The following discussion of our financial condition, results of operations, liquidity and capital resources should be read in conjunction with our audited consolidated financial statements and related notes included in Part III of this Form 10-K, commencing on page F-1.

OUR BUSINESS

We are a supplier of specialized transportation and distribution services for petroleum products and chemicals. We provide commercial mobile and bulk fueling, lubricant and chemical distribution, emergency response services and transportation logistics to the trucking, manufacturing, construction, shipping, utility, energy, chemical, telecommunications and government services industries. At June 30, 2009, the Company was conducting operations through 31 service locations in the eleven states of Alabama, California, Florida, Georgia, Louisiana, Mississippi, Nevada, North Carolina, South Carolina, Tennessee and Texas.

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 specialized equipment fleet delivers diesel fuel and gasoline to customer locations on a regularly scheduled or as needed basis, refueling vehicles and equipment, re-supplying bulk storage tanks, and providing fuel for emergency power generation systems. Our fleet also handles the movement of customer equipment and storage tanks we provide for use by our customers. We also distribute a wide variety of specialized petroleum products, lubricants and chemicals to our customers in Texas and in certain other markets.

We compete with several large and numerous small distributors, jobbers and other companies offering services and products in the same markets in which we operate. We believe that the industry and these markets offer us opportunities for consolidation, as customers increasingly demand one-stop shopping for their petroleum based needs and seek reliable supply deliveries particularly to prevent business interruptions during emergencies. We believe that certain factors, such as our ability to provide a range of services and petroleum based products and services, create advantages for us when compared to our competitors.

An objective of our business strategy is to become the leading "single source" provider of petroleum products and services in the markets we currently operate in, as well as expanding into additional contiguous markets. To achieve this objective we plan to focus on increasing revenues in our core operations and in expanding through selective acquisitions.

OVERVIEW

  · During fiscal 2009, we achieved improvements in our operating income, bottom
    line and EBITDA results (in thousands):



                                             Fiscal 2009       Fiscal 2008         Change       % change

Operating income                           $       1,685     $      (1,969 )    $   3,654            N/A

Net loss                                   $      (2,339 )   $      (6,769 )    $   4,430             65 %
Less: Non-cash FAS 84 Inducement on
extinguishment                                     1,651                 -          1,651            N/A
Adjusted net loss before non-cash FAS 84
inducement                                 $        (688 )   $      (6,769 )    $   6,081             90 %

EBITDA - Non GAAP Measure -
reconciliation below                       $       4,530     $       1,240      $   3,290            265 %

· We are reporting operating income for fiscal 2009 of $1.7 million compared to an operating loss of $2.0 million in fiscal 2008, an improvement of $3.7 million. We are also reporting a net loss for fiscal 2009 of $2.3 million most of which is the result of a $1.7 million non-cash charge in the fourth quarter reflecting the application of FAS No. 84 to a portion of our $40 million Recapitalization transaction in June of 2009. We believe that a meaningful Non-GAAP representation of the results of operations for fiscal 2009 would be the $688,000 Non-GAAP adjusted net loss before non-cash FAS 84 inducement that when compared to the $6.8 million loss of the prior year (which did not include any FAS 84 conversion inducement charge), shows an improvement of $6.1 million, or 90%. In particular, FAS No. 84 requires the exchange of outstanding convertible debt securities for shares of common stock in the Recapitalization to be treated as a conversion inducement notwithstanding the highly beneficial economic substance of the overall transaction to the Company. This non-cash accounting charge has been included in our Consolidated Statement of Operations but does not reflect the highly positive economic substance of the June 2009 Recapitalization, which provided us with enormous short term and long term financial benefits that are inconsistent with the FAS 84 noncash accounting charges. See Note 4, Recapitalization.

· In addition, in the Recapitalization the Company redeemed of all the outstanding Series A, Series B, and Series C preferred shares into Common Stock. The application of FAS 84 and EITF No. D-42, "The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock," to the preferred shares redemption resulted in a $1.7 million non-cash deemed dividend. While the $1.7 million non-cash deemed dividend does not impact the Consolidated Statement of Operations, it is included in the calculation of the Net loss attributable to common shareholders of $0.31 loss per share in fiscal 2009. We believe that a meaningful representation of the results of operations on a per share basis would be the $0.08 loss per share which excludes both the non-cash FAS 84 inducement and the non-cash deemed dividend as both of those calculations are the result of the Recapitalization and not of the ongoing performance of the business. See Note 4 - Recapitalization.

· In addition to the $1.7 million non-cash charge, the net loss for fiscal 2009 reflects other non-cash charges of $3.4 million, such as depreciation and amortization of assets, debt costs, debt discounts, stock-based compensation, and provision for doubtful accounts. The net loss also reflects stated rate interest expense associated with servicing of our debt of $2.1 million, which expense is expected to be reduced by more than $1 million in the upcoming year as a result of the June 2009 Recapitalization, legal expenses of $950,000 and public company costs of $864,000.

· EBITDA, a non-GAAP measure, increased by $3.3 million or 265% from $1.2 million in fiscal 2008 to $4.5 million in fiscal 2009.

· As noted, on June 29, 2009, we completed a $40 million Recapitalization. The Recapitalization had an immediate reduction of our total debt of $4.5 million, reduced our annual servicing expense for interest and dividends by over $1 million, increased shareholders' equity by at least $4.1 million and reduced our debt to equity ratio from approximately 9 to 1 to 2 to 1 from June 30, 2008 to June 30, 2009, respectively. The contribution of the Recapitalization to our financial strength and stability going forward is incontrovertible.

· In the June 2009 Recapitalization, we extinguished all of our outstanding non-bank debt and preferred stock by entering into various agreements with dozens of our then existing debt and equity investors. This extinguishment included $8.859 million in outstanding August 2007 11.5% Senior Secured Convertible Promissory Notes (the "Secured Notes"); $725,000 in outstanding September 2008 12% Unsecured Convertible Promissory Notes ("Existing Unsecured Notes"); $2.263 million in 12% Cumulative Dividend Convertible Series A Preferred Stock ("Series A Preferred"); $1.787 million in 12% Cumulative Dividend Convertible Series B Preferred Stock ("Series B Preferred"); $149,000 in 12% Cumulative Dividend Convertible Series C Preferred Stock ("Series C Preferred") and $617,000 in accrued but unpaid interest and dividends on the Secured Notes, the Existing Unsecured Notes and the Series A, Series B and Series C Preferred Stock.

· As part of the Recapitalization, we converted our then existing $25 million revolving line of credit into a new, significantly more favorable, $25 million loan facility. We entered into the Eighteenth Amendment to the Loan and Security Agreement with our principal lender, Wachovia Bank, obtaining a new credit facility which consists of a three year $20 million revolving loan coupled with a new $5 million 5.5%, 60 month, fully amortized term loan. The proceeds of the term loan were then applied to pay down $4.867 million of the Secured Notes and $125,000 of the Unsecured Notes. The Eighteenth Amendment also extended the renewal date of the revolving line of credit to July 1, 2012, added our vehicles and field operating equipment as additional collateral for the Bank, and modified several covenants in the loan agreement in a manner favorable to us. The Bank's 3 year extension of the line of credit and the other beneficial terms of the Eighteenth Amendment including the issuance of a 5 year term loan, were the foundation upon which we were able to build the various other transactions comprising the Recapitalization.

· To complete the extinguishment of our existing debt and senior equity securities, we exchanged 11.5% and 12% high yield securities held by our debt and preferred shares holders for lower yield 5.5% debt or equity securities or shares of our Common Stock. As a result, we issued (i) 3,228 shares of a new 5.5% Cumulative Dividend Series D Preferred Stock ("Series D Preferred") at $400 per share, or $0.40 per common share equivalent, for $1.291 million, (ii) 19,251,119 shares of Common Stock for $0.38 per share, or $7.315 million, and
(iii) a 5 year $0.8 million 5.5% Unsecured Note (the "New Unsecured Note"); and paid an additional $43,934 in cash, which eliminated all of our outstanding Series A Preferred, Series B Preferred, Series C Preferred, Existing Unsecured Notes and Secured Notes, and any accrued interest and dividends payable therein.

· We reduced our non-bank debt by the Recapitalization, since the only remaining non-bank debt is the New Unsecured Note, a five year, 5.5% interest only subordinated promissory note for $800,000 issued to an existing institutional investor in exchange for $800,000 of its $1 million Secured Note. The institutional investor exchanged the $200,000 balance of the Secured Note for shares of Common Stock at $0.38 per share.

· Our total debt has decreased $15.0 million or 52% at June 30, 2009 compared to June 30, 2008, partly due to lower fuel prices this year which affect the line of credit balance but also due to the Recapitalization which had an immediate reduction of $4.5 million.

· We also negotiated more favorable interest rates in the Recapitalization, thereby reducing our future interest expense obligations. Our new $5 million term loan interest rate is at a LIBOR floor of 0.75% plus 3.75%, or 4.5%, compared to the 11.5% and 12% that we were paying on the former Secured and Unsecured debt. Similarly, our new $800,000 unsecured note and our new Series D Preferred Stock series D all have a yield of 5.5%, respectively, compared to the 12% cumulative dividend on the extinguished Series A, B and C Preferred Stock. We also deferred, for the first thirteen months after the June 2009 Recapitalization, all interest on the unsecured notes and dividends for the preferred stock series D. The improved terms in our bank line of credit include lowering our current rate from 4.0% to 3.75%, as it is now based on a LIBOR floor of 0.75% plus 3.00% compared to our former rate of prime of 3.25% plus 0.75%. The line of credit financial covenants have also been changed favorably, lowering our fixed charge coverage ratio to 1.1 to 1.0 from 1.3 to 1.0 and our daily excess availability from $750,000 to $250,000. We believe that the drastic reduction in our debt and dividend bearing preferred stock from the Recapitalization has correspondingly improved our enterprise value and the value of our Common Stock, even after considering the increase in outstanding Common Stock in the recapitalization to 35.8 million shares and 42 million shares on a fully diluted basis.

· In July and September 2009 several of the preferred D shareholders converted 2,630 shares into 2,673,056 shares of Common Stock.

· The strengthening of our balance sheet through the Recapitalization also reflects the continuing improvement of our business during fiscal 2009. While the difficult economic environment has affected demand from existing customers, we have maintained our customer base, and we have added new customers, as evidenced by the expansion of our services during this fiscal year into two new states and five new territories. The trend of steadily improving financial performance, which started in the fourth quarter of fiscal 2008, continued during fiscal 2009, as we reported higher net margins, and operating income, and improved EBITDA versus the same period a year ago. We continue to operate more efficiently than in prior periods, partially as a result of our fully developed infrastructure and ERP system, both of which facilitated our timely reaction to changing economic conditions during the second quarter of fiscal 2009, when we quickly adjusted our costs in response to decreasing volumes as a result of the rapid contraction of the national economy and its impact on our customer base.

· At that time, we responded with various cost cutting measures, including business restructuring steps, beginning late in November 2008 and through the remainder of fiscal 2009, to meet the decrease in customer demand. Our results reflect the impact of eliminating operating and administrative personnel and maximizing the productivity of equipment and reducing direct and office operating expenses. For example, we consolidated delivery routes to improve efficiencies without sacrificing our high level of customer service. Moreover, as the economy has contracted, we have continued to add new customers seeking to reduce their costs of operations with mobile fueling or replacing their prior service providers for the higher value solution we provide, which includes greater reliability, a substantial reduction in service issues and better reporting metrics. We have also expanded the services we provide to existing customers, such as the recent addition of mobile fueling services in North Carolina for the United States Postal Service, which has been our customer for over 15 years.

· Financial results from commercial mobile and bulk fueling services continue to be largely dependent on the number of gallons of fuel sold and the net margin per gallon achieved. During fiscal 2009, we experienced a 6.0 million decrease in the number of gallons sold compared to the same period in fiscal 2008. This decrease is due to lower volumes demanded by some of our existing customers in response to the weaker economy and to our pursuit of business with higher net margin contributions, with the overall decrease partially offset by the volume generated from new customers. While these volumes represent a decrease from prior years, in the third quarter of fiscal 2009 we began to see some stabilization of existing customer demand which trend continued in the fourth quarter of fiscal 2009. While there can be no assurance that this year's downturn in customer volumes has in fact bottomed out, we remain cautiously optimistic that, in light of the stabilization of customer demand, our continuing success in adding new customers, and the cost cutting measures made earlier in the fiscal year, our operations and financial performance will continue to improve as they did during fiscal 2009.

· It is important to note that our net margin in fiscal 2009 was higher on 68 million gallons than it was in fiscal 2008, 2007 and 2006 when we sold 74 million, 85 million and 94 million gallons, respectively. The net margin per gallon has increased to $0.258 in fiscal 2009 from $0.149 in fiscal 2006, an increase of 73%. These continued higher net margins on lower volumes are the direct result of our fully implemented ERP system and the utilization of our margin control tools to eliminate non-contributory lower margin business, which has allowed for improved route delivery efficiency including the consolidation of routes and margin analysis of our marketing group to both assess margin contribution and decision making more timely. Such elimination allows for increased capacity of our fleet and for personnel to be deployed for emergency response business as needed.

                                                        Year Ended June 30,
                                            2009         2008         2007         2006
     Net Margin                           $ 17,517     $ 14,354     $ 14,333     $ 14,076
     Net Margin per gallon (in dollars)   $  0.258     $  0.194     $  0.169     $  0.149
     Total Gallons                          67,902       73,871       84,899       94,261

TRENDS IN FISCAL YEAR 2009 TO DATE

· We began our 2009 fiscal year with a strong first quarter during which we achieved improved results in several of our key financial categories when compared to the fourth quarter of our 2008 fiscal year. These improvements included increases in gross profit of 36%, a change from net loss to net income of $878,000 and an EBITDA increase of 72%. While emergency storm response work contributed to some of these strong results, we believe that the most important factor was the significant margin contribution stemming from the efficiencies generated by the ERP system and our focus on higher margin business.

· While we ended our first quarter of fiscal 2009 with optimism in regards to our improving bottom-line performance, our operations were materially impacted in the second quarter of fiscal 2009 by the down spiraling worldwide economy and its dramatic effect on our approximately 4,600 customers across virtually all U.S. manufacturing and service sectors. When comparing the second quarter of fiscal 2009 to the first quarter, it was apparent that the dramatic economic downturn yielded a reduction in gallons sold of 11% net of any additions attributable to new business, and contributed to a decrease in gross profit of 43%, a $1.2 million change from net income to net loss and an EBITDA decrease of 65%. We did respond decisively, however, in November and December 2008 to this sudden reduction in customer demand by making significant reductions in costs, improving the efficiencies in all of our operating areas and expanding into five new markets and two states to meet demand for our services.

· We believe that our fully operational corporate infrastructure and ERP system underpinned our ability to execute the tactical measures that we initiated in the second quarter of fiscal 2009 and put us back on track toward the financial performance that we had previously anticipated coming out of the first quarter of 2009. When comparing the third and second quarters of fiscal year 2009, we realized material improvements in all the key financial categories, including an increase in gross profit of 15%, a reduction in net loss of 63%, together with an EBITDA increase of 41%. The key to our improved performance was the 25-cent net margin per gallon we achieved in the third fiscal quarter, a 4-cent or 19% improvement from the second quarter which resulted from improved efficiencies and focus on higher margin business.

· We continued the positive trends of the third quarter into the fourth quarter with a sales volume of 16.7 million gallons, which is a slight increase in gallons sold of 4% as compared to the third quarter of fiscal 2009. While the GAAP reported net loss for the fourth quarter of fiscal 2009 was $1.9 million, it was only $297,000 before the $1.7 million non-cash FAS 84 inducement charge for the extinguishment of the convertible debt securities, which would have been a slight increase from the third quarter and a decrease of 19% compared to the net loss of $366,000 in the fourth quarter of fiscal 2008.

· We currently expect the stabilization of customer demand that we saw at the end of fiscal 2009 to continue in fiscal 2010 and believe that the demand from new customers for our services is strong. However, we are unable to predict an improvement in demand from our existing customers in the short run. There can be no assurance that a continuation or a worsening of the current adverse economic condition will not further adversely impact our customers and, in turn, our business.

The following table presents certain operating results for the last eight sequential quarters (in thousands, except net margin per gallon):

                                                                                                    For the three months ended
                                               June 30,       March 31,       December 31,       September 30,      June 30,       March 31,       December 31,       September 30,
                                                 2009           2009              2008               2008             2008           2008              2007               2007

Revenues                                       $  39,884     $    34,982     $       45,112     $        79,271     $  82,036     $    64,162     $       58,994     $        55,497
Gross profit                                   $   3,539     $     3,790     $        3,292     $         5,819     $   4,290     $     2,875     $        2,565     $         3,182
Selling, general and administrative            $   3,401     $     3,455     $        3,267     $         4,632     $   3,845     $     3,445     $        3,788     $         3,803
Operating income (loss)                        $     138     $       335     $           25     $         1,187     $     445     $      (570 )   $       (1,223 )   $          (621 )
Interest expense and
other income, net                              $    (454 )   $      (570 )   $         (677 )   $          (667 )   $    (811 )   $      (720 )   $         (763 )   $          (757 )

Non-cash FAS 84 inducement on extinguishment   $  (1,651 )   $         -     $            -     $             -     $       -     $         -     $            -     $             -
Gain (loss) on extinguishment of promissory
notes                                          $      27     $         -     $            -     $             -     $       -     $      (108 )   $            -     $        (1,641 )
Net income (loss)                              $  (1,948 )   $      (243 )   $         (660 )   $           512     $    (366 )   $    (1,398 )   $       (1,986 )   $        (3,019 )
Less: Non-cash FAS 84 inducement on
extinguishment                                 $   1,651     $         -     $            -     $             -     $       -     $         -     $            -     $             -
Adjusted net (loss) income before non-cash
FAS 84 inducement 3                            $    (297 )   $      (243 )   $         (660 )   $           512     $    (366 )   $    (1,398 )   $       (1,986 )   $        (3,019 )

EBITDA 1                                       $     876     $       974     $          690     $         1,990     $   1,154     $       277     $         (387 )   $           196

Net margin                                     $   3,795     $     4,027     $        3,534     $         6,161     $   4,611     $     3,228     $        2,945     $         3,569
Net margin per gallon 2                        $    0.23     $      0.25     $         0.21     $          0.33     $    0.24     $      0.18     $         0.16     $          0.19
Gallons sold                                      16,709          16,041             16,602              18,550        19,024          18,102             18,050              18,695

1 EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, a non-GAAP financial measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission. To the extent that gain or loss and the non-cash FAS 84 inducement on extinguishment of debt constitutes the recognition of previously deferred interest or finance cost, it is considered interest expense for the calculation of certain interest expense amounts. We believe that EBITDA provides useful information to investors because it excludes transactions not related to the core cash operating business activities. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations.

2 Net margin per gallon is calculated by adding gross profit to the cost of sales depreciation and amortization and dividing that sum by the number of gallons sold.

3 Adjusted net (loss) income before non-cash FAS 84 inducement is shown to provide the reader of the true economic performance of the Company before the impact of a technical non-economic substantive accounting charge of $1.7 million. We believe that this is a meaningful Non-GAAP representation of the ongoing performance of the operations excluding the effect of a charge that was strictly related to the Recapitalization. See Note 4 - Recapitalization for details.

The following table reconciles EBITDA to the net income (loss) for each of the eight quarterly periods presented above (in thousands):

                                                                                                          For the three months ended
                                                    June 30,       March 31,       December 31,       September 30,       June 30,       March 31,       December 31,       September 30,
                                                      2009           2009              2008               2008              2008           2008              2007               2007

Net income (loss)                                   $  (1,948 )   $      (243 )   $         (660 )   $           512     $     (366 )   $    (1,398 )   $       (1,986 )   $        (3,019 )
Add back:
Interest expense, net                                     545             575                680                 683            720             780                782                 778
Income tax expense                                          8               8                  8                   8              -               -                  -                   -
Depreciation and amortization expense:
Cost of sales                                             254             239                242                 342            321             353                380                 388
Selling, general and administrative expenses              344             334                342                 341            357             311                304                 282
Stock-based compensation expense                           49              61                 78                 104            122             123                133                 126
Non-cash FAS 84 inducement on extinguishment            1,651               -                  -                   -              -               -                  -                   -
(Gain) loss on extinguishment of promissory notes         (27 )             -                  -                   -              -             108                  -               1,641
EBITDA                                              $     876     $       974     $          690     $         1,990     $    1,154     $       277     $         (387 )   $           196

The following table reconciles Adjusted basic and diluted net loss per share . . .