32,041
                
                
                171,445
                
                
                87,353Gross
                    profit
                
                
                2,258
                
                
                1,042
                
                
                9,897
                
                
                4,286Selling,
                    general and administrative expenses
                
                
                3,569
                
                
                1,872
                
                
                9,112
                
                
                4,227Operating
                    (loss) income
                
                
                (1,311
                )
                
                (830
                )
                
                785
                
                
                59Interest
                    expense
                
                
                (905
                )
                
                (527
                )
                
                (2,539
                )
                
                (1,302
                )Interest
                    and other income
                
                
                —
                
                
                8
                
                
                11
                
                
                8Loss
                    before income taxes
                
                
                (2,216
                )
                
                (1,349
                )
                
                (1,743
                )
                
                (1,235
                )Income
                    tax expense
                
                
                —
                
                
                —
                
                
                —
                
                
                —Net
                    loss
                
                $
                (2,216
                )
                $
                (1,349
                )
                $
                (1,743
                )
                $
                (1,235
                )Net
                    loss per common share:Basic
                    and diluted
                
                $
                (.23
                )
                $
                (.17
                )
                $
                (.18
                )
                $
                (.16
                )Weighted
                    average shares outstanding:Basic
                    and diluted
                
                
                9,814
                
                
                7,813
                
                
                9,642
                
                
                7,525




**See
      accompanying notes to condensed unaudited consolidated financial
      statements.**


5




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


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


**FOR
      THE NINE-MONTH PERIODS ENDED MARCH 31, 2006 and 2005**


***(in
      000’s)***





**2006**
            
            **2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (1,743
            )
            $
            (1,235
            )Adjustments
                to reconcile net loss to net cash (used in) provided by operating
                activities:Depreciation
                and amortization:Cost
                of sales
            
            
            1,130
            
            
            1,143Selling,
                general and administrative
            
            
            342
            
            
            310Amortization
                of deferred debt costs
            
            
            276
            
            
            183Amortization
                of debt discount
            
            
            518
            
            
            283Amortization
                of stock compensation expense
            
            
            280
            
            
            —Provision
                for allowance for doubtful accounts
            
            
            248
            
            
            45Changes
                in operating assets and liabilities:Decrease
                in restricted cash
            
            
            —
            
            
            13Increase
                in accounts receivable
            
            
            (3,646
            )
            
            (1,134
            )Decrease
                (increase) in inventories, prepaid expenses and other
                assets
            
            
            1,059
            
            
            (360
            )(Decrease)
                increase in accounts payable and other liabilities
            
            
            (477
            )
            
            2,248Net
                cash (used in) provided by operating activities, net of acquisition
                effect
            
            
            (2,013
            )
            
            1,496CASH
                FLOWS FROM INVESTING ACTIVITIES:Cash
                used for business acquisitions, net of cash acquired
            
            
            (1,751
            )
            
            (6,134
            )Purchases
                of property and equipment, net
            
            
            (2,018
            )
            
            (428
            )Net
                cash used in investing activities
            
            
            (3,769
            )
            
            (6,562
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                borrowings (repayments) on line of credit payable
            
            
            1,460
            
            
            (1,212
            )Net
                proceeds from exercise of common stock options and
                warrants
            
            
            1,211
            
            
            1,529Proceeds
                from issuance of promissory notes
            
            
            3,000
            
            
            6,100Payments
                of debt issuance costs
            
            
            (235
            )
            
            (300
            )Repayments
                of promissory notes
            
            
            (452
            )
            
            —Principal
                payment on promissory notes
            
            
            (1,385
            )
            
            —Repayment
                of note payable
            
            
            (11
            )
            
            —Net
                cash provided by financing activities
            
            
            3,588
            
            
            6,117NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (2,194
            )
            
            1,051CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            4,108
            
            
            2,708CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            1,914
            
            $
            3,759SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid for-Interest
            
            $
            1,083
            
            $
            538Income
                taxes
            
            $
            —
            
            $
            —





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




During
      the period ended March 31, 2006, the Company recorded unamortized debt discount
      of $605 related to the valuation of common stock warrants issued in connection
      with the September 2005 private placement of debt.





**See
      accompanying notes to condensed unaudited consolidated financial
      statements.**


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





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





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




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




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 location, allowing verification of the amount and type of fuel
      delivered and providing customers with customized fleet fuel data for management
      analysis and tax reporting. The
      Company makes a majority of the commercial mobile and bulk fueling service
      deliveries on workdays, Monday through Friday, to coincide with customers’ fuel
      service requirements. Thus, the number of workdays in any given month will
      impact the 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 during a fiscal year by emergency mobile fueling services
      and fuel deliveries resulting from impending or actual severe meteorological
      or
      geological events, including hurricanes, tropical storms, ice and snow storms,
      forest fires and earthquakes.




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




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




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




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





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





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 nine
      months ended March 31, 2006 are not necessarily indicative of the results that
      may be expected for any subsequent period or the full year ending June 30,
      2006. 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,
      2005.





**(3)**
            **INVENTORIES,
                NET**





The
      inventory balance at March 31, 2006 related principally to the lubricants
      warehouse in Texas, see Note 11. 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 March 31, 2006 $104,327 was reserved for
      slow
      moving inventory.





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





The
      Company has a $20 million credit facility with a national financial institution,
      which permits the Company to borrow up to 85% of the total amount of eligible
      accounts receivable and 65% of eligible inventory. Interest is payable monthly
      (8.25% at March 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. Although
      the line of credit expires on September 26, 2007, it is classified as a current
      liability due to certain provisions in the agreement related to subjective
      acceleration clauses and due to an agreement requiring the Company to maintain
      a
      lockbox arrangement whereby cash deposits are automatically utilized to reduce
      amounts outstanding under the line of credit.





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





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


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


As
      of
      March 31, 2006 and June 30, 2005, the Company had outstanding borrowings of
      $13.3 and $4.8 million, respectively, under its $20 million bank line of credit.
      Based on eligible receivables and inventory at March 31, 2006, the Company
      had approximately $4.7 million of cash availability on its bank line of credit,
      compared to $5.2 million availability on June 30, 2005. The Company is in
      compliance with all financial covenants required by the loan and security
      agreement.





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





The
      Company accounts for asset retirement obligations in accordance with the
      provisions of FASB Statement No. 143, *Liability
      Recognition - Asset Retirement Obligations with Indeterminate Settlement
      Dates.* 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 $103,000 at March 31,
      2006.





**(6)**  **DEFERRED
      REVENUE**





At
      March
      31, 2006, the Company recorded deferred revenues of $578,000 related to a 5
      year
      supply contract which amount is being recognized as a reduction to cost of
      sales
      ratably upon the sale of certain petroleum products. For the period ended March
      31, 2006 the Company recognized $22,000 of deferred revenue.





**(7)**  **NET
      LOSS PER SHARE**





Basic
      loss per share is computed by dividing the net loss attributable to common
      shareholders by the weighted-average number of common shares outstanding during
      the period. Diluted loss per share is computed by dividing net loss 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
      March
      31, 2006 and 2005, 2,580,525 and 4,605,761 common stock equivalents,
      respectively, consisting of employee, director and unrelated third party stock
      options and common stock warrants, were outstanding at prices ranging from
      $.86
      to $9.49 per share. For the three and nine month periods ended March 31, 2006
      and 2005 these common stock equivalents were excluded from the calculation
      of
      diluted loss per share because their impact would be anti-dilutive.





For
      the
      three month periods ended March 31, 2006 and 2005, the Company incurred a loss
      of $0.23 and $0.17 per basic and dilutive share, respectively. For the nine
      month periods ended March 31, 2006 and 2005, the Company incurred a loss of
      $0.18 and $0.16 per basic and diluted share, respectively.





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





**(8)** **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.


9
 **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**





Under
      the
      1996 Plan 500,000 shares of common stock are reserved for issuance upon exercise
      of options granted. Under the 2000 Plan, 1,000,000 shares of common stock are
      reserved for issuance upon the exercise of options, with the amount reserved
      being increased each year by ten percent of the total shares subject to the
      2000
      Plan at the end of the previous calendar year. Options to purchase 0 shares
      of
      stock are available to be granted under the 1996 Plan and options to purchase
      298,710 shares of stock are available to be granted under the 2000 Plan. The
      Board of Directors has determined that no additional options will be granted
      under the 1996 Plan.




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





Information
      concerning both the 1996 and 2000 employee stock option plans for the nine
      months ending March 31, 2006 is summarized as follows:





**Shares**
            
            **Weighted**
              **Average**
              **Exercise
                Price**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                July 1, 2005
            
            
            1,206,152
            
            $
            1.78Granted
            
            
            312,000
            
            $
            2.89Exercised
            
            
            (2,000
            )
            $
            1.24Terminated
            
            
            (164,700
            )
            $
            2.36Outstanding
                March 31, 2006
            
            
            1,351,452
            
            $
            1.97
            
            $
            1,177,307Exercisable
                March 31, 2006
            
            
            948,052
            
            $
            1.81
            
            $
            972,747





The
      weighted average remaining contractual life for employee stock options
      outstanding and exercisable at March 31, 2006 is 6.1 years and 4.9 years,
      respectively. The weighted average grant date fair value of stock options
      granted during the nine months ended March 31, 2006 and 2005 was $2.63 and
      $1.38, respectively. For the nine months ended March 31, 2006 and 2005, 2,000
      and 69,800 stock options were exercised and the Company received $2,480 and
      $205,132 in cash proceeds, respectively. The aggregate intrinsic value of
      stock options exercised was $2,782 and $109,240 for the nine months ended March
      31, 2006 and 2005, respectively. The weighted average remaining contractual
      life
      for 403,400 options unvested or expected to vest in future periods at March
      31,
      2006 is 9.06 years with a weighted average exercise price of $2.33. The fair
      value of stock options vested during the nine months ended March 31, 2006 and
      2005 was $16,859 and $3,058, respectively.




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


**Shares**
            
            **Weighted**
              **average
                grant-**
              **date
                fair value**Nonvested
                at July 1, 2005
            
            
            319,000
            
            $
            1.51Granted
            
            
            312,000
            
            $
            2.63Vested
            
            
            (128,600
            )
            $
            1.30Forfeited
            
            
            (99,000
            )
            $
            2.20Nonvested
                at March 31, 2006
            
            
            403,400
            
            $
            2.10





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 that the Directors
      Plan
      is in effect each non-employee director receives an additional option grant
      to
      purchase 625 shares of stock. By resolution of the Board of Directors on
      December 9, 2005, effective with the quarter beginning January 1, 2006, the
      stock option awards were increased for each non-employee Director from 625
      to
      725. Further, in accordance with the Directors Plan, additional options may
      be
      granted to non-employee directors from time to time. Options to purchase 265,600
      shares of common stock are outstanding at March 31, 2006 under the Directors
      Plan and options to purchase 84,400 shares of stock are available to be
      granted in the future. The weighted average grant date fair-value of director
      options granted during the nine months ended March 31, 2006 was
      $2.50.




10
 **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**




Options
      granted under the Directors Plan expire no later than ten years from the date
      of
      grant and are, with limited exceptions, exercisable as of the grant date. All
      outstanding options as of March 31, 2006 are vested. The weighted average
      remaining contractual life for the outstanding and vested director stock options
      is 6.6 years.





Information
      concerning the Director’s Plan for the nine months ending March 31, 2006 is
      summarized as follows:


**Shares**
            
            **Weighted
                average exercise price**Outstanding
                July 1, 2005
            
            
            233,750
            
            $
            1.52Granted
            
            
            31,850
            
            $
            2.80Exercised
            
            
            —
            
            
            —Terminated
            
            
            —
            
            
            —Outstanding
                March 31, 2006
            
            
            265,600
            
            $
            1.67Exercisable
                March 31, 2006
            
            
            265,600
            
            $
            1.67





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 and nine months ended March 31, 2006 was
      $85,890 and $280,258, respectively, and is included in selling, general and
      administrative expenses in the Company’s Condensed Consolidated Statement of
      Operations. The effect of this accounting change is reflected prospectively;
      therefore no stock based employee compensation expense was recognized in the
      Company’s Condensed Consolidated Statement of Operations for the three and nine
      months ended March 31, 2005. As a result of adopting SFAS 123R, there was
      an increase in net losses for the three and nine months ended March 31, 2006
      of
      $85,890 and $280,258, respectively, and an increase in basic and diluted loss
      per share of $.01 and $.03 for the three and nine months ended March 31, 2006,
      respectively. There was no effect on cash flow from operations or cash flow
      from
      financing activities. Supplemental disclosure, as if the change had been
      retroactively applied is as follows (dollars in thousands, except share
      data):




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




**For
                the Three**
              **Months
                Ended**
              **March
                31,**
              **2005**
            
            **For
                the Nine**
              **Months
                Ended**
              **March
                31,**
              **2005**Net
                loss, as reported
            
            $
            (1,349
            )
            $
            (1,235
            )Stock-based
                employee compensation expense included in reported net
                loss
            
            $
            —
            
            $
            —Stock-based
                employee compensation expense not included in reported net
                loss
            
            $
            (21
            )
            $
            (76
            )Net
                loss - pro forma
            
            $
            (1,370
            )
            $
            (1,311
            )Basic
                and diluted net loss per share - as reported
            
            $
            (.17
            )
            $
            (.16
            )Basic
                and diluted net loss per share - proforma
            
            $
            (.18
            )
            $
            (.17
            )




**For
                the Three Months****Ended March 31,**
            
            **For
                the Nine Months****Ended March 31,**Assumptions:
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**Risk
                free interest rate
            
            
            4.69%
            
            
            4.30%
            
            
            4.69%
            
            
            4.30%Dividend
                yield
            
            
            0%
            
            
            0%
            
            
            0%
            
            
            0%Expected
                volatility
            
            
            108.7%
            
            
            107.4%
            
            
            108.7%
            
            
            107.4%Expected
                life
            
            
            9.29
                years
            
            
            8.6
                years
            
            
            9.29
                years
            
            
            8.6
                years





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 above
      table. 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 10 year U.S. Treasury bonds. As of March 31,
      2006 there was $558,540 of total unrecognized compensation cost related to
      non-vested share-based compensation arrangements which is expected to be
      recognized over a weighted average period of 3 years. The fair value of the
      stock options are expensed on a straight-line basis over the vesting
      period.




12
 **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**


**(9)** **LONG-TERM
      DEBT**





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





**March
                31, 2006**
            
            **June
                30, 2005**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, semi-annually on August 31
                and February 28; balloon payment of $1,200,000 due at maturity on
                August
                31, 2010; effective interest rate of 19.1% includes cost of warrants
                and
                other debt issue costs
            
            $
            3,000
            
            $
            —January
                2005 promissory notes (the “January 2005 Notes”) (10% interest due
                semi-annually, July 24 and January 24); principal payments of $610,000
                due
                beginning January 24, 2007, semi-annually on January 24 and July
                24;
                balloon payment of $2,440,000 due at maturity on January 24, 2010;
                effective interest rate of 19.7% includes cost of warrants and other
                debt
                issue costs
            
            
            6,100
            
            
            6,100August
                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, semi-annually on August 28
                and February 28; balloon payment of $2,770,000 due at maturity on
                August
                28, 2008; effective interest rate of 23.7% includes cost of warrants
                and
                other debt issue costs
            
            
            5,540
            
            
            6,925Note
                Payable (contingent deferred promissory note subject to earn-out
                provisions related to Shank Services acquisition if payable, due
                March 31,
                2007)
            
            
            161
            
            
            172Unamortized
                debt discount, net of amortization
            
            
            (2,143
            )
            
            (2,056
            )Less:
                current portion
            
            
            (1,995
            )
            
            (1,385
            )Long-term
                debt, net
            
            $
            10,663
            
            $
            9,756





***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 referred to above, develop its
      operations and for other general working capital purposes. The Company issued
      $3.0 million in 10% five-year Senior Secured Notes that require six semi-annual
      payments commencing on August 31, 2007 and a 40% balloon payment on August
      31,
      2010. The September 2005 Notes are redeemable by the Company, in whole or in
      part, by payment of a percentage of the principal amount, together with accrued
      but unpaid interest, if any, as follows: September 1, 2005 - August 31, 2006,
      102%; September 1, 2006 - August 31, 2007, 101%; and September 1, 2007 - August
      31, 2010, 100%. 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 and are being
      amortized over the five-year life of the Notes.




***Other***




Unamortized
      debt discounts of $2.143 million at March 31, 2006 and $2.056 million at June
      30, 2005 were recorded in connection with the August 2003, January 2005 and
      September 2005 Notes and are being amortized as interest expense over the
      respective term of the debt issued under the effective interest method. These
      are non-cash discounts related to the valuation of the common stock warrants
      issued to the note holders and the placement agent in the financing transactions
      that do not reduce the amount of principal cash repayments required to be made
      by the Company. The outstanding balance of these Notes was $14.640 and $13.025
      million at March 31, 2006 and June 30, 2005, respectively. The common stock
      warrants issued were valued using the Black-Scholes option pricing model and
      were recorded as an increase to additional paid-in capital.


13
 **NOTES
          TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
          STATEMENTS**





The
      Company’s debt agreements for its line of credit facility and for the August
      2003, January 2005 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. At March 31, 2006, the Company was in compliance with all covenants
      required by the debt agreements.





**(10)**
            **SHAREHOLDERS’
                EQUITY**





For
      the
      nine-month period ended March 31, 2006 shareholders’ equity increased by
      $353,000 due to: (1) $1.23 million in proceeds realized from the exercise of
      warrants and options primarily related to the issuance of the January 2005
      and
      the August 2003 Notes, with exercise prices ranging from $1.00 to $1.60; (2)
      $605,000 from the valuation of warrants issued in connection with the September
      2005 Notes, net of $19,000 in professional fees related to the registration
      of
      the warrants; and (3) $280,000 in amortization of stock compensation; offset
      by
      (4) $1.743 million in net losses for the period. The following reflects the
      change in shareholders’ equity for the nine-month period ended March 31, 2006
      (in thousands):




**Common****Stock**
            
            **Additional
                Paid-in****Capital**
            
            **Accumulated****Deficit**
            
            **Total**
              **Shareholders’**
              **Equity**June
                30, 2005
            
            $
            90
            
            $
            16,325
            
            $
            (9,577
            )
            $
            6,838Exercise
                of options and warrants
            
            
            8
            
            
            1,222
            
            
            —
            
            
            1,230Issuance
                of warrants
            
            
            —
            
            
            586
            
            
            —
            
            
            586Amortization
                of stock compensation expense
            
            
            —
            
            
            280
            
            
            —
            
            
            280Net
                loss
            
            
            —
            
            
            —
            
            
            (1,743
            )
            
            (1,743
            )March
                31, 2006
            
            $
            98
            
            $
            18,413
            
            $
            (11,320
            )
            $
            7,191




**(11)**
            **H
                & W PETROLEUM COMPANY, INC. ACQUISITION**





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


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


H
&
W
      provides lubricants and fueling services to over 3,800 customers, with its
      primary emphasis on those companies requiring large volumes of specialty
      industrial oils, motor and gear lubricants and greases subject to rigid
      technical and performance specifications. Harkrider has distributed solvents
      and
      specialty petroleum products to dry cleaners and industrial customers in the
      Houston, Beaumont and San Antonio areas since 1946. Today, it is one of the
      largest dry cleaning solvents distributors in those Texas markets with over
      800
      customers. Together, H & W and Harkrider operate a combined fleet
      of 52 specialized lubricant, fuel and chemical delivery “bobtail” trucks; oil
      and lubricant flatbed and box trucks; tanker transports; and related support
      equipment, including approximately 200 storage tanks with over 1,200,000 gallons
      of capacity. The H & W and Harkrider operations currently employ
      approximately 75 personnel.




The
      purchase price of approximately $5.9 million, which includes the payments due
      upon collection of certain receivables totaling $1.964 million, was paid with
      a
      combination of cash, the assumption of specified liabilities and the issuance
      of
      two year 10% promissory notes totaling $2.463 million. The promissory notes
      are
      subject to an earn out provision based on the performance of H & W and
      Harkrider after the H & W acquisition. The preliminary purchase price
      allocation, including goodwill and intangibles, which represents the excess
      of
      the purchase price over the fair value of the net assets acquired, may be
      changed at any time within the year following the transaction as more detailed
      analysis is completed and additional information on the fair value of assets
      and
      liabilities becomes available. To reflect the excess purchase price over the
      estimated fair value of the tangible net assets acquired, the purchase price
      and
      the preliminary purchase price allocation are summarized as follows (in
      thousands):




Cash
                at closing
            
            $
            82Borrowings
                under bank line of credit
            
            
            1,454Acquisition
                costs — direct
            
            
            607Contingent
                earnout
            
            
            2,463Total
                purchase price
            
            
            
            
            $
            4,606Less:
                Fair value of identifiable assets acquired:Cash
            
            $
            392Plant,
                property and equipment
            
            
            1,206Accounts
                receivable (Includes $250 from Harkrider)
            
            
            5,961Inventory
            
            
            3,565Other
                current assets
            
            
            249Fair
                value of identifiable assets acquired
            
            
            
            
            $
            11,373Plus:
                Fair value of liabilities assumed:Bank
                line of credit payable (Includes $387 from Harkrider)
            
            $
            7,086Accounts
                payable and other liabilities
            
            
            5,489Current
                portion of long-term debt
            
            
            452$
            13,027Less:
                Contingent earnout not achieved
            
            
            
            
            $
            2,463Excess
                of purchase price over fair value of net assets acquired to be allocated
                among intangible assets and goodwill
            
            
            
            
            $
            3,797




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


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




Amortizable
                intangible assets:Customer
                relationships
            
            $
            1,673Supplier
                contracts
            
            
            801Trademarks
            
            
            687Favorable
                leases
            
            
            196Total
                amortizable intangible assets
            
            
            3,357Accumulated
                amortization
            
            
            (180
            )Net
                book value at 3/31/2006
            
            $
            3,177Goodwill
            
            $
            440





Amortization
      expense is computed by straight-line method over the useful lives of the assets,
      which range from five to fifteen years. Amortization expense for the nine months
      ended March 31, 2006 was $180,000. Estimated amortization expense for the
      remainder of fiscal year 2006, for the five succeeding fiscal years and
      thereafter is as follows (in thousands):




Fiscal
                year:2006
                (remainder)
            
            $
            902007
            
            
            3602008
            
            
            3602009
            
            
            3602010
            
            
            3602011
            
            
            208Thereafter
            
            
            1,439$
            3,177





The
      following unaudited pro forma condensed consolidated statements of operations
      have been prepared as if the H & W Acquisition had occurred at July 1, 2005
      and July 1, 2004, respectively, (in thousands, except per share data). ****




**Nine
                months ended March 31, 2006**
            
            **Year
                ended**
              **June
                30, 2005**Fuel,
                tax and service revenue
            
            $
            198,871
            
            $
            191,417Cost
                of fuel, tax and service
            
            
            187,538
            
            
            179,975Gross
                Profit
            
            $
            11,333
            
            $
            11,442Net
                loss
            
            $
            (2,015
            )
            $
            (1,988
            )Basic
                and diluted net loss per share
            
            $
            (.21
            )
            $
            (0.25
            )





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




16


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





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





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




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




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




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




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




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





·
            the
                avoidance of future net losses




·
            the
                avoidance of adverse consequences relating to our outstanding
                debt




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




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




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




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




·
            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




**·**
            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




17




**·**
            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




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




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




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




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




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




On
      October 1, 2005, we acquired all of the stock of H & W Petroleum
      Company, Inc. (“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 and Waco markets. The purchase price was based on a multiple
      of 4.5 times projected annualized EBITDA *(earnings
      before interest, taxes, depreciation and amortization - a non-GAAP financial
      measure)* of
      approximately $1.4 million and was adjusted to $5.964 million at closing by
      working capital and other closing adjustments.




We
      provide our commercial mobile and bulk fueling and other services at a
      competitive rate for those services plus the cost of products and procurement,
      generally based on market prices of fuels and lubricants. As a result, revenue
      levels for much of our operations are largely dependent on the upward or
      downward movement of petroleum product prices in each market and are not as
      significantly influenced by the revenues derived from the service component
      of
      our fuel and lubricant based business. Although dramatic fuel price volatility
      can affect customers’ demand for fuel and can also increase the fuel costs of
      operating our fleet of trucks and equipment, our gross profit on sales is
      generally not directly affected by fuel price fluctuations since we pass on
      fuel
      price changes to customers and we charge customers for our services on a per
      gallon basis based on a targeted rate per hour. While there may be a perceived
      correlation between customer resistance to paying higher service charges when
      fuel prices rise sharply, as they have recently, 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. We also believe that
      higher fuel prices should not have a long-term effect on our margins, except
      as
      they relate to overall customer credit risk. During the fiscal year ended June
      30, 2005 and the nine months ended March 31, 2006, market prices for fuel were
      significantly higher than in the two prior fiscal years. Our delivered volumes
      and revenues in the current nine- month
      period increased primarily due to the addition of new accounts, market
      expansion, the acquisitions of Shank Services and H & W and the increase in
      emergency response services related to Hurricanes Dennis, Katrina, Rita and
      Wilma. The increase in our revenue, while significant, was not as meaningful
      as
      the increase in delivered gallons, since we pass through petroleum product
      price
      increases to customers.




18


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





·
            Financial
                Performance




During
      the quarter and nine months ended March 31, 2006, total revenues and gross
      profit increased as a result of the acquisitions of Shank and H & W, our
      ongoing marketing and sales programs, as well as the emergency response services
      contribution in the aftermath of the devastation caused by the summer and fall
      hurricanes in 2005. These factors resulted in a 7.7 and 23.8 million increase
      in
      gallons sold for the three and nine month periods and related average net margin
      improvements per gallon of 0.9 and 4 cents aggregating $1.0 and $5.6 million,
      respectively, over the prior year periods. Our results of operation for the
      quarter, however, were severely impacted by a marked increase in selling,
      general and administrative (“SG&A”) expenses attributable to the continuing
      burden of the SG&A expenses of H & W and Shank even while we were making
      substantial expenditures to develop a new, integrated operations and accounting
      management system that is expected to reduce the subsidiaries’ and the Company’s
      overall SG&A expenses when it is fully implemented.




For
      the
      current quarter and last nine months, an improvement in gross profit over last
      year of $1.2 and $5.6 million, respectively, was more than offset by increases
      in SG&A of $1.7 million and $4.9 million, respectively and interest expense
      of $378,000 and $1.2 million, respectively. The result was net losses of $2.2
      million and $1.7 million, respectively, representing increases of $867,000
      and
      $508,000 over the prior year periods. While we believe that our improved margin
      and increased volumes for the quarter and the nine month period continue to
      reflect the progress we have made during the past fiscal year, our results
      of
      operation were adversely affected by a number of other factors, including the
      sudden and dramatic surge in the prices of fuel and other petroleum products,
      which depressed demand for our products and services and led to lower than
      expected sales volumes, at least on a short term basis. As a result, while
      sales
      volumes and gross profit did increase from year ago levels, those increases
      were
      not as great as we had anticipated entering the quarter. The sharp increases
      in
      petroleum prices during the quarter also contributed to other unexpected
      increases in costs during the quarter, ranging from higher running fuel and
      other delivery costs to increased bad debt expense resulting from customer
      bankruptcies.




The
      increased SG&A expenses in the quarter ended March 31, 2006, reflect our
      continued spending on building a new corporate infrastructure with capability
      to
      support our current and future subsidiary companies, which expenses are treated
      as period costs, even while we continue to bear substantially all of the
      SG&A burden historically associated with Shank, H & W and the Company.
      While it is expensive to bear both the historical SG&A expenses of the
      individual units of the Company and the expenses of developing a new integrated
      infrastructure, we believe that the additional expenses we are incurring now
      will eventually permit us to reduce the historical SG&A expenses of acquired
      companies as well as of the Company’s previously held operations. We have
      accelerated these expenditures in this current quarter, including the
      strengthening of our mid-management team, increased support personnel, temporary
      labor/consulting, relocation of our Fort Lauderdale corporate office to a
      larger, better equipped, facility relocating Shank’s Houston office to H &
W’s regional Houston office and other similar integration costs of these recent
      acquisitions. As previously disclosed, we are engaged in the implementation
      of
      our new back and front office operating and accounting systems, which will
      replace the three legacy systems of SMF, Shank and H & W. Upon the
      completion of this process, we expect to realize economies of scale and
      eliminate duplicative costs of Shank and H & W while creating an enhanced
      capability to integrate future acquisitions on an accelerated basis.




19


SG&A
      expense for the quarter ended March 31, 2006 was also significantly affected
      by
      the unexpected bankruptcy of two of our customers, resulting in most of the
      $260,000 increase in bad debt expense for the quarter. Other **** SG&A
      increases from a year ago resulted from the changes in accounting for Stock
      Based Compensation (FASB 123R) of $86,000 for the quarter, and $280,000 year
      to
      date, and higher credit card fees of $74,000 and $372,000, respectively.




Significant
      components of the increases in Selling, General and Administrative Expenses
      over
      last year for the same period:




**DESCRIPTION**
            
            **Increase
                in Three Months Ended**
              **March
                31, 2006**
              **Compared
                to**
              **March
                31, 2005**
            
            **Increase
                in Nine Months Ended**
              **March
                31, 2006**
              **Compared
                to**
              **March
                31, 2005**Acquired
                SGA of Shank and H & W
            
            $
            912,000
            
            $
            2,638,000Corporate
                infrastructure and ongoing integration costs
            
            
            439,000
            
            
            1,240,000Bad
                debt expense
            
            
            260,000
            
            
            322,000FASB
                123R Stock Based Compensation Expense
            
            
            86,000
            
            
            280,000Credit
                card fees and other costs
            
            
            74,000
            
            
            372,000Total
            
            $
            1,771,000
            
            $
            4,852,000





The
      increase in net margin for the third quarter was less than anticipated since
      the
      increased volumes delivered related primarily to petroleum products sold at
      lower gross margins, as well as reduced volumes resulting from below cost
      pricing practices by a competitor seeking market share in California. We also
      incurred increased operating costs during the quarter, most of which related
      to
      driver turnover and compensation. In addition to increased benefits, hiring,
      training and retention costs, the Company incurred higher costs for truck
      repairs and maintenance, running fuel, regulatory compliance and security.
      The
      Company incurred some of these additional costs with a view toward generating
      greater efficiency and other improvements in its driver workforce, vehicles
      and
      other equipment that will yield over time a significant net benefit to the
      Company.





During
      the quarter and the nine month period ended March 31, 2006, we continued to
      incur costs for non-cash interest charges of $118,000 and $316,000,
      respectively, from debt incurred in connection with the acquisitions of Shank
      and H & W which was only partially incurred in the prior periods.
      For the current quarter and nine month period we amortized deferred debt costs
      and debt discount to interest expense of $277,000 and $793,000, respectively,
      in
      connection with our debt securities and recorded total interest expense of
      $905,000 and $2.5 million, respectively. We are currently pursuing alternatives
      to convert or retire a substantial portion of this debt to shareholders’
equity in order to reduce interest costs, although such a transaction
      would probably result in a one-time, non-cash write-off of the related debt
      discount and deferred debt costs.




Our
      earnings before interest, taxes, depreciation and amortization (“EBITDA”) which
      are discussed below decreased in the quarter by $685,000 to $(687,000) and
      increased $1.0 million to $2.5 million for the nine month period. EBITDA is
      determined before providing for debt service payments and capital expenditures.
      EBITDA, while a non-GAAP measure, is a key indicator used by our management
      and
      the financial community to gauge financial performance of the actual operations
      of a business without considering the impact of non-cash charges for equipment
      aging, debt financing expenses, stock 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.




We
      consider the implementation of our new operations, accounting and information
      management system to be essential to our efforts to fully integrate and manage,
      on an ongoing basis, the acquired Shank and H & W operations as well as
      future acquisitions. We are confident that this new system will increase
      operational efficiencies, facilitate integration and improve management of
      pre-existing commercial mobile and bulk fueling operations as well as those
      of
      the acquired companies and help control operating costs and improve
      profitability. When this new system is fully implemented, we believe that we
      will have the information available to achieve new efficiencies and reduce
      the
      overhead costs of our operations. In addition to facilitating the integration
      of
      future acquisitions, we believe that the new system and the other aspects of
      our
      infrastructure development effort will shorten the time and reduce the effort
      needed to efficiently integrate newly acquired locations and operations. At
      March 31, 2006, we had capitalized $1.5 million in property and equipment
      related to its design and installation with a total estimated cost of $2.5
      million.




20





**Selected
        comparative financial information for the three and nine month periods ended
        March 31, 2006 and 2005 (unaudited)** :
 ***(in
        thousands, except share and per share data)***
 
 **Three
                  Month Periods Ended**
              
              **Increase**
                **(Decrease)****3/31/2006**
              
              **3/31/2005**
              
              **$**
              ****
              **%**Total
                  revenues
              
              $
              60,181
              
              $
              33,083
              
              
              27,098
              
              
              
              82
              %Gross
                  profit
              
              
              2,258
              
              
              1,042
              
              
              1,216
              
              
              
              117
              %Selling,
                  general and administrative expense
              
              
              3,569
              
              
              1,872
              
              
              1,697
              
              
              
              91
              %Operating
                  loss
              
              
              (1,311
              )
              
              (830
              )
              
              (481
              )
              
              
              (58
              )%Interest
                  expense
              
              
              905
              
              
              527
              
              
              378
              
              
              
              72
              %Net
                  loss
              
              
              (2,216
              )
              
              (1,349
              )
              
              (867
              )
              
              
              (64
              )%EBITDA****2,5
              
              
              (687
              )
              
              (2
              )
              
              (685
              )
              
              
              —Basic
                  and diluted net loss per share
              
              $
              (0.23
              )
              $
              (0.17
              )
              
              (0.06
              )
              
              
              (35
              )%Basic
                  and diluted weighted average shares
                Outstanding
              
              
              9,814,202
              
              
              7,812,651
              
              
              2,001,551
              
              
              
              26
              %Depreciation
                  and amortization****3
              
              $
              538
              
              $
              828
              
              
              (290
              )
              
              
              (35
              )%Gallons
                  sold
              
              
              24,079
              
              
              16,402
              
              
              7,677
              
              
              
              47
              %Average
                  net margin per gallon (in cents)****4
              
              
              11.0
              
              
              10.1
              
              
              0.9
              
              
              
              9
              %
  21
 
  **Nine
                    Month Periods Ended**
                
                **Increase**
                  **(Decrease)****3/31/2006****(1)**
                
                **3/31/2005**
                
                **$**
                ****
                **%**Total
                    revenues
                
                $
                181,342
                
                $
                91,639
                
                
                89,703
                
                
                
                98
                %Gross
                    profit
                
                
                9,897
                
                
                4,286
                
                
                5,611
                
                
                
                131
                %Selling,
                    general and administrative expense
                
                
                9,112
                
                
                4,227
                
                
                4,885
                
                
                
                116
                %Operating
                    income
                
                
                785
                
                
                59
                
                
                726
                
                
                
                —Interest
                    expense
                
                
                2,539
                
                
                1,302
                
                
                1,237
                
                
                
                95
                %Net
                    loss
                
                
                (1,743
                )
                
                (1,235
                )
                
                (508
                )
                
                
                (41
                )%EBITDA****2,5
                
                
                2,548
                
                
                1,512
                
                
                1,036
                
                
                
                69
                %Basic
                    and diluted net loss per share
                
                $
                (0.18
                )
                $
                (0.16
                )
                
                (0.02
                )
                
                
                (13
                )%Basic
                    and diluted weighted average sharesOutstanding
                
                
                9,641,996
                
                
                7,524,672
                
                
                2,117,324
                
                
                
                28
                %Depreciation
                    and amortization****3
                
                $
                $1,472
                
                $
                1,453
                
                
                19
                
                
                
                1
                %Gallons
                    sold
                
                
                70,147
                
                
                46,350
                
                
                23,797
                
                
                
                51
                %Average
                    net margin per gallon (in cents)****4
                
                
                15.7
                
                
                11.7
                
                
                4.0
                
                
                
                34
                %
  1 Reflects
          the 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 1, 2005 acquisition of H & W, c ertain
          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 $.394 million and $1.129
          million
          for the three and nine months ended March
          31,
          2006 and $.611 million and $1.143 million for the three and nine months
          ended
          March 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:
 
 **Non-GAAP
        Measure EBITDA Reconciliation (in thousands):**
 
 **3
                  Months Ended**
              
              **Increase**
                **(Decrease)**
              
              **Increase**
                **(Decrease)****3/31/2006**
              
              **3/31/2005**
              
              **$**
              
              **%**Net
                  loss
              
              $
              (2,216
              )
              $
              (1,349
              )
              
              (867
              )
              
              (64)
              %Add
                  back:Interest,
                  net
              
              
              905
              
              
              519
              
              
              386
              
              
              74
              %Depreciation
                  and amortization (*):*Cost
                  of sales*
              
              
              394
              
              
              611
              
              
              (217
              )
              
              (36
              )%*Sales,
                  general and administrative*
              
              
              144
              
              
              217
              
              
              (73
              )
              
              (34
              )%Amortization
                  of stock compensation expense
              
              
              86
              
              
              —
              
              
              86
              
              
              100
              %EBITDA
              
              $
              (687
              )
              $
              (2
              )
              
              (685
              )
              
              —
 
 **9
                  Months Ended**
              
              **Increase**
                **(Decrease)**
              
              **Increase**
                **(Decrease)****3/31/2006**
              
              **3/31/2005**
              
              **$**
              
              **%**Net
                  loss
              
              $
              (1,743
              )
              $
              (1,235
              )
              
              (508
              )
              
              (41)
              %Add
                  back:Interest,
                  net
              
              
              2,539
              
              
              1,294
              
              
              1,245
              
              
              96
              %Depreciation
                  and amortization (*):*Cost
                  of sales*
              
              
              1,130
              
              
              1,143
              
              
              (13
              )
              
              (1
              )%*Sales,
                  general and administrative*
              
              
              342
              
              
              310
              
              
              32
              
              
              10
              %Amortization
                  of stock compensation expense
              
              
              280
              
              
              —
              
              
              280
              
              
              100
              %EBITDA
              
              $
              2,548
              
              $
              1,512
              
              
              1,036
              
              
              69
              %
  22
 
 (*)
                  Includes depreciation related to the write down of excess equipment
                  abandoned after fleet rerouting following the Shank acquisition
                  and
                  accelerated depreciation and write-off for computer software for
                  changes
                  in infrastructure totaling $461,000 for the three and nine month
                  periods
                  ended March 31, 2005.
 
 Additional
        paid-in capital included in shareholders’ equity increased during the nine
        months ended March 31, 2006 by $2.1 million as a result of the issuance and
        exercise of options and warrants to purchase our stock, and the recording
        of
        stock option compensation equity resulting from the implementation of FASB
        123R.
  The
        current nine month performance was also affected by non-cash amortization
        expenses of deferred debt costs, debt discount and stock compensation totaling
        $1.074 million compared to $466,000 for the prior year period, while stated
        rate
        interest expense of $1.746 million represented a 109% increase over the prior
        year period both of which had a significant impact on the net loss for the
        period.
  ·
            Organic
                Growth Opportunities  In
        addition to our ongoing commitment to evaluate existing operations, one of
        our
        primary business objectives continues to be the expansion of our market presence
        in the packaging, distribution and sale of lubricant products in the areas
        where
        we presently have operating locations. As one of the largest Chevron Texaco
        lubricant distributors in the United States, we believe that H & W provides
        us with an opportunity to grow our specialized lubricant volumes and revenues
        at
        higher margins than those typically generated from commercial mobile and
        bulk
        fueling businesses. On the other hand, we also believe that our existing
        fueling
        customers, as well as our new business development initiatives, will be integral
        to the growth we hope to achieve in our lubricant program.
  Because
        of effective advance planning and preparation we were able to successfully
        respond to the emergency fueling service demands and opportunities which
        resulted from the unprecedented 2005 hurricane season. We were able to mobilize
        and deliver uninterrupted fuel supplies to utilities, governmental agencies,
        communication services and numerous others at margins which fairly compensated
        us for the emergency, and frequently hazardous services provided. We consider
        our emergency response services to be an increasingly important part of our
        business, which has been bolstered by the acquisitions of Shank Services
        and H
& W. These acquisitions have given us greater depth in personnel, equipment
        and facilities so that we could respond more efficiently to emergency
        conditions. While weather conditions are unpredictable, we expect that emergency
        response services, especially in the Gulf Coast area, will be a recurring
        and
        profitable source of business.
  We
        recognize that our internal growth will largely depend on a well organized
        and
        effectively implemented marketing and sales effort and we are committing
        the
        necessary financial resources and personnel to achieve targeted volume and
        margin objectives. Our operations in several of the fastest growing business
        and
        population centers in the United States offers us the opportunity to grow
        without incurring significant incremental start-up and overhead
        costs.
  ·
            Expansion
                and Diversification Through Acquisitions  Our
        business model reflects an acquisition program to further develop our existing
        business and diversify into other energy products and related services markets.
        Our objective is to selectively identify and evaluate those companies which
        would immediately be accretive to our cash flow and earnings goals; would
        provide compatible and capable management to further grow the acquired
        businesses; would enable us to expand into markets which offer an opportunity
        to
        become a leading product and service provider; and can be acquired on terms
        and
        prices which recognize our value as a growing public company.
  We
        intend
        to follow the 2005 Shank and H & W acquisitions with the addition of other
        businesses which can be efficiently integrated into our corporate structure
        resulting in specific, realizable operating and administrative cost reduction
        synergies. Our new operations, accounting and information management system
        that
        is currently under development will enable us to rapidly integrate acquisitions
        without incurring significant incremental costs or experiencing business
        disruptions. We recognize that acquisitions will likely involve business
        operations which have both different management styles as well as operating
        procedures and reporting systems. Our objectives will be to achieve
        cost-effective and controlled integration of each acquisition.
  23
  Our
        acquisition plan could be affected by the size, nature, cost, contribution
        and
        availability of acquisition targets; debt and equity financing alternatives;
        regulatory reporting and compliance considerations; and overall market and
        economic conditions.
  ·
            Challenges
                to Progress  The
        present highly competitive business environment requires that we have an
        understanding of the markets in which we operate; that we effectively utilize
        our management skills and financial resources; that we remain committed to
        and
        focused on our strategic growth plan; and that our organization is structured
        for effective and efficient performance. Our senior management is responsible
        for decisions relating to overall business strategy, business acquisitions,
        cash
        management, risk management, debt and equity financing and information,
        reporting and internal control systems. As our operations expand we expect
        to
        incur costs to retain existing executive management and add to our senior
        group
        those additional experienced individuals who will increase our management
        depth
        and expertise.
  We
        view
        the future of our business optimistically yet realistically and recognize
        that
        continuing improvements, modifications and upgrading will be necessary in
        order
        to successfully compete, grow and enhance the value of our shareholders’
investment. We intend to:
  ·
            Continue
                our aggressive marketing and sales
                programs  ·
            Re-engineer
                our balance sheet by reducing debt and increasing shareholder
                equity  ·
            Identify,
                acquire, finance and integrate diversified business
                opportunities  ·
            Compete
                effectively with both larger and smaller companies without adversely
                affecting our service quality, margins or customer
                retention  ·
            Manage
                our operating and administrative costs at all
                levels  ·
            Manage
                our cash requirements, expand our credit lines and reduce our interest
                expense  **Capital
        Resources and Liquidity**
 
 At
        March
        31, 2006 and June 30, 2005, we had a total of cash and cash availability
        on our
        line of credit of $6.6 million and $9.3 million, respectively.
 
 On
        September 1, 2005, we closed a $3.0 million private debt placement with
        institutional and other accredited investors (the “September 2005 Notes”) in
        order to fund the H & W acquisition, develop our operations and for other
        general working capital purposes. We issued $3.0 million in 10% five-year
        Senior
        Secured Notes that require six semi-annual payments commencing on August
        31,
        2007 and a 40% balloon payment on August 31, 2010. The September 2005 Notes
        are
        redeemable by us, in whole or in part, by payment of a percentage of the
        principal amount, together with accrued but unpaid interest, if any, as follows:
        September 1, 2005 - August 31, 2006, 102%; September 1, 2006 - August 31,
        2007,
        101%; and September 1, 2007 - August 31, 2010, 100%. In connection with the
        financing, we also issued four year warrants to purchase a total of 360,000
        shares of our common stock at an exercise price of $2.28 per share, including
        customary redemption and registration rights.
 
 In
        January 2005, we raised $6.1 million from the issuance of five-year 10%
        promissory notes (the “January 2005 Notes”) and 1,006,500 four-year warrants to
        purchase our common stock at $1.60 per share. The funding provided by the
        January 2005 Notes was used for the Shank Services acquisition and for other
        general corporate purposes. The January 2005 Notes are secured by a first
        priority security interest in the Shank Services’ assets. Our first principal
        payment of $610,000 will be due in January 2007 and is included in our current
        portion of long-term debt.
  24
  In
        August
        2003, we raised $6.925 million from the issuance of five-year 10% promissory
        notes (the “August 2003 Notes”) and issued 2,008,250 five-year warrants to
        purchase our common stock at $1.00 per share. The August 2003 Notes are
        collateralized by a first priority security interest in our truck fleet and
        related equipment and by the patents on our proprietary fuel management system.
        The liquidity impact of this financing transaction was the repayment of all
        outstanding equipment and subordinated debt; the generation of $2.8 million
        of
        additional working capital for business expansion; and a $2.8 million
        improvement in cash flow resulting from a moratorium of principal payments
        during the first two years of the five-year term of the August 2003 Notes.
        We
        made two semi-annual principal payments totaling $1.385 million during the
        nine
        months ending March 31, 2006 and no principal payments were due a year ago
        for
        the same period.
  The
        September 2005, January 2005 and August 2003 financings significantly
        strengthened our financial position, enabling us to achieve a stronger balance
        sheet and to improve cash flow as a result of the two-year moratorium on
        principal payments under all the financings. We believe that this has enhanced
        our business credibility with present and prospective customers, fuel suppliers,
        trade creditors, other lenders and the investment community, as well as our
        ability to compete more effectively. On the other hand, the increased interest
        burden associated with these financings, including the imputed non-cash interest
        charges resulting from our issuance of common stock purchase warrants in
        connection with those financings, has negatively affected our reported earnings
        since that time. Accordingly, as noted previously, we are actively pursuing
        the
        conversion to equity or retirement of some or all of this debt to reduce
        recurring interest costs, notwithstanding the possibility of a one-time,
        non-cash write-off of the related debt discount and deferred debt costs.
  During
        the nine months ended March 31, 2006, we recorded an increase in shareholders’
equity of $586,000 for the value of the 360,000 warrants issued in connection
        with the September 2005 Notes, net of $19,000 in professional fees related
        to
        the registration of the warrants. Also, during the nine months ended March
        31,
        2006, warrants issued in connection with the January 2005 and August 2003
        Notes
        were exercised resulting in cash proceeds of approximately $1.23
        million.
  On
        December 6, 2005, we extended from December 11, 2005 to December 27, 2005
        the
        exercise period for 1,349,900 outstanding common stock warrants related to
        the
        December 11, 1996 initial public offering. In addition, we lowered the exercise
        price to $3.50 per share. Prior to the expiration date of December 27, 2005,
        240
        of these warrants were exercised for gross proceeds of $840. The remaining
        warrants expired unexercised on December 27, 2005 and are no longer
        outstanding.
 
 Our
        debt
        agreements have covenants establishing certain financial requirements and
        operating restrictions. Our failure to comply with any covenant or material
        obligation contained in these debt agreements, absent a waiver or forbearance
        from the lenders, would result in an event of default which could accelerate
        debt repayment terms under the debt agreements. Due to cross-default provisions
        contained in its debt agreements, an event of default under one agreement
        could
        accelerate repayment terms under the other agreements, which would have a
        material adverse effect on our liquidity and capital resources.
 
 Our
        business requires us to use substantial working capital for fuel, labor and
        equipment costs prior to receiving payments from customers. The fuel we purchase
        for resale to customers generally must be paid for within 10 to 15 days of
        purchase, with labor costs and taxes paid bi-weekly and equipment related
        costs
        generally paid within 30 days. We invoice customers both daily and weekly
        and
        generally collect on our accounts within 30 to 45 days.
  During
        the nine months ended March 31, 2006, our cash used in operating activities
        was
        $2.0 million compared to cash provided by operations of $1.5 million in the
        prior year, representing a change of $3.5 million. This use of working capital
        primarily related to the net increase in accounts receivable of $2.5 million,
        a
        decrease in accounts payable and other liabilities of $2.7 million, offset
        by an
        increase of $1.4 million in inventory relating to the H & W operations since
        acquisition and other operating activities netting to $0.3 million. This
        change
        in receivables does not include the accounts receivable acquired from H & W
        on October 1, 2005. The higher receivable balance at March 31, 2006 compared
        to
        June 30, 2005, was principally due to the acquisition of H & W Petroleum and
        the higher market price for petroleum products.
  25
  Our
        material financial commitments, other than fuel purchases, payroll and general
        expenses, is primarily related to maintaining our bank line of credit and
        servicing the September 2005, the January 2005 and August 2003
        Notes.
 
 In
        January 2006, the Company amended a lease agreement for its new corporate
        facility that was entered into on August 3, 2005. The amended lease agreement
        has terms of 78 months with a termination option. The commencement date of
        the
        lease was January 23, 2006 and it expires July 31, 2012. The minimum annual
        rent
        is as follows:
 
 **Lease
                  Year**
              
              **Annual**
              
              **Monthly**1
              
              $217,577.25
              
              $18,131.442
              
              $224,104.57
              
              $18,675.383
              
              $230,827.71
              
              $19,235.644
              
              $237,752.54
              
              $19,812.715
              
              $244,885.12
              
              $20,407.096
              
              $252,231.67
              
              $21,019.317
                  (Partial)
              
              $129,899.34
              
              $21,649.89
 
 In
        addition, estimated annual operating expenses are due and payable monthly
        and
        are subject to annual increases. Beginning January 23, 2006, the estimated
        annual operating expenses due monthly is $9,834 excluding applicable sales
        tax.
 
 Our
        liquidity and ability to meet financial obligations is dependent on, among
        other
        things, the generation of cash flow from operating activities; obtaining
        or
        maintaining sufficient trade credit from vendors; complying with our debt
        covenants; and/or raising any required additional capital through the issuance
        of debt or equity securities or additional borrowings.
 
 We
        believe the additional liquidity derived from the January 2005 and the August
        2003 Notes, our line of credit and the two-year principal payment moratorium
        on
        the January 2005 and September 2005 Notes should satisfy our anticipated
        liquidity requirements for the foreseeable future. On the other hand, the
        ongoing expenditures for development of the corporate infrastructure, including
        the new operating, accounting and information management system for the recent
        acquisitions and ease of integration of any future acquisitions, coupled
        with
        our higher debt service requirements, may cause us to seek additional capital
        in
        the future if the debt service burden is not reduced and anticipated cost
        savings do not materialize in the amounts or at the times we currently
        anticipate. Cash flow deficiencies from adverse business conditions or a
        new
        acquisition requiring a cash investment could also cause us to seek additional
        capital. There is no assurance, however, that any such additional capital
        would
        be available to us on acceptable terms, or at all. Moreover, if we fail to
        comply with the covenants in our debt agreements, or if adequate funds are
        not
        available to fund our operations or to pay debt service obligations as they
        become due, we may be required to make substantial changes to our capital
        structure or significantly alter our operations or both *.*
 
 ***$20
        Million Credit Facility***
 
 As
        of
        March 31, 2006, we had a $20 million credit facility with a national financial
        institution, which permitted us to borrow up to 85% of the total amount of
        eligible accounts receivable and 65% of H & W’s eligible inventory. Interest
        is payable monthly (8.25% at March 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 March 31, 2006, the maturity date
        of
        the line of credit was September 26, 2007.
 
 In
        August
        2003, the loan and security agreement for the credit facility was amended
        in
        connection with the August 2003 financing which (1) released the lender’s lien
        on patents, patent rights and patent applications; (2) increased the unused
        line
        of credit fee by .50%; (3) revised the effective book net worth covenant
        to
        include the August 2003 Notes in its calculation; (4) established a covenant
        to
        maintain a minimum cumulative quarterly fixed charge coverage ratio as defined
        in the amended loan agreement; (5) established a covenant to maintain a minimum
        excess availability of $500,000; and (6) eliminated the loan prepayment fee.
        We
        utilized a portion of the proceeds of the August 2003 Notes to pay down the
        line
        of credit. The proceeds that were used to pay down the outstanding line of
        credit balance are available to us for future working capital
        purposes.
  26
  On
        February 18, 2005, the credit facility was again amended in connection with
        the
        issuance of the January 2005 Notes and the Shank Services acquisition. This
        amendment (1) lowered the requirements on the fixed charge covering ratio;
        (2)
        eliminated the effective net worth requirement except when availability is
        below
        $1.0 million; (3) extended the term to September 25, 2006; (4) reduced the
        unused line fee from .75% to .25% after September 25, 2005, and (5) imposes
        a
        .50% fee if we terminate the line of credit after September 26, 2005, but
        prior
        to September 26, 2006.
  Concurrently
        with the October 1, 2005 H & W Acquisition, in order to finance the acquired
        accounts receivable and inventory, we and our primary lender amended the
        credit
        facility. Among other changes, the amendment (1) added H & W as a borrower;
        (2) increased the facility to $20 million; (3) provided financing for the
        acquired and ongoing accounts receivable and inventory resulting from the
        H
& W Acquisition; (4) extended the term of the original loan and security
        agreement to September 26, 2007; (5) reduced the interest rate to prime plus
        0.75% per annum; (6) eliminated the effective net worth covenant; and (7)
        lowered the fixed charge coverage ratio covenant to 1.0 to 1.0, and made
        such
        covenant effective only when there is less than $3 million available on the
        facility.
  As
        of
        March 31, 2006 and June 30, 2005, we had outstanding borrowings of $13.3
        million
        and $4.8 million, respectively, under our $20 million (at June 30, 2005 it
        was
        $10 million) bank line of credit. Based on eligible receivables outstanding
        at
        March 31, 2006, we had $4.7 million of cash availability on the line of credit,
        and we were in compliance with all financial covenants required by the loan
        and
        security agreement.
  Although
        there can be no assurance, management believes that our line of credit and
        cash
        on hand should provide the working capital needed to maintain and grow our
        business and to accomplish our business plan. If additional financing is
        required, there can be no assurance that we will be able to obtain such
        financing from our present line of credit or from another lender or investor
        at
        acceptable terms, or at all. Since borrowings under the line of credit bear
        interest at variable interest rates and represent a large portion of outstanding
        debt, our financial results could be materially affected by significant
        increases or decreases in interest rates.
  **Debt
        Securities**
  ***September
        2005 Promissory Notes***
 
 On
        September 1, 2005, we closed a $3.0 million private debt placement with
        institutional and other accredited investors in order to fund the H & W
        Acquisition, develop our operations and for other general working capital
        purposes. We issued $3.0 million in 10% five-year Senior Secured Notes (the
        “September 2005 Notes”) that require six semi-annual payments commencing on
        August 31, 2007 and a 40% balloon payment on August 31, 2010. The September
        2005
        Notes are redeemable by us, in whole or in part, by payment of a percentage
        of
        the principal amount, together with accrued but unpaid interest, if any,
        as
        follows: September 1, 2005 - August 31, 2006, 102%; September 1, 2006 - August
        31, 2007, 101%; and September 1, 2007 - August 31, 2010, 100%. In connection
        with the financing, we also issued four year warrants to purchase a total
        of
        360,000 shares of our common stock at an exercise price of $2.28 per share,
        including customary redemption and registration rights. Total transaction
        costs
        related to the registration of the warrants was $19,000 and was included
        in
        additional paid-in capital.
 
 ***January
        2005 Promissory Notes***
  On
        January 25, 2005, we closed an offering of $6.1 million five year 10% promissory
        notes (the “January 2005 Notes”) and four-year warrants to purchase 1,006,500
        shares of our common stock at $1.60 to a limited group of institutions and
        other
        accredited investors in connection with the acquisition of the assets and
        business of Shank Services. The January 2005 Notes provide for (1) no principal
        payments until January 24, 2007; (2) six $610,000 semi-annual principal payments
        commencing on January 24, 2007 through July 24, 2009; (3) a balloon payment
        of
        $2,440,000 at maturity on January 24, 2010; and (4) semi-annual interest
        payments on June 30, and December 31, which payments commence on June 30,
        2005.
        The funding provided by the January 2005 Notes was used for the Shank Services
        acquisition and for other general corporate purposes. The net cash proceeds
        from
        the financing were $5.8 million, after payment of related fees and expenses,
        professional fees and other costs totaling $282,000. The total transaction
        costs
        were $471,000, including $291,000 cash costs and non-cash broker commission
        warrants valued at $180,000, which are being amortized over the five-year
        term
        of the notes. The January 2005 Notes are secured by a first priority security
        interest in the Shank Services assets.
  27
  The
        issuance of approximately one million warrants in connection with the January
        2005 Notes resulted in our recording an increase to shareholders’ equity of $1.3
        million; a $1.1 million debt discount; and an increase to deferred debt costs
        of
        $0.2 million for the warrants related to the broker commissions. The debt
        discount and the deferred debt costs are being amortized as interest expense
        over the five-year term of the notes.
  The
        $1.1
        million debt discount is a non-cash discount related to the issuance of the
        warrants and does not reduce the amount of cash payments we are required
        to make
        on the outstanding balance of $6.1 million owed at March 31, 2006.
  ***August
        2003 Promissory Notes***
  On
        August
        29, 2003, we closed a $6.925 million offering to institutions and other
        accredited lenders consisting of five-year 10% promissory notes (the “August
        2003 Notes”) and issued five-year warrants to purchase a total of 2,008,250
        shares of our common stock at $1.00 per share. The August 2003 Notes are
        collateralized by a first priority security interest in our specialized fueling
        truck fleet and related equipment and by patents on our proprietary fuel
        management system. The August 2003 Notes provide for (1) no principal payments
        until August 28, 2005; (2) six $692,500 semi-annual principal payments
        commencing on August 28, 2005 through February 28, 2008; (3) a balloon payment
        of $2,770,000 at maturity on August 28, 2008; (4) semi-annual interest payments
        on June 30 and December 31,  which
        payments commenced on December 31, 2003; and (5) a right to call after August
        1,
        2005 at 105% of par plus accrued but unpaid interest. The net cash proceeds
        from
        the financing were $2.8 million, after payment of related fees and expenses
        and
        repayment of all outstanding equipment and subordinated debt. The transaction
        costs, including commissions, professional fees and other costs, totaled
        $824,000 and are being amortized over the five-year term of the notes.
  The
        issuance of the approximately two million warrants from the August 2003
        financing resulted in our recording an increase to shareholders’ equity of $1.87
        million; a $1.61 million debt discount; and an increase in deferred debt
        costs
        of $0.3 million for the warrants related to the broker commissions. The debt
        discount and deferred debt costs are being amortized as interest expense
        over
        the five-year term of the notes.
  The
        $1.61
        million debt discount is a non-cash discount related to the issuance of the
        warrants and does not reduce the amount of cash payments we are required
        to make
        for the outstanding balance of $5.54 million owed at March 31,
        2006.
  28
  **Results
        of Operations**
 
 The
        following is a summary of the Company’s selected condensed (unaudited)
        consolidated results of operations (in thousands):
 
 **For
                  the Three-Month Period Ended March 31,**
              
              **For
                  the Nine-Month Period Ended March 31,****Increase
                  (decrease)**
              
              
              
              
              
              **Increase
                  (decrease)****2006**
              
              **2005**
              
              **Dollars**
              
              **Percent**
              
              **2006**
              
              **2005**
              
              **Dollars**
              
              **Percent**Total
                  revenues
              
              $
              60,181
              
              $
              33,083
              
              $
              27,098
              
              
              82
              %
              
              $
              181,342
              
              $
              91,639
              
              $
              89,703
              
              
              98
              %Total
                  cost of sales and
                Services
              
              
              57,923
              
              
              32,041
              
              
              25,882
              
              
              81
              %
              
              
              171,445
              
              
              87,353
              
              
              84,092
              
              
              96
              %Gross
                  profit
              
              
              2,258
              
              
              1,042
              
              
              1,216
              
              
              117
              %
              
              
              9,897
              
              
              4,286
              
              
              5,611
              
              
              131
              %Selling,
                  general and
                administrative
                  expenses
              
              
              3,569
              
              
              1,872
              
              
              1,697
              
              
              91
              %
              
              
              9,112
              
              
              4,227
              
              
              4,885
              
              
              116
              %Interest
                  expense
              
              
              905
              
              
              527
              
              
              378
              
              
              72
              %
              
              
              2,539
              
              
              1,302
              
              
              1,237
              
              
              95
              %Interest
                  and other income
              
              
              —
              
              
              8
              
              
              (8
              )
              
              (100
              %)
              
              
              11
              
              
              8
              
              
              3
              
              
              38
              %Net
                  loss
              
              $
              (2,216
              )
              $
              (1,349
              )
              $
              (867
              )
              
              (64
              %)
              
              $
              (1,743
              )
              $
              (1,235
              )
              $
              (508
              )
              
              (41
              %)Gallons
                  delivered
              
              
              24,079
              
              
              16,402
              
              
              7,677
              
              
              47
              %
              
              
              70,147
              
              
              46,350
              
              
              23,797
              
              
              51
              %EBITDA
                  Non-GAAP Measure
              
              $
              (687
              )
              $
              (2
              )
              $
              (685
              )
              
              —
              
              
              $
              2,548
              
              $
              1,512
              
              $
              1,036
              
              
              69
              %
  **Comparison
        of Three Months Ended** **March
        31, 2006 to March 31, 2005**
  ***Revenues***
 
 Revenues
        increased $27.1 million, or 82%, in the current quarter compared to the prior
        year quarter. This increase was principally due to a 14% increase in net
        new
        business and higher fuel prices which averaged 41 cents per gallon higher
        than
        the earlier period. We sold 24.1 million gallons of fuel in the current quarter,
        compared to the 16.4 million gallons in the prior year quarter, a 7.7 million
        gallon increase in net new business. The results for the current quarter
        include
        a revenue contribution of $13.8 million and gallons sold of 5.4 million from
        Shank Services and a revenue contribution of $14.2 million and gallons sold
        of
        5.4 million from H & W. The increase in fuel prices was directly
        attributable to the volatility of world fuel markets and continuing uncertain
        economic and political conditions, including unprecedented escalation in
        crude
        oil prices and greater global fuel demand.
 
 ***Gross
        Profit***
 
 Gross
        profit increased by $1.2 million or 117%, for the current quarter compared
        to
        the prior year quarter. This improvement resulted from the increase of 7.7
        million gallons in net new business sold primarily attributable to the Shank
        and
        H & W acquisitions. In addition, gross profit increased due to changes in
        the mix of products sold as a result of management’s diversification strategy
        associated with lubricants, chemicals and heavy haul. The overall average
        net
        margin per gallon was 11 cents for the current quarter compared to 10.1 cents
        for the prior year quarter representing a 0.9 cent, or 9%, increase in net
        margin per gallon. There can be no assurance that the gross and net margin
        improvement trends will continue in the future or that margins will not decrease
        as a result of increased competition, customer resistance to higher prices
        for
        our services or reduction in emergency response services.
 
 ***Selling,
        General and Administrative Expenses***
  Selling,
        general and administrative expenses increased $1.7 million, or 91%, in the
        current quarter compared to the prior year quarter. This increase was primarily
        attributable to $912,000 for the inclusion of Shank Services and H & W;
        $274,000 in corporate infrastructure development costs; $165,000 in relocation
        and integration expenses from the move of our corporate offices and the
        consolidation of the Shank and H & W’s offices and yard facilities
        in Houston; a $260,000 increase in bad debt expense; a $74,000 increase in
        credit card fees; and $86,000 for amortization of stock based compensation
        expense.
  29
  ***Interest
        Expense***
  As
        a
        result of the issuance of the September 2005 Notes and the January 2005 Notes,
        and increased borrowings under our $20 million bank line of credit, interest
        expense increased $378,000, or 72%, in the current quarter compared to the
        prior
        year quarter. The increase in the bank line of credit principally relates
        to the
        H & W acquisition. The components of interest expense are as follows (in
        thousands):
 
 
 **Three
                  Months Ended**
                **March
                  31,****2006**
              
              **2005**
              
              **Increase****Stated
                  Rate Interest Expense:**Bank
                  line of credit
              
              $
              221
              
              $
              45
              
              $
              176Long
                  term debt
              
              
              377
              
              
              287
              
              
              90Other
              
              
              30
              
              
              9
              
              
              21**Total
                  stated rate interest expense**
              
              
              **628**
              
              
              **341**
              
              
              **287****Non-Cash
                  Interest Amortization:**Amortization
                  of deferred debt costs
              
              
              94
              
              
              72
              
              
              22Amortization
                  of debt discount
              
              
              183
              
              
              114
              
              
              69**Total
                  amortization of interest expense**
              
              
              **277**
              
              
              **186**
              
              
              **91****Total
                  interest expense**
              
              **$**
              **905**
              
              **$**
              **527**
              
              **$**
              **378**
 
 ***Income
        Taxes***
 
 We
        recorded no income tax expense for the quarter. Our net operating loss
        carryforward at June 30, 2005 was $15.1 million.
  ***Net
        Loss***
  The
        $867,000 increase in net loss for the current year quarter over the prior
        year
        quarter primarily resulted from the increase in selling, general and
        administrative expenses of $1.7 million and an increase in interest expense
        of
        $378,000 offset by an increase in gross profit of $1.2 million.
  30
  ***EBITDA
        - Non-GAAP Measure***
  Earnings
        before interest, taxes, depreciation, and amortization (“EBITDA”) decreased
        $685,000 in the current year quarter ****** compared
        to the prior
        year quarter .
        This
        decrease was primarily due to the increase in net loss of $867,000, decrease
        in
        depreciation and amortization of $204,000, offset by an increase in net interest
        of $386,000. Components of EBITDA for the quarters ended March 31,
        2006 ****** and
        2005
        are as follows (in thousands):
  
 **For
                  the Three Months Ended**
                **March
                  31,**
              
              **Increase****2006**
              
              **2005**
              
              **(decrease)**Net
                  loss
              
              $
              (2,216
              )
              $
              (1,349
              )
              $
              (867
              )Add back:Interest
                  expense
              
              
              628
              
              
              341
              
              
              287Non-cash
                  interest expense
              
              
              277
              
              
              186
              
              
              91Depreciation
                  and amortization expense:Cost
                  of sales
              
              
              394
              
              
              611
              
              
              (217
              )Selling,
                  general and administrative
              
              
              144
              
              
              217
              
              
              (73
              )Amortization
                  of stock compensation expense
              
              
              86
              
              
              —
              
              
              86Less:Interest
                  income
              
              
              —
              
              
              8
              
              
              (8
              )EBITDA
              
              $
              (687
              )
              $
              (2
              )
              $
              (685
              )
 
 **Comparison
        of Nine Months Ended** **March
        31, 2006 to March 31, 2005**
  ***Revenues***
 
 Revenues
        increased $89.7 million, or 98%, in the nine months ended March 31, 2006
        compared to the same period in the prior year. This increase was principally
        due
        to the acquisitions of Shank and H & W and higher fuel prices, which
        averaged 54 cents per gallon higher than the earlier period. We sold 70.1
        million gallons of fuel during the nine months ended March 31, 2006, compared
        to
        the 46.4 million gallons during the same period in the prior year, a 23.8
        million gallon; or 51%, increase in net new business. The results for the
        nine
        months ended March 31, 2006 include a revenue contribution of $48.4 million
        and
        gallons sold of 17.7 million from Shank Services acquired in February 2005,
        and
        a revenue contribution of $30.2 million and gallons sold of 10.8 million
        for the
        nine months ended March 31, 2006 from H & W acquired as of October 1, 2005.
        The increase in fuel prices was directly attributable to the volatility of
        world
        fuel markets and uncertain economic and political conditions, including
        unprecedented escalation in crude oil prices and greater global fuel
        demand.
 
 ***Gross
        Profit***
 
 Gross
        profit increased by $5.6 million, or 131%, for the nine months ended March
        31,
        2006 compared to the same period in the prior year. This improvement resulted
        primarily from the acquisitions of Shank and H & W which accounted for most
        of the increase of 23.8 million gallons in net new business sold. The overall
        average net margin per gallon was 15.7 cents for the nine months ended March
        31,
        2006 compared to 11.7 cents for the same period in the prior year representing
        an overall 4 cent, or 34% increase in net margin per gallon. The increase
        in
        gross profit is also the direct result of management’s diversification strategy
        associated with adjusting the mix of products sold in the lubricant, chemical
        and heavy haul area. There can be no assurance that the gross and net margin
        improvement trend will continue in the future or that margins will not decrease
        as the 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 $4.9 million, or 116%, in the
        nine
        months ended March 31, 2006 compared to the same period in the prior year.
        This
        increase is primarily attributable to the following: costs of $2.6 million
        attributable to the inclusion of Shank and H & W; $743,000 in corporate
        infrastructure development costs; $497,000 in moving and integration expenses
        related to the relocation of our corporate office and the consolidation of
        Shank and H & W’s office and yard facilities in Houston; an increase in bad
        debt expense of $322,000; an increase in credit card fees of $309,000; and
        amortization of stock based compensation expense of $280,000.
  31
  ***Interest
        Expense***
  As
        a
        result of the issuance of the September 2005 and the January 2005 Notes and
        increased borrowings under the bank line of credit, interest expense increased
        $1.2 million, or 95%, in the nine months ended March 31, 2006 compared to
        the
        same period in the prior year. The increase in interest on the bank line
        of
        credit primarily relates to the H & W acquisition. The components of
        interest expense are as follows (in thousands):
 
 
 **Nine
                  Months Ended**
                **March
                  31,****2006**
              
              **2005**
              
              **Increase****Stated
                  Rate Interest Expense**:Bank
                  line of credit
              
              $
              535
              
              $
              182
              
              $
              353Long
                  term debt
              
              
              1,105
              
              
              633
              
              
              472Other
              
              
              106
              
              
              21
              
              
              85**Total
                  stated rate interest expense**
              
              
              **1,746**
              
              
              **836**
              
              
              **910****Non-Cash
                  Interest Amortization:**Amortization
                  of deferred debt costs
              
              
              276
              
              
              183
              
              
              93Amortization
                  of debt discount
              
              
              517
              
              
              283
              
              
              234**Total
                  amortization of interest expense**
              
              
              **793**
              
              
              **466**
              
              
              **327****Total
                  interest expense**
              
              **$**
              **2,539**
              
              **$**
              **1,302**
              
              **$**
              **1,237**
 
 ***Income
        Taxes***
 
 We
        recorded no income tax expense for the nine months ended March 31, 2006.
        Our net
        operating loss carryforward at June 30, 2005 was $15.1 million.
  ***Net
        Loss***
  The
        $508,000 increase in net loss for the nine months ended March 31, 2006 compared
        to the nine months ended March 31, 2005 resulted from the increase in selling,
        general and administrative expenses of $4.9 million and higher interest expense
        of $1.2 million, partially offset by the increase in gross profit of $5.6
        million.
  ***EBITDA
        - Non-GAAP Measure***
  Earnings
        before interest, taxes, depreciation, and amortization (“EBITDA”) increased $1.0
        million, or 69%, in the current year period ****** compared
        to the prior
        year period .
        This
        increase was primarily due to an increase in net loss of $508,000 offset
        by
        increases in interest of $1.2 million and amortization of stock compensation
        expense of $280,000. Components of EBITDA for the nine months ended March
        31,
        2006 and 2005 are as follows (in thousands):
  32
  **For
                  the Nine Months Ended**
                **March
                  31,**
              
              **Increase****2006**
              
              **2005**
              
              **(decrease)**Net
                  loss
              
              $
              (1,743
              )
              $
              (1,235
              )
              $
              (508
              )Add back:Interest
                  expense
              
              
              1,746
              
              
              836
              
              
              910Non-cash
                  interest expense
              
              
              793
              
              
              466
              
              
              327Depreciation
                  and amortization expense:Cost
                  of sales
              
              
              1,130
              
              
              1,143
              
              
              (13
              )Selling,
                  general and administrative
              
              
              342
              
              
              310
              
              
              32Amortization
                  of stock compensation expense
              
              
              280
              
              
              —
              
              
              280Less:Interest
                  Income
              
              
              —
              
              
              8
              
              
              (8
              )EBITDA
              
              $
              2,548
              
              $
              1,512
              
              $
              1,036
  33
  **ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
 
 The
        Company’s exposure to market risk is limited primarily to the fluctuating
        interest rates associated with the variable rate portion of its outstanding
        debt. 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. The Company does not currently use, and has 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
        the financial condition, results of operations and cash flows of the Company.
 
 The
        interest on the Company’s bank line of credit of up to $20,000,000 is variable
        and may increase or decrease with future changes in interest rates, but interest
        rates are not the only factor which could affect interest expense on the
        bank
        line of credit. If the Company’s line of credit average outstanding balance was
        $12 million, an increase of 1% in the variable interest rate would result
        in
        additional interest expense of $120,000 per annum. The interest on our $3.0
        million, $6.1 million and $6.925 million promissory notes is fixed for the
        term
        of the notes at 10% per annum.
 
 **ITEM
        4. CONTROLS AND PROCEDURES**
 
 As
        of the
        end of the period reported on in this report, the Company has undertaken
        an
        evaluation under the supervision and with the participation of the Company’s
        management, including our Chief Executive Office and Chief Financial Officer,
        of
        the effectiveness of the design and operation of disclosure controls and
        procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934.
        Based
        upon that evaluation, the Chief Executive Officer and Chief Financial Officer
        concluded that our disclosure controls and procedures were effective, in
        all
        material respects, with respect to the recording, processing, summarizing
        and
        reporting, within the time periods specified in the SEC’s rules and forms, of
        information required to be disclosed in the reports that are filed or submitted
        under the Exchange Act.
 
 During
        the three and nine months ended March 31, 2006, the impact of Hurricanes
        Dennis,
        Katrina, Rita and Wilma on Florida and the Gulf Coast region led us to deploy
        emergency response procedures and controls in order to manage some of our
        operations and administration. Certain of these procedures and controls required
        us to use alternative technology and/or different processes than we customarily
        use for communication and documentation. We believe that these alternatives
        were
        adequate to ensure the proper recording of our expenses and revenues during
        this
        period. Other than these temporary emergency response procedures and controls,
        however, there have been no significant changes in the Company’s internal
        controls during the quarter ended March 31, 2006, or in other factors that
        could
        significantly affect internal controls subsequent to the date of the evaluation
        described above.
  34
 
 **PART
        II. Other Information**
 
 **ITEM
        1. LEGAL PROCEEDINGS**
 
 None.
 
 **ITEM
        1A. RISK FACTORS**
  ***No
        Assurances of Future Profitability; Losses from Operations; Need for
        Capital.*** We
        incurred net losses for the fiscal years ended June 30, 2005, 2004 and 2003.
        In
        order to earn profits in the future, we need to increase volumes at profitable
        margins, control costs, fully integrate acquisitions and generate sufficient
        cash flow to support working capital and debt service requirements. There
        is no
        assurance that our management will be able to accomplish our business plan
        or
        continue to raise capital at terms which are acceptable to us in order to
        support working capital requirements or debt service shortfalls during any
        business downturns. At June 30, 2005, our working capital was $5.9 million
        compared to $2.5 million on June 30, 2004. The $3.4 million increase principally
        relates to an increase in net margin per gallon of 2.2 cents per gallon and
        the
        increase in gallons sold of 11.8 million for the year ended June 30, 2005
        compared to the year ended June 30, 2004. There can be no assurance that
        this
        trend will continue in the future. The October 1, 2005 acquisition of H & W
        Petroleum Company, Inc. is likely to affect the Company’s future profitability
        and working capital. While we believe that this acquisition will have a positive
        impact on the Company’s future profitability and working capital, there can be
        no assurance that it will be positive. Moreover, the interest and associated
        costs of the $3.0 million September 2005 notes used to finance the H & W
        acquisition are expected to burden the generation of future income from
        operations and working capital; the extent to which such costs will be offset
        by
        income from H & W cannot be assured. In addition, adverse market conditions,
        negative customer reactions to new or existing marketing strategies, or
        depressed economic conditions generally may cause net margins not to improve
        further or even to diminish.
  ***Trading
        Market for Common Stock.*** During
        the nine months ended March 31, 2006, our common stock frequently traded
        in
        large daily volumes and at wide price variances. This volatility could make
        it
        difficult for our shareholders to sell shares at a predictable price or at
        specific times. In addition, there may be volatility in the market price
        of the
        common stock due to factors beyond our control. Quarterly operating results,
        changes in general conditions in the economy, the financial markets or other
        developments affecting us could cause the market price of our common stock
        to
        fluctuate.
  ***Growth
        Dependent Upon Future Expansion; Risks Associated With Expansion into New
        Markets.*** We
        intend
        to continue to expand through the acquisition of existing companies or their
        operations and customer bases. Our growth will also depend upon the ability
        to
        achieve greater penetration in existing markets and to successfully enter
        new
        markets in both additional major and secondary metropolitan areas. Market
        penetration and expansion into new markets will largely be dependent on our
        ability to demonstrate the benefits of our services and products to potential
        new customers; successfully establish and operate new locations; hire, train
        and
        retain qualified management, operating, marketing and sales personnel; finance
        capital expenditures and working capital requirements; secure reliable sources
        of product supply on a timely basis and on commercially acceptable credit
        terms;
        and successfully manage growth by effectively supervising operations,
        controlling costs and maintaining appropriate quality controls. There can be no
        assurance that we will be able to successfully expand our operations into
        new
        markets.
  ***Acquisition
        Availability; Integrating Acquisitions.*** ** Our
        future growth strategy contemplates the acquisition of businesses engaged
        in
        wholesale commercial bulk and mobile fueling, marketers and distributors
        of
        petroleum lubricants and chemicals and transportation logistics services
        businesses in existing and new markets. On February 18, 2005, we acquired
        substantially all of the assets and business operations of Shank Services,
        a
        Houston, Texas based provider of commercial fuel, petroleum lubricants
        distribution and sales, and heavy and ultra-heavy haul transportation services.
        On October 1, 2005, we acquired the stock of H & W, a Houston based
        distributor of lubricants, fuels, other petroleum products and chemicals.
        There
        can be no assurance that we will be able to fully integrate the acquired
        operations with our pre-existing operations or that we will identify or be
        in a
        position to make suitable acquisitions on acceptable terms in the future.
        Similarly, there is no certainty that we will be able to obtain acceptable
        financing for such acquisitions or that any future acquisitions will be
        effectively and profitably integrated into our operations. In particular,
        to
        finance future acquisitions, we believe that it will be important for us
        to
        control our interest expense, by the issuance of equity securities or otherwise,
        since that expense increased significantly as a result of the debt financing
        used for our recent acquisitions. All acquisitions involve risks that could
        adversely affect our operating results, including management commitment;
        integration of the operations and personnel of the acquired business; future
        write downs of acquired intangible assets; and the failure to retain key
        personnel of the acquired business.
  35
  ***Management
        of Growth; Accounting and Information Technology Systems Implementation.*** Our
        future growth strategy is dependent on effective operational, financial and
        other internal systems, and the ability to attract, train, motivate, manage
        and
        retain our employees. If we are unable to manage growth effectively, results
        of
        operations will be adversely affected. In particular, the results of operations
        will be influenced by the redesign and implementation project relating to
        our
        accounting and information technology systems in order to reduce operating
        costs
        and improve our ability to effectively manage our business and integrate
        acquisitions. While we are optimistic about this project based on preliminary
        results, there can be no assurance that such redesign and implementation
        will be
        completed as planned, or that it will have the intended results.
  ***Dependence
        on Key Personnel*** *.* Our
        future success will be largely dependent on the continued services and efforts
        of Richard E. Gathright, our Chief Executive Officer and President, and on
        other
        key executive personnel. The loss of the services of Mr. Gathright or other
        executive personnel could have a material adverse effect on our business
        and
        prospects. Our success and plans for future growth will also depend on our
        ability to attract and retain additional qualified management, operating,
        marketing, sales and financial personnel. There can be no assurance that
        we will
        be able to hire or retain such personnel on terms satisfactory to us. While
        we
        have recently extended Mr. Gathright’s existing employment agreement so that it
        now expires February 28, 2007, and automatically renews each year for additional
        one year terms unless either party gives prior notice of an intent to terminate,
        his long term future employment is not guaranteed by such agreement. We have
        also entered into written employment agreements with certain other key executive
        personnel.
  ***Fuel
        Pricing and Supply Availability; Effect on
        Profitability*** *.* Diesel
        fuel and gasoline are commodities which are refined and distributed by numerous
        sources. We purchase the fuel delivered to our customers from multiple suppliers
        at daily market prices and in some cases qualify for certain discounts. We
        monitor fuel prices and trends in each of our service markets on a daily
        basis
        and seek to purchase our supply at the lowest prices and under the most
        favorable terms. For our fueling operations, commodity price risk is mitigated
        since we purchase and deliver our fuel supply daily and generally utilize
        cost-plus pricing when billing our customers. If we cannot continue to utilize
        cost-plus pricing when billing our customers, margins would likely decrease
        and
        losses could be incurred. We have not engaged in derivatives or futures trading
        to hedge fuel price movements. In addition, diesel fuel and gasoline may
        be
        subject to supply interruptions due to a number of factors, including natural
        disasters, refinery and/or pipeline outages and labor disruptions. The reduction
        of available supplies could impact our ability to provide commercial bulk
        and
        mobile fueling, and emergency response services and impact profitability.
        While
        we maintained our record of obtaining supplies for our customers and for
        emergency work during difficult conditions encountered in the extraordinary
        hurricane season of 2005, particularly Hurricane Katrina and the resulting
        massive flooding in the New Orleans area, there is no assurance that this
        record
        will continue in the future or that our business will not be adversely affected
        by supply problems in the future.
  ***Dependence
        on Suppliers.*** While
        multiple suppliers of diesel fuel and gasoline are typically available to
        our
        wholesale commercial bulk and mobile fueling operations, our lubricants and
        chemicals operations are more dependent on relationships with a limited number
        of suppliers. While there can be no assurance that our relationship with
        any
        supplier of lubricants or chemicals will not change, we believe that, if
        it
        became necessary to change suppliers or to alter the nature or extent of
        the
        relationship with one or more of these suppliers, we have the ability to
        do so
        without a material adverse effect on our lubricants and chemicals operations.
  ***Risks
        Associated with Customer Concentration; Absence of Written Agreements.*** Although
        we provide services to numerous customers, a significant portion of our revenue
        is generated from a few of our larger customers. While we have formal, length
        of
        service written contracts with some of these larger customers, such agreements
        are not customary in our business and have not been entered into with the
        majority of our customers. As a result, most of our customers can terminate
        their business with us at any time and for any reason, and we can similarly
        discontinue providing products or services to any of those customers. We
        may
        elect to discontinue service to a customer if changes in the service conditions
        or other factors cause us not to meet minimum levels of margins and rates,
        and
        the pricing or delivery arrangements cannot be re-negotiated. As a result
        of
        this customer concentration and the limited number of written agreements,
        our
        business, results of operations and financial condition could be materially
        adversely affected if one or more of our larger customers were lost or if
        we
        were to experience a high rate of service terminations.
  36
  ***Competition.*** In our
        commercial mobile fueling operations, we compete with other mobile fueling
        service providers, including several regional companies and numerous small,
        independent operators who provide these services. We also compete with retail
        marketing where fleet operators have the option of fueling their own equipment
        at retail stations and other third-party service locations such as card lock
        facilities. Our heavy and ultra-heavy haul transportation business competes
        with
        other providers, including larger regional companies and smaller local
        companies. Our lubricants, chemicals and wholesale commercial fuel distribution
        operations compete with other large and small providers of similar services.
        Our
        ability to compete is dependent on numerous factors, including price, delivery
        dependability, credit terms, service locations and the quality of the customer
        service we provide, including reporting and invoicing services. In the past
        our
        business has been adversely affected by below cost price cutting by competitors,
        including recent actions by a competitor in California. There can be no
        assurance that we will be able to continue to compete successfully as a result
        of these or other factors.
  ***Operating
        Risks May Not Be Covered by Insurance.*** The bulk
        of our operations are subject to operating hazards and risks normally incidental
        to handling, storing and transporting diesel fuel, gasoline, petroleum
        lubricants and chemicals, almost all of which are classified as hazardous
        materials. We maintain insurance policies in amounts and with coverages and
        deductibles we believe are reasonable and prudent. However, there can be
        no
        assurance that our insurance will be adequate to protect us from liabilities
        and
        expenses that may arise from claims for personal and property damage arising
        in
        the ordinary course of business; that we will be able to maintain acceptable
        levels of insurance; or that insurance will be available at economical prices.
  ***Changes
        in Environmental Requirements*** *.* We hope
        to generate future business for our commercial mobile fueling operations
        by
        converting fleet operators who are currently utilizing underground fuel storage
        tanks for their fueling needs to commercial mobile fueling. The owners of
        underground fuel storage tanks are being required to remove or retrofit those
        tanks to comply with technical regulatory requirements pertaining to their
        construction and operation. If other more economical means of compliance
        are
        developed or adopted by owners of underground storage tanks, the opportunity
        to
        market our services to these owners may be adversely affected. Correspondingly,
        new or changed environmental regulations could also affect the costs involved
        in
        providing commercial mobile fueling services or the sale of petroleum lubricants
        and chemicals.
  ***Governmental
        Regulation.*** Our
        operations are affected by numerous federal, state and local laws, regulations
        and ordinances, including those relating to protection of the environment
        and
        worker safety. Various federal, state and local agencies have broad powers
        under
        these laws, regulations and ordinances. In particular, the operation of our
        commercial mobile fueling fleet and its transportation of diesel fuel and
        gasoline are subject to extensive regulation by the U.S. Department of
        Transportation (“DOT”) under the Federal Motor Carrier Safety Act (“FMCSA”) and
        the Hazardous Materials Transportation Act (“HMTA”). We are subject to
        regulatory and legislative changes that can affect the economics of the industry
        by requiring changes in operating practices or influencing the demand for,
        and
        the cost of providing, its services. In addition, we depend on the supply
        of
        diesel fuel, gasoline, petroleum based lubricants and chemicals from the
        oil and
        gas industry so that we are affected by changing taxes, price controls and
        other
        laws and regulations generally relating to the oil and gas industry. We cannot
        determine the extent to which our future operations and earnings may be affected
        by new legislation, new regulations or changes in existing regulations.
  The
        technical requirements of these laws and regulations are becoming increasingly
        expensive, complex and stringent. These laws may impose penalties or sanctions
        for damages to natural resources or threats to public health and safety.
        Such
        laws and regulations may also expose us to liability for the conduct of or
        conditions caused by others, or for acts of which we were in compliance with
        all
        applicable laws at the time such acts were performed. Sanctions for
        noncompliance may include revocation of permits, corrective action orders,
        administrative or civil penalties and criminal prosecution. Certain
        environmental laws provide for joint and several liability for remediation
        of
        spills and releases of hazardous substances. In addition, we may be subject
        to
        claims alleging personal injury or property damage as a result of alleged
        exposure to hazardous substances, as well as damage to natural
        resources.
  37
  Although
        we believe that we are in substantial compliance with existing laws and
        regulations, there can be no assurance that substantial costs for compliance
        will not be incurred in the future. There could be an adverse affect upon
        our
        operations if there were any substantial violations of these rules and
        regulations. Moreover, it is possible that other developments, such as stricter
        environmental laws, regulations and enforcement policies, could result in
        additional, presently unquantifiable, costs or liabilities to us.
  The
        compliance requirements of the Sarbanes-Oxley Act of 2002 have placed an
        increasing time burden on our personnel and significantly increased the costs
        associated with being a publicly traded company. We cannot determine the
        future
        costs of compliance with this Act; whether our compliance efforts will satisfy
        its compliance requirements; or whether, or the extent to which, our future
        operations or earnings may be affected by the Act’s impact on our business
        operations.
  **ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS**
 
 None.
 
 **ITEM
        3. DEFAULTS UPON SENIOR SECURITIES**
 
 None.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None.
 
 **ITEM
        5. OTHER INFORMATION**
 
 None.
 
  **ITEM
        6. EXHIBITS**
  **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
  38
  **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.
  STREICHER
                MOBILE
                FUELING, INC.May
                19,
                2006
              By:
              /s/ Richard
                E. GathrightRichard
                  E. Gathright
                Chief
                  Executive Officer and President
  By:
              /s/ Michael
                S. ShoreMichael S. Shore
                Chief Financial Officer and Senior Vice President
  39