Our Financial Profile

The following financial information is based on SMF’s most recently filed Form 10-Q for the quarter ended March 31, 2010. Unless otherwise noted, all stock information is as of March 31, 2010, except that all share numbers have been adjusted to reflect the October 1, 2009, reverse stock split, by which 4.5 pre-split shares were converted into 1 post-split share.

Market Capitalization of $11.04 million based on 8,557,314 million shares of common stock outstanding at March 31, 2010, based on the official NASDAQ closing price of $1.29 on that date.
52 Week High/Low closing prices of $2.66/$1.11 as of June 3, 2010.

Average Daily Trading Volume of 72,943 shares based on the 90 day period ending June 3, 2010.

Total common shares are 8,557,314 as of June 3, 2010.

Total common shares authorized are 50,000,000.

SUMMARY UPDATE

For the third quarter and nine months ending March 31, 2010, the Company reported a net loss of $419,000 and net income of $46,000, respectively, with positive EBITDA, a Non-GAAP measure, of $398,000 and $2.8 million for each of these periods. The Company’s results for the third quarter, typically its low seasonal performing quarter, were impacted by a lower than expected recessionary customer demand during the months of January and February. While demand in March improved dramatically, it was not sufficient to overcome the first two months of the quarter, which downturn was consistent with national trends indicated by transportation indexes.

The $419,000 loss during the third quarter of fiscal 2010 compares to net income of $445,000 during the recent second quarter of fiscal 2010. Besides the unexpectedly weak demand during the first two months of the 2010 quarter, the difference between these two most recent quarterly periods may be attributed to $748,000 in lower SG&A expense in the second quarter. The difference in quarter over quarter SG&A came from a one-time benefit from the settlement of a lawsuit, $101,000 of additional Sarbanes Oxley 404(b) implementation costs and $49,000 of additional credit card fees and collections expense.

Notwithstanding the negative earnings in the third quarter, the Company currently expects to report a profit in the fourth quarter and for the fiscal year ending June 30, 2010. The Company has now reported positive EBITDA for the last seven consecutive quarters, a trend that is attributable to a number of new efficiencies in the Company’s operation, as well as to its early recognition of, and response to, the national economic crisis in the first half of fiscal 2009.

COMMENTS FROM OUR CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT, RICHARD E. GATHRIGHT

“We sold 17.4 million gallons of fuel during the quarter, our highest quarterly volume since the quarter ended September 30, 2008, when we sold 18.6 million gallons. The increased volume was, however, almost exclusively the result of our aggressive solicitation of new customers in our existing markets and our entry into new markets rather than from any pre-recession rebound in demand from our existing customer base. In fact, demand from that core customer group actually softened further in the first two months of the quarter before recovering in March. This decrease in demand from our existing customers in the freight, construction and other industries came on top of the 14% decrease in sales volume that we saw at the beginning of the recession and which we have still not yet recovered.

Even though our quarter ending on March 31st is historically the most challenging for us because of the seasonal decline in gallons sold as a result of fewer workdays and weather conditions which often lower customer demand, the recessionary impact in January and February of this year was greater than we had forecasted for the period based on prior experience. Fortunately, in March, we experienced a steady recovery in demand from our core customers along with increased demand for our services from new customers, which returned us to our forecasted range of expectations for that month. This positive trend continued into April, with our net margin per gallon averaging 24.6 cents for those two months. While we are cautiously optimistic that the positive turn we realized in March and April will continue, we acknowledge that our customers’ demand for our services will continue to be affected by national and global economic conditions.

Our short term profitability in this third quarter was also impacted by higher than anticipated costs, including increases in maintenance, fuel and other running costs for our own fleet, as well as new costs for implementing Sarbanes Oxley 404(b) compliance programs and for weather related operating costs associated with our Houston facility. While continuing to pursue reductions in operating and other expenses, we are keenly focused on the achievement of sales and revenue growth to achieve sustained profitability. With this in mind, during fiscal 2010, we have already expanded into three new markets, which encompass Knoxville, TN, Spartanburg, SC, and North Augusta, GA. We continue our marketing efforts in these new markets in order to improve our net margins there and in the Company overall.

Besides the prospects for increased sales and revenue from new markets and from new customers in existing markets, we are interested in the prospects for improved operating results when the overall economy improves. At such a time, we still hope to see a recovery of the 14% reduction in demand from existing customers that we suffered when the national economy collapsed in fiscal 2009. We believe that we will be at the forefront of the economic benefits by a broad economic recovery due to the nature of the industries we serve as well as our diversification within those industries, with over 4,000 customers in 34 markets in 11 states.

We continue to be positioned to achieve steady improvements in profitability in future quarters. Despite the third quarter loss and the lower than expected sales volume and increased SG&A expense that it reflects, we still generated positive financial performance for the first nine months of fiscal year 2010, yielding bottom line net income, positive EBITDA, and cash contribution after our fixed charges. In addition, our balance sheet continues to strengthen as the result of the June 2009 recapitalization of our debt and equity. Not only are we seeing a significant reduction in interest expense, the principal amount of our long term debt is being steadily reduced at $250,000 a quarter and will be $1.0 million lower on July 1, 2010 than it was a year ago, along with corresponding improvements in our debt to equity ratio and other key financial ratios.”

HIGHLIGHTS OF THIRD QUARTER FISCAL YEAR 2010 VS. THIRD QUARTER FISCAL YEAR 2009

• The $419,000 net loss during the three months ended March 31, 2010, included $638,000 in non-cash charges, such as depreciation and amortization of assets, debt costs, stock-based compensation, provision for doubtful accounts, and slow moving inventory reserve. The net loss also included stated interest expense of $260,000 associated with servicing our debt and public company costs of $176,000.
• In the third quarter of fiscal 2010, we achieved EBITDA of $398,000 compared to $974,000 in the same period a year ago, a decrease of approximately $576,000. The decrease is partially attributable to a decrease of $392,000 in gross profit and an increase of $100,000 in SG&A.
• The net margin in the third quarter of fiscals 2010 and 2009 was $3.6 million and $4.0 million, respectively, on 17.4 million and 16.0 million gallons sold during those periods. The net margin per gallon in the third quarter of fiscal 2010 and 2009 were 20.8 cents and 25.1 cents, respectively.
• As a result of the June 2009 Recapitalization, our interest expense was substantially lower in the third quarter of fiscal 2010 compared to the same period last year. We incurred interest expense of $260,000 this quarter compared to $575,000 in the same quarter in the prior year, a decrease of $315,000, or 55%, of which $260,000 is related to lower debt and lower costs to service our existing debt.

HIGHLIGHTS OF FIRST NINE MONTHS OF FISCAL YEAR 2010 VS. FIRST NINE MONTHS OF FISCAL YEAR 2009

• Net income was $46,000 in the nine months ended March 31, 2010, as compared to a net loss of $391,000 in the same period in the prior year. The $437,000 increase was partially attributable to lower selling, general and administrative expenses of $1.3 million. The net income results were favorably impacted by cost cutting and business restructuring steps that were taken beginning in late November 2008 to meet the dramatic decrease in customer demand attributable to the international economic crisis, and also by lower interest expense of $1.2 million attributable to the June 2009 Recapitalization Program and to lower fuel prices. Additionally, the net income results were positively impacted by the settlement of a lawsuit whereby we recovered part of our expended legal and professional lowering our SG&A costs during the current year by approximately $584,000. The increase in net income was offset by the lower gross profit of $2.0 million resulting from higher direct operating expenses this year, the decrease in margin contribution from the emergency response services provided in the first quarter of fiscal 2009, and the non recurrence of the benefit from last year’s elimination of certain personnel benefits expense.
• EBITDA was $2.8 million in the nine months ended March 31, 2010, as compared to $3.7 million in the same period of the prior year, a decrease of $833,000. The decrease in EBITDA was partially due to the lower gross profit of $2.0 million resulting from higher operating expenses this year and the decrease in margin contribution from the emergency response services provided in the first quarter of fiscal 2009 in Louisiana and Texas for Hurricanes Gustav and Ike. The decrease in EBITDA was partially offset by the lower selling, general and administrative expenses of $1.3 million as a result of the cost cutting and business restructuring steps taken beginning in late November 2008 to meet the dramatic decrease in customer demand attributable to the international economic crisis, and the recovery of certain professional fees related to the settlement of a lawsuit. The decreases in selling, general and administrative expenses were partially offset by the increase in personnel benefits due to last year’s one time elimination of a benefits reserve.
• Gross profit was $10.9 million in the nine months ended March 31, 2010, as compared to $12.9 million in the same period of the prior year, a decrease of $2.0 million, or 16%. The net margin per gallon for the nine months ended March 31, 2010 and 2009 was 22.5 cents and 26.8 cents, respectively, a decrease of 4.3 cents. The decreases were primarily due to the incremental margin contributions in fiscal 2009 from the emergency response services provided in Louisiana and Texas for Hurricanes Gustav and Ike during the first quarter of fiscal 2009. We incurred additional direct operating expenses this fiscal year as a result of last fiscal year’s $221,000 reversal of a personal benefits reserve as benefits were eliminated as a response to the economic collapse.
• Interest expense was $751,000 in the nine months ended March 31, 2010, as compared to $1.9 million in the same period of the prior year, a decrease of $1.2 million, or 61%. The decrease was primarily due to lower interest expense as a result of the reduction in our long-term debt outstanding, and lower interest rates since the June 2009 Recapitalization Program, when we eliminated some of our high interest secured and unsecured debt and replaced the balance with a lower interest rate (currently in the range of 4.00% to 5.50%). At the same time, we also negotiated favorable interest rates and other terms on our line of credit.

Highlights of Results for Quarterly Periods ending September 30, 2008 through March 31, 2010

The following table portrays the financial trends for the Company’s seven most recent quarters:

All amounts in thousands of dollars, except net margin per gallon

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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 ASC 470-20 (formerly FAS No. 84) inducement on extinguishment of promissory notes constitute the recognition of previously deferred interest or finance cost, it is considered interest expense for the calculation of certain interest expense amounts. Both stock-based compensation amortization expense and the write-off of unamortized acquisition costs are considered amortization items to be excluded in the EBITDA calculation. 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 Non-cash ASC 470-20 (formerly FAS No. 84) inducement on extinguishment is a charge we incurred strictly as a result of the June 29, 2009 Recapitalization. The Company extinguished a portion of the August 2007 and the September 2008 Notes (“the Notes”) through the issuance of approximate 1.2 million shares and approximate 278,000 shares, respectively, at the negotiated price of $1.71 per share, which was greater than the $1.67 per share closing bid price the day prior to the Recapitalization, but lower than the conversion price applicable to the convertible debt instruments, which resulted in the issuance of more shares in the exchange than would have been issued upon a conversion. The practice of accounting in the interpretation of FAS No. 84 is that an inducement occurs any time when additional shares are issued in the extinguishment of convertible debt regardless of the absence of an economic loss or economic intent of the parties to the transaction. Irrespective of the economic reality of the transaction, FAS No. 84 required the recording of a non-cash “conversion inducement” charge of $1.7 million, based on the difference between the approximate aggregate 471,000 common shares issuable to the applicable note holder under the original conversion rights that existed upon a conversion and the approximate 1.5 million common shares exchanged at $1.71 cents in the transaction that extinguished all of the Notes. This non-cash charge is deemed a financing expense to extinguish the Notes. To the extent that the non cash FAS 84 inducement on extinguishment of promissory notes constitutes the recognition of a finance cost, it is considered interest expense for the calculation of certain interest expense amounts.

&sup4; Adjusted net income (loss) before non-cash, non-recurring charges is shown to provide the reader with information regarding the true economic performance of the Company before the impact of charges that do not reflect the on-going performance of the operations such as of the technical non-economic substantive accounting charge of $1.7 million in the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010 write-off incurred as new accounting ruling was applied and stock compensation expense that resulted from repricing stock options. We believe that this is a meaningful Non-GAAP representation of the ongoing performance of the operations.

Adjusted net income (loss) before non-cash, non-recurring charges (Non-GAAP measure) reconciliation to the Net income (loss) for quarterly periods ending September 30, 2008 through March 31, 2010

All amounts in thousands of dollars

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1 Adjusted net income (loss) before non-cash, non-recurring charges is shown to provide the reader with information regarding the economic performance of the Company before the impact of charges that do not reflect the on-going performance of the operations such as the technical non-economic substantive accounting treatment charge of $1.7 million in the fourth quarter of fiscal 2009, and the first quarter of fiscal 2010 write-off incurred as new accounting ruling was applied and stock compensation expense that resulted from the repricing of stock options. We believe that this is a meaningful Non-GAAP representation of the ongoing performance of the operations.

EBITDA (Non-GAAP measure) reconciliation to the Net income (loss) for quarterly periods ending September 30, 2008 through March 31, 2010

All amounts in thousands of dollars

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1 As noted above, EBITDA is a Non-GAAP financial measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission. 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. The stock-based compensation amortization is considered an amortization item to be excluded in the EBITDA calculation. 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.