Penn Octane Corporation (Penn Octane), a Delaware Corporation and its consolidated subsidiaries, including Rio Vista Energy Partners L.P. and its subsidiaries (Rio Vista), are collectively hereinafter referred to as the Company.   As more fully described below, prior to the sale of all of Penn Octane’s liquefied petroleum gas (LPG) related assets and a portion of Rio Vista’s LPG related assets to TransMontaigne Product Services Inc. (TransMontaigne) on August 22, 2006 (Restated LPG Asset Sale), the Company was principally engaged in the purchase, transportation and sale of LPG and the sale of gasoline and diesel fuel (Fuel Products).    Subsequent to the Restated LPG Asset Sale, Rio Vista continues to own and operate a LPG terminal facility in Matamoros, Tamaulipas, Mexico (Matamoros Terminal Facility) and approximately 23 miles of pipelines (US - Mexico Pipelines) which connects the Matamoros Terminal Facility to the LPG terminal facility in Brownsville, Texas sold to TransMontaigne. Pursuant to a LPG transportation agreement with TransMontaigne, Rio Vista uses its remaining LPG assets to transport LPG exclusively for TransMontaigne on a fee-for-services basis.

During June 2004, the Company began operations as a reseller of Fuel Products.  The Company sells Fuel Products (Fuel Sales Business) through transactional, bulk and/or rack transactions.  Typical transactional and bulk sales are made based on a predetermined net spread between the purchase and sales price over posted monthly variable prices and/or daily spot prices.  Rack sales transactions are based on variable sale prices charged by the Company which are tied to posted daily spot prices and purchase costs which are based on a monthly average or 3 day average based on posted prices.  The Company pays pipeline and terminal fees based on regulated rates.

The Company has the ability to access certain pipeline and terminal systems located in California, Arizona, Nevada and Texas, where it is able to deliver its Fuel Products. 

For bulk and transactional sales, the Company enters into individual sales contracts for each sale.  Fuel Products sales are subject to credit limitations imposed on each individual buyer by the Company.  The Company has several supply contracts for each of the Fuel Products it sells.    The supply contracts are for annual periods with flexible volumes but they may be terminated sooner by the supplier if the Company consistently fails to purchase minimum volumes of Fuel Products.  Also the Company’s ability to access its various terminal locations is based on maintaining minimum thru-put volumes at each terminal.  The Company purchases volumes of Fuel Products under its supply contracts, but the Company does not have corresponding sales contracts with its customers. To the extent the Company maintains quantities of Fuel Products inventory, the Company is exposed to market risk related to the volatility of Fuel Products prices.  The Company’s cost for Fuel Products is based on a monthly average or 3 day average, to be pre-determined by the Company, based on posted prices.  Timing of sales and changes in market prices can result in gains or losses.

 Revenues for the year ended July 31, 2004, the transition period August 1, 2004 through December 31, 2004 and for each of the two years in the period ended December 31, 2006 included in the consolidated statements of operations consists of only sales of Fuel Products through August 21, 2006 and sales of both Fuel Products and revenues under the LPG Transportation Agreement from August 22, 2006 to December 31, 2006 (see note S to the consolidated financial statements).

On September 30, 2004, Penn Octane Corporation (Penn Octane) completed a series of transactions that (i)  transferred substantially all of its owned pipeline and terminal assets in Brownsville and Matamoros to its wholly owned subsidiary Rio Vista Operating Partnership L.P. and its subsidiaries (RVOP) (ii) transferred Penn Octane’s 99.9% interest in RVOP to its wholly owned subsidiary Rio Vista and (iii) distributed all of its limited partnership interest (Common Units) in Rio Vista to its common stockholders (Spin-Off), resulting in Rio Vista becoming a separate public company.  The Common Units represented 98% of Rio Vista’s outstanding partnership interests.  The remaining 2% interest represented the general partner interest.  The general partner interest is solely owned and controlled by Rio Vista GP LLC (General Partner).  Prior to June 30, 2006, the General Partner was wholly owned by Penn Octane. On July 1, 2006, options to acquire 50% of the General Partner were exercised, resulting in Penn Octane having a 50% interest in the General Partner. Penn Octane retains control over the General Partner pursuant to a voting agreement with the other owners of the General Partner. Therefore, Rio Vista is consolidated with the Company and the interests of the General Partner not owned by Penn Octane and the interests of the limited partners of Rio Vista are classified as minority interests in the Company’s consolidated financial statements.  The General Partner is responsible for the management of Rio Vista.  Subsequent to the Spin-Off, and through the date of the Restated LPG Asset Sale, Rio Vista sold LPG directly to PMI (see below), and purchased LPG from Penn Octane under a long-term supply agreement.  The purchase price to Rio Vista of the LPG sold from Penn Octane was determined based on the cost of LPG under Penn Octane’s LPG supply agreements with its suppliers, other direct costs related to PMI sales and a formula that took into consideration operating costs of Penn Octane and Rio Vista.  

Prior to the Restated LPG Asset Sale, the Company’s, primary customer for LPG was P.M.I. Trading Limited (PMI).  PMI is a subsidiary of Petróleos Mexicanos, the state-owned Mexican oil company, which is commonly known by its trade name “PEMEX.”  PMI is currently the exclusive importer of LPG into Mexico.  PMI sells the LPG delivered from the Matamoros Terminal Facility to PEMEX which distributes the LPG into the northeastern region of Mexico.  Subsequent to the Restated LPG Asset Sale, TransMontaigne continues to use the Matamoros Terminal Facility for sales of LPG to PMI which are principally destined for consumption in the northeastern region of Mexico, which includes the states of Coahuila, Nuevo Leon and Tamaulipas.  Sales of LPG to PMI have historically fluctuated in part based on the seasons.  The demand for LPG is strongest during the winter season. 

Penn Octane continues to control the General Partner which manages Rio Vista.  The Company does not anticipate that its existing business segments, the LPG Transportation and the Fuel Sales Businesses, will generate sufficient cash flow to increase stockholder and unitholder value. Therefore, the Company intends to use a portion of its available cash and credit to make strategic acquisitions.  There can be no assurance, however, that the Company will be able to complete such acquisitions or that, if completed, such acquisitions will increase stockholder or unitholder value.  See “Risk Factors” below.

 The Company's principal executive offices are located at 77-530 Enfield Lane, Building D, Palm Desert, California 92211, and its telephone number is (760) 772-9080.