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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

Commission file number

PETRO, INC.

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

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

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 requirements for the past 90 days.    Yes  x    No  ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of September 30, 2004, the number of shares outstanding of the registrant’s only class of common stock was 99,500.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PETRO, INC.

UNAUDITED CONDENSED BALANCE SHEETS

See accompanying notes to unaudited condensed financial statements.

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PETRO, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

See accompanying notes to unaudited condensed financial statements.

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PETRO, INC.

UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT)

For the Nine Months Ended September 30, 2004

See accompanying notes to unaudited condensed financial statements.

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PETRO, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

See accompanying notes to unaudited condensed financial statements.

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PETRO, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(1) Nature of Business

Petro, Inc. (the “Company”) owns business interests in certain oil and gas and real estate interests 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) Summary of Significant Accounting Policies

The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in financial statements prepared in accordance with generally accepted accounting principles.

These unaudited condensed financial statements should be read in conjunction with the December 31, 2003 financial statements and notes thereto in the Registration Statement on Form S-4A of Petro Stopping Centers, L.P. (the “Operating Partnership”) and Petro Financial Corporation, filed with the Securities and Exchange Commission on June 10, 2004 (the “2003 Financial Statements”). Capitalized terms used in this report and not defined herein have the meanings ascribed to such terms in the 2003 Financial Statements. In the opinion of management of the Company, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly the condensed financial position of the Company at December 31, 2003 and September 30, 2004, the condensed results of operations for the three and nine months ended September 30, 2003 and 2004, changes in stockholder’s equity (deficit) for the nine months ended September 30, 2004, and the condensed cash flows for the nine months ended September 30, 2003 and 2004. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full calendar year.

(3) Investment in Affiliated Entities and Limited Partnership

The Company has a 20% interest in Hueco Mountain Estates, Inc. (“Hueco”), a 10% interest in Trevino Properties (“Trevino”), a .25% general partnership interest in the Operating Partnership, and a 12.5% combined general and limited partnership interest in Holdings, all of which are accounted for using the equity method. In addition, the Company holds a mandatorily redeemable preferred partnership interest in Holdings. The mandatorily redeemable preferred partnership interest is entitled to cumulative preferred returns of 8% and is subject to mandatory redemption in October 2007. The preferred returns accrue but are only payable in cash if permitted by the Operating Partnership’s then existing debt instruments.

For the three months ended September 30, 2003 and 2004, equity in net loss of affiliated entities includes losses of $5,956 related to Hueco, for both periods, and income of $4,512 for Trevino, for the three months ended September 30, 2003. For the nine months ended September 30, 2003 and 2004, equity in net loss of affiliated entities includes losses of $17,868 related to Hueco, for both years, and income of $13,538 for Trevino, for the nine months ended September 30, 2003. For the three months ended September 30, 2003 and 2004, net income (loss) on investment in limited partnership includes a loss of $456 and income of $156,590 related to Holdings, respectively. For the nine months ended September 30, 2003 and 2004, net loss on investment in limited partnership includes $601,540 and $2,219,928 related to Holdings, respectively.

(continued)

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PETRO, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

The Company’s equity investments at December 31, 2003 and September 30, 2004 are summarized below:

(4) Financial Results and Liquidity

For the three months ended September 30, 2003 and 2004, the Company incurred net income of $4,609 and $153,667 respectively, and incurred net losses of $649,539 and $2,214,956 for the nine months ended September 30, 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 September 30, 2005.

(5) 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is qualified in its entirety by the more detailed information regarding Petro, Inc. (the “Company”) in the Form S-4A Registration Statement of Petro Stopping Centers, L.P. and Petro Financial Corporation, as filed with the Securities Exchange Commission on June 10, 2004 and the condensed financial statements contained in this report, including the notes thereto.

Certain sections of this Form 10-Q, including “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, which represent our 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,” 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. In addition to the factors described in this Form 10-Q, 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:

All statements, other than statements of historical facts included in this Form 10-Q, may be considered forward-looking statements. The forward-looking statements are included in, without limitation, “—Transactions with Related-Parties,” “—Liquidity and Capital Resources,” “—Off-Balance Sheet Arrangements,” “—Results of Operations,” and “—Critical Accounting Policies”. In addition, in the preparation of the financial statements, we make various estimates and assumptions that are by their nature forward-looking statements.

Reporting Format

We own investments in certain oil and gas operations, real estate joint ventures, and our interest in Petro Sopping Centers Holdings, L.P. (“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 over year. 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, 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 Petro Stopping Centers, L.P. (the “Operating Partnership”) for identical interests in Holdings (the “Recapitalization”). 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 in Holdings and a mandatorily redeemable preferred partnership interest. The mandatory redeemable preferred partnership interest is entitled to cumulative preferred returns of 8% and is subject to mandatory redemption in October 2007. The preferred returns accrue but are only payable in cash if permitted by the Operating Partnership’s then existing debt instruments. At September 30, 2004, we have accrued preferred returns amounting to $1,547,123.

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We derive our revenues from:

The following table sets forth our total consolidated revenues by major source:

Transactions with Related-Parties

We are a wholly owned subsidiary of Nevada Trio, Inc. Nevada Trio, Inc. files a consolidated tax return that includes our results of operations and other subsidiaries. Additionally, our Chief Executive Officer has significant ownership interests in numerous other entities with which we have 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.

Liquidity and Capital Resources

At September 30, 2004, our principal sources of liquidity were:

The following is a summary of our contractual cash obligations as of September 30, 2004:

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We anticipate having cash requirements for operations and debt service in excess of expected available funds in the amount of $55,000 for the remainder of 2004. Furthermore, ongoing cash requirements will be $134,000 for 2005 and a lesser 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 Recapitalization 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 Recapitalization. The indemnity agreements were entered into by the parties to address specific income tax issues arising out of the Recapitalization 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, as well as other terms and conditions of the indemnity agreements. 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, which are more fully described in the Registration Statement filed with the Securities and Exchange Commission on June 10, 2004.

Results of Operations

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Overview. Net loss increased for the nine months ended September 30, 2004 to $2.2 million compared to a loss of $649,539 for the nine months ended September 30, 2003, due to increased losses from our investment in limited partnership. Those losses were due primarily to costs associated with the debt financing by the Operating Partnership and its subsidiary, Petro Financial Corporation during the reporting period. Our income from oil and gas operations declined to $5,378 from $8,298. We recognized a loss of $17,868 related to our investment in Hueco, for both years, and income of $13,538 related to our investment in Trevino Properties for the nine months ended September 30, 2003.

Costs and Expenses. General and administrative expenses decreased 12.8% to $188,319 for the nine months ended September 30, 2004 compared to $216,049 for the nine months ended September 30, 2003 due to reduced property tax expense on previously unoccupied income property.

Interest Expense. Interest expense decreased 7.5% or $2,360 to $28,930 compared to the nine months ended September 30, 2003, due primarily to the decrease in interest bearing debt obligations.

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Overview. Net income for the three months ended September 30, 2004 increased to $153,667 as compared to income of $4,609 for the three months ended September 30, 2003, due primarily to an increase of net revenue to $232,095 for the quarter ended September 30, 2004 from income of $69,427 in the quarter ended September 30, 2003 related to our partnership interest in Holdings. Our income from oil and gas operations increased to $1,916 from $1,147. We recognized a loss of $5,956 related to our investment in Hueco, for both periods, and income of $4,512 related to our investment in Trevino Properties for the three months ended September 30, 2003.

Costs and Expenses. General and administrative expenses increased 26.3% to $69,084 for the quarter ended September 30, 2004 compared to $54,689 for the quarter ended September 30, 2003 due mainly to increased professional fees.

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Interest Expense. Interest expense decreased 7.8% or $785 to $9,344 compared to the quarter ended September 30, 2003, due primarily to the decrease in interest bearing debt obligations.

Critical Accounting Policies

The preparation of our condensed 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 unaudited condensed financial statements and accompanying notes. The U.S. 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 addressed below. We also have other key accounting policies that involve the use of estimates, judgments, and assumptions. See Note 1 in Notes to Financial Statements included in our 2003 Financial Statements 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.

Investments

The Company’s investments 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. Oil and gas activity net revenues from drilling interests owned by the Company are recognized when earned. Monthly receipts are the net revenues from certain drilling interests owned by the Company. Income and loss from the Company’s investment in Holdings is recognized based upon its proportionate ownership rights.

Income Taxes

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 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.

Recently Issued Accounting Pronouncements

In December 2003, the Financial Accounting Standard 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 3. Quantitative and Qualitative Disclosures about Market Risk

None.

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Item 4. Controls and Procedures

As of September 30, 2004, we completed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and President 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 Chief Executive Officer and President 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.

There has been no change in our internal control over financial reporting in connection with the evaluation required by paragraph (d) of the Securities Exchange Act of 1934 Rules 13a-15 or 15d-15, during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we are involved in ordinary routine litigation incidental to our operations. Based on the existence of insurance coverage, we believe that any litigation currently pending or threatened against us will not have a material adverse effect on our unaudited consolidated condensed financial position or results of operations.

Item 5. Other Information

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 6. Exhibits

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SIGNATURE

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

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EXHIBIT INDEX

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