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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A



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ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2004



333-115358-04

Commission file number



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PETRO, INC.

(Exact name of each registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Texas                                                          |  | 74-1816679                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|6080 Surety Drive El Paso, Texas         |  | 79905     
|(Address of principal executive offices) |  | (zip code)



Registrants
telephone number, including area code: (915) 860-4480



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of
the Act: None



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.  Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether
the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes ̈No  x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):  Yes ̈No  x



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter. Not Applicable



Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date: As of December 31, 2004, the number of shares outstanding of the registrants only class of common stock was 99,500.



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Explanatory Note



This amendment on Form 10-K/A to the Annual Report on Form 10-K of Petro, Inc. for the fiscal year ended December 31, 2004 restates our financial
statements for the three-year period ended December 31, 2004 and related disclosures, including the selected financial data included herein as of and for the fiscal years ended December 31, 2002, 2003, and 2004, as described in Note 2(a)
of notes to financial statements. Additionally, financial data presented for each of the years in the five-year period ended December 31, 2004, included in Part II  Item 6  Selected Financial Data, has been restated. The
cumulative effect of the restatement has been reflected as of the beginning of the earlier period presented. Information regarding the restatement of these financial statements can also be found in our Current Report on Form 8-K, filed with the
Securities and Exchange Commission (SEC) on October 11, 2005.



Generally, no attempt has been made in this Form 10-K/A to modify or update other disclosures presented in the original report of Form 10-K, except as required to reflect the effects of the restatement. The Form
10-K/A generally does not reflect events occurring after the filing of the Form 10-K or modify or update those disclosures, including the exhibits to the Form 10-K affected by subsequent events. Information not affected by the restatement is
unchanged and reflects the disclosures made at the time of the original filing of the Form 10-K on March 31, 2005. The following items have been amended as a result of the restatement:



| |  | Part II  Item 6  Selected Financial Data
|- |  | ------------------------------------------



| |  | Part II  Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations
|- |  | --------------------------------------------------------------------------------------------------------



| |  | Part II  Item 8  Financial Statements and Supplementary Data
|- |  | --------------------------------------------------------------



| |  | Part II  Item 9A  Controls and Procedures
|- |  | -------------------------------------------



| |  | Part IV  Item 15  Exhibits and Financial Statement Schedules
|- |  | --------------------------------------------------------------



We have included in this Amendment to Form 10-K a discussion of our disclosure controls and procedures as of December 31, 2004, the end of our
fiscal year. While the discussion speaks as of a date later than December 31, 2004, we have concluded that an updated disclosure is appropriate under the circumstances of the restatement reflected is this amendment.



In addition, pursuant to the rules of the SEC, Item 15 of Part IV of the
Original Filing had been amended to contain the currently dated certificates from our President and Chief Executive Officer and Treasurer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The
certifications of our President Chief Executive Officer and Treasurer and Chief Financial Officer are attached to this Form 10-K/A as Exhibits 31.01, 31.02, and 32, respectively.



In May 2005, Petro Stopping Centers Holdings, L.P. (Holdings), a Delaware limited partnership, of which we own a
12.52% interest, reviewed its accounting policies and had determined that they had incorrectly calculated their depreciation expenses on leasehold improvements. Additionally, as a result of revised analysis of Statement of Financial Accounting
Standards No. 150 Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No. 150), Holdings had determined that their mandatorily redeemable warrants, previously
classified as a mezzanine line item on the balance sheet, should have been recorded as a mark-to-fair value liability, as of the adoption of SFAS No. 150, with subsequent changes in the fair value reflected in interest cost. Holdings adopted
SFAS No. 150 on January 1, 2004. As a result, Holdings has restated its financial statements for the three-year period ended December 31, 2004.



Since our interests in Holdings are accounted for using the equity method, Holdings action requires us to restate our financial statements. Our
cumulative financial statement impact as a result of the



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aforementioned lease related issues through December 31, 2004 resulted in an increase to accumulated deficit in an
increase to accumulated deficit and loss on investment in limited partnership by approximately $102,829, reflecting a decrease in equity in partnership losses in excess of investment. Of the $102,829, $78,943 is reflected in periods prior to
December 31, 2002. We have determined that loss on investment in limited partnerships, operating loss, and net loss was increased by $16,350, $2,682, and $4,854 for the periods ending December 31, 2002, 2003, and 2004, respectively.
Additionally, equity in partnership losses in excess of investment and accumulated deficit was increased by $97,975 and $102,829 for the periods ending December 31, 2003 and 2004, respectively.



We have previously recorded our percentage of the change in Holdings
partners capital (deficit) related to the fair value adjustment of the mandatorily redeemable warrants as a direct adjustment to the equity in partnership losses in excess of investment and accumulated deficit, and thus, it was not included in
our statement of operations. Due to Holdings restatement, we have determined that our accounting of the mandatorily redeemable warrants should be consistent with Holdings and any valuation adjustments should be reflected as a component to the
income (loss) on investment in limited partnerships account on our statement of operations. We have determined that there is no financial statement effect arising from years prior to 2004 as a result of this issue due to the fact that Holdings
adopted SFAS No. 150 on January 1, 2004. We have determined that loss on investment in limited partnerships, operating loss, and net loss was increased by $325,521 for the period ending December 31, 2004 as a result of this issue.



The restatement had no net impact on net cash provided by
operating activities for the three-years ended December 31, 2002, 2003, and 2004.



We have not amended and do not intend to amend our previously filed Quarterly Reports on Form 10-Q for the periods affected by the restatement that ended prior to December 31, 2004.



Forward Looking Statements



Certain sections of this Form 10-K/A, including Business,
Managements Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures about Market Risk, contain various forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 as amended (the Exchange Act), which represent managements expectations or beliefs concerning future events that involve risks and uncertainties. These statements may be
accompanied by words such as believe, intend, estimate, may, could, project, anticipate, expect, or predict, that convey the uncertainty of
future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual results in the future to differ materially from the results referred to in the
forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those
statements. In addition to the factors described in this Form 10-K/A, important factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements include, among others, the following:



| |  |  | the economic condition of the long-haul trucking and real estate industry and the U.S. economy in general;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | competition from other truck stops, convenience stores, fast food retailers, restaurants, and truck maintenance and repair facilities; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | environmental regulations.
| | - |  | --------------------------



All statements, other than statements of historical facts included in this Form 10-K/A, may be considered forward-looking statements.



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PART I



Item 1. Business



Petro, Inc.



In
December 1974, we were formed as a Texas corporation. We own investments in certain oil and gas operations and real estate joint ventures located in the Southwest United States. In addition, we own an interest in Holdings, a Delaware limited
partnership, which, in turn, owns an operating partnership that operates a nationwide network of truck stopping centers. We are a wholly owned subsidiary of Nevada Trio, Inc.



Oil and Gas



We owned a small residual interest in mineral right royalties related to two oil and gas wells in which we obtained an interest over 20 years ago. The
underlying assets corresponding to this income have been written down to zero on our balance sheet in prior years. Periodically, we receive our share of royalties which are netted against our share of administrative costs. These royalties and
administrative costs are expected to continue to decline year over year.



Real Estate Joint Venture



We own
approximately 20% of the common stock of Hueco Mountain Estates, Inc. (Hueco). Hueco sells land in west Texas for residential use and in most instances carries the sale contract for the benefit of the purchaser. We own a 10% interest in
Trevino Properties (Trevino), a real estate general partnership, which holds undeveloped commercial land for sale in El Paso, Texas.



Investments



On July 23, 1999, we and certain other parties exchanged our interests in Petro Stopping Centers, L.P. (the Operating Partnership) for
identical interests in Holdings and became owners of Holdings. At this time, we became the sole general partner in both Holdings (1.1%) and the Operating Partnership (0.25%). In addition, we hold an 11% common limited partnership interest and
mandatorily redeemable preferred partnership interests in Holdings. The mandatorily redeemable preferred partnership interests of $3,490,069 are entitled to cumulative preferred returns of 8% and are subject to mandatory redemption in October 2008.
The preferred returns accrue but are only payable in cash if permitted by the Operating Partnerships then existing debt instruments. At December 31, 2003 and 2004, we had accrued preferred returns on the mandatorily redeemable preferred
partnership interest amounting to $1,351,369 and $1,614,672, respectively.



In early 2004, the Operating Partnership and Holdings completed their 2004 Refinancing Transactions in which both companies refinanced substantially all of their existing indebtedness.



We do not own any assets other than the investments in Hueco, Trevino,
Holdings, and the Operating Partnership; and apart from our general partnership interests, we are not otherwise actively engaged in any business.



Employees



We do not conduct any operations and therefore we do not have any employees.



Item 2. Properties



We lease commercial space under an operating lease based on a fixed charge. Total rent expense amounted to $150,000 for each of the years ending
December 31, 2002, 2003, and 2004.



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Item 3. Legal Proceedings



We are involved in various litigation incidental to our business for which an estimate of the possible loss or range of loss
cannot be made at this time. In our opinion, such proceedings will not have a material adverse effect on our financial position or results of operations.



Item 4. Submission of Matters to a Vote of Security Holders



None



PART II



Item 5. Market of Registrants Common Equity and Related Stockholder Matters



We are a wholly owned subsidiary of Nevada Trio, Inc. Consequently, there is no established trading market for our equity.



Item 6. Selected Financial Data



The information set forth below should be read in conjunction with both
Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and the financial statements and notes thereto included in Item 8. The selected financial data as of and for the year ended
December 31, 2000 has been derived from our restated unaudited financial statements, while the financial data as of and for the years ended December 31, 2001, 2002, 2003, and 2004, have been derived from our restated audited financial
statements. In the opinion of management, the restated unaudited and audited financial data contain all adjustments necessary to present fairly the selected historical financial data.



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SELECTED HISTORICAL FINANCIAL DATA



|                                                                            |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|--------------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------ | - | ---------- | ------------- |  | - | ------------- | - |  | ------------- | ---------- | - |  | - | ---------- | -
|                                                                            |  | For the Years Ended December 31, |           
|                                                                            |  | 2000                             |            |   | 2001                     |   |            | 2002          |  |   | 2003          |   |  | 2004          |           
|                                                                            |  | (As Restated)(unaudited)         |            |   | (As Restated)(unaudited) |   |            | (As Restated) |  |   | (As Restated) |   |  | (As Restated) |           
|Income Statement Data:                                                      |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Revenue (loss):                                                             |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Oil and gas income                                                          |  | $                                | 25,134     |   |                          | $ | 20,674     |               |  | $ | 13,924        |   |  | $             | 10,274     |   |  | $ | 8,772      |  
|Management fee income                                                       |  |                                  | 135,500    |   |                          |   |           |               |  |   |              |   |  |               |           |   |  |   |           |  
|Accrual of preferred return on mandatorily redeemable partnership interests |  |                                  | 192,395    |   |                          |   | 208,094    |               |  |   | 227,062       |   |  |               | 243,439    |   |  |   | 265,989    |  
|Loss on investment in limited partnerships                                  |  |                                  | (242,949   | ) |                          |   | (1,743,782 | )             |  |   | (831,245      | ) |  |               | (942,305   | ) |  |   | (2,177,727 | )
|Equity in net income (loss) of affiliate                                    |  |                                  | 87,905     |   |                          |   | 44,288     |               |  |   | (21,552       | ) |  |               | (5,772     | ) |  |   | (3,218     | )
|Other income                                                                |  |                                  |           |   |                          |   | 2,524      |               |  |   |              |   |  |               | 15,244     |   |  |   | 36,000     |  
|                                                                            |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Total revenue (loss)                                                        |  |                                  | 197,985    |   |                          |   | (1,468,202 | )             |  |   | (611,811      | ) |  |               | (679,120   | ) |  |   | (1,870,184 | )
|                                                                            |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|General and administrative expenses                                         |  |                                  | 561,368    |   |                          |   | 228,830    |               |  |   | 231,710       |   |  |               | 295,302    |   |  |   | 258,477    |  
|                                                                            |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Operating loss                                                              |  |                                  | (363,383   | ) |                          |   | (1,697,032 | )             |  |   | (843,521      | ) |  |               | (974,422   | ) |  |   | (2,128,661 | )
|Interest income - related party                                             |  |                                  | 45,597     |   |                          |   | 9,944      |               |  |   | 10,299        |   |  |               | 8,188      |   |  |   | 13,464     |  
|Interest expense - related party                                            |  |                                  |           |   |                          |   | (51,008    | )             |  |   | (46,960       | ) |  |               | (42,619    | ) |  |   | (37,967    | )
|                                                                            |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Net loss                                                                    |  | $                                | (317,786   | ) |                          | $ | (1,738,096 | )             |  | $ | (880,182      | ) |  | $             | (1,008,853 | ) |  | $ | (2,153,164 | )
|                                                                            |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Balance Sheet Data:                                                         |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|(at end of period)                                                          |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Total assets                                                                |  | $                                | 1,923,598  |   |                          | $ | 1,764,656  |               |  | $ | 879,582       |   |  | $             | 899,336    |   |  | $ | 837,360    |  
|Total debt                                                                  |  |                                  | 754,013    |   |                          |   | 698,029    |               |  |   | 637,998       |   |  |               | 573,628    |   |  |   | 504,603    |  
|Equity in partnership losses in excess of investment                        |  |                                  | 2,403,719  |   |                          |   | 3,643,418  |               |  |   | 4,765,739     |   |  |               | 5,902,468  |   |  |   | 7,890,088  |  
|Stockholders deficit and comprehensive loss                                |  |                                  | (1,276,737 | ) |                          |   | (3,211,784 | )             |  |   | (4,549,210    | ) |  |               | (5,995,927 | ) |  |   | (8,224,975 | )
|                                                                            |  |                                  |            |   |                         
|Other Financial Data:                                                       |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Net cash provided by (used in):                                             |  |                                  |            |   |                          |   |            |               |  |   |               |   |  |               |            |   |  |   |            |  
|Operating activities                                                        |  | $                                | (770,639   | ) |                          | $ | (251,721   | )             |  | $ | (254,528      | ) |  | $             | (313,971   | ) |  | $ | (234,350   | )
|Investing activities                                                        |  |                                  | 833,633    |   |                          |   | 85,365     |               |  |   | (3,100        | ) |  |               | (5,334     | ) |  |   | 30,166     |  
|Financing activities                                                        |  |                                  | (2,860     | ) |                          |   | 106,593    |               |  |   | 255,678       |   |  |               | 336,948    |   |  |   | 184,050    |  



Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations



Restatement of Previously Issued Financial Statements



In May 2005, Holdings, of which we own a 12.52% interest, reviewed their accounting policies and had determined that they had incorrectly calculated their depreciation expenses on leasehold improvements. Additionally, as a result of revised
analysis of SFAS No. 150, Holdings had determined that their mandatorily redeemable warrants, previously classified as a mezzanine line item on the balance sheet, should have been recorded as a mark-to-fair value liability, as of the adoption
of SFAS No. 150, with subsequent changes in the fair value reflected in interest cost. Holdings adopted SFAS No. 150 on January 1, 2004. As a result, Holdings has restated their financial statements for the three-year period ended
December 31, 2004.



Since our interests in Holdings are
accounted for using the equity method, Holdings action requires us to restate our financial statements. Our cumulative financial statement impact as a result of the aforementioned lease related issues through December 31, 2004 resulted in
an increase to accumulated deficit and loss on investment in limited partnership by approximately $102,829, reflecting a decrease in equity in partnership losses in excess of investment. Of the $102,829, $78,943 is reflected in periods prior to
December 31, 2002. We have determined that loss on investment in limited partnerships, operating loss, and net loss was increased by $16,350, $2,682, and $4,854 for the periods ending December 31, 2002, 2003, and 2004, respectively.
Additionally, equity in partnership losses in excess of investment and accumulated deficit was increased by $97,975 and $102,829 for the periods ending December 31, 2003 and 2004, respectively.



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We have previously recorded our percentage of the change in Holdings partners capital (deficit)
related to the fair value adjustment of the mandatorily redeemable warrants as a direct adjustment to the equity in partnership losses in excess of investment and accumulated deficit, and thus, it was not included in our statement of operations. Due
to Holdings restatement, we have determined that our accounting of the mandatorily redeemable warrants should be consistent with Holdings and any valuation adjustments should be reflected as a component to the income (loss) on investment in
limited partnerships account on our statement of operations. We have determined that there is no financial statement effect arising from years prior to 2004 as a result of this issue due to the fact that Holdings adopted SFAS No. 150 on
January 1, 2004. We have determined that loss on investment in limited partnerships, operating loss, and net loss was increased by $325,521 for the period ending December 31, 2004 as a result of this issue.



The restatement had no net impact on net cash provided by operating
activities for the three-years ended December 31, 2002, 2003, and 2004.



The financial statements included in this 10-K/A have been restated to reflect the adjustments described above. The restatement is further discussed in Explanatory Notes in the forepart of this Form
10-K/A, in item 6, Selected Financial Data, in Item 8, Note 2(a) of notes to financial statements, Restatement of Previously Issued Financial Statements and Summary of Significant Accounting Policies of this Form 10-K/A,
in Item 9A Controls and Procedures, and in Part IV, Exhibits and Financial Statement Schedules.



Explanation of Reporting Format



We own investments in certain oil and gas operations, real estate joint ventures, and our interests in Holdings and its related entities. We do not have
any employees; we do not own any assets other than the investments in these entities; and, apart from our general partnership interests, we are not otherwise actively engaged in any business.



We have owned a small working interest in two oil and gas wells for over 20
years. Revenues are netted against expenses and are expected to continue to decline year after year. We own approximately 20% of the common stock of Hueco. Hueco sells land in west Texas for residential use and in most instances carries the sale
contract for the benefit of the purchaser. We own a 10% interest in Trevino, a real estate general partnership, which holds undeveloped commercial land for sale in El Paso, Texas.



Effective July 23, 1999, Holdings was formed as a Delaware limited partnership. Certain other partners and we exchanged
our interests in the Operating Partnership for identical interests in Holdings. As a result of the Recapitalization, we became the sole general partner in both Holdings (1.1%) and the Operating Partnership (0.25%). In addition, we hold an 11%
common limited partnership interest and mandatorily redeemable preferred partnership interests in Holdings. The mandatorily redeemable preferred partnership interests are entitled to cumulative preferred returns of 8% and are subject to mandatory
redemption in October 2008. The preferred returns accrue, but are only payable in cash if permitted by the Operating Partnerships and Holdings then existing debt instruments. At December 31, 2003 and 2004, we have accrued preferred
returns amounting to $1,351,369 and $1,614,672, respectively.



We derive our revenues from:



| |  |  | oil and gas drilling interests owned by us;
| | - |  | -------------------------------------------



| |  |  | interest income earned on advances from a related party;
| | - |  | --------------------------------------------------------



| |  |  | our share of income (loss) from our investments in limited partnerships;
| | - |  | ------------------------------------------------------------------------



| |  |  | our share of income (loss) from our investments in affiliated entities; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | sublease income.
| | - |  | ----------------



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The following table sets forth our total loss by major source:



|                                                                            |  |                                  |          |   |               |        |   |               |   |          |   |  |        |   |  |   |            |   |  |        |  
|--------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | ------------- | ------ | - | ------------- | - | -------- | - |  | ------ | - |  | - | ---------- | - |  | ------ | -
|                                                                            |  | For the Years Ended December 31, |         
|                                                                            |  | 2002                             |          |   | 2003          |        |   | 2004          |  
|                                                                            |  | (As Restated)                    |          |   | (As Restated) |        |   | (As Restated) |  
|Oil and gas income                                                          |  | $                                | 13,924   |   |               | 2.3    | % |               | $ | 10,274   |   |  | 1.5    | % |  | $ | 8,772      |   |  | 0.4    | %
|Accrual of preferred return on mandatorily redeemable partnership interests |  |                                  | 227,062  |   |               | 37.1   | % |               |   | 243,439  |   |  | 35.8   | % |  |   | 265,989    |   |  | 14.2   | %
|Loss on investment in limited partnerships                                  |  |                                  | (831,245 | ) |               | -135.9 | % |               |   | (942,305 | ) |  | -138.7 | % |  |   | (2,177,727 | ) |  | -116.3 | %
|Equity in net loss of affiliated entities                                   |  |                                  | (21,552  | ) |               | -3.5   | % |               |   | (5,772   | ) |  | -0.8   | % |  |   | (3,218     | ) |  | -0.2   | %
|Other income                                                                |  |                                  |         |   |               | 0.0    | % |               |   | 15,244   |   |  | 2.2    | % |  |   | 36,000     |   |  | 1.9    | %
|                                                                            |  |                                  |          |   |               |        |   |               |   |          |   |  |        |   |  |   |            |   |  |        |  
|Total revenue (loss)                                                        |  | $                                | (611,811 | ) |               | -100.0 | % |               | $ | (679,120 | ) |  | -100.0 | % |  | $ | (1,870,184 | ) |  | -100.0 | %
|                                                                            |  |                                  |          |   |               |        |   |               |   |          |   |  |        |   |  |   |            |   |  |        |  



Results of Operations



Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003 (As Restated)



Revenue (Loss).Net loss increased for the year ended December 31, 2004 to $2.2 million compared to a loss of $1.0 million for the year ended December 31, 2003, due to increased losses from our investment in limited partnerships. Those losses were due
primarily to costs associated with the debt refinancing by the Operating Partnership and Holdings during the reporting period. Our income from oil and gas operations declined to $8,772 from $10,274. We recognized losses of $22,960 and $23,824
related to our investment in Hueco for the years ended December 31, 2004 and 2003, respectively, and recognized income of $19,742 and $18,052 related to our investment in Trevino for the years ended December 31, 2004 and December 31,
2003, respectively.



General and Administrative
Expenses. General and administrative expenses decreased 12.5% to $258,477 for the year ended December 31, 2004 compared to $295,302 for the year ended December 31, 2003 due to reduced property tax expense on previously unoccupied
income property.



Interest Expense. Interest expense
decreased 10.9% or $4,652 to $37,967 compared to the year ended December 31, 2003, due primarily to the decrease in interest bearing debt obligations.



Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 (As Restated)



Revenue (Loss).Net loss increased for the year ended December 31, 2003 to $1.0 million compared to a loss of
$880,000 for the year ended December 31, 2002, due to increased losses from our investment in limited partnerships. Our income from oil and gas operations declined to $10,274 from $13,924. We recognized a loss of $23,824 and $13,963 related to
our investment in Hueco for the years ended December 31, 2003 and 2002, respectively, and recognized income of $18,052 and a loss of $7,589 related to our investment in Trevino for the year ended December 31, 2003 and December 31,
2002, respectively.



General and Administrative
Expenses. General and administrative expenses increased 27.4% to $295,302 for the year ended December 31, 2003 compared to $231,710 for the year ended December 31, 2002 due mainly to increased professional fees.



Interest Expense. Interest expense decreased 9.2% or $4,341 to $42,619
compared to the year ended December 31, 2002, due primarily to the decrease in interest bearing debt obligations.



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Liquidity and Capital Resources



Our principal sources of liquidity are:



| |  |  | Cash flows used in operations were $254,528, $313,971, and $234,350 in 2002, 2003, and 2004, respectively. These fluctuations were due to variations in general and administrative
expenses, in addition to increased interest income and other income for the years ended December 31, 2003 and 2004; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cash flows provided by financing activities were $255,678, $336,948, and $184,050 in 2002, 2003, and 2004, respectively. These fluctuations were due to our borrowings on
intercompany advances and repayments on our debt.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following is a summary of our contractual obligations as of December 31, 2004:



|                                    |  |       |         |                 |   |           |  |           |         |               |   |         |  |   |       
|----------------------------------- |  | ----- | ------- | --------------- | - | --------- |  | --------- | ------- | ------------- | - | ------- |  | - | ------
|Contractual Obligations             |  | Total |         | Less Than1 Year |   | 1-3 Years |  | 4-5 Years |         | After 5 Years
|Long-term debt (including interest) |  | $     | 606,288 |                 | $ | 106,992   |  | $         | 213,984 |               | $ | 213,984 |  | $ | 71,328
|Operating leases                    |  |       | 37,500  |                 |   | 37,500    |  |           |        |               |   |        |  |   |      
|                                    |  |       |         |                 |   |           |  |           |         |               |   |         |  |   |       
|Total                               |  | $     | 643,788 |                 | $ | 144,492   |  | $         | 213,984 |               | $ | 213,984 |  | $ | 71,328
|                                    |  |       |         |                 |   |           |  |           |         |               |   |         |  |   |       



We anticipate having
cash requirements for operations and debt service in excess of expected available funds in the amount of $134,000 through 2005, and a lower amount thereafter. Our parent, Nevada Trio, Inc., will provide or make available any necessary funds to meet
our obligations.



Off-Balance Sheet Arrangements



Concurrent with the 2004 Refinancing Transactions described above, we,
together with certain other parties, each entered into an indemnity agreement under which each agreed to indemnify Holdings, the Operating Partnership, and the general and limited partners thereof, for a definitive amount of debt arising out of the
2004 Refinancing Transactions. The indemnity agreements were entered into by the parties to address specific income tax issues arising out of the 2004 Refinancing Transactions under the at-risk limitation rules, the partnership basis
rules, and the liability allocation rules found in the Internal Revenue Code and the Treasury regulations. Consequently, each partys obligation under its respective indemnity agreement is determined by taking into account that partys
basis in its partnership interest and the applicable at-risk rules and liability allocation rules. No demand for payment under the indemnity agreement has been made.



We are a guarantor on a full, joint and several and senior secured basis, of $225,000,000 aggregate principal amount of 9%
Senior Secured Notes due 2012 and of $61,300,000 aggregate principal amount of Senior Secured Credit Facilities due 2008, which were issued by the Operating Partnership. Payments would be due if the Operating Partnership were to become insolvent
and/or entered into default of any debt covenant or indenture. No collateral secures our guarantee.



Critical Accounting Policies



The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities in our financial statements and accompanying notes. The Securities and Exchange Commission has defined a companys critical accounting policies as the ones that are most important to the
portrayal of the companys financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates about matters that are inherently
uncertain. Based on this definition, we have identified our critical accounting policies as including those



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addressed below. We also have other key accounting policies that involve the use of estimates, judgments, and
assumptions. See Note 2(b) of notes to financial statements included herein for additional discussion of these accounting policies. We believe that our estimates and assumptions are reasonable, based upon information presently available, however,
actual results may differ from these estimates under different assumptions or conditions.



Income Taxes



Our
parent files a consolidated tax return that includes our and other subsidiaries results of operations. Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the book and tax bases
of assets and liabilities, except for net operating losses for tax purposes and tax credits. Potential benefits of net operating losses and tax credits resulting from our operations are not allocated to us. Deferred tax assets are reduced by a
valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets are adjusted for the effects of changes in tax law and rates on the date of enactment.



Recently Issued Accounting Pronouncements



In December 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which replaces the original Interpretation No. 46 issued in January 2003. This Interpretation
addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The effective dates vary depending on the type of reporting company and the type of entity that the company is involved with.
Non-public companies, such as us, must apply the revised Interpretation immediately to all entities created after December 31, 2003, and to all other entities no later than the beginning of the first reporting period beginning after
December 15, 2004. We do not believe that the adoption of this revised Interpretation will have a significant impact on our consolidated financial position or results of operations.



Item 7A. Quantitative and Qualitative Disclosures about Market Risk



As of December 31, 2003 and 2004, the carrying amounts of certain
financial instruments employed by us, including cash and cash equivalents, investment in affiliated entities, accounts payable, advances due from/amounts due to related party, and related party note payable are representative of fair value because
of the short-term maturity of these instruments.



The following
table reflects the carrying amount and estimated fair value of our financial instruments, as of December 31:



|                      |  |                |         |      |            |   |                |  |   |            |   |  |   |        
|--------------------- |  | -------------- | ------- | ---- | ---------- | - | -------------- |  | - | ---------- | - |  | - | -------
|                      |  | 2003           |         | 2004
|                      |  | CarryingAmount |         |      | Fair Value |   | CarryingAmount |  |   | Fair Value
|Long-term debt        |  |                |         |      |            |   |                |  |   |            |   |  |   |        
|Fixed rate            |  | $              | 573,628 |      |            | $ | 573,628        |  | $ | 504,603    |   |  | $ | 504,603
|Average interest rate |  |                | 7.0     | %    |            |   |               |  |   | 7.0        | % |  |   |       



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Item 8. Financial Statements and Supplementary Data



PETRO, INC.

BALANCE SHEETS



|                                                                                          |  |                  |             |   |                  |   |             |  
|----------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                          |  | December 31,2003 |             |   | December 31,2004 |  
|                                                                                          |  | (As Restated)    |             |   | (As Restated)    |  
|Assets                                                                                    |  |                  |             |   |                  |   |             |  
|                                                                                          |  |                 
|Cash and cash equivalents                                                                 |  | $                | 21,907      |   |                  | $ | 1,773       |  
|                                                                                          |  |                  |             |   |                  |   |             |  
|Total current assets                                                                      |  |                  | 21,907      |   |                  |   | 1,773       |  
|Prepaid expenses                                                                          |  |                  |            |   |                  |   | 638         |  
|Advances due from related party                                                           |  |                  | 267,264     |   |                  |   | 280,726     |  
|Investment in affiliated entities                                                         |  |                  | 581,970     |   |                  |   | 548,586     |  
|Leasehold improvements, net                                                               |  |                  | 28,195      |   |                  |   | 5,637       |  
|                                                                                          |  |                  |             |   |                  |   |             |  
|Total assets                                                                              |  | $                | 899,336     |   |                  | $ | 837,360     |  
|                                                                                          |  |                  |             |   |                  |   |             |  
|Liabilities and Stockholders Deficit                                                     |  |                  |             |   |                  |   |             |  
|                                                                                          |  |                 
|Current portion of note payable - related party                                           |  | $                | 69,047      |   |                  | $ | 74,014      |  
|Accounts payable and accrued expenses                                                     |  |                  | 11,597      |   |                  |   | 1,000       |  
|Deferred revenue                                                                          |  |                  | 1,500       |   |                  |   | 7,500       |  
|Due to related party                                                                      |  |                  | 406,070     |   |                  |   | 659,144     |  
|                                                                                          |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                                 |  |                  | 488,214     |   |                  |   | 741,658     |  
|                                                                                          |  |                 
|Note payable - related party                                                              |  |                  | 504,581     |   |                  |   | 430,589     |  
|Equity in partnership losses in excess of investment                                      |  |                  | 5,902,468   |   |                  |   | 7,890,088   |  
|                                                                                          |  |                  |             |   |                  |   |             |  
|Total liabilities                                                                         |  |                  | 6,895,263   |   |                  |   | 9,062,335   |  
|                                                                                          |  |                  |             |   |                  |   |             |  
|Stockholders deficit                                                                     |  |                  |             |   |                  |   |             |  
|Common stock, $.01 par value, 50,000,000 authorized, 99,500 shares issued and outstanding |  |                  | 995         |   |                  |   | 995         |  
|Additional paid-in capital                                                                |  |                  | 13,395,970  |   |                  |   | 13,395,970  |  
|Accumulated deficit                                                                       |  |                  | (19,392,892 | ) |                  |   | (21,621,940 | )
|                                                                                          |  |                  |             |   |                  |   |             |  
|Total stockholders deficit                                                               |  |                  | (5,995,927  | ) |                  |   | (8,224,975  | )
|                                                                                          |  |                  |             |   |                  |   |             |  
|Total liabilities and stockholders deficit                                               |  | $                | 899,336     |   |                  | $ | 837,360     |  
|                                                                                          |  |                  |             |   |                  |   |             |  



See accompanying notes
to financial statements.



10



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PETRO, INC.

STATEMENTS OF OPERATIONS



|                                                                            |  |                            |          |   |                            |   |            |                            |  |   |            |  
|--------------------------------------------------------------------------- |  | -------------------------- | -------- | - | -------------------------- | - | ---------- | -------------------------- |  | - | ---------- | -
|                                                                            |  | Year EndedDecember 31,2002 |          |   | Year EndedDecember 31,2003 |   |            | Year EndedDecember 31,2004 | 
|                                                                            |  | (As Restated)              |          |   | (As Restated)              |   |            | (As Restated)              | 
|Revenue (loss)                                                              |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Oil and gas income                                                          |  | $                          | 13,924   |   |                            | $ | 10,274     |                            |  | $ | 8,772      |  
|Accrual of preferred return on mandatorily redeemable partnership interests |  |                            | 227,062  |   |                            |   | 243,439    |                            |  |   | 265,989    |  
|Loss on investment in limited partnerships                                  |  |                            | (831,245 | ) |                            |   | (942,305   | )                          |  |   | (2,177,727 | )
|Equity in net loss of affiliated entities                                   |  |                            | (21,552  | ) |                            |   | (5,772     | )                          |  |   | (3,218     | )
|Other income                                                                |  |                            |         |   |                            |   | 15,244     |                            |  |   | 36,000     |  
|                                                                            |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Total loss                                                                  |  |                            | (611,811 | ) |                            |   | (679,120   | )                          |  |   | (1,870,184 | )
|General and administrative expenses                                         |  |                            | 231,710  |   |                            |   | 295,302    |                            |  |   | 258,477    |  
|                                                                            |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Operating loss                                                              |  |                            | (843,521 | ) |                            |   | (974,422   | )                          |  |   | (2,128,661 | )
|Interest income - related party                                             |  |                            | 10,299   |   |                            |   | 8,188      |                            |  |   | 13,464     |  
|Interest expense - related party                                            |  |                            | (46,960  | ) |                            |   | (42,619    | )                          |  |   | (37,967    | )
|                                                                            |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Net loss                                                                    |  | $                          | (880,182 | ) |                            | $ | (1,008,853 | )                          |  | $ | (2,153,164 | )
|                                                                            |  |                            |          |   |                            |   |            |                            |  |   |            |  



See accompanying notes
to financial statements.



11



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##### Table of Contents

PETRO, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT

AND COMPREHENSIVE LOSS



|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|--------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ----------- | - | ------------------------ |  | ------------------ | ---------- |  | ------------------------------------------ | ----------- | - | ----- | - | ------- | - |  | - | ---------- | -
|                                                                            |  | ComprehensiveIncome (Loss) |            |   | CommonStock |   | AdditionalPaid-inCapital |  | AccumulatedDeficit |            |  | AccumulatedOtherComprehensiveIncome (Loss) |             |   | Total |  
|Balances, December 31, 2001 (As Previously Reported)                        |  |                            |            |   |             | $ | 995                      |  | $                  | 13,395,970 |  | $                                          | (16,509,272 | ) |       | $ | (20,534 | ) |  | $ | (3,132,841 | )
|Restatement adjustment - note 2(a)                                          |  |                            |            |   |             |   |                          |  |                    |            |  |                                            | (78,943     | ) |       |   |         |   |  |   | (78,943    | )
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Balances, December 31, 2001 (As Restated)                                   |  |                            |           |   |             |   | 995                      |  |                    | 13,395,970 |  |                                            | (16,588,215 | ) |       |   | (20,534 | ) |  |   | (3,211,784 | )
|                                                                            |  |                            |            |   |             |  
|Net loss (As Previously Reported)                                           |  |                            | (863,832   | ) |             |   |                          |  |                    |            |  |                                            | (863,832    | ) |       |   |         |   |  |   | (863,832   | )
|Restatement adjustment - note 2(a)                                          |  |                            | (16,350    | ) |             |   |                          |  |                    |            |  |                                            | (16,350     | ) |       |   |         |   |  |   | (16,350    | )
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Net loss (As Restated)                                                      |  |                            | (880,182   | ) |             |   |                         |  |                    |           |  |                                            | (880,182    | ) |       |   |        |   |  |   | (880,182   | )
|Activity from PSC Holdings, LP:                                             |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Comprehensive loss - net unrealized changes in cash flow hedging derivative |  |                            | (36,562    | ) |             |   |                          |  |                    |            |  |                                            |             |   |       |   | (36,562 | ) |  |   | (36,562    | )
|Accrual of preferred return on mandatorily redeemable partnership interests |  |                            |            |   |             |   |                          |  |                    |            |  |                                            | (443,788    | ) |       |   |         |   |  |   | (443,788   | )
|Partners minimum tax distributions                                         |  |                            |            |   |             |   |                          |  |                    |            |  |                                            | (1,730      | ) |       |   |         |   |  |   | (1,730     | )
|Valuation adjustment of contingently redeemable warrants                    |  |                            |            |   |             |   |                          |  |                    |            |  |                                            | 24,836      |   |       |   |         |   |  |   | 24,836     |  
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Comprehensive loss (As Restated)                                            |  | $                          | (916,744   | ) |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Balances, December 31, 2002 (As Restated)                                   |  |                            |            |   |             | $ | 995                      |  | $                  | 13,395,970 |  | $                                          | (17,889,079 | ) |       | $ | (57,096 | ) |  | $ | (4,549,210 | )
|Net loss (As Previously Reported)                                           |  | $                          | (1,006,171 | ) |             |   |                          |  |                    |            |  |                                            | (1,006,171  | ) |       |   |         |   |  |   | (1,006,171 | )
|Restatement adjustment - note 2(a)                                          |  |                            | (2,682     | ) |             |   |                          |  |                    |            |  |                                            | (2,682      | ) |       |   |         |   |  |   | (2,682     | )
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Net loss (As Restated)                                                      |  |                            | (1,008,853 | ) |             |   |                         |  |                    |           |  |                                            | (1,008,853  | ) |       |   |        |   |  |   | (1,008,853 | )
|Activity from PSC Holdings, LP:                                             |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Comprehensive loss - net unrealized changes in cash flow hedging derivative |  |                            | 57,096     |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   | 57,096  |   |  |   | 57,096     |  
|Accrual of preferred return on mandatorily redeemable partnership interests |  |                            |            |   |             |   |                          |  |                    |            |  |                                            | (492,307    | ) |       |   |         |   |  |   | (492,307   | )
|Partners minimum tax distributions                                         |  |                            |            |   |             |   |                          |  |                    |            |  |                                            | (2,653      | ) |       |   |         |   |  |   | (2,653     | )
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Comprehensive loss (As Restated)                                            |  | $                          | (951,757   | ) |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Balances, December 31, 2003 (As Restated)                                   |  |                            |            |   |             | $ | 995                      |  | $                  | 13,395,970 |  | $                                          | (19,392,892 | ) |       | $ |        |   |  | $ | (5,995,927 | )
|Net loss (As Previously Reported)                                           |  | $                          | (1,822,789 | ) |             |   |                          |  |                    |            |  | $                                          | (1,822,789  | ) |       |   |         |   |  |   | (1,822,789 | )
|Restatement adjustment - note 2(a)                                          |  |                            | (330,375   | ) |             |   |                          |  |                    |            |  |                                            | (330,375    | ) |       |   |         |   |  |   | (330,375   | )
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Net loss (As Restated)                                                      |  |                            | (2,153,164 | ) |             |   |                         |  |                    |           |  |                                            | (2,153,164  | ) |       |   |        |   |  |   | (2,153,164 | )
|Activity from PSC Holdings, LP:                                             |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Accrual of preferred return on mandatorily redeemable partnership interests |  |                            |            |   |             |   |                          |  |                    |            |  |                                            | (76,794     | ) |       |   |         |   |  |   | (76,794    | )
|Partners minimum tax distributions                                         |  |                            |            |   |             |   |                          |  |                    |            |  |                                            | 910         |   |       |   |         |   |  |   | 910        |  
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Comprehensive loss (As Restated)                                            |  | $                          | (2,153,164 | ) |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  
|Balances, December 31, 2004 (As Restated)                                   |  |                            |            |   |             | $ | 995                      |  | $                  | 13,395,970 |  | $                                          | (21,621,940 | ) |       | $ |        |   |  | $ | (8,224,975 | )
|                                                                            |  |                            |            |   |             |   |                          |  |                    |            |  |                                            |             |   |       |   |         |   |  |   |            |  



See accompanying notes
to financial statements.



12



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##### Table of Contents

PETRO, INC.

STATEMENTS OF CASH FLOWS



|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|-------------------------------------------------------------------------------------- |  | -------------------------- | -------- | - | -------------------------- | - | ---------- | -------------------------- |  | - | ---------- | -
|                                                                                       |  | Year EndedDecember 31,2002 |          |   | Year EndedDecember 31,2003 |   |            | Year EndedDecember 31,2004 | 
|                                                                                       |  | (As Restated)              |          |   | (As Restated)              |   |            | (As Restated)              | 
|Cash flows from operating activities:                                                  |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Net loss                                                                               |  | $                          | (880,182 | ) |                            | $ | (1,008,853 | )                          |  | $ | (2,153,164 | )
|Adjustments to reconcile net loss to net cash used in operating activities:            |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Equity in net loss of affiliated entities                                              |  |                            | 21,552   |   |                            |   | 5,772      |                            |  |   | 3,218      |  
|Loss on investment in limited partnerships                                             |  |                            | 831,245  |   |                            |   | 942,305    |                            |  |   | 2,177,727  |  
|Interest recorded on accrual of redeemable shares and preferred shares                 |  |                            | (227,062 | ) |                            |   | (243,439   | )                          |  |   | (265,989   | )
|Depreciation expense                                                                   |  |                            |         |   |                            |   | 5,639      |                            |  |   | 22,557     |  
|Increase (decrease) from changes in:                                                   |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Prepaid assets                                                                         |  |                            | 2,085    |   |                            |   |           |                            |  |   | (638       | )
|Intercompany receivable                                                                |  |                            | 88       |   |                            |   |           |                            |  |   |           |  
|Advances due from related party                                                        |  |                            | (10,299  | ) |                            |   | (8,188     | )                          |  |   | (13,462    | )
|Accounts payable and accrued expenses                                                  |  |                            | 8,045    |   |                            |   | (8,707     | )                          |  |   | (10,599    | )
|Deferred revenue                                                                       |  |                            |         |   |                            |   | 1,500      |                            |  |   | 6,000      |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Net cash used in operating activities                                                  |  |                            | (254,528 | ) |                            |   | (313,971   | )                          |  |   | (234,350   | )
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Cash flows from investing activities:                                                  |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Additions to leasehold improvements                                                    |  |                            |         |   |                            |   | (33,834    | )                          |  |   |           |  
|Partnership advances                                                                   |  |                            | (3,100   | ) |                            |   |           |                            |  |   |           |  
|Partnership withdrawal                                                                 |  |                            |         |   |                            |   | 28,500     |                            |  |   | 30,166     |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Net cash provided by (used in) investing activities                                    |  |                            | (3,100   | ) |                            |   | (5,334     | )                          |  |   | 30,166     |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Cash flows from financing activities:                                                  |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Intercompany advances                                                                  |  |                            | 315,709  |   |                            |   | 401,319    |                            |  |   | 253,074    |  
|Principal payments on related party notes payable                                      |  |                            | (60,031  | ) |                            |   | (64,371    | )                          |  |   | (69,024    | )
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Net cash provided by financing activities                                              |  |                            | 255,678  |   |                            |   | 336,948    |                            |  |   | 184,050    |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                                   |  |                            | (1,950   | ) |                            |   | 17,643     |                            |  |   | (20,134    | )
|Cash and cash equivalents, beginning of period                                         |  |                            | 6,214    |   |                            |   | 4,264      |                            |  |   | 21,907     |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Cash and cash equivalents, end of period                                               |  | $                          | 4,264    |   |                            | $ | 21,907     |                            |  | $ | 1,773      |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Supplemental schedule of non-cash investing and financing activities:                  |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Interest paid during the period                                                        |  | $                          | 46,960   |   |                            | $ | 42,619     |                            |  | $ | 37,967     |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Activity from investment in limited partnership recorded directly to retained earnings |  | $                          | 457,244  |   |                            | $ | 437,864    |                            |  | $ | 75,884     |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  
|Reduction of intercompany payable in connection with transfer of land                  |  | $                          | 473,458  |   |                            | $ |           |                            |  | $ |           |  
|                                                                                       |  |                            |          |   |                            |   |            |                            |  |   |            |  



See accompanying notes
to financial statements.



13



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



(1) Company Formation and Description of Business



Company Formation



Petro, Inc. (the Company) owns investments in certain oil and gas operations and real estate joint ventures located in the Southwest United
States. In addition, the Company owns an interest in Petro Stopping Centers Holdings, L.P. (Holdings), a Delaware limited partnership, which, in turn, owns an operating partnership that operates a nationwide network of truck stopping
centers. The Company is a wholly owned subsidiary of Nevada Trio, Inc.



(2)
Restatement of Previously Issued Financial Statements and Summary of Significant Accounting Policies



(a) Restatement of Previously Issued Financial Statements



In May 2005, Holdings, in which the Company owns a 12.52% interest, reviewed its accounting policies and had determined that it had incorrectly calculated
its depreciation expenses on leasehold improvements. Additionally, as a result of revised analysis of Statement of Financial Accounting Standards No. 150 Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity (SFAS No. 150), Holdings had determined that its mandatorily redeemable warrants, previously classified as a mezzanine line item on the balance sheet, should have been recorded as a mark-to-fair value
liability, as of the adoption of SFAS No. 150, with subsequent changes in the fair value reflected in interest cost. Holdings adopted SFAS No. 150 on January 1, 2004. As a result, Holdings has restated its financial statements for the
three-year period ended December 31, 2004.



Since the
Companys interests in Holdings are accounted for using the equity method, Holdings action required the Company to restate its financial statements.



The Company has previously recorded its percentage of the change in Holdings partners capital (deficit) related to the fair value adjustment of
the mandatorily redeemable warrants as a direct adjustment to the equity in partnership losses in excess of investment and accumulated deficit, and thus, it was not included in the Companys statement of operations. Due to Holdings
restatement, the Company has determined that its accounting of the mandatorily redeemable warrants should be consistent with Holdings and any valuation adjustments should be reflected as a component to the income (loss) on investment in limited
partnerships account on its statement of operations. The Company had determined that there was no financial statement effect arising from years prior to 2004 as a result of this issue due to the fact that Holdings adopted SFAS No. 150 on
January 1, 2004.



As a result of the above issues, amounts
presented in footnotes 3, 6, 9, and 13, have been changed to reflect the effects of the restatement.



The following tables present the adjustments as a result of the restatement to the Financial Statements of Operations for the fiscal years ended
December 31, 2002, 2003, and 2004 and Balance Sheets as of December 31, 2003 and 2004.



(continued)



14



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



Year Ended December 31, 2002



Statement of Operations



|                                           |  |                       |          |   |             |   |         |             |  |   |          |  
|------------------------------------------ |  | --------------------- | -------- | - | ----------- | - | ------- | ----------- |  | - | -------- | -
|                                           |  | As PreviouslyReported |          |   | Adjustments |   |         | As Restated | 
|Revenue (loss)                             |  |                       |          |   |             |   |         |             |  |   |          |  
|Oil and gas income                         |  | $                     | 13,924   |   |             | $ |        |             |  | $ | 13,924   |  
|Interest income                            |  |                       | 227,062  |   |             |   |        |             |  |   | 227,062  |  
|Loss on investment in limited partnerships |  |                       | (814,895 | ) |             |   | (16,350 | )           |  |   | (831,245 | )
|Equity in net loss of affiliated entities  |  |                       | (21,552  | ) |             |   |        |             |  |   | (21,552  | )
|Other income                               |  |                       |         |   |             |   |        |             |  |   |         |  
|                                           |  |                       |          |   |             |   |         |             |  |   |          |  
|Total loss                                 |  |                       | (595,461 | ) |             |   | (16,350 | )           |  |   | (611,811 | )
|                                           |  |                       |         
|General and administrative expenses        |  |                       | 231,710  |   |             |   |        |             |  |   | 231,710  |  
|                                           |  |                       |          |   |             |   |         |             |  |   |          |  
|Operating loss                             |  |                       | (827,171 | ) |             |   | (16,350 | )           |  |   | (843,521 | )
|                                           |  |                       |         
|Interest income - related party            |  |                       | 10,299   |   |             |   |        |             |  |   | 10,299   |  
|Interest expense - related party           |  |                       | (46,960  | ) |             |   |        |             |  |   | (46,960  | )
|                                           |  |                       |          |   |             |   |         |             |  |   |          |  
|Net loss                                   |  | $                     | (863,832 | ) |             | $ | (16,350 | )           |  | $ | (880,182 | )
|                                           |  |                       |          |   |             |   |         |             |  |   |          |  



(continued)



15



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



Year Ended December 31, 2003



Statement of Operations



|                                           |  |                       |            |   |             |   |        |             |  |   |            |  
|------------------------------------------ |  | --------------------- | ---------- | - | ----------- | - | ------ | ----------- |  | - | ---------- | -
|                                           |  | As PreviouslyReported |            |   | Adjustments |   |        | As Restated | 
|Revenue (loss)                             |  |                       |            |   |             |   |        |             |  |   |            |  
|Oil and gas income                         |  | $                     | 10,274     |   |             | $ |       |             |  | $ | 10,274     |  
|Interest income                            |  |                       | 243,439    |   |             |   |       |             |  |   | 243,439    |  
|Loss on investment in limited partnerships |  |                       | (939,623   | ) |             |   | (2,682 | )           |  |   | (942,305   | )
|Equity in net loss of affiliated entities  |  |                       | (5,772     | ) |             |   |       |             |  |   | (5,772     | )
|Other income                               |  |                       | 15,244     |   |             |   |       |             |  |   | 15,244     |  
|                                           |  |                       |            |   |             |   |        |             |  |   |            |  
|Total loss                                 |  |                       | (676,438   | ) |             |   | (2,682 | )           |  |   | (679,120   | )
|General and administrative expenses        |  |                       | 295,302    |   |             |   |       |             |  |   | 295,302    |  
|                                           |  |                       |            |   |             |   |        |             |  |   |            |  
|Operating loss                             |  |                       | (971,740   | ) |             |   | (2,682 | )           |  |   | (974,422   | )
|Interest income - related party            |  |                       | 8,188      |   |             |   |       |             |  |   | 8,188      |  
|Interest expense - related party           |  |                       | (42,619    | ) |             |   |       |             |  |   | (42,619    | )
|                                           |  |                       |            |   |             |   |        |             |  |   |            |  
|Net loss                                   |  | $                     | (1,006,171 | ) |             | $ | (2,682 | )           |  | $ | (1,008,853 | )
|                                           |  |                       |            |   |             |   |        |             |  |   |            |  



(continued)



16



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



Year Ended December 31, 2004



Statement of Operations



|                                           |  |                       |            |   |             |   |          |             |  |   |            |  
|------------------------------------------ |  | --------------------- | ---------- | - | ----------- | - | -------- | ----------- |  | - | ---------- | -
|                                           |  | As PreviouslyReported |            |   | Adjustments |   |          | As Restated | 
|Revenue (loss)                             |  |                       |            |   |             |   |          |             |  |   |            |  
|Oil and gas income                         |  | $                     | 8,772      |   |             | $ |         |             |  | $ | 8,772      |  
|Interest income                            |  |                       | 265,989    |   |             |   |         |             |  |   | 265,989    |  
|Loss on investment in limited partnerships |  |                       | (1,847,352 | ) |             |   | (330,375 | )           |  |   | (2,177,727 | )
|Equity in net loss of affiliated entities  |  |                       | (3,218     | ) |             |   |         |             |  |   | (3,218     | )
|Other income                               |  |                       | 36,000     |   |             |   |         |             |  |   | 36,000     |  
|                                           |  |                       |            |   |             |   |          |             |  |   |            |  
|Total loss                                 |  |                       | (1,539,809 | ) |             |   | (330,375 | )           |  |   | (1,870,184 | )
|                                           |  |                       |           
|General and administrative expenses        |  |                       | 258,477    |   |             |   |         |             |  |   | 258,477    |  
|                                           |  |                       |            |   |             |   |          |             |  |   |            |  
|Operating loss                             |  |                       | (1,798,286 | ) |             |   | (330,375 | )           |  |   | (2,128,661 | )
|                                           |  |                       |           
|Interest income - related party            |  |                       | 13,464     |   |             |   |         |             |  |   | 13,464     |  
|Interest expense - related party           |  |                       | (37,967    | ) |             |   |         |             |  |   | (37,967    | )
|                                           |  |                       |            |   |             |   |          |             |  |   |            |  
|Net loss                                   |  | $                     | (1,822,789 | ) |             | $ | (330,375 | )           |  | $ | (2,153,164 | )
|                                           |  |                       |            |   |             |   |          |             |  |   |            |  



(continued)



17



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



As of December 31, 2003



Balance Sheet



|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|---------------------------------------------------------------------------------------- |  | --------------------- | ----------- | - | ----------- | - | ------- | ----------- |  | - | ----------- | -
|                                                                                         |  | As PreviouslyReported |             |   | Adjustments |   |         | As Restated | 
|Assets                                                                                   |  |                       |             |   |             |   |         |             |  |   |             |  
|Current assets:                                                                          |  |                       |             |   |             |   |         |             |  |   |             |  
|Cash and cash equivalents                                                                |  | $                     | 21,907      |   |             | $ |        |             |  | $ | 21,907      |  
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Total current assets                                                                     |  |                       | 21,907      |   |             |   |        |             |  |   | 21,907      |  
|                                                                                         |  |                       |            
|Prepaid expenses                                                                         |  |                       |            |   |             |   |        |             |  |   |            |  
|Advances due from related party                                                          |  |                       | 267,264     |   |             |   |        |             |  |   | 267,264     |  
|Investment in affiliated entities                                                        |  |                       | 581,970     |   |             |   |        |             |  |   | 581,970     |  
|Leasehold improvements, net                                                              |  |                       | 28,195      |   |             |   |        |             |  |   | 28,195      |  
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Total assets                                                                             |  | $                     | 899,336     |   |             | $ |        |             |  | $ | 899,336     |  
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Liabilities and Stockholders deficit                                                    |  |                       |             |   |             |   |         |             |  |   |             |  
|Current liabilities:                                                                     |  |                       |             |   |             |   |         |             |  |   |             |  
|Current portion of note payable - related party                                          |  | $                     | 69,047      |   |             | $ |        |             |  | $ | 69,047      |  
|Accounts payable and accrued expenses                                                    |  |                       | 11,597      |   |             |   |        |             |  |   | 11,597      |  
|Deferred revenue                                                                         |  |                       | 1,500       |   |             |   |        |             |  |   | 1,500       |  
|Due to related party                                                                     |  |                       | 406,070     |   |             |   |        |             |  |   | 406,070     |  
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Total current liabilities                                                                |  |                       | 488,214     |   |             |   |        |             |  |   | 488,214     |  
|                                                                                         |  |                       |            
|Note payable - related party                                                             |  |                       | 504,581     |   |             |   |        |             |  |   | 504,581     |  
|Equity in partnership losses in excess of investment                                     |  |                       | 5,804,493   |   |             |   | 97,975  |             |  |   | 5,902,468   |  
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Total long-term liabilities                                                              |  |                       | 6,309,074   |   |             |   | 97,975  |             |  |   | 6,407,049   |  
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Total liabilities                                                                        |  |                       | 6,797,288   |   |             |   | 97,975  |             |  |   | 6,895,263   |  
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Commitments and contingencies                                                            |  |                       |             |   |             |   |         |             |  |   |             |  
|                                                                                         |  |                       |            
|Stockholders deficit                                                                    |  |                       |             |   |             |   |         |             |  |   |             |  
|Common stock $.01 par value, 50,000,000 authorized, 99,500 shares issued and outstanding |  |                       | 995         |   |             |   |        |             |  |   | 995         |  
|Additional paid-in capital                                                               |  |                       | 13,395,970  |   |             |   |        |             |  |   | 13,395,970  |  
|Accumulated deficit                                                                      |  |                       | (19,294,917 | ) |             |   | (97,975 | )           |  |   | (19,392,892 | )
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Total stockholders deficit                                                              |  |                       | (5,897,952  | ) |             |   | (97,975 | )           |  |   | (5,995,927  | )
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  
|Total liabilities and stockholders deficit                                              |  | $                     | 899,336     |   |             | $ |        |             |  | $ | 899,336     |  
|                                                                                         |  |                       |             |   |             |   |         |             |  |   |             |  



(continued)



18



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



As of December 31, 2004



Balance Sheet



|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|---------------------------------------------------------------------------------------- |  | --------------------- | ----------- | - | ----------- | - | -------- | ----------- |  | - | ----------- | -
|                                                                                         |  | As PreviouslyReported |             |   | Adjustments |   |          | As Restated | 
|Assets                                                                                   |  |                       |             |   |             |   |          |             |  |   |             |  
|Current assets:                                                                          |  |                       |             |   |             |   |          |             |  |   |             |  
|Cash and cash equivalents                                                                |  | $                     | 1,773       |   |             | $ |         |             |  | $ | 1,773       |  
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Total current assets                                                                     |  |                       | 1,773       |   |             |   |         |             |  |   | 1,773       |  
|                                                                                         |  |                       |            
|Prepaid expenses                                                                         |  |                       | 638         |   |             |   |         |             |  |   | 638         |  
|Advances due from related party                                                          |  |                       | 280,726     |   |             |   |         |             |  |   | 280,726     |  
|Investment in affiliated entities                                                        |  |                       | 548,586     |   |             |   |         |             |  |   | 548,586     |  
|Leasehold improvements, net                                                              |  |                       | 5,637       |   |             |   |         |             |  |   | 5,637       |  
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Total assets                                                                             |  | $                     | 837,360     |   |             | $ |         |             |  | $ | 837,360     |  
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Liabilities and Stockholders deficit                                                    |  |                       |             |   |             |   |          |             |  |   |             |  
|Current liabilities:                                                                     |  |                       |             |   |             |   |          |             |  |   |             |  
|Current portion of note payable - related party                                          |  | $                     | 74,014      |   |             | $ |         |             |  | $ | 74,014      |  
|Accounts payable and accrued expenses                                                    |  |                       | 1,000       |   |             |   |         |             |  |   | 1,000       |  
|Deferred revenue                                                                         |  |                       | 7,500       |   |             |   |         |             |  |   | 7,500       |  
|Due to related party                                                                     |  |                       | 659,144     |   |             |   |         |             |  |   | 659,144     |  
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Total current liabilities                                                                |  |                       | 741,658     |   |             |   |         |             |  |   | 741,658     |  
|                                                                                         |  |                       |            
|Note payable - related party                                                             |  |                       | 430,589     |   |             |   |         |             |  |   | 430,589     |  
|Equity in partnership losses in excess of investment                                     |  |                       | 7,787,259   |   |             |   | 102,829  |             |  |   | 7,890,088   |  
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Total long-term liabilities                                                              |  |                       | 8,217,848   |   |             |   | 102,829  |             |  |   | 8,320,677   |  
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Total liabilities                                                                        |  |                       | 8,959,506   |   |             |   | 102,829  |             |  |   | 9,062,335   |  
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Commitments and contingencies                                                            |  |                       |             |   |             |   |          |             |  |   |             |  
|                                                                                         |  |                       |            
|Stockholders deficit                                                                    |  |                       |             |   |             |   |          |             |  |   |             |  
|Common stock $.01 par value, 50,000,000 authorized, 99,500 shares issued and outstanding |  |                       | 995         |   |             |   |         |             |  |   | 995         |  
|Additional paid-in capital                                                               |  |                       | 13,395,970  |   |             |   |         |             |  |   | 13,395,970  |  
|Accumulated deficit                                                                      |  |                       | (21,519,111 | ) |             |   | (102,829 | )           |  |   | (21,621,940 | )
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Total stockholders deficit                                                              |  |                       | (8,122,146  | ) |             |   | (102,829 | )           |  |   | (8,224,975  | )
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  
|Total liabilities and stockholders deficit                                              |  | $                     | 837,360     |   |             | $ |         |             |  | $ | 837,360     |  
|                                                                                         |  |                       |             |   |             |   |          |             |  |   |             |  



The restatement had no
net impact on net cash provided by operating activities for the three-years ended December 31, 2002, 2003, and 2004.



(b) Summary of Significant Accounting Policies



Basis of Presentation



The accompanying financial statements have been prepared in accordance with generally accepted accounting principles.



(continued)



19



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



Use of
Estimates



The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Cash and Cash Equivalents



The Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties and all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash and cash equivalents. Cash equivalents at December 31, 2003 and 2004 totaled $21,907 and $1,773, respectively.



Investments



A 20% interest in Hueco Mountain Estates, Inc. (Hueco), a 10% interest in Trevino Properties (Trevino), a 0.25% general partner
interest in Petro Stopping Centers, L.P. (the Operating Partnership), and 12.1% general and limited partner interests in Holdings are accounted for using the equity method. The equity method of accounting is used since the ability to
exercise significant influence over these entities exists due to the material related party ownership interests in these entities. Trevino is a joint venture in the form of a general partnership.



Income Taxes



Nevada Trio, Inc., the Companys parent, files a consolidated tax return that includes the results of operations of the
Company and other subsidiaries. Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the book and tax bases of assets and liabilities, except for net operating losses for tax
purposes and tax credits. Potential benefits of net operating losses and tax credits resulting from the operations of the Company are not allocated to the Company. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets are adjusted for the effects of changes in tax law and rates on the date of enactment.



Leasehold improvements



Leasehold improvements are stated at acquisition cost. Depreciation is computed by the straight-line method. Improvements to
leased property are depreciated over the lesser of the life of the lease or life of the improvements.



Revenue recognition



The Company owns a small residual interest in mineral right royalties related to two oil and gas wells in which the Company obtained an interest over 20 years ago. The underlying assets corresponding to this income have been written down to
zero on the Companys balance sheet in prior years. Periodically, the Company receives its share of royalties which are recognized as distributions based on the terms specified in the contractual agreements. Income and loss from the
Companys investments in Hueco, Trevino, the Operating Partnership, and Holdings are recognized based upon their proportionate ownership rights.



(continued)



20



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



(3)
Financial Results and Liquidity



The Company incurred net
losses, as restated of $880,182, $1,008,853, and $2,153,164 in 2002, 2003, and 2004, respectively. Despite these losses, the Company was able to secure operating capital from affiliates. The affiliates have indicated their commitment to provide
additional funding for the Company sufficient to satisfy current and future obligations, on an as-needed basis, at least through December 31, 2005.



(4) Advances Due From Related Party



The Company has a receivable due from J.A. Cardwell in the amount of $267,264 and $280,726 at December 31, 2003 and 2004, respectively. The balance
due is related to cash advances made in prior years, and includes interest at the applicable federal rate. The interest rate at December 31, 2004 was 4.68%.



(5) Investments in Affiliated Entities



Hueco Mountain Estates, Inc. (Income Tax Basis)



The Company owns approximately 20% of the common stock of Hueco. The following is a summary of the condensed financial position and results of operations
of Hueco, an unconsolidated subsidiary as of and for the fiscal years ended July 31, 2003 and 2004.



|                         |  |      |           |   |      |   |           |  
|------------------------ |  | ---- | --------- | - | ---- | - | --------- | -
|                         |  | 2003 |           |   | 2004 |  
|Total assets             |  | $    | 3,002,496 |   |      | $ | 2,913,528 |  
|Total liabilities        |  |      | 578,027   |   |      |   | 606,410   |  
|                         |  |      |           |   |      |   |           |  
|Net assets               |  | $    | 2,424,469 |   |      | $ | 2,307,118 |  
|                         |  |      |           |   |      |   |           |  
|Revenues                 |  | $    | 340,151   |   |      | $ | 352,225   |  
|Expenses                 |  |      | 462,330   |   |      |   | 469,576   |  
|                         |  |      |           |   |      |   |           |  
|Net loss from operations |  | $    | (122,179  | ) |      | $ | (117,351  | )
|                         |  |      |           |   |      |   |           |  



The Companys
equity investment in Hueco at December 31, 2003 and 2004 is summarized below:



|                                                       |  |      |         |   |      |   |         |  
|------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                                                       |  | 2003 |         |   | 2004 |  
|Investment in unconsolidated subsidiary at January 1   |  | $    | 488,299 |   |      | $ | 464,475 |  
|Equity in loss of subsidiary                           |  |      | (23,824 | ) |      |   | (22,960 | )
|                                                       |  |      |         |   |      |   |         |  
|Investment in unconsolidated subsidiary at December 31 |  | $    | 464,475 |   |      | $ | 441,515 |  
|                                                       |  |      |         |   |      |   |         |  



(continued)



21



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



Trevino Properties (Income Tax Basis)



The
Company owns a 10% partnership interest in Trevino. The following is a summary of the condensed financial position and results of operations of the partnership (unincorporated real estate joint venture) accounted for on the equity method as of and
for the years ended December 31, 2003, and 2004.



|                                       |  |      |           |      |   |          
|-------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                       |  | 2003 |           | 2004
|Current assets                         |  | $    | 15,869    |      | $ | 45,762   
|Land inventory                         |  |      | 1,187,971 |      |   | 1,088,465
|                                       |  |      |           |      |   |          
|Total assets                           |  | $    | 1,203,840 |      | $ | 1,134,227
|                                       |  |      |           |      |   |          
|Current liabilities                    |  | $    | 10,000    |      | $ | 26,182   
|Partners equity                       |  |      | 1,193,840 |      |   | 1,108,045
|                                       |  |      |           |      |   |          
|Total liabilities and partners equity |  | $    | 1,203,840 |      | $ | 1,134,227
|                                       |  |      |           |      |   |          
|Net income (loss)                      |  | $    | 178,941   |      | $ | 195,865  
|                                       |  |      |           |      |   |          



The Companys
equity investment in Trevino at December 31, 2003 and 2004 is summarized below:



|                   |  |      |         |   |      |   |         |  
|------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                   |  | 2003 |         |   | 2004 |  
|Trevino Properties |  | $    | 117,495 |   |      | $ | 107,071 |  
|                   |  |      |         |   |      |   |         |  
|Ownership interest |  |      | 10.00   | % |      |   | 10.00   | %
|                   |  |      |         |   |      |   |         |  



(6) Investment in Limited
Partnerships



On July 23, 1999, the Company and
certain other partners exchanged their interests in the Operating Partnership for identical interests in Holdings and became owners of Holdings. At this time, the Company became the sole general partner in both Holdings (1.1%) and the Operating
Partnership (0.25%). In addition, the Company holds an 11% common limited partnership interest and mandatorily redeemable preferred partnership interests in Holdings. The Companys investments in Holdings and the Operating Partnership are
accounted for using the equity method. The Company entered into an indemnity agreement under which it agreed to indemnify the Operating Partnership and Holdings, and the general and limited partners thereof in the event that the indemnified parties
are required to pay any current indebtedness or any other liabilities of Holdings or the Operating Partnership after a default, acceleration by the creditor and exhaustion of any collateral securing the credit facility. No payments have been made
under this agreement.



The mandatorily redeemable preferred
partnership interests are entitled to cumulative preferred returns of 8% and are subject to mandatory redemption in October 2008. The preferred returns accrue but are only payable in cash if permitted by the Operating Partnerships and
Holdings then existing debt instruments. At December 31, 2003 and 2004, the Company had accrued preferred returns on the mandatorily redeemable preferred partnership interests amounting to $1,351,369 and $1,614,672, respectively.



In early 2004, the Operating Partnership and Holdings
completed their 2004 Refinancing Transactions in which both companies refinanced substantially all of their existing indebtedness.



(continued)



22



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



Following is a summary of the financial position of Holdings as of December 31, 2003 and 2004 (As Restated):



|                                                       |  |      |              |   |      |   |              |     
|------------------------------------------------------ |  | ---- | ------------ | - | ---- | - | ------------ | ----
|                                                       |  | 2003 |              |   | 2004 |  
|Assets                                                 |  | $    | 314,496,000  |   |      | $ | 327,778,000  |     
|Liabilities                                            |  |      | (331,539,000 | ) |      |   | (406,373,000 | )   
|Mandatorily redeemable preferred partnership interests |  |      | (44,274,000  | ) |      |   | (5,000,000   | )(1)
|Mandatorily redeemable warrants                        |  |      | (4,200,000   | ) |      |   |             | (1) 
|                                                       |  |      |              |   |      |   |              |     
|Partners deficit                                      |  | $    | (65,517,000  | ) |      | $ | (83,595,000  | )   
|                                                       |  |      |              |   |      |   |              |     

---

|(1) | The decrease is due to Holdings adopting SFAS No. 150 on January 1, 2004 which required Holdings to classify certain financial instruments as liabilities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



The Companys equity investment in the
partnership (As Restated) is summarized below:



|                                                                   |  |      |            |   |      |   |            |  
|------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                   |  | 2003 |            |   | 2004 |  
|General partner interest in total deficit                          |  | $    | (1,576,167 | ) |      | $ | (1,778,121 | )
|Limited partner interest in total deficit                          |  |      | (7,340,708 | ) |      |   | (9,404,800 | )
|Minority interest in partnerships total deficit                   |  |      | (212,359   | ) |      |   | (199,922   | )
|Interest in mandatorily redeemable preferred partnership interests |  |      | 3,226,766  |   |      |   | 3,492,755  |  
|                                                                   |  |      |            |   |      |   |            |  
|Equity in partnership losses in excess of investment               |  | $    | (5,902,468 | ) |      | $ | (7,890,088 | )
|                                                                   |  |      |            |   |      |   |            |  



(7) Leasehold Improvements



Leasehold improvements consisted of the following at
December 31:



|                               |  |                         |  |      |        |      |   |       
|------------------------------ |  | ----------------------- |  | ---- | ------ | ---- | - | ------
|                               |  | EstimatedLife in Months |  | 2003 |        | 2004
|Leasehold improvements         |  | 18                      |  | $    | 53,273 |      | $ | 53,273
|                               |  |                         | 
|Less: accumulated depreciation |  |                         |  |      | 25,078 |      |   | 47,636
|                               |  |                         |  |      |        |      |   |       
|                               |  |                         |  | $    | 28,195 |      | $ | 5,637 
|                               |  |                         |  |      |        |      |   |       



(8) Related Party Transactions



Nevada Trio, Inc., a Nevada corporation, is wholly owned
by Card Partners, LP, a Texas limited partnership. C&R Distributing, Inc. and the Company are wholly owned subsidiaries of Nevada Trio, Inc. Additionally, the Companys Chief Executive Officer has significant ownership interests in numerous
other entities with which the Company has transactions. Activity with these related entities is summarized below.



(continued)



23



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



The following summarizes amounts due from and to related parties at December 31, 2003 and 2004:



|                                                                                                                                                                                                                                      |  |      |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                      |  | 2003 |         | 2004
|Intercompany payables:                                                                                                                                                                                                                |  |      |         |      |   |        
|C & R Distributing, Inc.                                                                                                                                                                                                              |  | $    | 406,070 |      | $ | 659,144
|                                                                                                                                                                                                                                      |  |      |         |      |   |        
|Note payable  intercompany:                                                                                                                                                                                                          |  |      |         |      |   |        
|Note payable due to C & R Distributing, Inc., dated August 31, 1998, in an original amount of $1,150,000, payable in monthly
installments of $8,916, including interest at 7%. The note, which is unsecured, matures August 31, 2010. |  | $    | 573,628 |      | $ | 504,603
|                                                                                                                                                                                                                                      |  |     
|Less: current portion                                                                                                                                                                                                                 |  |      | 69,047  |      |   | 74,014 
|                                                                                                                                                                                                                                      |  |      |         |      |   |        
|Long-term portion                                                                                                                                                                                                                     |  | $    | 504,581 |      | $ | 430,589
|                                                                                                                                                                                                                                      |  |      |         |      |   |        



The aggregate minimum
principal maturities of the note payable for each of the five years following December 31, 2004 are as follows:



|           |  |   |        
|---------- |  | - | -------
|2005       |  | $ | 74,014 
|2006       |  |   | 79,365 
|2007       |  |   | 85,102 
|2008       |  |   | 91,254 
|2009       |  |   | 97,851 
|Thereafter |  |   | 77,017 
|           |  |   |        
|           |  | $ | 504,603
|           |  |   |        



The following
summarizes the income earned and expenses incurred with related parties for each of the years ended December 31, 2002, 2003, and 2004:



|                                           |  |      |         |      |   |         |  |   |        
|------------------------------------------ |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                           |  | 2002 |         | 2003 |   | 2004   
|Income                                     |  |      |         |      |   |         |  |   |        
|Interest  J.A. Cardwell                   |  | $    | 10,299  |      | $ | 8,188   |  | $ | 13,464 
|Interest  Holdings (As Restated)          |  |      | 227,062 |      |   | 243,439 |  |   | 265,989
|                                           |  |      |         |      |   |         |  |   |        
|                                           |  | $    | 237,361 |      | $ | 251,627 |  | $ | 279,453
|                                           |  |      |         |      |   |         |  |   |        
|Expenses                                   |  |      |         |      |   |         |  |   |        
|Interest - C & R Distributing, Inc.        |  | $    | 46,960  |      | $ | 42,619  |  | $ | 37,967 
|Management fees - C & R Distributing, Inc. |  |      | 6,000   |      |   | 6,000   |  |   | 6,000  
|Bank fees and insurance                    |  |      | 4,564   |      |   | 969     |  |   | 776    
|                                           |  |      |         |      |   |         |  |   |        
|                                           |  | $    | 57,524  |      | $ | 49,588  |  | $ | 44,743 
|                                           |  |      |         |      |   |         |  |   |        



(continued)



24



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



(9)
Income Taxes



The tax effects of the primary temporary
differences that give rise to the Companys deferred tax assets as of December 31, 2003 and 2004 are as follows:



|                                                     |  |      |            |   |      |   |            |  
|---------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                     |  | 2003 |            |   | 2004 |  
|Deferred tax assets:                                 |  |      |            |   |      |   |            |  
|Investments in limited partnerships                  |  | $    | 3,152,460  |   |      | $ | 3,454,152  |  
|Net operating loss carryforward                      |  |      | 1,892,966  |   |      |   | 2,279,964  |  
|Alternative minimum tax carryforwards                |  |      | 891,584    |   |      |   | 891,584    |  
|General business credits                             |  |      | 169,344    |   |      |   | 169,344    |  
|Tax credits from investments in limited partnerships |  |      | 46,394     |   |      |   | 137,203    |  
|Other                                                |  |      | 6,559      |   |      |   | 14,220     |  
|                                                     |  |      |            |   |      |   |            |  
|Total deferred tax assets                            |  |      | 6,159,307  |   |      |   | 6,946,467  |  
|Valuation allowance                                  |  |      | (6,159,307 | ) |      |   | (6,946,467 | )
|                                                     |  |      |            |   |      |   |            |  
|Net deferred tax assets                              |  | $    |           |   |      | $ |           |  
|                                                     |  |      |            |   |      |   |            |  



Management of the
Company does not believe that it is more likely than not that these deferred tax assets will be realized and therefore has provided a valuation allowance for the entire balance as of December 31, 2003 and 2004. No tax related amounts were
due to or from affiliated entities at December 31, 2003 and 2004.



At the end of 2004, $2,279,964 of the Companys gross deferred tax assets arise from net operating loss carry-forwards which will expire if not utilized by various dates ranging from 2011 to 2024. At the end of 2004, there was $169,344
of general business credits that will expire if not used by various dates ranging from 2018 to 2024. Also, at the end of 2004, the Company had $891,584 of minimum tax credits that may be carried forward indefinitely as a credit against regular tax.



The actual income tax benefit for the year ended
December 31, 2004 differs from the expected income tax benefit computed by applying the U.S. federal income tax rate of 34.0% as follows:



|                                      |  |   |           |  
|------------------------------------- |  | - | --------- | -
|Rate reconciliation:                  |  |   |           |  
|Loss before income taxes              |  | $ | 2,153,164 |  
|                                      | 
|Tax benefit at statutory rate (34.0%) |  |   | 732,076   |  
|Change in valuation allowance         |  |   | (787,160  | )
|Tax credits                           |  |   | 90,809    |  
|Other                                 |  |   | (35,725   | )
|                                      |  |   |           |  
|Total tax expense                     |  | $ |          |  
|                                      |  |   |           |  



For the years ended
December 31, 2002, 2003, and 2004 there were no current or deferred income tax expense.



(10) Operating Lease



The Company leases commercial rental space under an operating lease based on a fixed charge which expires in 2005. Total rent expense amounted to $150,000 each year during December 31, 2003 and 2004. The minimum future rentals on the
non-cancelable operating lease for the year ended December 31, 2005 are $37,500.



Minimum noncancelable sublease rental income to be received in the future, which is not included above as an offset to future payments, is approximately $9,000 for 2005.



(11) Commitments and Contingencies



The Company is involved in various litigation incidental to its business for
which an estimate of the possible loss or range of loss cannot be made at this time. In the opinion of management, such proceedings will not have a material adverse effect on the Companys financial position or results of operations.



(continued)



25



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##### Table of Contents

PETRO, INC.

NOTES TO FINANCIAL STATEMENTS



The Company is a guarantor on a full, joint and several and senior secured basis, of $225,000,000 aggregate principal amount of 9% Senior Secured Notes due 2012 and of $61,300,000 aggregate principal amount of Senior Secured Credit
Facilities due 2008, which were issued by the Operating Partnership. Payments would be due if the Operating Partnership were to become insolvent and/or entered into default of any debt covenant or indenture. No collateral secures the Companys
guarantee.



(12) Recently Issued Accounting Pronouncements



In December 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which replaces the original Interpretation No. 46 issued in January 2003. This Interpretation
addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The effective dates vary depending on the type of reporting company and the type of entity that the company is involved with.
Non-public companies, such as the Company, must apply the revised Interpretation immediately to all entities created after December 31, 2003, and to all other entities no later than the beginning of the first reporting period beginning after
December 15, 2004. Management does not believe that the adoption of this revised Interpretation will have a significant impact on the Companys consolidated financial position or results of operations.



(13) Selected Quarterly Financial Data (unaudited)



As previously reported:



|                        |  |               |          |   |               |   |          |     |  |     |        |  |     |          |   |     |   |            |      |  |     |          |   |  |   |         |  |   |        
|----------------------- |  | ------------- | -------- | - | ------------- | - | -------- | --- |  | --- | ------ |  | --- | -------- | - | --- | - | ---------- | ---- |  | --- | -------- | - |  | - | ------- |  | - | -------
|                        |  | 2003 Quarters |          |   | 2004 Quarters
|                        |  | 1st           |          |   | 2nd           |   |          | 3rd |  | 4th |        |  | 1st |          |   | 2nd |   |            | 3rd  |  | 4th
|Revenue (loss)          |  | $             | (398,733 | ) |               | $ | (78,509  | )   |  | $   | 66,900 |  | $   | (266,096 | ) |     | $ | (2,483,607 | )(1) |  | $   | 245,709  |   |  | $ | 228,234 |  | $ | 469,855
|Operating income (loss) |  |               | (492,125 | ) |               |   | (146,476 | )   |  |     | 12,211 |  |     | (345,350 | ) |     |   | (2,545,298 | )(1) |  |     | 188,165  |   |  |   | 159,150 |  |   | 399,697
|Net income (loss)       |  |               | (500,539 | ) |               |   | (153,608 | )   |  |     | 4,609  |  |     | (356,633 | ) |     |   | (2,551,422 | )(1) |  |     | 182,797  |   |  |   | 153,667 |  |   | 392,169
|                        |  |               |          |   |               |   |          |    
|As restated (note 2):   |  |               |          |   |               |   |          |     |  |     |        |  |     |          |   |     |   |            |      |  |     |          |   |  |   |         |  |   |        
|                        |  | 2003 Quarters |          |   | 2004 Quarters
|                        |  | 1st           |          |   | 2nd           |   |          | 3rd |  | 4th |        |  | 1st |          |   | 2nd |   |            | 3rd  |  | 4th
|Revenue (loss)          |  | $             | (399,403 | ) |               | $ | (79,179  | )   |  | $   | 66,229 |  | $   | (266,767 | ) |     | $ | (2,359,620 | )(1) |  | $   | (43,465  | ) |  | $ | 227,020 |  | $ | 305,881
|Operating income (loss) |  |               | (492,795 | ) |               |   | (147,146 | )   |  |     | 11,540 |  |     | (346,021 | ) |     |   | (2,421,311 | )(1) |  |     | (101,009 | ) |  |   | 157,936 |  |   | 235,723
|Net income (loss)       |  |               | (501,209 | ) |               |   | (154,278 | )   |  |     | 3,938  |  |     | (357,304 | ) |     |   | (2,427,435 | )(1) |  |     | (106,377 | ) |  |   | 152,453 |  |   | 228,195

---

|(1) | Loss primarily due to the loss on retirement of debt and related debt restructuring costs as part of the Operating Partnership and Holdings 2004 Refinancing Transactions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



The Board of Directors

Petro, Inc.:



We have audited the accompanying
balance sheets of Petro, Inc. as of December 31, 2004 and 2003, and the related statements of operations, changes in stockholders deficit and comprehensive loss, and cash flows for each of the years in the three-year period ended
December 31, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Petro, Inc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.



As discussed in Note 2(a) to the accompanying financial statements, the balance sheets as of December 31, 2004 and 2003, and the related statements of operations,
changes in stockholders deficit and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2004, have been restated.



KPMG LLP



El Paso, Texas

March 18, 2005, except as to Note 2(a), which is as of October 19, 2005



27



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##### Table of Contents

Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item 9A. Controls and Procedures



As of December 31, 2004, we completed an evaluation, under the supervision and with the participation of our management, including our President and
Chief Executive Officer and our Treasurer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our President and Chief Executive Officer and our
Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in timely alerting them to material information relating to us which is required to be included in our periodic
Securities and Exchange Commission filings. However, subsequent to the period covered by this report, we completed an evaluation, under the supervision and with the participation of our management, including the President and Chief Executive Officer
and our Treasurer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. On October 4, 2005, we concluded that our historical financial statements should be restated to correct
certain errors, relating to our interest in Holdings and Holdings restatement relating to accounting for their leased properties and mandatorily redeemable warrants, and that such financial statements should no longer be relied upon. As a
result, we have restated our financial statements for the three-year period ended December 31, 2004. The restatement is further discussed in Explanatory Notes in the forepart of this Form 10K/A, in item 6. Selected Financial
Data, in Item 8, Note 2(a) of notes to financial statements, Restatement of Previously Issued Financial Statements and Summary of Significant Accounting Polices of their Form 10K/A, and in Part IV, Exhibits and Financial
Statement Schedules. As a result of the need to restate previously issued financial statements, we have concluded that our disclosure controls were not effective as of December 31, 2004.



There have been no changes in our internal controls over financial reporting
in connection with the evaluation required by paragraph (d) of the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15 during the fourth fiscal quarter, that has materially affected, or is reasonably likely to materially affect, our
internal controls over financial reporting. However, subsequent to the period covered by this report, we have implemented necessary changes to our internal controls in order to address the accounting matters referred to above.



Item 9B. Other Information



None.



PART III



Item 10. Directors and Executive Officers of the Registrant



The following sets forth certain information as of February 1, 2005, with respect to the persons who are members of the Board of Directors and senior
management team of the Company. All directors hold office until death, resignation, or removal.



|                       |  |     |  |                                                 
|---------------------- |  | --- |  | ------------------------------------------------
|Name                   |  | Age |  | Position                                        
|J.A. Cardwell, Sr.     |  | 72  |  | President, Chief Executive Officer, and Director
|James A. Cardwell, Jr. |  | 44  |  | Treasurer, Chief Financial Officer, and Director
|Martha E. Cardwell     |  | 72  |  | Secretary and Director                          
|James M. Singleton     |  | 62  |  | Vice President                                  



Audit Committee Financial Expert



We have not established an audit committee because we are
a wholly owned subsidiary of a non-public entity. Considering the size of our Company and its level of business activity, it is managements judgment that an audit committee is not warranted.



28



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##### Table of Contents

Code of Ethics



We have not adopted a Code of Ethics for our Chief Executive Officer and President and Treasurer and Chief Financial Officer because we are a wholly owned
subsidiary of a non-public entity. Considering the size of our Company and its level of business activity, it is managements judgment that adoption of a Code of Ethics is not warranted.



Item 11. Executive Compensation



None.



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



We are a wholly owned subsidiary of Nevada Trio, Inc., a Nevada corporation,
which is wholly owned by Card Partners, LP, a Texas limited partnership of which Texas MEC, Inc., a Texas Corporation, is the general partner. J.A. Cardwell, Sr. is the sole shareholder of Texas MEC, Inc. Accordingly, J.A. Cardwell, Sr. may be
deemed to have beneficial ownership of us.



Item 13. Certain Relationships
and Related Transactions



Nevada Trio, Inc., a Nevada
corporation, is wholly owned by Card Partners, LP, a Texas limited partnership. We and C&R Distributing, Inc. are wholly owned subsidiaries of Nevada Trio, Inc. Additionally, the Companys Chief Executive Officer has significant ownership
interests in numerous other entities with which the Company has transactions.



We believe that all of our existing related-party transactions are on terms comparable to those that could have been received in an arms-length transaction. Activity with these related entities is summarized below.



The following summarizes amounts due from and to related
parties at December 31, 2003 and 2004:



|                                                                                                                                                                                                                                      |  |      |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                      |  | 2003 |         | 2004
|Intercompany payables:                                                                                                                                                                                                                |  |      |         |      |   |        
|C & R Distributing, Inc.                                                                                                                                                                                                              |  | $    | 406,070 |      | $ | 659,144
|                                                                                                                                                                                                                                      |  |      |         |      |   |        
|Note payable  intercompany:                                                                                                                                                                                                          |  |      |         |      |   |        
|Note payable due to C & R Distributing, Inc., dated August 31, 1998, in an original amount of $1,150,000, payable in monthly installments of $8,916, including interest at 7%.
The note, which is unsecured, matures August 31, 2010. |  | $    | 573,628 |      | $ | 504,603
|                                                                                                                                                                                                                                      |  |     
|Less: current portion                                                                                                                                                                                                                 |  |      | 69,047  |      |   | 74,014 
|                                                                                                                                                                                                                                      |  |      |         |      |   |        
|Long-term portion                                                                                                                                                                                                                     |  | $    | 504,581 |      | $ | 430,589
|                                                                                                                                                                                                                                      |  |      |         |      |   |        



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The following summarizes the income and expenses incurred with related parties for each of the years
ended December 31, 2002, 2003, and 2004:



|                                           |  |      |         |      |   |         |  |   |        
|------------------------------------------ |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                           |  | 2002 |         | 2003 |   | 2004   
|Income                                     |  |      |         |      |   |         |  |   |        
|Interest  J.A. Cardwell                   |  | $    | 10,299  |      | $ | 8,188   |  | $ | 13,464 
|Interest  Holdings                        |  |      | 227,062 |      |   | 243,439 |  |   | 265,989
|                                           |  |      |         |      |   |         |  |   |        
|                                           |  | $    | 237,361 |      | $ | 251,627 |  | $ | 279,453
|                                           |  |      |         |      |   |         |  |   |        
|Expenses                                   |  |      |         |      |   |         |  |   |        
|Interest - C & R Distributing, Inc.        |  | $    | 46,960  |      | $ | 42,619  |  | $ | 37,967 
|Management fees - C & R Distributing, Inc. |  |      | 6,000   |      |   | 6,000   |  |   | 6,000  
|Bank fees and insurance                    |  |      | 4,564   |      |   | 969     |  |   | 776    
|                                           |  |      |         |      |   |         |  |   |        
|                                           |  | $    | 57,524  |      | $ | 49,588  |  | $ | 44,743 
|                                           |  |      |         |      |   |         |  |   |        



Indemnity Agreements



Concurrent with the 2004 Refinancing Transactions
described above, we, together with certain other parties, each entered into an indemnity agreement under which each agreed to indemnify Holdings, the Operating Partnership, and the general and limited partners thereof, for a definitive amount of
debt arising out of the 2004 Refinancing Transactions. The indemnity agreements were entered into by the parties to address specific income tax issues arising out of the 2004 Refinancing Transactions under the at-risk limitation rules,
the partnership basis rules, and the liability allocation rules found in the Internal Revenue Code and the Treasury regulations. Consequently, each partys obligation under its respective indemnity agreement is determined by taking into account
that partys basis in its partnership interest and the applicable at-risk rules and liability allocation rules. No demand for payment under the indemnity agreement has been made.



We are a guarantor on a full, joint and several and senior secured basis, of
$225,000,000 aggregate principal amount of 9% Senior Secured Notes due 2012 and of $61,300,000 aggregate principal amount of Senior Secured Credit Facilities due 2008, which were issued by the Operating Partnership. Payments would be due if the
Operating Partnership were to become insolvent and/or entered into default of any debt covenant or indenture. No collateral secures our guarantee.



Item 14. Principal Accounting Fees and Services



Audit Fees. There were no audit fees billed by KPMG LLP for the year ended December 31, 2003. Due to the requirement for audited financial
statements and notes during 2004, the related audit fees billed by KPMG LLP for the year ended December 31, 2004 were approximately $22,500, all of which were paid by the Operating Partnership.



Audit-Related Fees. There were no audit-related fees billed by KPMG
LLP for the years ended December 31, 2003 and 2004.



Tax Fees. There were no tax fees billed by KPMG LLP for the years ended December 31, 2003 and 2004.



All Other Fees. There were no other fees billed by KPMG LLP for the years ended December 31, 2003 and 2004.



Pre-approval Policies and Procedures. As the Company does not have an
audit committee, there are no policies and procedures of such a committee to be disclosed.



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PART IV



Item 15. Exhibits and Financial Statement
Schedules



|    |  |                                                                                                                                                                                                |  |      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|(a) |  | The following documents are filed as a part of this report:                                                                                                                                   
|    | 
|1.  |  | Financial statements                                                                                                                                                                          
|    | 
|    |  | The following financial statements of the Company are included in Part II, Item 8 of this report:                                                                                             
|    |  |                                                                                                                                                                                                |  | Page 
|    |  | Balance Sheets (As Restated)                                                                                                                                                                   |  | 10   
|    |  | Statements of Operations (As Restated)                                                                                                                                                         |  | 11   
|    |  | Statements of Changes in Stockholders Deficit and Comprehensive Loss (As Restated)                                                                                                            |  | 12   
|    |  | Consolidated Statements of Cash Flows (As Restated)                                                                                                                                            |  | 13   
|    |  | Notes to Financial Statements                                                                                                                                                                  |  | 14-26
|    |  | Report of Independent Registered Public Accounting Firm                                                                                                                                        |  | 27   
|    | 
|2.  |  | Financial statement schedules and supplementary information required to be submitted.                                                                                                         
|    | 
|    |  | All schedules are omitted because they are not applicable, or not required, or because the required information is included in the audited consolidated financial statements or
notes thereto.
|    | 
|3.  |  | and (b) Exhibits                                                                                                                                                                              
|    | 
|    |  | Incorporated herein by reference is a list of Exhibits contained on the Exhibit Index on page 33 of this Annual Report.                                                                       



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SIGNATURES



Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



PETRO, INC.(Registrant)By:

/s/ J.A. Cardwell, Sr.J.A. Cardwell, Sr.President and Chief Executive Officer(On behalf of the Registrant and as RegistrantsPrincipal Executive Officer)




Date: October 21, 2005



Pursuant to the
requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of Petro, Inc. and in the capacities and on the dates indicated.



|                           |  |                                                                                                       |  |                 
|-------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | ----------------
|Signature                  |  | Title                                                                                                 |  | Date            
|                           |  |                                                                                                      
|/s/ J.A. Cardwell, Sr.     |  | President and Chief Executive Officer (Principal Executive Officer and Director)                      |  | October 21, 2005
|(J.A. Cardwell, Sr.)       |  |                                                                                                       | 
|                           |  |                                                                                                      
|/s/ James A. Cardwell, Jr. |  | Treasurer and Chief Financial Officer (Principal Financial and Chief Accounting Officer and Director) |  | October 21, 2005
|(James A. Cardwell, Jr.)   |  |                                                                                                       | 
|                           |  |                                                                                                       | 



Supplemental Information to be
Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants which have not Registered Securities Pursuant to Section 12 of the Act.



The Company has not sent and will not send an annual report or proxy materials to its stockholder.



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EXHIBIT INDEX



|            |  |                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                        
|3.01 (a)    |  | Certificate of Incorporation of Petro, Inc.                                                                                                                                
|            | 
|3.02 (a)    |  | Bylaws of Petro, Inc.                                                                                                                                                      
|            | 
|31.01*      |  | President and Chief Executive Officers Certification pursuant to Rule 13a-14(a) or 15d-14(a).                                                                             
|            | 
|31.02*      |  | Treasurer and Chief Financial Officers Certification pursuant to Rule 13a-14(a) or 15d-14(a).                                                                             
|            | 
|32*         |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

|(a) | Incorporated by reference to Petro Stopping Centers, L.P.s and Petro Financial Corporations Registration Statement on Form S-4A (Registration No. 333-115358), filed
on June 10, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Filed herewith
|- | --------------



33