##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-24394
 Penn Octane Corporation
  Delaware
    
    52-1790357(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)77-530 Enfield Lane, Bldg. D, Palm Desert, California
    
    92211(Address of Principal Executive Offices)
    
    (Zip Code)
 (760) 772-9080
 þ o
  o o þ
 o þ




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##### 



PENN OCTANE CORPORATION
 TABLE OF CONTENTS
 PAGE NO.PART I
    
    FINANCIAL INFORMATIONITEM1.
    
    Financial StatementsReport of Independent Registered Public Accounting Firm
    
    3Consolidated Balance Sheets as of December 31, 2006 and June 30, 2007 (unaudited)
    
    4-5Unaudited Consolidated Statements of Operations for the three months and six months ended June 30, 2006 and 2007
    
    6Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2007
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    8-322.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    33-523.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    524T.
    
    Controls and Procedures
    
    52PART II
    
    OTHER INFORMATION1.
    
    Legal Proceedings
    
    531A.
    
    Risk Factors
    
    53 - 542.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    553.
    
    Defaults Upon Senior Securities
    
    554.
    
    Submission of Matters to a Vote of Security Holders
    
    555.
    
    Other Information
    
    556.
    
    Exhibits
    
    56-62Signatures
    
    63Exhibit 2.3Exhibit 2.4Exhibit 10.46Exhibit 10.47Exhibit 10.48Exhibit 10.49Exhibit 10.50Exhibit 10.51Exhibit 10.52Exhibit 10.53Exhibit 10.54Exhibit 10.55Exhibit 10.56Exhibit 10.57Exhibit 10.58Exhibit 10.59Exhibit 10.60Exhibit 10.61Exhibit 10.62Exhibit 15Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1.
 
 Report of Independent Registered Public Accounting Firm
 
      
  3




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 
 CONSOLIDATED BALANCE SHEETS
 ASSETS
 December 31,
    
    
    June 30,2006
    
    
    2007(unaudited)Current AssetsCash
    
    $
    8,765,747
    
    
    $
    5,788,598Restricted cash
    
    
    1,862,199
    
    
    
    1,152,149Trade accounts receivable (less
allowance for doubtful accounts of
$254,729 at December 31, 2006 and June
30, 2007)
    
    
    3,504,866
    
    
    
    3,513,504Inventories
    
    
    1,603,355
    
    
    
    2,679,213Deferred tax asset
    
    
    647,000
    
    
    
    1,063,548Prepaid expenses and other current assets
    
    
    310,577
    
    
    
    946,107Total current assets
    
    
    16,693,744
    
    
    
    15,143,119Property, plant and equipment  net
    
    
    10,910,572
    
    
    
    10,790,336Other non-current assets
    
    
    16,183
    
    
    
    121,028Total assets
    
    $
    27,620,499
    
    
    $
    26,054,483
   4




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 CONSOLIDATED BALANCE SHEETS  CONTINUED
 LIABILITIES AND STOCKHOLDERS EQUITY
 December 31,
    
    
    June 30,2006
    
    
    2007(unaudited)Current LiabilitiesCurrent maturities of long-term debt
    
    $
    1,137,500
    
    
    $
    1,137,500Revolving line of credit
    
    
    804,300
    
    
    
    1,135,093Fuel Products trade accounts payable
    
    
    3,102,029
    
    
    
    1,957,353Other accounts payable
    
    
    792,311
    
    
    
    1,425,328U.S. and foreign taxes payable
    
    
    119,086
    
    
    
    72,417Accrued liabilities
    
    
    1,339,982
    
    
    
    1,863,858Total current liabilities
    
    
    7,295,208
    
    
    
    7,591,549Minority interest in Rio Vista Energy Partners L.P.
    
    
    14,946,071
    
    
    
    12,911,621Commitments and contingencies
    
    
    
    
    
    
    Stockholders EquitySeries A  Preferred stock-$.01 par value,
5,000,000 shares authorized; No shares issued and
outstanding at December 31, 2006 and June 30, 2007
    
    
    
    
    
    
    Series B  Senior preferred stock-$.01 par value,
$10 liquidation value, 5,000,000 shares authorized;
No shares issued and outstanding at December 31,
2006 and June 30, 2007
    
    
    
    
    
    
    Common stock  $.01 par value, 25,000,000 shares
authorized; 15,386,187 shares issued and
outstanding at December 31, 2006 and June 30, 2007
    
    
    153,862
    
    
    
    153,862Additional paid-in capital
    
    
    29,105,611
    
    
    
    29,190,732Note receivable from a former officer of the
Company for exercise of warrants, net of reserves
of $1,500,000 and $0 at December 31, 2006 and June
30, 2007
    
    
    (1,687,693
    )
    
    
    (1,200,000
    )Accumulated deficit
    
    
    (22,192,560
    )
    
    
    (22,593,281
    )Total stockholders equity
    
    
    5,379,220
    
    
    
    5,551,313Total liabilities and stockholders equity
    
    $
    27,620,499
    
    
    $
    26,054,483
   5




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Revenues
    
    $
    35,368,778
    
    
    $
    32,980,623
    
    
    $
    65,459,940
    
    
    $
    72,362,619Cost of goods sold
    
    
    35,496,185
    
    
    
    32,479,986
    
    
    
    65,601,385
    
    
    
    70,918,044Gross profit
    
    
    (127,407
    )
    
    
    500,637
    
    
    
    (141,445
    )
    
    
    1,444,575Selling, general and administrative expensesLegal and professional fees
    
    
    465,941
    
    
    
    482,953
    
    
    
    774,374
    
    
    
    959,143Salaries and payroll related expenses
    
    
    363,048
    
    
    
    738,035
    
    
    
    917,254
    
    
    
    1,144,692Other
    
    
    500,476
    
    
    
    487,002
    
    
    
    998,499
    
    
    
    1,008,6191,329,465
    
    
    
    1,707,990
    
    
    
    2,690,127
    
    
    
    3,112,454Operating (loss) from continuing
Operations
    
    
    (1,456,872
    )
    
    
    (1,207,353
    )
    
    
    (2,831,572
    )
    
    
    (1,667,879
    )Other income (expense)Interest and Fuel Products financing expense
    
    
    (219,530
    )
    
    
    (146,970
    )
    
    
    (395,725
    )
    
    
    (298,800
    )Interest income
    
    
    13,524
    
    
    
    5,639
    
    
    
    22,985
    
    
    
    18,352Minority interest in loss of Rio Vista
Energy Partners L.P.
    
    
    1,108,913
    
    
    
    685,681
    
    
    
    2,420,831
    
    
    
    1,146,058(Loss) from continuing operations
before taxes
    
    
    (553,965
    )
    
    
    (663,003
    )
    
    
    (783,481
    )
    
    
    (802,269
    )Provision (benefit) for income taxes
    
    
    14,663
    
    
    
    (374,110
    )
    
    
    28,588
    
    
    
    (401,548
    )Net (loss) from continuing operations
    
    
    (568,628
    )
    
    
    (288,893
    )
    
    
    (812,069
    )
    
    
    (400,721
    )Discontinued operations:Net income (loss) from operations of the LPG
Assets Sold, net of minority interest of
$683,495 and $1,749,085 for three months
and six months ended June 30, 2006
    
    
    214,811
    
    
    
    
    
    
    
    175,174
    
    
    
    Net (loss)
    
    $
    (353,817
    )
    
    $
    (288,893
    )
    
    $
    (636,895
    )
    
    $
    (400,721
    )Basic and Diluted EPS:Net loss from continuing operations per common
share
    
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    $
    (0.03
    )Net income (loss) from discontinued operations
per common share
    
    
    0.02
    
    
    
    0.00
    
    
    
    0.01
    
    
    
    0.00Net (loss) per common share
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.03
    )Weighted average common shares outstanding
    
    
    15,522,745
    
    
    
    15,386,187
    
    
    
    15,522,745
    
    
    
    15,386,187
   6




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six months endedJune 30,
    
    
    June 30,2006
    
    
    2007Cash flows from operating activities:Net (loss)
    
    $
    (636,895
    )
    
    $
    (400,721
    )Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    500,955
    
    
    
    290,455Amortization of lease rights
    
    
    22,898
    
    
    
    Amortization of loan discount related to detachable warrants
    
    
    22,104
    
    
    
    Discount on Richter Note
    
    
    
    
    
    
    377,693Provision for doubtful accounts
    
    
    63,958
    
    
    
    Share-based payment expense
    
    
    214,192
    
    
    
    160,186Minority interest in Rio Vista Energy Partners L.P.
    
    
    (671,746
    )
    
    
    (1,144,440
    )(Gain) loss on sale of assets
    
    
    74,520
    
    
    
    Changes in current assets and liabilities:Trade accounts receivable
    
    
    2,546,525
    
    
    
    (8,638
    )Inventories
    
    
    (715,792
    )
    
    
    (1,075,858
    )Prepaid expenses and other current assets
    
    
    116,027
    
    
    
    (535,530
    )Deferred tax asset
    
    
    
    
    
    
    (416,548
    )LPG and Fuel Products trade accounts payable
    
    
    (6,841,551
    )
    
    
    (1,144,676
    )Other accounts payable and accrued liabilities
    
    
    (88,343
    )
    
    
    1,156,893U.S. and Foreign taxes payable
    
    
    14,340
    
    
    
    (46,669
    )Net cash used in operating activities
    
    
    (5,378,808
    )
    
    
    (2,787,853
    )Cash flows from investing activities:Capital expenditures
    
    
    (55,715
    )
    
    
    (170,219
    )Proceeds from sale of assets
    
    
    130,776
    
    
    
    (Increase) decrease in other non-current assets
    
    
    1,514
    
    
    
    (104,845
    )Net cash (used in) provided by investing activities
    
    
    76,575
    
    
    
    (275,064
    )Cash flows from financing activities:Decrease (increase) in restricted cash
    
    
    1,564,110
    
    
    
    710,050Revolving credit facilities
    
    
    4,187,804
    
    
    
    330,793Loan origination fees related to RZB Loan Agreement
    
    
    
    
    
    
    (100,000
    )Distributions paid to limited partners
    
    
    
    
    
    
    (955,327
    )Distributions paid to the minority owners of the General Partner
    
    
    
    
    
    
    (9,748
    )Stockholders note
    
    
    
    
    
    
    110,000Reduction in debt
    
    
    (630,296
    )
    
    
    Net cash provided by financing activities
    
    
    5,121,618
    
    
    
    85,768Net (decrease) increase in cash
    
    
    (180,615
    )
    
    
    (2,977,149
    )Cash at beginning of period
    
    
    299,597
    
    
    
    8,765,747Cash at end of period
    
    $
    118,982
    
    
    $
    5,788,598Supplemental disclosures of cash flow information:Cash paid for:Interest
    
    $
    911,083
    
    
    $
    297,887Taxes
    
    $
    
    
    
    $
    Supplemental disclosures of noncash transactions:Equity  common stock and warrants issued and other
    
    $
    236,296
    
    
    $
    160,186
   7




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 NOTE A  ORGANIZATION
       8




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE A  ORGANIZATION  Continued
   Basis of Presentation
    9




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE A  ORGANIZATION  Continued
 Basis of Presentation
   NOTE B  INCOME (LOSS) PER COMMON SHARE
   For the three months ended June 30, 2006Income (Loss)
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income (loss) from continuing operations
    
    $
    ( 568,628
    )Basic EPSNet income (loss) available to common
stockholders
    
    
    (568,628
    )
    
    
    15,522,745
    
    
    $
    (0.04
    )Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    Diluted EPSNet income (loss) available to common
stockholders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 For the three months ended June 30, 2007Income (Loss)
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income (loss) from continuing operations
    
    $
    ( 288,893
    )Basic EPSNet income (loss) available to common
stockholders
    
    
    ( 288,893
    )
    
    
    15,386,187
    
    
    $
    (0.02
    )Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    Diluted EPSNet income (loss) available to common
stockholders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  10




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE B  INCOME (LOSS) PER COMMON SHARE  Continued
 For the six months ended June 30, 2006Income (Loss)
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income (loss) from continuing operations
    
    $
    ( 812,069
    )Basic EPSNet income (loss) available to common
stockholders
    
    
    ( 812,069
    )
    
    
    15,522,745
    
    
    $
    (0.05
    )Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    Diluted EPSNet income (loss) available to common
stockholders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 For the six months ended June 30, 2007Income (Loss)
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    AmountNet income (loss) from continuing operations
    
    $
    ( 400,721
    )Basic EPSNet income (loss) available to common
stockholders
    
    
    ( 400,721
    )
    
    
    15,386,187
    
    
    $
    (0.03
    )Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    Diluted EPSNet income (loss) available to common
stockholders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  11




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE C  SHARE-BASED PAYMENT
   NOTE D  NOTE RECEIVABLE FROM A FORMER OFFICER OF THE COMPANY
   12




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE E  ACQUISITION OF REGIONAL ENTERPRIZES INC.
    13




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE F  SALE OF LPG ASSETS / DISCONTINUED OPERATIONS
       14




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE F  SALE OF LPG ASSETS/DISCONTINUED OPERATIONS  Continued
   Leases Assigned
   2006 PMI Agreement
     15




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE F  SALE OF LPG ASSETS/DISCONTINUED OPERATIONS  Continued
  Actual VolumesMonth
    
    Sold/Transported(gallons)January 2006
    
    
    14,757,646February 2006
    
    
    11,940,257March 2006
    
    
    11,606,435April 2006
    
    
    6,035,733May 2006
    
    
    5,733,193June 2006
    
    
    7,130,666July 2006
    
    
    4,937,441August 2006
    
    
    5,408,563September 2006
    
    
    6,402,253October 2006
    
    
    8,908,931November 2006
    
    
    9,906,874December 2006
    
    
    10,448,614January 2007
    
    
    10,362,590February 2007
    
    
    8,590,460March 2007
    
    
    8,772,010April 2007
    
    
    6,492,361May 2007
    
    
    5,818,669June 2007
    
    
    5,480,023July 2007
    
    
    5,552,780
   16




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE F  SALE OF LPG ASSETS/DISCONTINUED OPERATIONS  Continued
 Exxon Supply Contract
   LPG Supply Agreement with Rio Vista
    17




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE G  PROPERTY, PLANT AND EQUIPMENT
  December 31,
    
    
    June 30,2006
    
    
    2007LPG:US  Mexico Pipelines and Matamoros Terminal
Facility: (a)(c)U.S. Pipelines and Rights of Way
    
    $
    6,851,667
    
    
    $
    6,851,667Mexico Pipelines and Rights of Way
    
    
    1,045,300
    
    
    
    1,045,300Matamoros Terminal Facility
    
    
    5,564,330
    
    
    
    5,564,330Land
    
    
    705,358
    
    
    
    705,358Total LPG
    
    
    14,166,655
    
    
    
    14,166,655Other:Office equipment (b)
    
    
    117,802
    
    
    
    130,392Software (b)
    
    
    198,841
    
    
    
    356,469316,643
    
    
    
    486,86114,483,298
    
    
    
    14,653,516Less: accumulated depreciation and amortization
    
    
    (3,572,726
    )
    
    
    (3,863,180
    )$
    10,910,572
    
    
    $
    10,790,336
 (a)
    
    Rio Vista assets(b)
    
    Penn Octane and Subsidiaries other than Rio Vista(c)
    
    Rio Vista owns, leases, or is in the process of obtaining the land or rights of way used
related to the US-Mexico Pipelines
    18




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE H  INVENTORIES
 December 31, 2006
    
    
    June 30, 2007Gallons
    
    
    LCM
    
    
    Gallons
    
    
    LCMFuel Products
    
    
    938,458
    
    
    $
    1,603,355
    
    
    
    1,193,750
    
    
    $
    2,679,213
 NOTE I  DEBT OBLIGATIONS
  December 31,
    
    
    June 30,2006
    
    
    2007Noninterest-bearing debt obligation, discounted at 7%, for legal services; due in February 2001
    
    $
    137,500
    
    
    $
    137,500TransMontaigne Note
    
    
    1,000,000
    
    
    
    1,000,000Total debt
    
    
    1,137,500
    
    
    
    1,137,500Less: Current maturities
    
    
    1,137,500
    
    
    
    1,137,500Long-term debt
    
    $
    
    
    
    $
    
 TransMontaigne Note
  NOTE J  COMMON STOCK
   19




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE K  STOCK WARRANTS
 2001 Warrant Plan
    NOTE L  COMMON UNITS AND OPTIONS OF RIO VISTA
 Common Units
   20




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE L  COMMON UNITS AND OPTIONS OF RIO VISTA  Continued
 General Partner Options
   Common
Unit Options
    21




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE
L  OPTIONS AND WARRANTS OF RIO VISTA  Continued
 Common
Unit Options  Continued
   NOTE M  COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
    22




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE M  COMMITMENTS AND CONTINGENCIES
 Legal Proceedings  Continued
 Lesly Camacho by Her Mother Dora Adame as Next Friend, et al. vs. Penn Octane
International LLC, et al th
 Faustino Izaguirre Gonzalez, et al. vs. Penn Octane Corporation, et
al. th
    23




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE M  COMMITMENTS AND CONTINGENCIES  Continued
 Credit Facility and Letters of Credit
        24




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE M  COMMITMENTS AND CONTINGENCIES  Continued
 Credit Facility and Letters of Credit  Continued
    Consulting Agreements
 JBR Capital
    25




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE M  COMMITMENTS AND CONTINGENCIES  Continued
 Richard R. Canney
  CEOcast
   26




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE M  COMMITMENTS AND CONTINGENCIES  Continued
 Distributions of Available Cash
        27




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE M  COMMITMENTS AND CONTINGENCIES  Continued
 Partnership Tax Treatment
        28




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE M  COMMITMENTS AND CONTINGENCIES  Continued
 Concentrations of Credit Risk
  NOTE N  INTERCOMPANY AGREEMENT AND INTERCOMPANY GUARANTEES
 Omnibus Agreement.
   Guarantees
 Debt Guarantee
 Tax Guarantee.
  29




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##### Table of Contents



Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE O  SEGMENT INFORMATION
    TransportationandTerminaling
    
    
    Fuel Sales
    
    
    TotalsRevenues from external customers
    
    $
    435,881
    
    
    $
    32,544,742
    
    
    $
    32,980,623Interest expense
    
    
    25,910
    
    
    
    116,797
    
    
    
    142,707Interest income
    
    
    249
    
    
    
    
    
    
    
    249Depreciation and amortization
    
    
    122,916
    
    
    
    199
    
    
    
    123,115Segment gross profit (loss)
    
    
    33,755
    
    
    
    466,882
    
    
    
    500,637Segment assets
    
    
    16,355,234
    
    
    
    6,857,703
    
    
    
    23,212,937Segment liabilities
    
    
    2,710,977
    
    
    
    3,988,204
    
    
    
    6,699,181Expenditure for segment assets
    
    
    
    
    
    
    
    
    
    
    Reconciliation to Consolidated Amounts:RevenuesTotal revenues for reportable segments
    
    
    
    
    
    $
    32,980,623Elimination of intersegment revenues
    
    
    
    
    
    
    Total consolidated revenues
    
    
    
    
    
    $
    32,980,623Profit (loss)Total gross profit (loss) for reportable
Segments
    
    
    
    
    
    $
    500,637Selling, general and administrative expense
    
    
    
    
    
    
    (1,707,990
    )Interest and Fuel Products financing expense
    
    
    
    
    
    
    (146,970
    )Interest income
    
    
    
    
    
    
    5,639Minority interest in loss of Rio Vista Energy
Partners L.P.
    
    
    
    
    
    
    685,681Elimination of intersegment profits
    
    
    
    
    
    
    Unallocated amountsCorporate headquarters expense
    
    
    
    
    
    
    Other expenses
    
    
    
    
    
    
    Consolidated income from continuing
operations before income tax
    
    
    
    
    
    $
    (663,003
    )AssetsTotal assets for reportable segments
    
    
    
    
    
    $
    23,212,937Other assets
    
    
    
    
    
    
    2,841,546Corporate headquarters
    
    
    
    
    
    
    Other unallocated amounts
    
    
    
    
    
    
    Total consolidated assets
    
    
    
    
    
    $
    26,054,483
  30




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Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE O  SEGMENT INFORMATION  Continued
  TransportationandTerminaling
    
    
    Fuel Sales
    
    
    TotalsRevenues from external customers
    
    $
    1,115,145
    
    
    $
    71,247,474
    
    
    $
    72,362,619Interest expense
    
    
    51,654
    
    
    
    239,799
    
    
    
    291,453Interest income
    
    
    496
    
    
    
    
    
    
    
    496Depreciation and amortization
    
    
    287,748
    
    
    
    398
    
    
    
    288,146Segment gross profit (loss)
    
    
    319,329
    
    
    
    1,125,246
    
    
    
    1,444,575Segment assets
    
    
    16,355,234
    
    
    
    6,857,703
    
    
    
    23,212,937Segment liabilities
    
    
    2,710,977
    
    
    
    3,988,204
    
    
    
    6,699,181Expenditure for segment assets
    
    
    
    
    
    
    1,875
    
    
    
    1,875Reconciliation to Consolidated Amounts:RevenuesTotal revenues for reportable segments
    
    
    
    
    
    $
    72,362,619Elimination of intersegment revenues
    
    
    
    
    
    
    Total consolidated revenues
    
    
    
    
    
    $
    72,362,619Profit (loss)Total gross profit (loss) for reportable
Segments
    
    
    
    
    
    $
    1,444,575Selling, general and administrative expense
    
    
    
    
    
    
    (3,112,454
    )Interest and Fuel Products financing expense
    
    
    
    
    
    
    (298,800
    )Interest income
    
    
    
    
    
    
    18,352Minority interest in loss of Rio Vista Energy
Partners L.P.
    
    
    
    
    
    
    1,146,058Elimination of intersegment profits
    
    
    
    
    
    
    Unallocated amountsCorporate headquarters expense
    
    
    
    
    
    
    Other expenses
    
    
    
    
    
    
    Consolidated income from continuing
operations before income tax
    
    
    
    
    
    $
    (802,269
    )AssetsTotal assets for reportable segments
    
    
    
    
    
    $
    23,212,937Other assets
    
    
    
    
    
    
    2,841,546Corporate headquarters
    
    
    
    
    
    
    Other unallocated amounts
    
    
    
    
    
    
    Total consolidated assets
    
    
    
    
    
    $
    26,054,483
  31




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Penn Octane Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE P  INCOME TAXES
    32




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##### Table of Contents



Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Penn Octane Corporation (Penn Octane) and its consolidated subsidiaries which includes Rio
Vista Energy Partners L.P. (Rio Vista) and its subsidiaries are collectively hereinafter referred
to as the Company.
 The following discussion of the Companys results of operations and liquidity and capital
resources should be read in conjunction with the unaudited consolidated financial statements of the
Company and related notes thereto appearing elsewhere herein. References to specific years
preceded by fiscal (e.g. fiscal 2007) refer to the Companys fiscal year ended December 31.
 Forward-Looking Statements
 The statements contained in this Quarterly Report that are not historical facts are
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may be
identified by the use of forward-looking terms such as believes, expects, may, will,
should, estimates, projects or anticipates or by discussions of strategy that inherently
involve risks and uncertainties. From time to time, the Company has made or may make
forward-looking statements, orally or in writing. These forward-looking statements include
statements regarding anticipated future revenues, sales, working capital, LPG supply, LPG pricing,
operations, demand, competition, capital expenditures, future acquisitions, additional financing,
the deregulation of the LPG market in Mexico, the operations of the US  Mexico Pipelines, the
Matamoros Terminal Facility, other upgrades to facilities, foreign ownership of LPG operations,
short-term obligations and credit arrangements, Transportation and Terminaling Business, Fuel
Sales Business, TransMontaigne Note, RZB Loan Agreement, cash distributions, Qualifying Income,
Spin-Off, partnership tax treatment, risk factors and other statements regarding matters that are
not historical facts, and involve predictions which are based upon a number of future conditions
that ultimately may prove to be inaccurate. Actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-looking statements.
Factors that may cause or contribute to such differences include those discussed under Risk
Factors and Managements Discussion and Analysis of Financial Condition and Results of
Operations, as well as those discussed elsewhere in this Report on Form 10-Q . We caution,
however, that the following list of factors may not include all material risks facing the Company.
 Overview
   33




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##### Table of Contents



34




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##### Table of Contents



Acquisition of Regional Enterprizes, Inc.
   LPG Transportation Agreement
   35




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##### Table of Contents



Actual VolumesMonth
    
    Sold/Transported(gallons)January 2006
    
    
    14,757,646February 2006
    
    
    11,940,257March 2006
    
    
    11,606,435April 2006
    
    
    6,035,733May 2006
    
    
    5,733,193June 2006
    
    
    7,130,666July 2006
    
    
    4,937,441August 2006
    
    
    5,408,563September 2006
    
    
    6,402,253October 2006
    
    
    8,908,931November 2006
    
    
    9,906,874December 2006
    
    
    10,448,614January 2007
    
    
    10,362,590February 2007
    
    
    8,590,460March 2007
    
    
    8,772,010April 2007
    
    
    6,492,361May 2007
    
    
    5,818,669June 2007
    
    
    5,480,023July 2007
    
    
    5,552,780
   36




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##### Table of Contents



Potential Factors Affecting Future Demand For The Retained Assets:
 Trends.
     Dependence on TransMontaigne.
   37




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##### Table of Contents



Fuel Sales Business
       Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six Monthsended
    
    
    ended
    
    
    ended
    
    
    endedJune 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007Volume SoldFuel Products (millions of gallons)
    
    
    15.0
    
    
    
    14.5
    
    
    
    30.2
    
    
    
    34.0Average sales priceFuel Products (per gallon)
    
    $
    2.36
    
    
    $
    2.20
    
    
    $
    2.17
    
    
    $
    1.89
  38




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##### Table of Contents



Results of Operations
  For the three months ended June 30, 2006
 Continuing OperationsTransportation
    
    
    Fueland Terminaling
    
    
    Sales
    
    
    TotalRevenues
    
    $
    
    (a)
    
    $
    35,369
    
    
    $
    35,369Cost Of Sales
    
    
    446
    (b)
    
    
    35,050
    
    
    
    35,496Gross Profit (Loss)
    
    $
    (446
    )
    
    $
    319
    
    
    $
    (127
    )
 For the three months ended June 30, 2007
 Continuing OperationsTransportation
    
    
    Fueland Terminaling
    
    
    Sales
    
    
    TotalRevenues
    
    $
    436
    
    
    $
    32,544
    
    
    $
    32,980Cost Of Sales
    
    
    402
    
    
    
    32,078
    
    
    
    32,480Gross Profit (Loss)
    
    $
    34
    
    
    $
    466
    
    
    $
    500
 For the six months ended June 30, 2006
 Continuing OperationsTransportation
    
    
    Fueland Terminaling
    
    
    Sales
    
    
    TotalRevenues
    
    $
    
    (a)
    
    $
    65,460
    
    
    $
    65,460Cost Of Sales
    
    
    986
    (b)
    
    
    64,615
    
    
    
    65,601Gross Profit (Loss)
    
    $
    (986
    )
    
    $
    845
    
    
    $
    (141
    )
 For the six months ended June 30, 2007
 Continuing OperationsTransportation
    
    
    Fueland Terminaling
    
    
    Sales
    
    
    TotalRevenues
    
    $
    1,115
    
    
    $
    71,247
    
    
    $
    72,362Cost Of Sales
    
    
    796
    
    
    
    70,122
    
    
    
    70,918Gross Profit (Loss)
    
    $
    319
    
    
    $
    1,125
    
    
    $
    1,444
 (a)
    
    LPG Transportation agreement revenue began August 22, 2006.(b)
    
    Consists of depreciation on Retained Assets and expenses related to the US-Mexico
Pipelines and the Matamoros Terminal Facility.
  39




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##### Table of Contents



Continuing Operations:
 The following discussion of the Companys results of operations from continuing operations for
all periods presented excludes the results of operations related to the Sold Assets, including
revenues, direct costs, associated interest expenses, minority interest and income taxes, which
have been reclassified as discontinued operations (see below). As a result, the results of
operations from continuing operations reflects only the results associated with the Transportation
and Terminaling Business, including all costs associated with operation of the US-Mexico Pipelines
and Matamoros Terminal Facility, the Companys Fuel Sales business and all indirect income and
expenses of the Company. Revenues from the Companys Transportation and Terminaling Business
commenced on August 22, 2006 although expenses associated with operation of the US-Mexico Pipelines
and Matamoros Terminal Facility were incurred during the entire period for each period presented.
Regional will be included in the consolidated financial statements subsequent to the date of the
Regional Acquisition.
 Three Months Ended June 30, 2007 Compared With Three Months Ended June 30, 2006
 Revenues.
 Cost of goods sold.
 Selling, general and administrative expenses.
 Other income (expense).
 Six months Ended June 30, 2007 Compared With Six months Ended June 30, 2006
 Revenues.
 Cost of goods sold.
 Selling, general and administrative expenses.
  40




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##### Table of Contents



Other income (expense).
 Discontinued Operations:
  Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six Monthsended June 30,
    
    
    ended June 30,
    
    
    ended June 30,
    
    
    ended June 30,2006
    
    
    2007
    
    
    2006
    
    
    2007Volume SoldLPG (millions of
gallons)  PMI
    
    
    18.9
    
    
    
    
    
    
    
    57.2
    
    
    
    LPG (millions of
gallons)  Other
    
    
    10.0
    
    
    
    
    
    
    
    10.0
    
    
    
    28.9
    
    
    
    
    
    
    
    67.2
    
    
    
    Average sales priceLPG (per gallon)  PMI
    
    $
    1.13
    
    
    $
    
    
    
    $
    1.06
    
    
    $
    LPG (per
gallon)  Other
    
    
    1.03
    
    
    
    
    
    
    
    1.03
    
    
    
    
 (a)
    
    Sales of LPG ceased on August 21, 2006, immediately prior to the date of the Restated
LPG Asset Sale
 The Companys results of operations from discontinued operations of its LPG sales
business applies only for the three months and six months ended June 30, 2006 since these
operations were sold on August 21, 2006. As a result, there is no comparison of such operations
presented for the three months and six months ended June 30, 2006 and June 30, 2007.
  41




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##### Table of Contents



Liquidity and Capital Resources
 General.
 The Companys Consolidated Pro Forma
    
    
    Rio Vista Energy Partners L.P.Working Capital
    
    
    Consolidated Pro Forma Working CapitalJune 30, 2007
    
    
    June 30, 2007As Reported
    
    
    
    
    
    
    Adjusted
    
    
    As Reported
    
    
    
    
    
    
    Adjusted6/30/2007
    
    
    Pro Forma
    
    
    6/30/2007
    
    
    6/30/2007
    
    
    Pro Forma
    
    
    6/30/2007Current AssetsCash
    
    $
    5,788,598
    
    
    $
    (493,790
    )(a)
    
    $
    2,424,808
    
    
    $
    4,698,901
    
    
    $
    (493,790
    )(a)
    
    $
    761,908(673,203
    )(b)(2,770,000
    )(c)
    
    
    
    
    
    
    
    
    
    
    (2,770,000
    )(c)(1,300,000
    )(d)1,200,000
    (e)Restricted Cash
    
    
    1,152,149
    
    
    
    
    
    
    
    1,152,149
    
    
    
    25,792
    
    
    
    
    
    
    
    25,792Trade Accounts Receivable
    
    
    3,513,504
    
    
    
    
    
    
    
    3,513,504
    
    
    
    361,234
    
    
    
    
    
    
    
    361,234Inventories
    
    
    2,679,213
    
    
    
    
    
    
    
    2,679,213
    
    
    
    
    
    
    
    
    
    
    
    Deferred Tax Asset
    
    
    1,063,548
    
    
    
    
    
    
    
    1,063,548
    
    
    
    
    
    
    
    
    
    
    
    Prepaid Expenses
    
    
    946,107
    
    
    
    
    
    
    
    946,107
    
    
    
    840,613
    
    
    
    
    
    
    
    840,613Total Current Assets
    
    
    15,143,119
    
    
    
    (3,363,790
    )
    
    
    11,779,329
    
    
    
    5,926,540
    
    
    
    (3,936,993
    )
    
    
    1,989,547Current LiabilitiesCurrent Maturities Of
Long-Term Debt
    
    $
    1,137,500
    
    
    
    
    
    
    $
    1,137,500
    
    
    $
    1,000,000
    
    
    
    
    
    
    $
    1,000,000Revolving Line Of Credit
    
    
    1,135,093
    
    
    
    
    
    
    
    1,135,093
    
    
    
    
    
    
    
    
    
    
    
    Fuel Products Payables
    
    
    1,957,353
    
    
    
    
    
    
    
    1,957,353
    
    
    
    
    
    
    
    
    
    
    
    Due to Affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    673,203
    
    
    
    ( 673,203
    )(b)
    
    
    US and Foreign Taxes Payable
    
    
    72,417
    
    
    
    
    
    
    
    72,417
    
    
    
    43,252
    
    
    
    
    
    
    
    43,252Accounts Payables
    
    
    1,425,328
    
    
    
    
    
    
    
    1,425,328
    
    
    
    653,621
    
    
    
    
    
    
    
    653,621Accrued Liabilities
    
    
    1,863,858
    
    
    
    
    
    
    
    1,863,858
    
    
    
    1,014,104
    
    
    
    
    
    
    
    1,014,104Total Current Liabilities
    
    
    7,591,549
    
    
    
    
    
    
    
    7,591,549
    
    
    
    3,384,180
    
    
    
    (   673,203
    )
    
    
    2,710,977Working Capital
    
    $
    7,551,570
    
    
    $
    (3,363,790
    )
    
    $
    4,187,780
    
    
    $
    2,542,360
    
    
    $
    (3,263,790
    )
    
    $
    (721,430
    )
 (a)
    
    distribution paid by Rio Vista during July 2007(b)
    
    offset of outstanding intercompany balances(c)
    
    cash used to acquire Regional(d)
    
    exercise of the Purchase Option(e)
    
    cash received on Richter Note
   42




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43




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##### Table of Contents



Credit Arrangements
         44




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##### Table of Contents



Payments due by Period(Amounts in Millions)Less than
    
    
    1  3
    
    
    4  5
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-Term Debt Obligations and
Note Payable
    
    $
    1.0
    
    
    $
    1.0
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating Leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    LPG Purchase Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    1.0
    
    
    $
    1.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Amount of Commitment ExpirationPer Period(Amounts in Millions)Total Amounts
    
    
    Less than
    
    
    1  3
    
    
    4  5
    
    
    OverCommercial Commitments
    
    Committed
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLines of Credit
    
    $
    1.1
    
    
    $
    1.1
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby Letters of Credit
    
    
    4.0
    
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    Guarantees
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AStandby Repurchase Obligations
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AOther Commercial Commitments
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal Commercial Commitments
    
    $
    5.1
    
    
    $
    5.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Distributions of Available Cash.
  45




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##### Table of Contents



Information Systems
  Partnership Tax Treatment
  Legal Proceedings
  Consulting Agreements
   46




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##### Table of Contents



Mexican Operations
   Deregulation of the LPG Industry in Mexico
 Ley Reglarmentaria del Artículo 27
Constitutional en el Ramo del Petróleo Ley Orgánica del Petróleos Mexicanos y Organismos Subsidiarios
  Private Placements and Other Transactions.
  Penn Octane 2001 Warrant Pla
   47




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##### Table of Contents



Note Receivable from a Former Officer of the Company
  TransMontaigne Note
  Common Units and Options of Rio Vista
 Common Units.
  48




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##### Table of Contents



General Partner Options.
  Common Unit Options.
   49




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##### Table of Contents



Intercompany Agreement and Intercompany Guarantees
 Omnibus Agreement .
   Guarantees
 Debt Guarantee .
  50




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##### Table of Contents



Tax Guarantee .
 Impact of Inflation
   Environmental Matters
   Recently Issued Financial Accounting Standards
   51




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##### Table of Contents



Statement by Management Concerning Review of Interim Information by An Independent Registered
Public Accounting Firm.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
     
 Item 4T. Controls and Procedures.
    52




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Business Factors.
 Acquisition Factors.
 Market Listing
  53




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##### Table of Contents



Competitive Factors.
 International Factors.
 Political Factors.
 Industry and Economic Factors.
 Market Risk Factors.
 Internal Control Factors.
 Projections
  54




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
   55




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Item 6 Exhibits
 The following exhibits are incorporated by reference to previously filed reports, as noted.
 Exhibit No.2.1
    
    Purchase and Sale Agreement dated August 15, 2005 as amended and restated on August
15, 2006 entered into by and between Penn Octane Corporation and TransMontaigne Product
Services, Inc. (Incorporated by reference to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2006 filed on August 14, 2006, SEC File No. 000-24394).2.2
    
    Purchase and Sale Agreement dated August 15, 2005 as amended and restated on August
15, 2006 entered into by and between Rio Vista Operating Partnership L.P. and
TransMontaigne Product Services, Inc. (Incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on August 14,
2006, SEC File No. 000-24394).3.1
    
    Restated Certificate of Incorporation, as amended. (Incorporated by reference to
the Companys Quarterly Report on Form 10-QSB for the quarterly period ended April 30,
1997 filed on June 16, 1997, SEC File No. 000-24394).3.2
    
    Amended and Restated By-Laws of the Company. (Incorporated by
reference to the Companys Quarterly Report on Form 10-QSB for the
quarterly period ended April 30, 1997 filed on June 16, 1997, SEC
File No. 000-24394).3.3
    
    Certificate of the Designation, Powers, Preferences and Rights of the
Series B Convertible Redeemable Preferred Stock, filed with the State
of Delaware. (Incorporated by reference to the Companys Annual
Report on Form 10-K for the year ended July 31, 1999 filed on
November 10, 1999, SEC File No. 000-24394).10.1
    
    General Security Agreement dated October 14, 1997 between RZB Finance
LLC and the Company. (Incorporated by reference to the Companys
Annual Report on Form 10-K for the year ended July 31, 1997 filed on
November 13, 1997, SEC File No. 000-24394).10.2
    
    Permit issued on July 26, 1999 by the United States Department of
State authorizing the Company to construct two pipelines crossing
the international boundary line between the United States and Mexico
for the transport of liquefied petroleum gas (LPG) and refined
product (motor gasoline and diesel fuel). (Incorporated by reference
to the Companys Annual
Report on Form 10-K for the year ended July 31, 1999 filed on
November 9, 1999, SEC File No. 000-24394).10.3
    
    Promissory Share Transfer Agreement to purchase shares of Termatsal,
S.A. de C.V. dated November 13, 2000, between Pedro Prado and the
Company (Translation from Spanish). (Incorporated by reference to the
Companys Annual Report on Form 10-K for the year ended July 31,
2000, filed on November 14, 2000, SEC File No. 000-24394).10.4
    
    Promissory Share Transfer Agreement to purchase shares of Termatsal,
S.A. de C.V. dated November 13, 2000, between Pedro Prado and Penn
Octane International, L.L.C. (Translation form Spanish).
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2000, filed on November 14, 2000,
SEC File No. 000-24394).10.5
    
    Contribution, Conveyance and Assumption Agreement entered into as of
September 16, 2004 by and among Penn Octane Corporation, Rio Vista GP
LLC, Rio Vista Energy Partners L.P., Rio Vista Operating GP LLC and
Rio Vista Operating Partnership L.P. (Incorporated by reference to
the Companys Annual Report on Form 10-K for the year ended July 31,
2004 filed on November 9, 2004, SEC File No. 000-24394).
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Exhibit No.10.6
    
    Conveyance Agreement effective September 30, 2004 from Penn Octane
Corporation in favor of Rio Vista Operating Partnership L.P.
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2004 filed on November 9, 2004, SEC
File No. 000-24394).10.7
    
    Distribution Agreement dated September 16, 2004 by and among Penn
Octane Corporation, Rio Vista Energy Partners L.P. and Subsidiaries.
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2004 filed on November 9, 2004, SEC
File No. 000-24394).10.8
    
    Omnibus Agreement entered into as of September 16, 2004 by and among
Penn Octane Corporation, Rio Vista GP LLC, Rio Vista Energy
Partners, L.P. and Rio Vista Operating Partnership L.P.
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2004 filed on November 9, 2004, SEC
File No. 000-24394).10.9
    
    Amendment No. 1 to Omnibus Agreement entered into as of September
16, 2004 by and among Penn Octane Corporation, Rio Vista GP LLC, Rio
Vista Energy Partners L.P. and Rio Vista Operating Partnership L.P.
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2004 filed on November 9, 2004, SEC
File No. 000-24394).10.10
    
    Purchase Contract made and entered into effective as of October 1,
2004 by and between Penn Octane Corporation and Rio Vista Operating
Partnership L.P. (Incorporated by reference to the Companys Annual
Report on Form 10-K for the year ended July 31, 2004 filed on
November 9, 2004, SEC File No. 000-24394).10.11
    
    Rio Vista GP LLC Unit Purchase Option dated July 10, 2003 granted by
Penn Octane Corporation to Shore Capital LLC. (Incorporated by
reference to the Companys Annual Report on Form 10-K for the year
ended July 31, 2004 filed on November 9, 2004, SEC File No.
000-24394).10.12
    
    Rio Vista GP LLC Unit Purchase Option dated July 10, 2003 granted by
Penn Octane Corporation to Jerome B. Richter. (Incorporated by
reference to the Companys Annual Report on Form 10-K for the year
ended July 31, 2004 filed on November 9, 2004, SEC File No.
000-24394).10.13
    
    First Amended and Restated Agreement of Limited Partnership of Rio
Vista Energy Partners L.P. dated as of September 16, 2004.
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2004 filed on November 9, 2004, SEC
File No. 000-24394).10.14
    
    Rio Vista GP LLC Amended and Restated Limited Liability Company
Agreement dated as of September 16, 2004. (Incorporated by
reference to the Companys Annual Report on Form 10-K for the year
ended July 31, 2004 filed on November 9, 2004, SEC File No.
000-24394).10.15
    
    Form of RVGP Voting Agreement by and among Rio Vista GP LLC, Penn
Octane Corporation and the members of Rio Vista GP LLC.
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2004 filed on November 9, 2004, SEC
File No. 000-24394).10.16
    
    First Amended and Restated Agreement of Limited Partnership of Rio
Vista Operating Partnership L.P. dated as of September 16, 2004.
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2004 filed on November 9, 2004, SEC
File No. 000-24394).
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Exhibit No.10.17
    
    Amended and Restated Line Letter dated September 15, 2004 between
RZB Finance LLC and Penn Octane Corporation. (Incorporated by
reference to the Companys Annual Report on Form 10-K for the year
ended July 31, 2004 filed on November 9, 2004, SEC File No.
000-24394).10.18
    
    Replacement Promissory Note dated September 15, 2004 by Penn Octane
Corporation to RZB Finance LLC. (Incorporated by reference to the
Companys Annual Report on Form 10-K for the year ended July 31,
2004 filed on November 9, 2004, SEC File No. 000-24394).10.19
    
    Consent Letter dated September 15, 2004 between RZB Finance LLC and
Penn Octane Corporation. (Incorporated by reference to the
Companys Annual Report on Form 10-K for the year ended July 31,
2004 filed on November 9, 2004, SEC File No. 000-24394).10.20
    
    Assignment of Easements from Penn Octane to Rio Vista Operating
Partnership L.P. dated September 15, 2004. (Incorporated by
reference to the Companys Annual Report on Form 10-K for the year
ended July 31, 2004 filed on November 9, 2004, SEC File No.
000-24394).10.21
    
    Guaranty & Agreement between Rio Vista Energy Partners L.P. and RZB
Finance LLC dated as of September 15, 2004. (Incorporated by
reference to the Companys Annual Report on Form 10-K for the year
ended July 31, 2004 filed on November 9, 2004, SEC File No.
000-24394).10.22
    
    Guaranty & Agreement between Rio Vista Operating Partnership L.P.
and RZB Finance LLC dated as of September 15, 2004. (Incorporated
by reference to the Companys Annual Report on Form 10-K for the
year ended July 31, 2004 filed on November 9, 2004, SEC File No.
000-24394).10.23
    
    General Security Agreement between Rio Vista Energy Partners L.P.
and RZB Finance LLC dated as of September 15, 2004. (Incorporated
by reference to the Companys Annual Report on Form 10-K for the
year ended July 31, 2004 filed on November 9, 2004, SEC File No.
000-24394).10.24
    
    General Security Agreement between Rio Vista Operating Partnership
L.P. and RZB Finance LLC dated as of September 15, 2004.
(Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended July 31, 2004 filed on November 9, 2004, SEC
File No. 000-24394).10.25
    
    Penn Octane Corporation 2001 Warrant Plan (Incorporated by reference
to the Companys Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005 filed on May 20, 2006, SEC File No. 000-24394).10.26
    
    First Amendment to the First Amended and Restated Agreement of
Limited Partnership of Rio Vista Energy Partners L.P. dated as of
October 26, 2005. (Incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30,
2005 filed on November 21, 2005, SEC File No. 000-24394).10.27
    
    First Amendment to the First Amended and Restated Agreement of
Limited Partnership of Rio Vista Operating Partnership L.P. dated as
of October 26, 2005. (Incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30,
2005 filed on November 21, 2005, SEC File No. 000-24394).
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Exhibit No.10.28
    
    Amended and Restated Promissory Note by Jerome B. Richter to the
Company dated November 15, 2005. (Incorporated by reference to the
Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005 filed on November 21, 2005, SEC File No.
000-24394).10.29
    
    Agreement dated as of November 15, 2005 by and between Penn Octane
Corporation and Jerome B. Richter. (Incorporated by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005 filed on November 21, 2005, SEC File No.
000-24394).10.30
    
    Ella-Brownsville Pipeline Lease Agreement effective as of August 1, 2006 between
Seadrift Pipeline Corporation and Penn Octane Corporation. (Incorporated by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 filed on
August 14, 2006, SEC File No. 000-24394).10.31
    
    Amendment to Pledge and Security Agreement between the Penn Octane Corporation and
Jerome B. Richter dated October 13, 2006. (Incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November
20, 2006, SEC File No. 000-24394).10.32
    
    First Amendment to Amended and Restated Limited Liability Company Agreement of Rio
Vista GP LLC dated October 6, 2006. (Incorporated by reference to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed on November
20, 2006, SEC File No. 000-24394).10.33
    
    Unit Purchase Option effective February 6, 2007 between Shore Trading LLC and Penn
Octane Corporation. (Incorporated by reference to the Companys Annual Report on Form
10-K for the year ended December 31, 2006 filed on April 17, 2007, SEC File No.
000-24394).10.34
    
    Consent to Transfer of Units, Acknowledgement of Representation, and Waiver of
Conflicts dated February 6, 2007 among Penn Octane Corporation, Rio Vista GP LLC, and
Shore Trading LLC. (Incorporated by reference to the Companys Annual Report on Form 10-K
for the year ended December 31, 2006 filed on April 17, 2007, SEC File No. 000-24394).10.35
    
    Consulting Agreement entered into March 5, 2007, with an effective date of
November 15, 2006 by and between Penn Octane Corporation, and Rio Vista Energy Partners
L.P., and JBR Capital Resources, Inc. (Incorporated by reference to the Companys Annual
Report on Form 10-K for the year ended December 31, 2006 filed on April 17, 2007, SEC
File No. 000-24394).10.36
    
    Letter agreement dated March 5, 2007 by and between Penn Octane Corporation, Rio
Vista Energy Partners L.P. and JBR Capital Resources, Inc. (Incorporated by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2006 filed on
April 17, 2007, SEC File No. 000-24394).10.37
    
    Amended Form of Common Stock Purchase Warrant under the Penn Octane Corporation
2001 Warrant Plan. (Incorporated by reference to the Companys Annual Report on Form 10-K
for the year ended December 31, 2006 filed on April 17, 2007, SEC File No. 000-24394).10.38
    
    Form of Penn Octane Corporation Chairman Services Agreement. (Incorporated by
reference to the Companys Annual Report on Form 10-K for the year ended December 31,
2006 filed on April 17, 2007, SEC File No. 000-24394).10.39
    
    Form of Penn Octane Corporation Director and Officer Indemnification Agreement.
(Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended
December 31, 2006 filed on April 17, 2007, SEC File No. 000-24394).
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Exhibit No.10.40
    
    Form of Penn Octane Corporation Director Services Agreement. (Incorporated by
reference to the Companys Annual Report on Form 10-K for the year ended December 31,
2006 filed on April 17, 2007, SEC File No. 000-24394).10.41
    
    Form of Rio Vista GP LLC Chairman Services Agreement. (Incorporated by reference
to the Companys Annual Report on Form 10-K for the year ended December 31, 2006 filed on
April 17, 2007, SEC File No. 000-24394).10.42
    
    Form of Rio Vista GP LLC Manager Services Agreement. (Incorporated by reference to
the Companys Annual Report on Form 10-K for the year ended December 31, 2006 filed on
April 17, 2007, SEC File No. 000-24394).10.43
    
    Form of Rio Vista GP LLC Manager and Officer Indemnification Agreement.
(Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended
December 31, 2006 filed on April 17, 2007, SEC File No. 000-24394).10.44
    
    Form of Nonqualified Unit Option Agreement under the 2005 Rio Vista Energy
Partners L.P. Equity Incentive Plan. (Incorporated by reference to the Companys Annual
Report on Form 10-K for the year ended December 31, 2006 filed on April 17, 2007, SEC
File No. 000-24394).10.45
    
    Amended and Restated Line Letter dated December 7, 2006 between RZB Finance LLC
and Penn Octane Corporation. (Incorporated by reference to the Companys Annual Report on
Form 10-K for the year ended December 31, 2006 filed on April 17, 2007, SEC File No.
000-24394).14.1
    
    Penn Octane Corporation Code of Business Conduct (2007) (Incorporated
by reference to the Companys Annual Report on Form 10-K for the year
ended December 31, 2006 filed on April 17, 2007, SEC File No.
000-24394).The following Exhibits are filed as part of this report:2.3
    
    Agreement And Plan Of Merger, Made As Of The 27th Day Of July, 2007, By
And Among Rio Vista Energy Partners L.P., (Buyer); Regional Enterprises, Inc., A
Virginia Corporation And Newly Formed, Wholly Owned Subsidiary Of Buyer (Merger Sub);
Regional Enterprizes, Inc. (Also Known As Regional Enterprises, Inc.), A Virginia
Corporation (Company); The Shareholders Of Company; And W. Gary Farrar, Jr.
(Principal).2.4
    
    Articles Of Merger Of Regional Enterprises, Inc. A Virginia Corporation, And
Regional Enterprizes, Inc., A Virginia Corporation Dated July 27, 2007.10.46
    
    Consulting Agreement (This Agreement) Is Entered Into On This ___Th Day Of June,
2007, With An Effective Date Of November 1, 2006 By And Between Penn Octane Corporation, A
Delaware Corporation And Rio Vista Energy Partners L.P., A Delaware Limited Partnership
And Ricardo Rodriguez Canney.10.47
    
    Consulting Agreement Made And Entered Into As Of The 2nd Day Of July, 2007 Between
Rio Vista Energy Partners, L.P. And Ceocast, Inc.10.48
    
    Employment And Non-Competition Agreement Effective As Of The 27th Day Of July, 2007 Made
By And Between Regional Enterprises, Inc., A Virginia Corporation And W. Gary Farrar, III.
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10.49
    
    Escrow Agreement Between Rio Vista Energy Partners L.P., A Delaware Limited
Partnership, Regional Enterprises, Inc., A Virginia Corporation, W. Gary Farrar, Jr., A
Resident Of The Commonwealth Of Virginia, And First Capital Bank, A Virginia Banking
Corporation (The Escrow Agent), Effective As Of The 27th Day Of July, 2007.10.50
    
    Loan Agreement Dated As Of July 26, 2007, And Entered Into Between Rio Vista Energy
Partners L.P., A Delaware Limited Partnership And RZB Finance LLC.10.51
    
    Guaranty And Agreement Between Regional Enterprises, Inc., A Virginia Corporation
And RZB Finance LLC Dated As Of July 26, 2007.10.52
    
    Guaranty And Agreement Between Penn Octane Corporation, A Delaware Corporation And
RZB Finance LLC Dated As Of July 26, 2007.10.53
    
    Guaranty And Agreement Between Rio Vista Operating Partnership L.P., A Delaware
Limited Partnership And RZB Finance LLC Dated As Of July 26, 2007.10.54
    
    $5,000,000 Promissory Note Dated July 26, 2007 Issued By Rio Vista Energy Partners
L.P., A Delaware Limited Partnership To RZB Finance LLC.10.55
    
    General Security Agreement dated July 26, 2007 between RZB Finance LLC and Regional
Enterprises, Inc., A Virginia Corporation.10.56
    
    Pledge Agreement, Made This 26th Day Of July, 2007, By And Between: Rio Vista Energy
Partners L.P., A Delaware Limited Partnership And RZB Finance LLC.10.57
    
    First Amendment To Line Letter Dated As Of July 26, 2007, Between RZB Finance LLC
(RZB) And Penn Octane Corporation (The Borrower).10.58
    
    Debt Assumption Agreement Made As Of The 26th Day Of July, 2007, By And Between Rio
Vista Energy Partners L.P., A Delaware Limited Partnership And Regional Enterprises, Inc.,
A Virginia Corporation.10.59
    
    $5,000,000 Debt Assumption Note Dated July 26, 2007 Issued By Regional Enterprises,
Inc., A Virginia Corporation To Rio Vista Energy Partners L.P., A Delaware Limited
Partnership.10.60
    
    $2,500.000 Promissory Note Dated July 26, 2007 Issued By Regional Enterprises, Inc.,
A Virginia Corporation To Rio Vista Energy Partners L.P., A Delaware Limited Partnership.10.61
    
    Environmental Indemnity Agreement Made As Of The 26th Day Of July, 2007 By Regional
Enterprises, Inc., A Virginia Corporation And RZB Finance LLC.

10.62
    
    Reaffirmation Of Security Agreements, Dated As Of July 26, 2007 By And Among Rio
Vista Energy Partners L.P., A Delaware Limited Partnership, Penn Octane Corporation, A
Delaware Corporation And Rio Vista Operating Partnership L.P., A
Delaware Limited Partnership And RZB Finance LLC.
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15
    
    Accountants Acknowledgment.31.1
    
    Certification Pursuant to Rule 13a  14(a) / 15d  14(a) of the Exchange Act.31.2
    
    Certification Pursuant to Rule 13a  14(a) / 15d  14(a) of the Exchange Act.32
    
    Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes Oxley Act of 2002.
 www.sec.gov
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SIGNATURES
  PENN OCTANE CORPORATIONAugust 20, 2007
    By:
    /s/Ian T. BothwellIan T. BothwellActing Chief Executive Officer, Acting
President, Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary
(Principal Executive, Financial and
Accounting Officer)  63




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EXHIBIT INDEX
  Exhibit No.2.3
    
    Agreement And Plan Of Merger, Made As Of The 27th Day Of July, 2007, By
And Among Rio Vista Energy Partners L.P., (Buyer); Regional Enterprises, Inc., A
Virginia Corporation And Newly Formed, Wholly Owned Subsidiary Of Buyer (Merger Sub);
Regional Enterprizes, Inc. (Also Known As Regional Enterprises, Inc.), A Virginia
Corporation (Company); The Shareholders Of Company; And W. Gary Farrar, Jr.
(Principal).2.4
    
    Articles Of Merger Of Regional Enterprises, Inc. A Virginia Corporation, And
Regional Enterprizes, Inc., A Virginia Corporation Dated July 27 2007.10.46
    
    Consulting Agreement (This Agreement) Is Entered Into On This ___Th Day Of June,
2007, With An Effective Date Of November 1, 2006 By And Between Penn Octane Corporation, A
Delaware Corporation And Rio Vista Energy Partners L.P., A Delaware Limited Partnership
And Ricardo Rodriguez Canney.10.47
    
    Consulting Agreement Made And Entered Into As Of The 2nd Day Of July, 2007 Between
Rio Vista Energy Partners, L.P. And Ceocast, Inc.10.48*
    
    Employment And Non-Competition Agreement Effective As Of The 27th Day Of July, 2007 Made
By And Between Regional Enterprises, Inc., A Virginia Corporation And W. Gary Farrar, III.10.49
    
    Escrow Agreement Between Rio Vista Energy Partners L.P., A Delaware Limited
Partnership, Regional Enterprises, Inc., A Virginia Corporation, W. Gary Farrar, Jr., A
Resident Of The Commonwealth Of Virginia, And First Capital Bank, A Virginia Banking
Corporation (The Escrow Agent), Effective As Of The 27th Day Of July, 2007.10.50
    
    Loan Agreement Dated As Of July 26, 2007, And Entered Into Between Rio Vista Energy
Partners L.P., A Delaware Limited Partnership And RZB Finance LLC.10.51
    
    Guaranty And Agreement Between Regional Enterprises, Inc., A Virginia Corporation
And RZB Finance LLC Dated As Of July 26, 2007.10.52
    
    Guaranty And Agreement Between Penn Octane Corporation, A Delaware Corporation And
RZB Finance LLC Dated As Of July 26, 2007.10.53
    
    Guaranty And Agreement Between Rio Vista Operating Partnership L.P., A Delaware
Limited Partnership And RZB Finance LLC Dated As Of July 26, 2007.10.54
    
    $5,000,000 Promissory Note Dated July 26, 2007 Issued By Rio Vista Energy Partners
L.P., A Delaware Limited Partnership To RZB Finance LLC.10.55
    
    General Security Agreement dated July 26, 2007 between RZB Finance LLC and Regional
Enterprises, Inc., A Virginia Corporation.10.56
    
    Pledge Agreement, Made This 26th Day Of July, 2007, By And Between: Rio Vista Energy
Partners L.P., A Delaware Limited Partnership And RZB Finance LLC.
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Exhibit No.10.57
    
    First Amendment To Line Letter Dated As Of July 26, 2007, Between RZB Finance LLC
(RZB) And Penn Octane Corporation (The Borrower).10.58
    
    Debt Assumption Agreement Made As Of The 26th Day Of July, 2007, By And Between Rio
Vista Energy Partners L.P., A Delaware Limited Partnership And Regional Enterprises, Inc.,
A Virginia Corporation.10.59
    
    $5,000,000 Debt Assumption Note Dated July 26, 2007 Issued By Regional Enterprises,
Inc., A Virginia Corporation To Rio Vista Energy Partners L.P., A Delaware Limited
Partnership.10.60
    
    $2,500.000 Promissory Note Dated July 26, 2007 Issued By Regional Enterprises, Inc.,
A Virginia Corporation To Rio Vista Energy Partners L.P., A Delaware Limited Partnership.10.61
    
    Environmental Indemnity Agreement Made As Of The 26th Day Of July, 2007 By Regional
Enterprises, Inc., A Virginia Corporation And RZB Finance LLC.10.62
    
    Reaffirmation Of Security Agreements, Dated As Of July 26, 2007 By And Among Rio
Vista Energy Partners L.P., A Delaware Limited Partnership, Penn Octane Corporation, A
Delaware Corporation And Rio Vista Operating Partnership L.P., A Delaware Limited
Partnership And RZB Finance LLC.15
    
    Accountants Acknowledgment.31.1
    
    Certification Pursuant to Rule 13a  14(a) / 15d  14(a) of the Exchange Act.31.2
    
    Certification Pursuant to Rule 13a  14(a) / 15d  14(a) of the Exchange Act.32
    
    Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes Oxley Act of 2002.
  65