Business Factors. 

As a result of the Restated LPG Asset Sale, Penn Octane’s sources of cash flows are expected to be derived from the Fuel Sales Business and from distributions from its interest in the General Partner, if any.  The Fuel Sales Business may not provide Penn Octane with sufficient cash flow to meet its cash operating expenses.  Rio Vista’s sources of cash flows are expected to be derived from the LPG Transportation Agreement, assuming that the TLP Transaction is not consummated, from the operations of Regional and from the operations of the Oklahoma Assets subsequent to the date of the acquisitions, assuming that such acquisitions are consummated. Under the LPG Transportation Agreement, Rio Vista may only transport LPG on behalf of TransMontaigne using the Retained Assets. Accordingly, there is no assurance that TransMontaigne will utilize the Retained Assets and if so, at capacity levels which provide Rio Vista with gross profit.  In addition, although TransMontaigne’s agreement with PMI expired on March 31, 2007, and TransMontaigne has continued to utilize the Retained Assets at historical levels, there can be no assurance that TransMontaigne will continue selling LPG to PMI.  From April 1, 2007 through September 30, 2007 TransMontaigne has continued to sell LPG to PMI which has been transported using the Retained Assets in the volumes reflected above.  Although the operations of Regional are expected to be profitable, the cash flows of Regional are subject to payments required under the RZB Loan Agreement and income taxes on Regional’s stand-alone consolidated earnings.  The RZB Note is due on demand and otherwise is required to be paid within one year.  The additional $1.0 million loan due in connection with the Regional Acquisition requires four semi-annual payments beginning December 27, 2007.  There is no assurance that Regional’s operations will continue to be profitable and/or sufficient to cover the additional tax and debt obligations. There is no assurance that the LPG Transportation Agreement, the Regional operations and the Oklahoma Assets operations, if the acquisitions are consummated, will provide sufficient cash flow for Rio Vista to meet its future cash operating expenses.  Future natural gas production from the Oklahoma Assets, if the acquisitions are consummated and related reserves may prove lower than anticipated. The ability of Penn Octane and/or Rio Vista to complete future acquisitions may require the use of a portion or substantially all of Penn Octane’s and/or Rio Vista’s liquid assets, the issuance of additional debt and/or the issuance of additional stock and/or units.  Currently, substantially all of the Company’s assets are pledged or committed to be pledged as collateral on existing debt in connection with the RZB Credit Facility, the TransMontaigne Note and the RZB Loan Agreement. Accordingly Penn Octane and/or Rio Vista may be unable to obtain additional financing collateralized by those assets.      Future acquisitions and expansions may not be successful, may substantially increase the Company’s indebtedness and contingent liabilities, and may create integration difficulties.  The Company’s business would be adversely affected if operations at its transportation, terminal and distribution facilities were interrupted. 

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