UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT  OF  1934

     For the quarterly period ended October 31, 2004

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF THE SECURITIES
     EXCHANGE  ACT  OF  1934

     For the transition period from ______________ to _______________

                       Commission file number:  000-24394

                             PENN OCTANE CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)


                         DELAWARE                              52-1790357
             (State or Other Jurisdiction of                (I.R.S. Employer
              Incorporation or Organization)               Identification No.)

  77-530 ENFIELD LANE, BLDG. D, PALM DESERT, CALIFORNIA           92211
         (Address of Principal Executive Offices)               (Zip Code)

Registrant's Telephone Number, Including Area Code:  (760) 772-9080

     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
    ---     ---

The  number  of shares of Common Stock, par value $.01 per share, outstanding on
December  10,  2004  was  15,285,245.


                                        1
<PAGE>
<TABLE>
<CAPTION>
                                    PENN OCTANE CORPORATION
                                       TABLE OF CONTENTS

         ITEM                                                                         PAGE NO.
         ----                                                                         --------
<S>      <C>   <C>                                                                    <C>
Part I    1.   Financial Statements

               Independent Certified Public Accountants' Review Report                    3

               Consolidated Balance Sheets as of October 31, 2004 (unaudited)            4-5
               and July 31, 2004

               Unaudited Consolidated Statements of Operations for the three months
               ended October 31, 2004 and 2003                                            6

               Unaudited Consolidated Statements of Cash Flows for the three months
               ended October 31, 2004 and 2003                                            7

               Notes to Consolidated Financial Statements (Unaudited)                    8-21

          2.   Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                                22-39

          3.   Quantitative and Qualitative Disclosures About Market Risk                39

          4.   Controls and Procedures                                                   39

Part II   1.   Legal Proceedings                                                         40

          2.   Unregistered Sales of Equity Securities and Use of Proceeds               40

          3.   Defaults Upon Senior Securities                                           40

          4.   Submission of Matters to a Vote of Security Holders                       40

          5.   Other Information                                                         40

          6.   Exhibits and Reports on Form 8-K                                          40

               Signatures                                                                41
</TABLE>


                                        2
<PAGE>
             Independent Certified Public Accountants' Review Report

Board of Directors and Stockholders
Penn Octane Corporation

We  have  reviewed the consolidated balance sheet of Penn Octane Corporation and
subsidiaries  (Company)  as  of  October  31, 2004, and the related consolidated
statements  of  operations  for the three months ended October 31, 2004 and 2003
and the consolidated statements of cash flows for the three months ended October
31,  2004  and  2003.  These  financial statements are the responsibility of the
Company's  management.

We  conducted  our review in accordance with the standards of the Public Company
Accounting  Oversight  Board  (United  States).  A  review  of interim financial
information  consists  principally  of applying analytical procedures and making
inquiries  of  persons  responsible for financial and accounting matters.  It is
substantially  less  in  scope  than  an  audit conducted in accordance with the
standards  of  the  Public  Company Accounting Oversight Board, the objective of
which  is  the expression of an opinion regarding the financial statements taken
as  a  whole.  Accordingly,  we  do  not  express  such  an  opinion.

Based on our reviews, we are not aware of any material modifications that should
be  made  to  the  financial  statements  referred  to  above  for them to be in
conformity with United States generally accepted accounting principles.

We  have  previously  audited,  in  accordance  with the standards of the Public
Company  Accounting  Oversight  Board  (United States), the consolidated balance
sheet  of  Penn Octane Corporation and Subsidiaries as of July 31, 2004, and the
related  consolidated  statements  of operations, stockholders' equity, and cash
flows  for  the  year then ended (not presented herein); and in our report dated
October  5,  2004,  we  expressed  an  unqualified opinion on those consolidated
financial  statements.  In  our  opinion,  the  information  set  forth  in  the
accompanying  consolidated  balance sheet as of July 31, 2004, is fairly stated.

Our  auditor's  report on the Company's financial statements as of July 31, 2004
included  an  explanatory paragraph referring to the matters discussed in Note S
of those financial statements which raised substantial doubt about the Company's
ability  to  continue  as  a  going  concern.  As  indicated  in  Note  K of the
accompanying  unaudited  interim  financial  statements,  conditions continue to
exist which raise substantial doubt about the Company's ability to continue as a
going  concern.


          /s/ BURTON MCCUMBER & CORTEZ, L.L.P.

Brownsville, Texas
December 10, 2004


                                        3
<PAGE>
<TABLE>
<CAPTION>
PART I
ITEM  1.

                                PENN OCTANE CORPORATION AND SUBSIDIARIES

                                      CONSOLIDATED BALANCE SHEETS

                                                 ASSETS


                                                                              October 31,
                                                                                 2004        July 31,
                                                                              (Unaudited)      2004
                                                                             -------------  -----------
<S>                                                                          <C>            <C>
Current Assets
    Cash                                                                     $     511,558  $   384,074
    Restricted cash                                                              3,266,465    6,314,071
    Trade accounts receivable (less allowance for doubtful accounts of  $0)      9,956,172    6,207,067
    Inventories                                                                  4,263,516    1,632,992
    Prepaid expenses and other current assets                                      202,349      210,520
                                                                             -------------  -----------
        Total current assets                                                    18,200,060   14,748,724

Property, plant and equipment - net                                             16,156,474   16,398,280
Lease rights (net of accumulated amortization of $764,779 and $753,330 at
October 31, 2004 and July 31, 2004)                                                389,260      400,709
Other non-current assets                                                            28,539       29,639
                                                                             -------------  -----------
            Total assets                                                     $  34,774,333  $31,577,352
                                                                             =============  ===========
<FN>
        The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


                                        4
<PAGE>
<TABLE>
<CAPTION>
                                   PENN OCTANE CORPORATION AND SUBSIDIARIES

                                    CONSOLIDATED BALANCE SHEETS - CONTINUED

                                     LIABILITIES AND STOCKHOLDERS' EQUITY


                                                                                October 31,
                                                                                   2004           July 31,
                                                                                (Unaudited)         2004
                                                                              ---------------  ---------------
<S>                                                                           <C>              <C>
Current Liabilities
    Current maturities of long-term debt                                      $      162,694   $      162,694
    Revolving line of credit                                                       1,003,790        2,688,553
    LPG and fuel products trade accounts payable                                  12,125,963        7,432,728
    Other accounts payable                                                         1,759,942        1,784,643
    US and foreign taxes payable                                                      29,480            5,194
    Accrued liabilities                                                            1,374,530        1,123,979
                                                                              ---------------  ---------------
      Total current liabilities                                                   16,456,399       13,197,791
Long-term debt, less current maturities                                            1,752,183        1,729,202
Minority interest in Rio Vista Energy Partners L.P.                               14,448,870                -
Commitments and contingencies                                                              -                -
Stockholders' Equity
    Series A - Preferred stock-$.01 par value, 5,000,000 shares authorized;
    No shares issued and outstanding at October 31, 2004 and July 31, 2004                 -                -

    Series B - Senior preferred stock-$.01 par value, $10 liquidation value,
    5,000,000 shares authorized; No shares issued and outstanding at October
    31, 2004 and July 31, 2004                                                             -                -

    Common stock - $.01 par value, 25,000,000 shares authorized;
    15,285,245 shares issued and outstanding at October 31, 2004 and July
    31, 2004                                                                         152,852          152,852

    Additional paid-in capital                                                    28,501,669       28,460,972

    Notes receivable from an officer of the Company and another party for
    exercise of warrants, less reserve of $468,693 at October 31, 2004 and
    July 31, 2004                                                              (   2,728,000)   (   2,728,000)

    Accumulated deficit                                                        (  23,809,640)   (   9,235,465)
                                                                              ---------------  ---------------
    Total stockholders' equity                                                     2,116,881       16,650,359
                                                                              ---------------  ---------------
            Total liabilities and stockholders' equity                        $   34,774,333   $   31,577,352
                                                                              ===============  ===============
<FN>
           The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


                                        5
<PAGE>
<TABLE>
<CAPTION>
                          PENN OCTANE CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED STATEMENTS OF OPERATIONS

                                        (UNAUDITED)


                                                                   Three Months Ended
                                                             ------------------------------
                                                              October 31,     October 31,
                                                                  2004            2003
                                                             --------------  --------------
<S>                                                          <C>             <C>
Revenues                                                     $  65,512,588   $  38,549,107
Cost of goods sold                                              63,521,381      36,483,177
                                                             --------------  --------------
    Gross profit                                                 1,991,207       2,065,930
Selling, general and administrative expenses
    Legal and professional fees                                    239,271         761,869
    Salaries and payroll related expenses                          970,668         501,415
    Other                                                          816,286         275,915
                                                             --------------  --------------
                                                                 2,026,225       1,539,199

    Loss on sale of CNG assets                                           -    (    500,000)
                                                             --------------  --------------
        Operating income (loss)                               (     35,018)         26,731
Other income (expense)
    Interest and LPG and Fuel Products financing
    expense                                                   (    356,843)   (    375,586)
    Interest income                                                  9,080           5,339
    Minority interest in loss of Rio Vista Energy
    Partners L.P.                                                  234,097               -
    Other income                                                         -         210,000
                                                             --------------  --------------
        Loss before taxes                                     (    148,684)   (    133,516)

Provision for income tax                                            86,396          25,000
                                                             --------------  --------------
            Net loss                                         $(    235,080)  $(    158,516)
                                                             ==============  ==============

Net income (loss) per common share                           $(       0.02)  $(       0.01)
                                                             ==============  ==============
Net income (loss) per common share assuming
dilution                                                     $(       0.02)  $(       0.01)
                                                             ==============  ==============
Weighted average common shares outstanding                      15,285,245      15,298,261
                                                             ==============  ==============
<FN>
  The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


                                        6
<PAGE>
<TABLE>
<CAPTION>
                              PENN OCTANE CORPORATION AND SUBSIDIARIES

                                CONSOLIDATED STATEMENTS OF CASH FLOWS

                                             (UNAUDITED)


                                                                           Three Months Ended
                                                                    --------------------------------
                                                                      October 31,      October 31,
                                                                         2004             2003
                                                                    ---------------  ---------------
<S>                                                                 <C>              <C>
Cash flows from operating activities:
Net loss                                                            $(     235,080)  $     (158,516)
Adjustments to reconcile net income to net cash (used in) provided
  by operating activities:
    Depreciation and amortization                                          241,806          222,060
    Amortization of lease rights                                            11,449           11,449
    Non-employee stock based costs and other                                     -           31,217
    Amortization of loan discount related to detachable warrants            24,281           51,081
    Loss on sale of CNG assets                                                   -          500,000
    Stock based compensation                                               384,574                -
    Minority interest in Rio Vista Energy Partners L.P.              (     234,097)               -
Changes in current assets and liabilities:
    Trade accounts receivable                                        (   3,749,105)   (   3,924,161)
    Inventories                                                      (   2,630,524)          13,572
    Prepaid and other current assets                                         8,171           26,358
    LPG and Fuel Products trade accounts payable                         4,693,235        2,716,488
    Other accounts payable and accrued liabilities                         225,844    (      73,991)
    US and Foreign taxes payable                                            24,286           25,000
                                                                    ---------------  ---------------
      Net cash used in operating activities                             (1,235,160)   (     559,443)
Cash flows from investing activities:
    Capital expenditures                                                         -    (      94,999)
    (Increase) decrease in other non-current assets                          1,100            2,531
                                                                    ---------------  ---------------
    Net cash provided by (used in) investing activities                      1,100    (      92,468)
Cash flows from financing activities:
    (Increase) decrease in restricted cash                               3,047,606          852,474
    Revolving credit facilities                                      (   1,684,763)               -
    Issuance of common stock                                                     -           80,625
    Issuance of debt                                                             -           60,000
    Reduction in debt                                                (       1,299)   (     320,226)
                                                                    ---------------  ---------------
        Net cash provided by financing activities                        1,361,544          672,873
                                                                    ---------------  ---------------
                Net increase in cash                                       127,484           20,962
Cash at beginning of period                                                384,074           71,064
                                                                    ---------------  ---------------
Cash at end of period                                               $      511,558   $       92,026
                                                                    ===============  ===============

Supplemental disclosures of cash flow information:
    Cash paid during the period for:
    Interest and LPG and Fuel Products financing                    $      326,051   $      325,915
                                                                    ===============  ===============
Supplemental disclosures of noncash transactions:
    Equity-common stock and warrants issued and other               $       40,699   $            -
                                                                    ===============  ===============
    Minority interest in Rio Vista  Energy Partners L.P.            $   14,339,092   $            -
                                                                    ===============  ===============
<FN>
      The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


                                        7
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  A  -  ORGANIZATION

     Penn Octane Corporation, formerly known as International Energy Development
     Corporation  (International Energy), was incorporated in Delaware in August
     1992.  Penn  Octane  Corporation  (Penn  Octane)  and  its  consolidated
     subsidiaries  are  hereinafter  referred to as the Company. The Company has
     been  principally  engaged  in  the  purchase,  transportation  and sale of
     liquefied  petroleum  gas  (LPG).  The Company owns and operates a terminal
     facility  in  Brownsville, Texas (Brownsville Terminal Facility) and owns a
     LPG  terminal facility in Matamoros, Tamaulipas, Mexico (Matamoros Terminal
     Facility)  and  approximately 23 miles of pipelines (US - Mexico Pipelines)
     which  connect  the Brownsville Terminal Facility to the Matamoros Terminal
     Facility. The Company has a long-term lease agreement for approximately 132
     miles of pipeline (Leased Pipeline) which connects ExxonMobil Corporation's
     (Exxon)  King Ranch Gas Plant in Kleberg County, Texas and Duke Energy's La
     Gloria  Gas  Plant in Jim Wells County, Texas, to the Company's Brownsville
     Terminal  Facility.  In  addition,  the Company has access to a twelve-inch
     pipeline (ECCPL), which connects from Exxon's Viola valve station in Nueces
     County,  Texas to the inlet of the King Ranch Gas Plant as well as existing
     and  other  potential  propane pipeline suppliers which have the ability to
     access  the ECCPL. In connection with the Company's lease agreement for the
     Leased  Pipeline,  the  Company  may  access  up  to  21,000,000 gallons of
     storage,  located  in  Markham, Texas (Markham), as well as other potential
     propane pipeline suppliers, via approximately 155 miles of pipeline located
     between  Markham  and  the  Exxon  King  Ranch  Gas  Plant.

     The Company commenced commercial operations for the purchase, transport and
     sale  of  LPG  in the fiscal year ended July 31, 1995, upon construction of
     the Brownsville Terminal Facility. The primary market for the Company's LPG
     is  the  northeastern  region  of  Mexico,  which  includes  the  states of
     Coahuila,  Nuevo  Leon  and  Tamaulipas.  Since  operations  commenced, the
     Company's  primary  customer for LPG has been P.M.I. Trading Limited (PMI).
     PMI  is  a  subsidiary  of Petroleos Mexicanos, the state-owned Mexican oil
     company,  which  is  commonly  known  by its trade name "PEMEX." PMI is the
     exclusive  importer  of  LPG into Mexico. The LPG purchased by PMI from the
     Company  is sold to PEMEX which distributes the LPG purchased from PMI into
     the  northeastern  region  of  Mexico.  Sales  of  LPG to PMI accounted for
     approximately  50.5%  of  the  Company's  total  revenues  and 75.4% of the
     Company's  total  LPG revenues for the three months ended October 31, 2004.
     The  Company's  gross  profit  is  dependent on sales volume of LPG to PMI,
     which  fluctuates  in  part  based  on  the  seasons. The demand for LPG is
     strongest  during  the  winter  season.

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

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

     For  bulk and transactional sales, the Company enters into individual sales
     contracts  for  each  sale.  Rack  sales  are subject to credit limitations
     imposed  on  each  individual buyer by the Company. The Company has several
     supply  contracts  for  each  of  the  Fuel  Products  it sells. The supply
     contracts  are  for  annual  periods  with flexible volumes but they may be
     terminated  sooner  by  the  supplier  if the Company consistently fails to
     purchase  minimum  volumes  of  Fuel  Products.


                                        8
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  A  -  ORGANIZATION  -  CONTINUED

     On  September  30,  2004, Penn Octane Corporation (Penn Octane) completed a
     series  of  transactions involving (i) the transfer of substantially all of
     its  owned pipeline and terminal assets in Brownsville and Matamoros to its
     wholly  owned  subsidiary  Rio  Vista  Operating  Partnership  L.P. and its
     subsidiaries  (RVOP)  (ii)  transferred  its  99.9% interest in RVOP to its
     wholly owned subsidiary Rio Vista Energy Partners L.P. and its subsidiaries
     (Rio  Vista)  and (iii) distributed all of its limited partnership interest
     (Common  Units)  in  Rio  Vista  to  its  common  stockholders  (Spin-Off),
     resulting in Rio Vista becoming a separate public company. The Common Units
     represented  98% of Rio Vista's outstanding units. The remaining 2% of such
     units,  which  is  the general partner interest, is owned and controlled by
     Rio  Vista  GP  LLC  (General  Partner),  a wholly owned subsidiary of Penn
     Octane,  and  the  General Partner is responsible for the management of Rio
     Vista.  Accordingly  the  Company has control of Rio Vista by virtue of its
     ownership  and related voting control of the General Partner and therefore,
     Rio Vista is consolidated with the Company and the interests of the limited
     partners are classified as minority interests in the Company's consolidated
     financial  statements.  Subsequent  to  the  Spin-Off,  Rio Vista sells LPG
     directly to PMI and purchases LPG from Penn Octane under a long-term supply
     agreement.  The  purchase  price  of the LPG from Penn Octane is determined
     based on the cost of LPG under Penn Octane's LPG supply agreements with its
     suppliers, other direct costs related to PMI sales and a formula that takes
     into consideration operating costs of Penn Octane and Rio Vista.

     BASIS  OF  PRESENTATION
     -----------------------

     The  accompanying consolidated financial statements include the Company and
     its United States subsidiaries including Penn Octane International, L.L.C.,
     PennWilson CNG, Inc. (PennWilson) and Penn CNG Holdings, Inc. and Rio Vista
     and  its  US and Mexican subsidiaries, Penn Octane de Mexico, S. de R.L. de
     C.V.  (PennMex), Termatsal, S. de R.L. de C.V. (Termatsal) and Tergas, S.A.
     de  C.V. (Tergas), a consolidated affiliate, and its other inactive Mexican
     subsidiaries.  All  significant  intercompany accounts and transactions are
     eliminated.

     The  unaudited  consolidated  balance  sheet  as  of  October 31, 2004, the
     unaudited  consolidated statements of operations for the three months ended
     October 31, 2004 and 2003 and the unaudited consolidated statements of cash
     flows  for  the  three  months  ended  October 31, 2004 and 2003, have been
     prepared  by  the  Company without audit. In the opinion of management, the
     unaudited  consolidated financial statements include all adjustments (which
     include  only normal recurring adjustments) necessary to present fairly the
     unaudited  consolidated financial position of the Company as of October 31,
     2004, the unaudited consolidated results of operations for the three months
     ended October 31, 2004 and 2003 and the unaudited consolidated statement of
     cash flows for the three months ended October 31, 2004 and 2003.

     Certain  information  and  footnote  disclosures  normally  included  in
     consolidated  financial  statements  prepared in accordance with accounting
     principles  generally  accepted  in  the United States of America have been
     omitted.  These  unaudited consolidated financial statements should be read
     in conjunction with the consolidated financial statements and notes thereto
     included  in  the  Company's Annual Report on Form 10-K for the fiscal year
     ended  July  31,  2004.

     Certain  reclassifications  have  been  made  to  prior  period balances to
     conform  to  the  current  presentation.  All  reclassifications  have been
     consistently  applied  to  the  periods  presented.


                                        9
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  B  -  INCOME  (LOSS)  PER  COMMON  SHARE

     Income (loss) per share of common stock is computed on the weighted average
     number  of  shares  outstanding. During periods in which the Company incurs
     losses,  giving  effect  to common stock equivalents is not presented as it
     would  be  antidilutive.

     The  following tables present reconciliations from income (loss) per common
     share  to  income  (loss)  per  common  share  assuming  dilution:

<TABLE>
<CAPTION>
                                             For the three months ended October 31, 2004
                                        ----------------------------------------------------
                                          Income (Loss)         Shares          Per-Share
                                           (Numerator)       (Denominator)       Amount
                                        ------------------  ---------------  ---------------
<S>                                     <C>                 <C>              <C>
Net income (loss)                       $(        235,080)

BASIC EPS
Net income (loss) available to common
    stockholders                         (        235,080)       15,285,245  $(        0.02)
                                                                             ===============

EFFECT OF DILUTIVE SECURITIES
Warrants                                                -                 -

DILUTED EPS
Net income (loss) available to common
stockholders                                   N/A                N/A              N/A

                                             For the three months ended October 31, 2004
                                        ----------------------------------------------------
                                          Income (Loss)         Shares          Per-Share
                                           (Numerator)       (Denominator)       Amount
                                        ------------------  ---------------  ---------------
Net income (loss)                       $(        158,516)

BASIC EPS
Net income (loss) available to common
    stockholders                         (        158,516)       15,298,261  $(        0.01)
                                                                             ===============

EFFECT OF DILUTIVE SECURITIES
Warrants                                                -                 -

DILUTED EPS
Net income (loss) available to common          N/A                N/A              N/A
stockholders
</TABLE>


                                       10
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  C  -  STOCK-BASED  COMPENSATION

     The  Company  accounts  for  stock  option  plans  in  accordance  with the
     provisions  of  APB No. 25, "Accounting for Stock Issued to Employees", and
     related  interpretations which recognizes compensation expense on the grant
     date  if  the current market price of the stock exceeds the exercise price.

     Had  compensation  cost  related  to the warrants granted to employees been
     determined  based on the fair value at the grant dates, consistent with the
     provisions  of SFAS 123, the Company's pro forma net income (loss), and net
     income  (loss)  per  common  share  would  have  been  as  follows:

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                ----------------------------
                                                                 October 31,    October 31,
                                                                    2004           2003
                                                                -------------  -------------
<S>                                                             <C>            <C>
Net income (loss), as reported                                  $(   235,080)  $(   158,516)
Add:  Stock-based employee compensation cost expense
    included in reported net income (loss), net of related tax
    effects                                                            6,878              -
Less:  Total stock-based employee compensation expense
    determined under fair value based method for all
    awards, net of related tax effects                           (   316,238)   (    52,914)
                                                                -------------  -------------

Net income (loss), pro forma                                    $(   544,440)  $(   211,430)
                                                                =============  =============

Net income (loss) per common share, as reported                 $(      0.02)  $(      0.01)
                                                                =============  =============
Net income (loss) per common share, pro forma                   $(      0.04)  $(      0.01)
                                                                =============  =============
Net income (loss) per common share assuming dilution, as
reported                                                        $(      0.02)  $(      0.01)
                                                                =============  =============
Net income (loss) per common share assuming dilution,
pro forma                                                       $(      0.04)  $(      0.01)
                                                                =============  =============
</TABLE>

     The  following assumptions were used for grants of warrants to employees in
     the  three  months ended October 31, 2004, to compute the fair value of the
     warrants  using  the  Black-Scholes option-pricing model; dividend yield of
     0%;  expected  volatility  of  63%, 58% and 37%; risk free interest rate of
     3.52%  and  3.09%  and  expected  lives of 5 years, 1.75 years and 3 years.

     The  following assumptions were used for grants of warrants to employees in
     the  three  months ended October 31, 2003, to compute the fair value of the
     warrants  using  the  Black-Scholes option-pricing model; dividend yield of
     0%;  expected  volatility  of  79%;  risk  free  interest rate of 1.81% and
     expected  lives  of  5  years.


                                       11
<PAGE>
<TABLE>
<CAPTION>
                        PENN OCTANE CORPORATION AND SUBSIDIARIES

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                      (UNAUDITED)


NOTE D - PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following:

                                                         October 31,       July 31,
                                                            2004             2004
                                                       ---------------  ---------------
<S>                                                    <C>              <C>
LPG:
    Midline pump station (b)                           $    2,326,985   $    2,326,985
    Brownsville Terminal Facility: (a)
        Building                                              173,500          173,500
        Terminal facilities                                 3,631,207        3,631,207
        Tank Farm                                             373,945          373,945
        Leasehold improvements                                302,657          302,657
        Equipment                                             226,285          226,285
        Truck                                                  25,968           25,968
                                                       ---------------  ---------------
                                                            7,060,547        7,060,547
                                                       ---------------  ---------------
    US - Mexico Pipelines and Matamoros Terminal
    Facility: (a)

    U.S. Pipelines and Rights of Way                        6,775,242        6,775,242
    Mexico Pipelines and Rights of Way                        993,300          993,300
    Matamoros Terminal Facility                             5,874,781        5,874,781
    Land                                                      856,358          856,358
                                                       ---------------  ---------------
                                                           14,499,681       14,499,681
                                                       ---------------  ---------------
        Total LPG                                          21,560,228       21,560,228
                                                       ---------------  ---------------
Other:
    Office equipment (b)                                      106,953          106,953
    Software (b)                                               77,519           77,590
                                                       ---------------  ---------------
                                                              184,472          184,543
                                                       ---------------  ---------------
                                                           21,744,700       21,744,771
    Less:  accumulated depreciation and amortization    (   5,588,226)   (   5,346,491)
                                                       ---------------  ---------------

                                                       $   16,156,474   $   16,398,280
                                                       ===============  ===============

    (a)  Rio Vista assets
    (b)  Penn Octane and Subsidiaries other than Rio
         Vista
</TABLE>

     Property,  plant  and  equipment, net of accumulated depreciation, includes
     $5,795,776  and  $5,870,750 of costs, located in Mexico at October 31, 2004
     and  July  31,  2004,  respectively.


                                       12
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  E  -  INVENTORIES

     Inventories  are valued at the lower of cost or market (LCM) and consist of
     the  following:

<TABLE>
<CAPTION>
                                      October 31, 2004        July 31, 2004
                                    ---------------------  ---------------------
                                     Gallons      LCM       Gallons      LCM
                                    ---------  ----------  ---------  ----------
<S>                                 <C>        <C>         <C>        <C>
LPG:
    Leased Pipeline                 1,175,958  $1,082,409  1,175,958  $  887,815
    Brownsville Terminal Facility,
      Matamoros Terminal Facility
      and railcars                    425,419     391,576    257,665     194,530
    Markham Storage and other       1,886,555   1,736,477          -           -
                                    ---------  ----------  ---------  ----------

                                    3,487,932   3,210,462  1,433,623   1,082,345
                                    =========              =========

    Fuel Products                     702,817   1,053,054    433,566     550,647
                                    =========  ----------  =========  ----------

                                               $4,263,516             $1,632,992
                                               ==========             ==========
</TABLE>

<TABLE>
<CAPTION>
NOTE  F  -  DEBT  OBLIGATIONS

Debt consists of the following:
                                                                         October 31,    July 31,
                                                                             2004         2004
                                                                         ------------  ----------
<S>                                                                      <C>           <C>
Noninterest-bearing note payable, discounted at 7%, for legal services;
due in February 2002.                                                         137,500     137,500
Restructured Notes and $280,000 Notes                                       1,695,736   1,671,456

Other debt.                                                                    81,641      82,939
                                                                         ------------  ----------
      Total debt                                                            1,914,877   1,891,895
Less:  Current maturities                                                     162,694     162,694
    Short term debt                                                                 -           -
                                                                         ------------  ----------
      Long-term debt                                                     $  1,752,183  $1,729,201
                                                                         ============  ==========
</TABLE>

     EXTENSION  OF  CERTAIN  OF THE NEW ACCEPTING NOTEHOLDERS' NOTES, ADDITIONAL
     NOTE  AND  $250,000 NOTE TOTALING $1,525,000 (COLLECTIVELY THE RESTRUCTURED
     NOTES)

     On  January 16, 2004, the Restructured Notes which were due on December 15,
     2003  were  renewed  and  extended  (Restructuring). In connection with the
     Restructuring,  the  due  date  of  the  Restructured Notes was extended to
     December 15, 2005. The Restructured Notes can be repaid at any time without
     penalty. Annual interest on the Restructured Notes is 16.5% and the Company
     also  agreed  to  pay  a  fee  of  1.5%  on  any  principal  balance of the
     Restructured  Notes  outstanding  at  the  end  of  each  quarterly period,
     beginning  December  15,  2003.  Interest  and  fees  are payable quarterly
     beginning  March  15,  2004.

     In  addition,  the  Company  agreed  to  extend  the  expiration  date  on
     outstanding  warrants  to  purchase  common  stock  of  Penn Octane held by
     holders  of  the  Restructured  Notes until December 15, 2008 and agreed to
     issue new warrants to purchase Rio Vista Common Units in an amount equal to
     2,500  warrants  for  each $100,000 of Restructured Notes and an additional
     2,500  warrants  in  Rio  Vista  for  each  $100,000  of Restructured Notes
     outstanding  at  December  15,  2004  (Rio  Vista  Warrants). The Rio Vista
     Warrants will expire three years from the date of the Spin-Off (see note R)
     and  the  exercise  price will be determined based on a formula whereby the
     annualization  of  the  first  quarterly  distribution will represent a 20%
     yield  on  the  exercise price. In addition, the Company agreed to issue an
     additional  37,500  warrants  to  purchase  shares  of common stock of Penn
     Octane  to  certain  holders  of  the  Restructured  Notes.


                                       13
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  F  -  DEBT  OBLIGATIONS  -  CONTINUED

     EXTENSION  OF  CERTAIN  OF THE NEW ACCEPTING NOTEHOLDERS' NOTES, ADDITIONAL
     NOTE  AND  $250,000 NOTE TOTALING $1,525,000 (COLLECTIVELY THE RESTRUCTURED
     NOTES)  -  CONTINUED

     Certain  holders  of  promissory  notes  totaling approximately $280,000 of
     principal  due  December  15, 2003 which did not agree to the Restructuring
     (Declining  Noteholders)  were  paid  by  the  Company.  In connection with
     amounts  due  to  the Declining Noteholders, the Company issued $280,000 of
     promissory  notes  ($280,000  Notes).  The  terms of the $280,000 Notes are
     substantially similar to the Restructured Notes, except that the holders of
     the  $280,000  Notes  were not entitled to receive any warrants to purchase
     shares  of  common  stock  of  Penn  Octane.

     The  holders  of the Restructured Notes and $280,000 Notes consented to the
     Spin-Off  of  Rio  Vista  provided  that  (1)  the  assets  of  Penn Octane
     transferred  to  Rio Vista continue to be pledged as collateral for payment
     of  those  notes,  (2) Rio Vista guarantees Penn Octane's obligations under
     the  notes and (3) Rio Vista be prohibited from making any distributions in
     the  event  that Penn Octane is in default under the Restructured Notes and
     $280,000  Notes.

     In  connection with the Restructured Notes and $280,000 Notes, Philadelphia
     Brokerage  Corporation  (PBC)  acted  as placement agent and received a fee
     equal  to  1.5%  of  the  Restructured  Notes  and $280,000 Notes. PBC also
     received warrants to purchase 10,000 units in Rio Vista and will receive an
     additional  10,000  warrants  to  purchase 10,000 units in Rio Vista if the
     Restructured  Notes  and  $280,000 Notes are not paid by December 15, 2004.
     The  terms  of  the  warrants  are  the  same  as  the  Rio Vista Warrants.

     In  connection with the issuance of the new warrants of Penn Octane and the
     extension  of  the warrants of Penn Octane, the Company recorded a discount
     of  $194,245  related  to  the  fair  value  of  the newly issued, modified
     warrants  and including fees of $27,075 of which $84,982 has been amortized
     through  October  31,  2004. The Company will record an additional discount
     related to the Rio Vista warrants issued to the holders of the Restructured
     Notes  and  $280,000  Notes  when the Company is able to determine the fair
     value,  if  any  (see  above).

     Jerome Richter, Chief Executive Officer of Penn Octane continues to provide
     collateral  to  the  Restructured  Notes and the $280,000 Notes noteholders
     with  2,000,000  shares  of  common stock of Penn Octane owned by him. As a
     result  of  the  Spin-Off,  he  is  also  required to provide as collateral
     250,000  Common  Units  of  Rio  Vista  owned  by  him.


                                       14
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


     NOTE G - STOCKHOLDERS' EQUITY

     COMMON  STOCK
     -------------

     The  Company  routinely  issues  shares  of  its common stock for cash, the
     exercise  of  warrants,  in  payment  of notes and other obligations and to
     settle  lawsuits.

     STOCK  WARRANTS
     ---------------

     The  Company applies APB 25 for warrants granted to the Company's employees
     and  to  the  Company's  Board  of  Directors  serving  in  the capacity as
     directors  and  SFAS  123 for warrants issued to acquire goods and services
     from  non-employees.

     In  connection  with  warrants previously issued by the Company, certain of
     these  warrants  contain a call provision whereby the Company has the right
     to  purchase the warrants for a nominal price if the holder of the warrants
     does  not  elect to exercise the warrants during the call provision period.

     On  September  30,  2004,  pursuant to the terms of an employment agreement
     dated as of May 13, 2003 with Richard Shore, Jr., President of Penn Octane,
     the  Company  issued  warrants  to purchase 763,737 shares of Penn Octane's
     common  stock  at an exercise price of $1.14 per share. The warrants expire
     on  July  10,  2006.  Based  on  the  provisions of APB 25, no compensation
     expense  was  recorded.

     BOARD COMPENSATION PLAN (BOARD PLAN)

     In connection with the Penn Octane Board Plan, during August 2004 the Board
     granted  warrants  to purchase 20,000 shares of common stock of Penn Octane
     at  exercise  prices of $1.93 and $1.94 per share to outside directors. The
     warrants  expire  in  August  2009.  Based  on the provisions of APB 25, no
     compensation  expense  was  recorded  for  these  warrants.

     In  connection  with  the  Penn Octane Board Plan, during November 2004 the
     Board  granted  warrants  to purchase 10,000 shares of common stock of Penn
     Octane  at  exercise  price  of $1.30 per share to an outside director. The
     warrants  expire  in  November  2009. Based on the provisions of APB 25, no
     compensation  expense  was  recorded  for  these  warrants.


                                       15
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE H - OPTIONS AND WARRANTS OF RIO VISTA

     GENERAL  PARTNER  OPTIONS

     Penn  Octane's  100%  interest  in  the  General  Partner is expected to be
     decreased  to  50%  as a result of the exercise by Shore Capital LLC (Shore
     Capital)  an  affiliate  of  Mr.  Shore, and Mr. Richter of options to each
     acquire 25% of the General Partner (General Partner Options). Mr. Shore and
     Mr.  Richter  are each members of the board of directors of Penn Octane and
     the  board  of  managers of the General Partner. It is anticipated that Mr.
     Richter  and  Shore  Capital will exercise their General Partner Options in
     the  near  future.  The  exercise  price  for  each option is approximately
     $82,000.  Based  on  the  provisions  of  APB  25,  the  Company  recorded
     approximately  $41,000  of compensation cost related to these options. Penn
     Octane  will  retain  voting  control  of the General Partner pursuant to a
     voting  agreement.

     COMMON  UNIT  WARRANTS

     In connection with Mr. Shore's employment agreement with Penn Octane, Shore
     Capital  received  warrants  to acquire 97,415 common units of Rio Vista at
     $8.47  per  unit.  Based  on  the  provisions of APB 25, Rio Vista recorded
     $343,875 of compensation cost related to these warrants on October 1, 2004,
     the  initial  exercise  date.  The  warrants  expire  on  July  10,  2006.


NOTE  I  -  COMMITMENTS  AND  CONTINGENCIES

     CREDIT FACILITY, LETTERS OF CREDIT AND OTHER

     As  of  October  31,  2004,  Penn  Octane had a $15,000,000 credit facility
     (increased to $20,000,000 on November 12, 2004) with RZB Finance, LLC (RZB)
     for  demand  loans  and  standby letters of credit (RZB Credit Facility) to
     finance Penn Octane's purchases of LPG and Fuel Products in connection with
     Penn  Octane's  Fuel  Sales  Business.  The  RZB  Credit  facility  is  an
     uncommitted  facility  under which the letters of credit have an expiration
     date of no more than 90 days and the facility is reviewed annually at March
     31.  In  connection with the RZB Credit Facility, the Company granted RZB a
     security  interest and assignment in any and all of the Company's accounts,
     inventory,  real  property,  buildings,  pipelines,  fixtures and interests
     therein  or relating thereto, including, without limitation, the lease with
     the  Brownsville  Navigation  District of Cameron County (District) for the
     land  on  which the Company's Brownsville Terminal Facility is located, the
     Pipeline Lease, and in connection therewith entered into leasehold deeds of
     trust,  security  agreements, financing statements and assignments of rent.
     Under  the  RZB  Credit  Facility,  the Company may not permit to exist any
     subsequent  lien,  security interest, mortgage, charge or other encumbrance
     of  any  nature on any of its properties or assets, except in favor of RZB,
     without  the  consent  of RZB. After the Spin-Off and transfer of assets to
     Rio  Vista,  RZB continues to retain a security interest in the transferred
     assets.

     Under  the  RZB  Credit Facility, the Company is required to pay a fee with
     respect  to  each  letter  of  credit  thereunder in an amount equal to the
     greater of (i) $500, (ii) 2.5% of the maximum face amount of such letter of
     credit, or (iii) such higher amount as may be agreed to between the Company
     and  RZB.  Any loan amounts outstanding under the RZB Credit Facility shall
     accrue interest at a rate equal to the rate announced by the JPMorgan Chase
     Bank  as  its prime rate (4.75% at October 31, 2004) plus 2.5%. Pursuant to
     the  RZB  Credit Facility, RZB has sole and absolute discretion to limit or
     terminate  its participation in the RZB Credit Facility and to refrain from
     making  any loans or issuing any letters of credit thereunder. RZB also has
     the  right  to  demand payment of any and all amounts outstanding under the
     RZB  Credit  Facility at any time. In addition to the fees described above,
     the  Company  is  required  to  pay  RZB  annual  fees  of  $50,000.


                                       16
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE I - COMMITMENTS AND CONTINGENCIES - CONTINUED

     CREDIT FACILITY, LETTERS OF CREDIT AND OTHER - CONTINUED

     Based  on  current  minimum  purchase  commitments  under the Company's LPG
     supply  agreements  and current LPG prices, the amount available to finance
     Fuel  Products  and  LPG  purchases  in  excess of current minimum purchase
     commitments  is limited to current volumes and therefore the ability of the
     Company to grow the Fuel Sales Business is dependent on future increases in
     its RZB Credit Facility or other sources of financing, the reduction of LPG
     supply  commitments  and/or  the  reduction in LPG or Fuel Products prices.

     Under the terms of the RZB Credit Facility, either Penn Octane or Rio Vista
     is  required  to maintain net worth of a minimum of $9,000,000 ($10,000,000
     effective  November  12,  2004).

     Mr.  Richter  has  personally  guaranteed  all  of  Penn  Octane's  payment
     obligations  with  respect  to  the  RZB  Credit  Facility.

     In  connection  with  the  Company's  purchases  of  LPG and Fuel Products,
     letters  of  credit  are issued based on anticipated purchases. Outstanding
     letters  of  credit  for  LPG and Fuel Products at October 31, 2004 totaled
     approximately  $16,300,000  which  represents  October  2004  purchases.

     In  connection  with the Company's purchase of LPG and Fuel Products, under
     the  RZB  Credit  Facility,  assets  related  to product sales (Assets) are
     required  to  be  in  excess  of  borrowings  and  commitments  (including
     restricted  cash  of  approximately  $2,502,000  at  October  31, 2004). At
     October  31,  2004, the Company's borrowings and commitments were less than
     the  amount  of  the  Assets.

     In  connection  with  the  Company's  Fuel  Sales Business, the Company has
     issued bonds totaling $662,000 to the states of California, Nevada, Arizona
     and  Texas  (Bonds)  to secure payments of excise and other taxes collected
     from  customers  in  connection  with sales of Fuel Products. The Bonds are
     partially  secured  by  letters of credit totaling $452,600. At October 31,
     2004,  such  taxes  of  approximately  $542,000  were  due. In addition, in
     connection  with  the  Fuel  Sales Business, the Company issued a letter of
     credit  of  $284,000  in  connection with the Company's use of pipeline and
     terminal  systems from a third party. The letters of credit issued have all
     been  secured  by  cash  in  the  amount  of  $736,600 which is included in
     restricted  cash  in  the  Company's  balance  sheet  at  October 31, 2004.

     LPG  and  Fuel  Products  financing  expense associated with the RZB Credit
     Facility  totaled  $213,862 and $188,469 for the three months ended October
     31,  2004  and  2003.

     DISTRIBUTIONS  OF  AVAILABLE  CASH

     All  unitholders,  including the General Partner, have the right to receive
     distributions  of  "available cash" as defined in the partnership agreement
     (Agreement)  from  Rio Vista in an amount equal to the minimum distribution
     of  $0.25  per  quarter per unit, plus any arrearages in the payment of the
     minimum  quarterly  distribution  on  the  units  from  prior quarters. The
     distributions  are  to  be  paid  45  days  after  the end of each calendar
     quarter.  However, Rio Vista is prohibited from making any distributions to
     unitholders  if  it would cause an event of default, or an event of default
     is  existing,  under  any  obligation  of  Penn  Octane which Rio Vista has
     guaranteed.

     Cash  distributions  from  Rio  Vista  will be shared by the holders of the
     common  units  and  the General Partner Units as described in the Agreement
     based  on  a  formula  whereby  the  General  Partner  will  receive
     disproportionately  more  distributions  per  unit  than the holders of the
     common  units  as  annual  cash  distributions  exceed  certain milestones.


                                       17
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE I - COMMITMENTS AND CONTINGENCIES - CONTINUED

     PARTNERSHIP  TAX  TREATMENT

     Rio  Vista is not a taxable entity (see below) and incurs no federal income
     tax  liability.  Instead,  each unitholder of Rio Vista is required to take
     into  account  that  unitholder's  share of items of income, gain, loss and
     deduction  of  Rio  Vista in computing that unitholder's federal income tax
     liability,  even if no cash distributions are made to the unitholder by Rio
     Vista. Distributions by Rio Vista to a unitholder are generally not taxable
     unless  the  amount  of  cash  distributed is in excess of the unitholder's
     adjusted  basis  in  Rio  Vista.

     Section  7704  of  the  Internal Revenue Code (Code) provides that publicly
     traded  partnerships  shall,  as  a  general rule, be taxed as corporations
     despite the fact that they are not classified as corporations under Section
     7701  of  the  Code. Section 7704 of the Code provides an exception to this
     general  rule for a publicly traded partnership if 90% or more of its gross
     income  for  every taxable year consists of "qualifying income" (Qualifying
     Income  Exception).  For  purposes  of  this exception, "qualifying income"
     includes income and gains derived from the exploration, development, mining
     or  production,  processing, refining, transportation (including pipelines)
     or marketing of any mineral or natural resource. Other types of "qualifying
     income"  include interest (other than from a financial business or interest
     based  on  profits  of the borrower), dividends, real property rents, gains
     from  the  sale  of  real  property,  including  real  property held by one
     considered  to  be  a "dealer" in such property, and gains from the sale or
     other  disposition of capital assets held for the production of income that
     otherwise  constitutes  "qualifying  income".

     No  ruling  has been or will be sought from the IRS and the IRS has made no
     determination as to Rio Vista's classification as a partnership for federal
     income tax purposes or whether Rio Vista's operations generate a minimum of
     90%  of  "qualifying  income"  under  Section  7704  of  the  Code.

     If  Rio  Vista were classified as a corporation in any taxable year, either
     as  a  result  of  a  failure  to  meet  the Qualifying Income Exception or
     otherwise,  Rio  Vista's items of income, gain, loss and deduction would be
     reflected  only  on Rio Vista's tax return rather than being passed through
     to  Rio  Vista's  unitholders, and Rio Vista's net income would be taxed at
     corporate  rates.

     If Rio Vista were treated as a corporation for federal income tax purposes,
     Rio  Vista would pay tax on income at corporate rates, which is currently a
     maximum of 35%. Distributions to unitholders would generally be taxed again
     as  corporate  distributions,  and  no income, gains, losses, or deductions
     would  flow through to the unitholders. Because a tax would be imposed upon
     Rio  Vista  as  a  corporation,  the  cash  available  for  distribution to
     unitholders  would be substantially reduced and Rio Vista's ability to make
     minimum  quarterly distributions would be impaired. Consequently, treatment
     of  Rio  Vista as a corporation would result in a material reduction in the
     anticipated  cash  flow  and  after-tax return to unitholders and therefore
     would  likely result in a substantial reduction in the value of Rio Vista's
     common  units.

     Current  law  may  change  so  as  to  cause  Rio  Vista to be taxable as a
     corporation  for federal income tax purposes or otherwise subject Rio Vista
     to  entity-level taxation. The Agreement provides that, if a law is enacted
     or  existing  law  is  modified or interpreted in a manner that subject Rio
     Vista  to  taxation  as  a  corporation  or otherwise subjects Rio Vista to
     entity-level taxation for federal, state or local income tax purposes, then
     the  minimum  quarterly  distribution  amount  and  the target distribution
     amount  will  be  adjusted  to reflect the impact of that law on Rio Vista.


     CONCENTRATIONS  OF  CREDIT  RISK

     Financial  instruments  that potentially subject the Company to credit risk
     include  cash  balances  at banks which at times exceed the federal deposit
     insurance.


                                       18
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  J  -  CONTRACTS

     LPG  SALES  TO  PMI

     For  the  months of October 2004 through December 2004, the Company and PMI
     entered  into monthly agreements for the minimum sale of 11,050,000 gallons
     of  LPG  (Monthly 2004 Contracts). Prior to the Spin-Off, during the period
     April  1, 2004 through September 30, 2004, the Company entered into monthly
     agreements  for the minimum sale of 11,050,000 gallons - 13,000,000 gallons
     of  LPG.  Prior  to April 1, 2004, the Company and PMI had operated under a
     contract  which provided for minimum monthly volumes of 17,000,000 gallons.

     PMI  has  primarily  used  the  Matamoros  Terminal  Facility  to  load LPG
     purchased from the Company for distribution by truck in Mexico. The Company
     continues  to  use the Brownsville Terminal Facility in connection with LPG
     delivered  by  railcar  to  other  customers, storage and as an alternative
     terminal  in  the  event  the  Matamoros  Terminal Facility cannot be used.

     LPG  SUPPLY  AGREEMENTS

     The  Company's  current long-term supply agreements in effect as of October
     31,  2004  (Supply  Contracts)  require  the  Company  to  purchase minimum
     quantities of LPG totaling up to approximately 22,100,000 gallons per month
     although  the  Monthly  2004  Contracts  require  PMI  to  purchase  lesser
     quantities. The actual amounts supplied under the Supply Contracts averaged
     approximately  16,700,000  gallons  per  month  for  the three months ended
     October  31,  2004.

     In  addition  to  the  LPG costs charged by the Suppliers, the Company also
     incurs  additional  costs  to  deliver  LPG  to  the  Company's facilities.
     Furthermore,  the Company may incur significant additional costs associated
     with  the storage, disposal and/or changes in LPG prices resulting from the
     excess  of  LPG  purchased  under  the  Supply  Contracts over actual sales
     volumes  to  PMI. Under the terms of the Supply Contracts, the Company must
     provide letters of credit in amounts equal to the cost of the product to be
     purchased.  In addition, the cost of the product purchased is tied directly
     to overall market conditions. As a result, the Company's existing letter of
     credit  facility  may  not  be  adequate  to  meet  the  letter  of  credit
     requirements under the agreements with the Suppliers or other suppliers due
     to  increases in quantities of LPG purchased and/or to finance future price
     increases  of  LPG.


                                       19
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  K  -  REALIZATION  OF  ASSETS

     The  accompanying  consolidated  financial statements have been prepared in
     conformity  with  accounting  principles  generally  accepted in the United
     States of America, which contemplate continuation of the Company as a going
     concern. The Company has had an accumulated deficit since inception and has
     historically  had  a deficit in working capital. In addition, substantially
     all  of  the  Company's  assets  are  pledged or committed to be pledged as
     collateral  on existing debt in connection with the Restructured Notes, the
     $280,000 Notes and the RZB Credit Facility and therefore, the Company maybe
     unable  to  obtain additional financing collateralized by those assets. The
     RZB  Credit Facility may be insufficient to finance the Company's LPG sales
     and/or Fuel Products sales, assuming increases in product costs per gallon,
     or  volumetric growth in product sales, and maybe terminated by RZB with 90
     days  notice.

     Since  April 1, 2004, the Company has been operating under the Monthly 2004
     Contracts  with  PMI  (see  note J). The monthly volumes of LPG sold to PMI
     since  April  1,  2004 have been materially less than historical levels. As
     discussed  in note J, the Company has LPG supply contracts which require it
     to  purchase  volumes  of LPG materially in excess of monthly volumes under
     the  Monthly  2004 Contracts (Mismatched LPG). The volume of the Mismatched
     LPG was materially lower prior to April 1, 2004 than subsequent to April 1,
     2004,  and  the  Company was able to dispose of the Mismatched LPG prior to
     April  1,  2004  at  acceptable  margins.  The Company may incur additional
     reductions  of gross profits on sales of LPG in disposing of the Mismatched
     LPG if (i) the volume of LPG sold under the Monthly 2004 Contracts declines
     below  the  current  levels  of  approximately 11,000,000 gallons per month
     and/or  the  margins  are materially reduced and/or (ii) the Company cannot
     successfully  reduce  the  minimum  volumes  and/or purchase costs required
     under  the  LPG supply agreements. The Company may not have sufficient cash
     flow  or  available  credit  to  absorb  such  reductions  in gross profit.

     The  Company's  cash  flow has been reduced as a result of lower volumes of
     sales  to  PMI.  Additionally,  the  Company will also incur the additional
     public  company  compliance and income tax preparation costs for Rio Vista.
     As  a  result,  the  Company  may  not  have  sufficient  cash flow to make
     distributions  to  Rio  Vista's  unitholders  and  to  pay  Penn  Octane's
     obligations when due. In the event Penn Octane does not pay its obligations
     when due, Rio Vista's guarantees to Penn Octane and Penn Octane's creditors
     may  be  triggered.  Accordingly,  Rio  Vista  may  be required to pay such
     obligations  of  Penn  Octane  to  avoid  foreclosure of its assets by Penn
     Octane's  creditors.  If  the  Company's  revenues  and  other  sources  of
     liquidity  are not adequate to pay Penn Octane's obligations, Rio Vista may
     be  required  to  reduce  or  eliminate  the  quarterly  distributions  to
     unitholders  and  Penn  Octane  or  Rio  Vista  may  be  required  to raise
     additional  funds to avoid foreclosure. There can be no assurance that such
     additional  funding  will  be  available on terms attractive to either Penn
     Octane  or  Rio  Vista  or  available  at  all.

     In  view  of  the  matters  described  in  the  preceding  paragraphs,
     recoverability  of  the  recorded  asset  amounts shown in the accompanying
     consolidated  balance sheet is dependent upon the ability of the Company to
     generate  sufficient  cash  flow  through  operations or additional debt or
     equity  financing  to  pay  its  liabilities  and obligations when due. The
     ability  for the Company to generate sufficient cash flows is significantly
     dependent  on  the continued sale of LPG to PMI at acceptable monthly sales
     volumes  and  margins,  the  success  of  the  Fuel  Sales Business and the
     adequacy of the RZB Credit Facility to finance such sales. The consolidated
     financial  statements  do  not  include  any  adjustments  related  to  the
     recoverability  and classification of recorded asset amounts or amounts and
     classification of liabilities that might be necessary should the Company be
     unable  to  continue  in  existence.


                                       20
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE K - REALIZATION OF ASSETS - CONTINUED

     To  provide  the Company with the ability it believes necessary to continue
     in  existence,  management is negotiating with PMI to increase LPG sales at
     acceptable  monthly  volumes and margins. In addition, management is taking
     steps  to  (i)  expand  its Fuel Sales Business, (ii) further diversify its
     operations  to reduce dependency on sales of LPG, (iii) increase the amount
     of  financing  for  its  products and operations, and (iv) raise additional
     debt  and/or  equity  capital.




                                       21
<PAGE>
ITEM  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

     PENN  OCTANE  CORPORATION  AND ITS CONSOLIDATED SUBSIDIARIES WHICH INCLUDES
RIO  VISTA ENERGY PARTNERS L.P. AND ITS SUBSIDIARIES ARE HEREINAFTER REFERRED TO
AS  THE  "COMPANY".

     The  following  discussion  of  the  Company's  results  of  operations and
liquidity  and  capital  resources  should  be  read  in  conjunction  with  the
consolidated  financial  statements  of  the  Company  and related notes thereto
appearing  elsewhere  herein.  References to specific years preceded by "fiscal"
(e.g.  fiscal  2004)  refer  to  the  Company's  fiscal  year  ended  July  31.

FORWARD-LOOKING  STATEMENTS

The  statements contained in this Quarterly Report that are not historical facts
are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
Securities  Act  of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements may be identified by the use of forward-looking
terms such as "believes," "expects," "may," "will", "should" or "anticipates" or
by discussions of strategy that inherently involve risks and uncertainties. From
time  to  time,  the  Company  has  made or may make forward-looking statements,
orally  or  in  writing.  These  forward-looking  statements  include statements
regarding  anticipated  future  revenues, sales, LPG supply, operations, demand,
competition, capital expenditures, the deregulation of the LPG market in Mexico,
the  operations  of  the US - Mexico Pipelines, the Matamoros Terminal Facility,
the  remaining  Saltillo  Terminal assets, other upgrades to facilities, foreign
ownership  of  LPG  operations,  short-term obligations and credit arrangements,
Fuel  Sales  Business,  the Spin-Off, cash distributions, "Qualified Income" and
other  statements  regarding  matters that are not historical facts, and involve
predictions  which  are based upon a number of future conditions that ultimately
may  prove  to  be inaccurate. Actual results, performance or achievements could
differ  materially  from  the  results  expressed  in,  or  implied  by,  these
forward-looking  statements.  Factors  that  may  cause  or  contribute  to such
differences  include  those  discussed  under  "Risk  Factors" and "Management's
Discussion  and  Analysis  of Financial Condition and Results of Operations," as
well  as those discussed elsewhere in this Report. We caution you, however, that
the  following  list  of  factors  may not include all material risks facing the
Company.

RISK  FACTORS

     Business  Factors.  The  expiration  of the LPG sales contract with PMI and
the resulting lower LPG sales volumes may adversely affect the Company's results
of  operations.  The  Company  has only one customer for LPG, Rio Vista, and Rio
Vista  has  only one customer for LPG in Mexico, PMI.  The Company just recently
commenced  its  Fuel  Sales  Business.  The Company cannot be sure that PMI will
continue  to  purchase  LPG  from  Rio Vista or in quantities or prices that are
profitable.  There  are a limited number of suppliers of LPG that connect to Rio
Vista's  pipelines  and  a  limited  supply  of  LPG.  The  Company may lose its
competitive  advantage  when  the  Company's  Seadrift pipeline lease expires in
2013.  The  Company  may be unable to successfully develop additional sources of
revenue  in  order  to  reduce its dependence on Rio Vista.  The Company may not
have  sufficient  cash to meet its obligations.  All of the Company's assets are
pledged as collateral for existing debt, and the Company therefore may be unable
to obtain additional financing collateralized by such assets.  The Company is at
risk  of  economic  loss due to fixed margin contracts.  If the Company does not
have  sufficient  capital  resources  for  acquisitions  or  opportunities  for
expansion, the Company's growth will be limited.   The Company's ability to grow
the Fuel Sales Business is largely dependent on available financing which may be
limited.  Future  acquisitions  and  expansions  may  not  be  successful,  may
substantially  increase  the  Company's indebtedness and contingent liabilities,
and  may  create  integration  difficulties.  The  Company's  business  would be
adversely  affected  if  operations  at Rio Vista's transportation, terminal and
distribution  facilities were interrupted.  The Company's business would also be
adversely  affected  if the operations of the Company's or Rio Vista's customers
and  suppliers  were  interrupted.

     Competitive  Factors.  The energy industry is highly competitive.  There is
competition  within  the  industries and also with other industries in supplying
the energy and fuel needs of the industry and individual consumers.  The Company
competes  with  other  firms in the sale or purchase of LPG and Fuel Products as
well  as  the transportation of these products in the US and Mexican markets and
employs  all  methods  of  competition which are lawful and appropriate for such
purposes.  A  key  component of the Company's competitive position, particularly
given  the  commodity-based  nature  of  many of its products, is its ability to
manage  its expenses successfully, which requires continuous management focus on
reducing  unit  costs  and improving efficiency and its ability to secure unique
opportunities  for  the  purchase, sale and/or delivery methods of its products.


                                       22
<PAGE>
     International  Factors.  Mexican  economic, political and social conditions
may  change  and  adversely affect Rio Vista's operations.  Rio Vista may not be
able to continue operations in Mexico if Mexico restricts the existing ownership
structure  of  its  Mexican  operations,  requiring  Rio  Vista  to increase its
reliance on Mexican nationals to conduct its business.  The LPG market in Mexico
is  undergoing deregulation, the results of which may hinder Rio Vista's ability
to  negotiate acceptable contracts with distributors.  Rio Vista's contracts and
Mexican business operations are subject to volatility in currency exchange rates
which  could  negatively  impact  its  earnings.

     Political  Factors.  The  operations  and  earnings  of the Company and its
consolidated affiliate in the US and Mexico have been, and may in the future be,
affected  from  time  to  time in varying degree by political instability and by
other  political  developments  and  laws  and  regulations,  such  as  forced
divestiture  of  assets; restrictions on production, imports and exports; war or
other  international  conflicts;  civil  unrest and local security concerns that
threaten  the  safe  operation  of the Company's facilities; price controls; tax
increases and retroactive tax claims; expropriation of property; cancellation of
contract  rights;  and  environmental  regulations.  Both the likelihood of such
occurrences  and  their overall effect upon the Company vary greatly and are not
predictable.

     Industry  and Economic Factors.  The operations and earnings of the Company
and  its  consolidated  affiliate  throughout  the US and Mexico are affected by
local,  regional  and  global events or conditions that affect supply and demand
for  the  Company's  products.  These  events  or  conditions  are generally not
predictable  and  include, among other things, general economic growth rates and
the occurrence of economic recessions; the development of new supply sources for
its  products;  supply  disruptions;  weather,  including seasonal patterns that
affect  energy  demand  and  severe  weather events that can disrupt operations;
technological  advances, including advances in exploration, production, refining
and  advances  in  technology relating to energy usage; changes in demographics,
including  population  growth  rates  and  consumer  preferences;  and  the
competitiveness  of  alternative  hydrocarbon or other energy sources or product
substitutes.

     Project Acquisition Factors.  In additional to the factors cited above, the
advancement,  cost  and  results  of  particular projects sought by the Company,
including  projects  which  do  not  specifically  fall  within the areas of the
Company's current lines of businesses will depend on the outcome of negotiations
for  such  acquisitions;  the ability of the Company's management to manage such
businesses;  the  ability  of  the  Company  to  obtain  financing  for  such
acquisitions;  changes  in  operating conditions or costs; and the occurrence of
unforeseen  technical  difficulties.

     Market  Risk  Factors.  See  "Notes  to  Consolidated  Financial Statements
(Unaudited),"  "Management's  Discussion and Analysis of Financial Condition and
Results  of  Operations"  and  "Quantitative  and  Qualitative Disclosures About
Market  Risk"  in  this  report  for  discussion  of the impact of market risks,
inflation  and  other  uncertainties.

     Projections,  estimates  and  descriptions  of  the  Company's  plans  and
objectives included  or incorporated in "Management's Discussion and Analysis of
Financial  Condition and Results of Operations" and elsewhere in this report are
forward-looking  statements.  Actual  future results could differ materially due
to,  among  other  things,  the  factors  discussed  above and elsewhere in this
report.


OVERVIEW

     The  Company  has  been principally engaged in the purchase, transportation
and  sale of LPG for distribution into northeast Mexico.  In connection with the
Company's  desire  to reduce quantities of inventory, the Company also sells LPG
to  U.S.  and  Canadian  customers.

     During  the three months ended October 31, 2004, the Company derived 75% of
its LPG revenues and 51% of total revenues from sales of LPG to PMI, its primary
customer.

     The  Company  provides  products  and  services  through  a  combination of
fixed-margin  and  fixed-price contracts.  Costs included in cost of goods sold,
other  than  the  purchase  price  of LPG, may affect actual profits from sales,
including  costs  relating  to  transportation, storage, leases and maintenance.
Mismatches in volumes of LPG purchased from suppliers and volumes sold to PMI or
others  could  result  in  gains  during  periods of rising LPG prices or losses
during  periods  of  declining  LPG prices as a result of holding inventories or
disposing  of  excess  inventories.


                                       23
<PAGE>
     During  June  2004,  the  Company  began  the  Fuel Sales Business with the
ability  to  access certain pipeline and terminal systems located in California,
Arizona, Nevada and Texas.   Fuel Sales approximated $21.6 million for the three
months  ended  October  31,  2004  which  represents  approximately 33% of total
revenues.

     On  September  30,  2004,  Penn  Octane  completed a series of transactions
involving  (i)  the  transfer  of  substantially  all  of its owned pipeline and
terminal  assets in Brownsville and Matamoros to RVOP (ii) transferred its 99.9%
interest  in  RVOP  to Rio Vista and (iii)  the Spin-Off, resulting in Rio Vista
becoming  a  separate  public  company.  The Common Units represented 98% of Rio
Vista's outstanding units.  The remaining 2% of such units, which is the general
partner  interest,  is  owned  and  controlled  by  the General Partner, and the
General  Partner  will  is  responsible  for  the  management  of  Rio  Vista.
Accordingly  the Company has control of Rio Vista by virtue of its ownership and
related  voting  control  of  the  General  Partner  and therefore, Rio Vista is
consolidated  with  the  Company  and  the interests of the limited partners are
classified  as  minority  interests  in  the  Company's  consolidated  financial
statements.  Subsequent to the Spin-Off, Rio Vista sells LPG directly to PMI and
purchases LPG from Penn Octane under a long-term supply agreement.  The purchase
price  of  the LPG from Penn Octane is determined based on the cost of LPG under
Penn  Octane's  LPG  supply  agreements  with  its suppliers, other direct costs
related to PMI sales and a formula that takes into consideration operating costs
of  Penn  Octane  and  Rio  Vista.

     Penn  Octane  continues to sell LPG to PMI through its supply contract with
Rio Vista, and it shifted certain costs of operations related to the Brownsville
and  Matamoros  terminals and pipelines, and certain administrative costs to Rio
Vista.  In  addition,  it  continues  to  manage  Rio  Vista through the General
Partner and to explore opportunities to acquire and grow other lines of business
such  as the Fuel Sales Business described below.  Penn Octane will benefit from
the  Spin-Off indirectly based on the success of Rio Vista through Penn Octane's
ownership  of  the  General  Partner.  As  a  limited  partnership, Rio Vista is
expected  to  have  the  following  benefits  not  available  to  Penn  Octane.

     -    Tax  Efficiency. As a limited partnership, Rio Vista is expected to be
          able  to  operate  in  a  more  tax  efficient  manner  by eliminating
          corporate  federal  income taxes on a portion of future taxable income
          which would have been fully subject to corporate federal income taxes.

     -    Raising  Capital.  As  a limited partnership, Rio Vista is expected to
          have  an  improved  ability  to  raise  capital  for  expansion.

     -    Acquisitions.  Due  to  industry  preference  and familiarity with the
          limited  partnership  structure,  Rio  Vista  is  expected  to  have a
          competitive  advantage over a company taxed as a corporation in making
          acquisitions of assets that generate "qualifying income," as this term
          is  defined  in  Section  7704  of  the  Internal  Revenue  Code.

     -    Recognition.  As  a  limited partnership, Penn Octane anticipates that
          both Penn Octane and Rio Vista will receive increased analyst coverage
          and  acceptance  in  the  marketplace.


LPG  SALES

     The  following  table  shows  the  Company's  volume  sold and delivered in
gallons  and average sales price for the three months ended October 31, 2004 and
2003;

<TABLE>
<CAPTION>
                                            2004        2003
                                            -----       -----
<S>                                         <C>         <C>
Volume Sold

    LPG (millions of gallons) - PMI          35.1        48.6
    LPG (millions of gallons) - Other        13.0        14.3
                                            -----       -----
                                             48.1        62.9
                                            =====       =====

Average sales price

    LPG (per gallon) - PMI                  $0.94       $0.64
    LPG (per gallon) - Other                 0.83        0.53
</TABLE>


                                       24
<PAGE>
RECENT  TRENDS.  Since  April  2004,  PMI  has  contracted  with the Company for
volumes  which  are significantly lower than amounts purchased by PMI in similar
periods  during  previous years.  See Liquidity and Capital Resources - Sales to
PMI  below.  The  Company  believes  that the reduction of volume commitments is
based  on  additional  LPG  production  by PEMEX being generated from the Burgos
Basin  field  in  Reynosa, Mexico, an area within the proximity of the Company's
Mexican  terminal  facilities.  Although  the  Company is not aware of the total
amount  of  LPG  actually  being  produced by PEMEX from the Burgos Basin, it is
aware  that  PEMEX has constructed and is operating two new cryogenic facilities
at  the Burgos Basin which it believes may have a capacity of producing up to 12
million  gallons  of  LPG  per  month.  The  Company also believes that PEMEX is
intending to install two additional cryogenic facilities, with similar capacity,
to be operational in early 2006.  The Company is also not aware of  the capacity
at  which the current cryogenic facilities are being operated.  Furthermore, the
Company  is  not aware of the actual gas reserves of the Burgos Basin or the gas
quality,  each  of which could significantly impact LPG production amounts.  The
Company  still believes that its LPG supplies are competitive with the necessary
US  imports of LPG by PEMEX and that the LPG volumes which are actually produced
from  the  Burgos Basin would not eliminate the need for US LPG imports by PEMEX
and  that  LPG volumes produced from the Burgos Basin would be more economically
suited  for  distribution  to  points further south in Mexico rather than in the
Company's  strategic  zone.

     During  June 2004, Valero L.P., a U.S. limited partnership ("Valero") began
operation  of  a newly constructed LPG terminal facility in Nuevo Laredo, Mexico
and  a  newly  constructed  pipeline  connecting  the terminal facility in Nuevo
Laredo,  Mexico to existing pipelines in Juarez, Texas which connect directly to
Valero  Energy  Corporation's  Corpus  Christi,  Texas  and  Three Rivers, Texas
refineries.  Valero  has  contracted  with  PMI  under  a five year agreement to
deliver  approximately  6.3  million  gallons (of which 3.2 million gallons were
previously  delivered  by  truck  from  Three  Rivers,  Texas) of LPG per month.
Valero  has  also  indicated  that  it intends to increase capacity of its Nuevo
Laredo terminal to 10.1 million gallons per month.  The Company believes that if
Valero  intends  to  maximize  capacity  of  these  facilities, then it would be
required to obtain additional LPG supplies from major LPG hubs located in Corpus
Christi  and  Mont  Belvieu,  Texas.  Accordingly, the Company believes that any
additional  supplies  over  amounts  currently  available  to the Mexican market
through  Valero's  system  could  be more expensive than the Company's currently
available  supplies  and  delivery  systems.

     During  2004, a pipeline operated by El Paso Energy between Corpus Christi,
Texas  and  Hidalgo County, Texas was closed.  Historically these facilities had
supplied  approximately  5.0  million  gallons of LPG per month to the Company's
strategic  zone.  The  Company  is  not  aware  of  any  future  plans for these
facilities.

     During  2003,  PMI  constructed  and began operations of a refined products
cross  border  pipeline  connecting  a  pipeline  running from PEMEX's Cadereyta
Refinery  in  Monterey, Mexico to terminal facilities operated by Transmontagne,
Inc.,  in  Brownsville,  Texas.   Transmontagne  is  a  U.S.  corporation.  The
pipeline  crosses  the  US-Mexico  border  near  the  proximity of the Company's
pipelines.  In  connection  with  the  construction  of  the  pipeline,  PMI was
required  to  obtain  an easement from the Company for an approximate 21.67 acre
portion  of  the  pipeline.  Under  the terms of the easement, PMI has warranted
that  it  will  not  transport  LPG  through  October  15,  2017.

RESULTS  OF  OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 2004 COMPARED WITH THREE MONTHS ENDED OCTOBER 31,
2003

     Summary.  The  accompanying financial statements for the three months ended
October  31,  2004  reflect  a  net  loss  of $(235,080) [$(469,177) before loss
allocable  to  minority  interest  in  Rio Vista] compared to a net loss for the
three  months ended October 31, 2003 of $(158,516). Included in the net loss for
the  quarter  ended  October 31, 2004 were nonrecurring expenses associated with
the  Spin-Off  of  Rio  Vista  of  approximately  $550,000, non-cash stock based
compensation  of  approximately  $385,000  and  non-cash  depreciation  and
amortization  of  approximately  $242,000.  Included in net loss for the quarter
ended  October  31,  2003  were approximately $425,000 of non-recurring expenses
associated  with  the Spin-Off of Rio Vista, a loss on the sale of CNG assets of
$500,000  and  non-cash depreciation and amortization of approximately $222,000.

     Revenues.  Revenues for the three months ended October 31, 2004, were $65.5
million compared with $38.5 million for the three months ended October 31, 2003,
an  increase  of  $27.0  million  or 70.0%.  Of this increase, $14.9 million was
attributable  to increases in average sales prices of LPG sold to PMI during the
three  months ended October 31, 2004, $4.3 million was attributable to increased
average  sales  prices  of LPG sold to customers other than PMI during the three
months ended October 31, 2004 and $21.6 million was attributable to new revenues
generated  from  the  Company's  Fuel  Sales Business which commenced during the
fiscal 2004, partially offset by $12.8 million attributable to decreased volumes
of  LPG  sold  to  PMI  during  the three months ended October 31, 2004 and $1.1
million  attributable  to  decreased volumes of LPG sold to customers other than
PMI  during  the  three  months  ended  October  31,  2004.


                                       25
<PAGE>
     Cost  of goods sold.  Cost of goods sold for the three months ended October
31,  2004  was  $63.5  million  compared with $36.5 million for the three months
ended  October  31,  2003,  an  increase  of  $27.0  million  or 74.1%.  Of this
increase, $14.6 million was attributable to increases in the cost of LPG sold to
PMI  during  the  three  months  ended  October  31,  2004,  $4.1  million  was
attributable  to  increased costs of LPG sold to customers other than PMI during
the  three  months  ended October 31, 2004 and $21.1 million was attributable to
new  costs  of  goods  sold arising from the Company's Fuel Sales Business which
commenced  operations  during  fiscal  2004,  partially  offset  by $1.2 million
attributable  to decreased volume of LPG sold to customers other than PMI during
the  three  months  ended  October  31,  2004  and $11.6 million attributable to
decreased  volume  of  LPG sold to PMI during the three months ended October 31,
2004.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative expenses were $2.0 million for the three months ended October 31,
2004, compared with $1.5 million for the three months ended October 31, 2003, an
increase  of  $487,026  or  31.6%.   The  increase during the three months ended
October  31,  2004,  was  principally  due  to  increases in non-cash salary and
payroll  related  fees  of $384,574 associated with the issuance of warrants and
options,  alternative  minimum  tax  and state franchise tax associated with the
Spin-Off  of  approximately $238,000 and other taxes associated with its Mexican
subsidiaries,  partially offset by reduced professional fees associated with the
Spin-Off.

     Loss  on  sale  of  CNG  assets.  During the three months ended October 31,
2003, the Company recorded a loss on the sale of CNG assets of $500,000.

     Other  income  (expense).  Other  income  (expense)  was $(113,666) for the
three  months  ended  October  31,  2004, compared with $(160,247) for the three
months  ended October 31, 2003.  The decrease in other expense was due primarily
to  minority  interest  income of $234,097 during the three months ended October
31,  2004,  partially  offset by reduced income related to the cancellation of a
contract of $210,000 during the three months ended October 31, 2003.

     Income  tax.   Due  to the availability of net operating loss carryforwards
(approximately  $4.7  million  at July 31, 2004), the Company did not incur U.S.
income tax expense during the three months ended October 31, 2004.   The taxable
income  associated  with  the Spin-Off was included in the Company's October 31,
2004  calculation  of  U.S.  income tax expense.  However, the Company did incur
alternative  minimum income tax expense of $86,396 during the three months ended
October  31,  2004.  The Mexican subsidiaries file their income tax returns on a
calendar  year  basis.  The  Company can receive a credit against any future tax
payments due to the extent of any prior alternative minimum taxes paid.

LIQUIDITY  AND  CAPITAL  RESOURCES

     General.  The  Company  has  had an accumulated deficit since its inception
and  has  historically  had  a  deficit  in  working  capital.  In  addition,
substantially all of the Company's assets are pledged or committed to be pledged
as  collateral  on  existing debt in connection with the Restructured Notes, the
$280,000  Notes  and  the  RZB  Credit Facility.   The RZB Credit Facility is an
uncommitted  facility  which  is  authorized  every  ninety days and is reviewed
annually at March 31.   The Company may need to increase its credit facility for
increases  in  quantities  of  LPG and Fuel Products purchased and/or to finance
future price increases of LPG and Fuel Products.  The Company depends heavily on
sales  to  one  major  customer,  PMI.  Since April 1, 2004 the Company has been
operating  on  month-to-month  contracts with PMI (see below).     The Company's
sources  of  liquidity  and capital resources historically have been provided by
sales  of  LPG,  proceeds  from  the  issuance of short-term and long-term debt,
revolving  credit  facilities  and  credit  arrangements,  sale  or  issuance of
preferred  and  common  stock  of  the Company and proceeds from the exercise of
warrants to purchase shares of the Company's common stock.

     Penn  Octane  has recently completed the transfer of a major portion of its
assets  to  Rio  Vista  and the Spin-Off of Rio Vista to its stockholders.  As a
result  of  the Spin-Off, the Company's stockholders' equity has been materially
reduced  by  the  amount  of the Spin-Off and a portion of Penn Octane's current
cash  flow  from  operations  has  shifted  to  Rio  Vista as of the date of the
Spin-Off.   Therefore,  Penn  Octane's remaining cash flow may not be sufficient
to allow Penn Octane to pay its liabilities and obligations when due.  Rio Vista
is  liable  as  guarantor  on Penn Octane's collateralized debt discussed in the
preceding  paragraph  and  continues  to pledge all of its assets as collateral.
Penn Octane does not believe that it has a federal income tax in connection with
the  Spin-Off  due  to utilization of existing net operating loss carryforwards.
The  Company  estimates  alternative  minimum  tax  and  state  franchise tax of
approximately  $238,000.  However,  the Internal Revenue Service (the "IRS") may
review  Penn  Octane's  federal  income tax returns and challenge positions that
Penn  Octane  may  take  when  preparing  those  income  tax  returns, including
positions  that it may take with respect to the Spin-Off.  If the IRS challenges


                                       26
<PAGE>
any of the Company's positions, Penn Octane will vigorously defend the positions
that  it  takes in preparing its federal income tax, including positions that it
may  take  with respect to the Spin-Off.    In addition, Rio Vista has agreed to
indemnify  Penn Octane for a period of three years from the fiscal year end that
includes  the  date  of  the  Spin-Off  for  any  federal income tax liabilities
resulting  from  the  Spin-Off  in excess of $2.5 million (see  Spin-Off below).

     The  volume  of LPG sold to PMI has been materially reduced over historical
levels  resulting  in  a  reduction  of  the Company's cash flow (see discussion
below).  In  addition,  Rio  Vista  intends to make distributions on a quarterly
basis  to  its  unitholders  beginning  in  February  2005.  Initially,  those
distributions  are  expected  to  be  approximately $500,000 per quarter.  Also,
during  the  three  months ended October 31, 2004, professional fees and related
costs  associated with the Spin-Off totaled approximately $545,788.  The Company
expects to eliminate these costs in future periods.  However, as a result of the
Spin-Off,  the  Company  estimates  that  consolidated  operating  expenses will
increase  by approximately $450,000 on an annual basis as a result of additional
public company compliance and income tax preparation costs related to Rio Vista.

     As a result of the reduced cash flow and the intention of Rio Vista to make
distributions,  there  may  not  be  sufficient  cash  flow  to  make  such
distributions  and to pay Penn Octane's obligations when due.  In the event Penn
Octane  is  unable  to pay its liabilities and obligations when due, Rio Vista's
payment  obligations  may  be  triggered under its guarantees to Penn Octane and
Penn  Octane's  creditors  and Rio Vista may be required to pay such liabilities
and  obligations  of  Penn  Octane  to  avoid  foreclosure of its assets by Penn
Octane's creditors.  Although Rio Vista is not required to do so, if Penn Octane
is  unable  to  pay its obligations when they become due, Rio Vista may lend the
necessary  funds  to  Penn  Octane.  Conversely,  if Rio Vista does not have the
funds  necessary  to  make its distributions, to the extent that Penn Octane has
sufficient  cash to do so, it intends to lend such amounts to Rio Vista.  If Rio
Vista's  revenues  and  other  sources  of  liquidity  after  its  quarterly
distributions  are  not  adequate  to  satisfy  such payment obligations of Penn
Octane and/or Penn Octane does not have the necessary cash to loan to Rio Vista,
Rio  Vista may be required to reduce or eliminate the quarterly distributions to
unitholders  and  Penn  Octane  or Rio Vista may be required to raise additional
funds  to  avoid  foreclosure.  However,  there  can  be  no assurance that such
additional  funding  will be available on terms attractive to either Penn Octane
or  Rio  Vista  or  available  at  all.

     In  the event Penn Octane is required to raise additional funds, management
does not believe that it would be able to obtain such financing from traditional
commercial  lenders.  Rather,  Penn Octane would likely have to conduct sales of
its  equity  and/or  debt  securities  through  public  or  private  financings,
collaborative  relationships  or  other  arrangements.

     If  additional  amounts  cannot  be  raised  and  Penn  Octane is unable to
restructure  its  obligations,  material  adverse  consequences to its business,
financial condition, results of operations would likely occur.  Further, if Penn
Octane  is  determined to have a federal income tax liability as a result of the
Spin-Off  and  if  Penn  Octane is  unable to pay such liabilities, the Internal
Revenue  Service may assert that the Penn Octane stockholders who receive common
units in the Spin-Off are liable for unpaid federal income taxes of Penn Octane,
including  interest  and  any penalties, up to the value of the Rio Vista Common
Units  received  by  each  stockholder.

     The  following  summary  table  reflects  comparative  cash flows for three
months ended October 31, 2004, and 2003. All information is in thousands.

<TABLE>
<CAPTION>
                                                         2004          2003
                                                     ------------  ------------
<S>                                                  <C>           <C>
Net cash used in operating activities . . . . . . .  $(    1,235)  $(      559)
Net cash provided by (used in) investing activities            1    (       92)
Net cash provided by financing activities . . . . .        1,361           672
                                                     ------------  ------------
Net increase in cash. . . . . . . . . . . . . . . .  $       127   $        21
                                                     ============  ============
</TABLE>


                                       27
<PAGE>
     Sales  to  PMI.  On  March 31, 2004, the Company's sales agreement with PMI
("Contract")  expired.  During  the  months of April 2004 through December 2004,
the  Company  and  PMI  have entered into monthly agreements for the sale of LPG
(the  "Monthly  2004 Contracts").  Under the terms of the Monthly 2004 Contracts
for  April, May and June, the minimum amount of LPG to be purchased per month by
PMI was 13.0 million gallons.  Under the terms of the Monthly 2004 Contracts for
July,  August and September, the minimum amount of LPG to be purchased per month
by  PMI was 11.7 million gallons.  Under the terms of the Monthly 2004 Contracts
for  October,  November  and December, the minimum amount of LPG to be purchased
per  month by PMI is 11.1 million gallons.  During the months of April 2004, May
2004,  June  2004,  July  2004,  August  2004,  September 2004, October 2004 and
November  2004, the actual amount of LPG purchased by PMI was approximately 13.1
million  gallons,  13.4  million  gallons,  13.8  million  gallons, 12.3 million
gallons,  12.4  million  gallons, 11.8 million gallons, 10.9 million gallons and
12.4 million gallons, respectively.  The expiration of the Contract has caused a
reduction  in  the  Company's  gross revenue due to the reduction in LPG volumes
sold  to  PMI from approximately 17 million gallons per month under the Contract
to  approximately 11 million gallons per month under the Monthly 2004 Contracts.

     The  Company continues to negotiate for the extension and/or renewal of the
LPG  contract  with  PMI.  There  is no assurance that the LPG contract with PMI
will  be extended and/or renewed, and if so, that the terms will be more or less
favorable  than  those  of the Monthly 2004 Contracts.  Until the terms of a new
long-term  contract  are  reached,  the Company expects to enter into additional
monthly  agreements  similar  to  the  Monthly  2004  Contracts.

     The  Company's  management  believes  that  PMI's  reduction  of  volume
commitments  for  April  2004  through  November 2004 is based on additional LPG
production  by  PEMEX  being  generated  from the Burgos Basin field in Reynosa,
Mexico,  an  area  within  the  proximity  of  the  Company's  Mexican  terminal
facilities.  In  the  event  the  volume  of  LPG  purchased  by  PMI  under the
month-to-month  agreements  declines below the current level of approximately 11
million  gallons,  assuming  margins  remain unchanged, the Company could suffer
material  adverse  consequences to its business, financial condition and results
of  operations  to  the  extent  that the Company is unable to obtain additional
favorable  price  and/or volume concessions from LPG suppliers.   The Company is
attempting  to  obtain  additional  price and/or volume concessions from its LPG
suppliers  to lower costs.  If the Company is unsuccessful in lowering its costs
to  offset  a  decline  in volumes below 11 million gallons per month and/or the
Company  is  forced  to  accept  similar  or  lower prices for sales to PMI, the
results  of  operations  of the Company may be adversely affected.   The Company
may  not have sufficient cash flow or available credit to absorb such reductions
in  gross  profit.

     PMI  has  primarily  used  the  Matamoros  Terminal  Facility  to  load LPG
purchased  from  the  Company  for distribution by truck in Mexico.  The Company
continues  to  use  the  Brownsville  Terminal  Facility  in connection with LPG
delivered  by railcar to other customers, storage and as an alternative terminal
in  the  event  the  Matamoros  Terminal  Facility  cannot  be  used.

     Revenues from PMI totaled approximately $33.1 million and $30.9 million for
the  three  months  ended  October 31, 2004 and 2003, respectively, representing
approximately  50.5%  and  80.2% of total revenues for the periods and 75.4% and
80.2%  of  the  Company's  total  LPG  revenues  for  the  periods.

     Seasonality.  The  Company's  gross  profit is dependent on sales volume of
LPG  to  PMI, which fluctuates in part based on the seasons.  The demand for LPG
is  strongest  during  the  winter  season.

     LPG  Supply  Agreements.  Effective  October 1, 1999, the Company and Exxon
entered  into  a  ten  year  LPG  supply contract, as amended (the "Exxon Supply
Contract"),  whereby  Exxon  has  agreed to supply and the Company has agreed to
take, 100% of Exxon's owned or controlled volume of propane and butane available
at  Exxon's  King  Ranch  Gas Plant (the "Plant") up to 13.9 million gallons per
month  blended  in  accordance  with  required  specifications  (the  "Plant
Commitment").  For  the  three  months  ended  October 31, 2004, under the Exxon
Supply  Contract,  Exxon  has  supplied an average of approximately 11.0 million
gallons  of  LPG  per  month.   The purchase price is indexed to variable posted
prices.


                                       28
<PAGE>
     In  addition,  under the terms of the Exxon Supply Contract, Exxon made its
Corpus  Christi  Pipeline  (the  "ECCPL")  operational  in  September 2000.  The
ability  to utilize the ECCPL allows the Company to acquire an additional supply
of  propane from other propane suppliers located near Corpus Christi, Texas (the
"Additional  Propane  Supply"),  and  bring the Additional Propane Supply to the
Plant  (the "ECCPL Supply") for blending to the required specifications and then
delivered  into  the  Leased  Pipeline.  The Company agreed to flow a minimum of
122.0  million  gallons  per year of Additional Propane Supply through the ECCPL
until  December  2005.  The  Company is required to pay minimum utilization fees
associated  with  the  use  of  the  ECCPL until  December 2005.  Thereafter the
utilization fees will be based on the actual utilization of the ECCPL.

     In  March  2000,  the Company and Koch Hydrocarbon Company ("Koch") entered
into a three year supply agreement (the "Koch Supply Contract") whereby Koch has
agreed  to  supply  and the Company has agreed to take, a monthly average of 8.2
million  gallons (the "Koch Supply") of propane beginning April 1, 2000, subject
to  the  actual  amounts of propane purchased by Koch from the refinery owned by
its  affiliate,  Koch  Petroleum Group, L.P.  In March 2003 the Company extended
the  Koch  Supply  Contract  for  an additional year pursuant to the Koch Supply
Contract  which  provides  for  automatic  annual  renewals unless terminated in
writing  by  either  party.   During December 2003, the Company and Koch entered
into  a  new  three  year  supply agreement.  The terms of the new agreement are
similar to the agreement previously in effect between the parties.

     For  the  three  months  ended  October  31,  2004,  under  the Koch Supply
Contract,  Koch  has supplied an average of approximately 5.7 million gallons of
propane  per  month.  The  purchase  price is indexed to variable posted prices.

     The  Company is currently purchasing LPG from the above-mentioned suppliers
(the  "Suppliers").  The  Company's  aggregate  costs per gallon to purchase LPG
(less  any  applicable  adjustments)  are  below  the aggregate sales prices per
gallon  of  LPG  sold  to  its  customers.

     The  Company's  current long-term supply agreements in effect as of October
31, 2004 ("Supply Contracts") require the Company to purchase minimum quantities
of  LPG totaling up to approximately 22.1 million gallons per month although the
Monthly  2004  Contracts  require PMI to purchase lesser quantities.  The actual
amounts  supplied  under  Supply  Contracts  averaged approximately 16.7 million
gallons per month for the three months ended October 31, 2004.

     In  addition  to  the  LPG costs charged by the Suppliers, the Company also
incurs  additional  costs  to  deliver  the  LPG  to  the  Company's facilities.
Furthermore,  the Company may incur significant additional costs associated with
the storage, disposal and/or changes in LPG prices resulting from the excess LPG
purchased  under  the  Supply Contracts over actual sales volumes to PMI.  Under
the terms of the Supply Contracts, the Company must provide letters of credit in
amounts equal to the cost of the product to be purchased.  In addition, the cost
of  the  product  purchased is tied directly to overall market conditions.  As a
result,  the Company's existing letter of credit facility may not be adequate to
meet  the  letter of credit requirements under the agreements with the Suppliers
or  other  suppliers  due  to increases in quantities of LPG purchased and/or to
finance  future  price  increases  of  LPG.

     Credit  Arrangements.  As  of  October  31,  2004,  Penn Octane had a $15.0
million  credit  facility (increased to $20.0 million on November 12, 2004) with
RZB Finance LLC ("RZB") for demand loans and standby letters of credit (the "RZB
Credit Facility") to finance Penn Octane's purchases of LPG and Fuel Products in
connection with Penn Octane's Fuel Sales Business. The RZB Credit facility is an
uncommitted  facility  under which the letters of credit have an expiration date
of  no  more  than  90  days  and the facility reviewed annually at March 31. In
connection  with  the  RZB  Credit  Facility, the Company granted RZB a security
interest  and  assignment  in  any and all of the Company's accounts, inventory,
real  property, buildings, pipelines, fixtures and interests therein or relating
thereto,  including,  without  limitation,  the  lease  with  the  Brownsville
Navigation District of Cameron County (the "District") for the land on which the
Company's  Brownsville  Terminal Facility is located, the Pipeline Lease, and in
connection  therewith  agreed  to  enter into leasehold deeds of trust, security
agreements,  financing  statements and assignments of rent. Under the RZB Credit
Facility,  the  Company  may  not  permit to exist any subsequent lien, security
interest,  mortgage,  charge  or  other  encumbrance of any nature on any of its
properties  or assets, except in favor of RZB, without the consent of RZB. After
the  Spin-Off  and  transfer  of  assets to Rio Vista, RZB continues to retain a
security  interest  in  the  transferred  assets.


                                       29
<PAGE>
     Under  the RZB Credit Facility, the Company pays a fee with respect to each
letter  of credit thereunder in an amount equal to the greater of (i) $500, (ii)
2.5%  of  the maximum face amount of such letter of credit, or (iii) such higher
amount  as  may  be  agreed  to  between  the Company and RZB.  Any loan amounts
outstanding  under the RZB Credit Facility shall accrue interest at a rate equal
to  the  rate  announced  by the JPMorgan Chase Bank as its prime rate (4.75% at
October  31, 2004) plus 2.5%.  Pursuant to the RZB Credit Facility, RZB has sole
and  absolute  discretion  to  limit  or  terminate its participation in the RZB
Credit  Facility  and to refrain from making any loans or issuing any letters of
credit  thereunder.  RZB  also  has  the  right to demand payment of any and all
amounts  outstanding  under the RZB Credit Facility at any time.  In addition to
the  fees  described  above,  the  Company is required to pay RZB annual fees of
$50,000.

     Based  on  current  minimum  purchase  commitments  under the Company's LPG
supply  agreements  and current LPG prices, the amount available to finance Fuel
Products  and LPG purchases in excess of current minimum purchase commitments is
limited  to current volumes and therefore the ability of the Company to grow the
Fuel  Sales Business is dependent on future increases in its RZB Credit Facility
or  other  sources  of financing, the reduction of LPG supply commitments and/or
the  reduction  in  LPG  or  Fuel  Products  prices.

     Under the terms of the RZB Credit Facility, either Penn Octane or Rio Vista
is  required  to  maintain net worth of a minimum of $9.0 million ($10.0 million
effective  November  12,  2004).

     Mr.  Richter  has  personally  guaranteed  all  of  Penn  Octane's  payment
obligations with respect to the RZB Credit Facility.

     In  connection  with  the  Company's  purchases  of  LPG and Fuel Products,
letters  of  credit  are  issued  based  on anticipated purchases.   Outstanding
letters  of  credit  for  purchases of LPG and Fuel Products at October 31, 2004
totaled  approximately  $16.3  million  which represents October 2004 purchases.

     In  connection  with the Company's purchase of LPG and Fuel Products, under
the  RZB  Credit  Facility,  assets  related to product sales (the "Assets") are
required  to  be  in  excess of borrowings and commitments (including restricted
cash  of  approximately  $2.5 million at October 31, 2004). At October 31, 2004,
the  Company's  borrowings  and  commitments  were  less  than the amount of the
Assets.

     In  connection  with  the  Company's  Fuel  Sales Business, the Company has
issued  bonds totaling $662,000 to the states of California, Nevada, Arizona and
Texas  (the "Bonds") to secure payments of excise and other taxes collected from
customers  in  connection  with sales of Fuel Products.  The Bonds are partially
secured by letters of credit totaling $452,600.  At October 31, 2004, such taxes
of  approximately  $542,000  were due.  In addition, in connection with the Fuel
Sales  Business, the Company issued a letter of credit of $284,000 in connection
with the Company's use of pipeline and terminal systems from a third party.  The
letters of credit issued have all been secured by cash in the amount of $736,600
which  is  included in restricted cash in the Company's balance sheet at October
31,  2004.

     LPG  and  Fuel  Products  financing  expense associated with the RZB Credit
Facility  totaled  $213,862, and $188,469 for the three months ended October 31,
2004  and  2003.


                                       30
<PAGE>
     The  following  is a summary of the Company's estimated minimum contractual
obligations  and  commercial  obligations  as  of  October  31,  2004.  Where
applicable,  LPG  prices  are  based  on the October 31, 2004 monthly average as
published  by  Oil  Price  Information  Services.

<TABLE>
<CAPTION>
                                                         PAYMENTS DUE BY PERIOD
                                                          (AMOUNTS IN MILLIONS)
                                            ---------------------------------------------------
                                                    Less than     1 - 3      4 - 5      After
          Contractual Obligations           Total     1 Year      Years      Years     5 Years
          -----------------------           ------  ----------  ---------  ----------  --------
<S>                                         <C>     <C>         <C>        <C>         <C>
Long-Term Debt Obligations                  $  1.7  $        -  $     1.7  $        -  $      -
Operating Leases                              11.1         1.4        2.7         2.6       4.4
LPG Purchase Obligations                     835.6       211.9      353.3       270.4         -
Other Long-Term Obligations                     .1           -         .1           -         -
                                            ------  ----------  ---------  ----------  --------
    Total Contractual Cash Obligations      $848.5  $    213.3  $   357.8  $    273.0  $    4.4
                                            ======  ==========  =========  ==========  ========
</TABLE>

<TABLE>
<CAPTION>
                                                      AMOUNT OF COMMITMENT EXPIRATION
                                                                PER PERIOD
                                                           (AMOUNTS IN MILLIONS)
                                      ---------------------------------------------------------
         Commercial                   Total Amounts   Less than    1 - 3     4 - 5       Over
           Commitments                  Committed       1 Year     Years     Years     5 Years
           -----------                --------------  ----------  -------  ----------  --------
<S>                                   <C>             <C>         <C>      <C>         <C>
Lines of Credit                       $          1.0  $      1.0  $     -  $        -  $      -
Standby Letters of Credit                       16.3        16.3        -           -         -
Guarantees                                       N/A         N/A      N/A         N/A       N/A
Standby Repurchase Obligations                   N/A         N/A      N/A         N/A       N/A
Other Commercial Commitments                     N/A         N/A      N/A         N/A       N/A
                                      --------------  ----------  -------  ----------  --------
    Total Commercial Commitments      $         17.3  $     17.3  $     -  $        -  $      -
                                      ==============  ==========  =======  ==========  ========
</TABLE>

     Distributions  of  Available  Cash.  All unitholders, including the General
Partner,  have the right to receive distributions of "available cash" as defined
in  the partnership agreement ("Agreement") from Rio Vista in an amount equal to
the  minimum  distribution of $0.25 per quarter per unit, plus any arrearages in
the  payment  of  the  minimum  quarterly  distribution  on the units from prior
quarters.  The  distributions  are  to  be  paid  45  days after the end of each
calendar quarter. However, Rio Vista is prohibited from making any distributions
to  unitholders if it would cause an event of default, or an event of default is
existing,  under  any  obligation of Penn Octane which Rio Vista has guaranteed.

     Cash  distributions  from  Rio  Vista  will be shared by the holders of the
common  units  and the General Partner Units as described in the Agreement based
on  a  formula  whereby the General Partner will receive disproportionately more
distributions  per  unit  than  the  holders  of the common units as annual cash
distributions  exceed  certain  milestones.

          Partnership  Tax  Treatment.  Rio  Vista  is not a taxable entity (see
below)  and incurs no federal income tax liability.  Instead, each unitholder of
Rio  Vista  is required to take into account that unitholder's share of items of
income,  gain,  loss  and  deduction of Rio Vista in computing that unitholder's
federal  income  tax  liability,  even  if no cash distributions are made to the
unitholder  by  Rio  Vista.   Distributions  by  Rio  Vista  to a unitholder are
generally  not taxable unless the amount of cash distributed is in excess of the
unitholder's  adjusted  basis  in  Rio  Vista.


                                       31
<PAGE>
     Section  7704  of  the  Internal  Revenue  Code  (the "Code") provides that
publicly  traded partnerships shall, as a general rule, be taxed as corporations
despite the fact that they are not classified as corporations under Section 7701
of  the  Code.  Section  7704  of the Code provides an exception to this general
rule  for  a  publicly traded partnership if 90% or more of its gross income for
every  taxable  year  consists  of  "qualifying  income" (the "Qualifying Income
Exception").  For  purposes  of  this  exception,  "qualifying  income" includes
income  and  gains  derived  from  the  exploration,  development,  mining  or
production,  processing,  refining,  transportation  (including  pipelines)  or
marketing  of  any  mineral  or  natural  resource.  Other  types of "qualifying
income" include interest (other than from a financial business or interest based
on profits of the borrower), dividends, real property rents, gains from the sale
of  real  property,  including  real  property  held  by  one considered to be a
"dealer"  in  such  property,  and  gains  from the sale or other disposition of
capital  assets  held  for  the  production of income that otherwise constitutes
"qualifying  income".

     No  ruling  has been or will be sought from the IRS and the IRS has made no
determination  as  to  Rio  Vista's  classification as a partnership for federal
income  tax purposes or whether Rio Vista's operations generate a minimum of 90%
of  "qualifying  income"  under  Section  7704  of  the  Code.

     If  Rio  Vista were classified as a corporation in any taxable year, either
as  a  result of a failure to meet the Qualifying Income Exception or otherwise,
Rio Vista's items of income, gain, loss and deduction would be reflected only on
Rio  Vista's  tax  return  rather  than  being  passed  through  to  Rio Vista's
unitholders,  and  Rio  Vista's  net  income  would be taxed at corporate rates.

     If Rio Vista were treated as a corporation for federal income tax purposes,
Rio  Vista  would  pay  tax  on  income at corporate rates, which is currently a
maximum  of 35%.  Distributions to unitholders would generally be taxed again as
corporate  distributions, and no income, gains, losses, or deductions would flow
through  to the unitholders.  Because a tax would be imposed upon Rio Vista as a
corporation,  the  cash  available  for  distribution  to  unitholders  would be
substantially  reduced  and  Rio  Vista's  ability  to  make  minimum  quarterly
distributions  would  be  impaired.  Consequently,  treatment  of Rio Vista as a
corporation  would  result  in a material reduction in the anticipated cash flow
and  after-tax  return  to  unitholders  and  therefore would likely result in a
substantial  reduction  in  the  value  of  Rio  Vista's  common  units.

     Current  law  may  change  so  as  to  cause  Rio  Vista to be taxable as a
corporation  for  federal  income tax purposes or otherwise subject Rio Vista to
entity-level  taxation.  The  Agreement  provides  that,  if a law is enacted or
existing  law  is  modified or interpreted in a manner that subject Rio Vista to
taxation  as  a  corporation  or  otherwise  subjects  Rio Vista to entity-level
taxation  for  federal,  state  or  local  income tax purposes, then the minimum
quarterly  distribution  amount  and  the  target  distribution  amount  will be
adjusted  to  reflect  the  impact  of  that  law  on  Rio  Vista.

     Pipeline Lease.  The Pipeline Lease currently expires on December 31, 2013,
pursuant  to an amendment  (the "Pipeline Lease Amendment") entered into between
the  Company  and Seadrift on May 21, 1997, which became effective on January 1,
1999 (the "Effective Date").  The Pipeline Lease Amendment provides, among other
things, for additional storage access and inter-connection with another pipeline
controlled  by Seadrift, thereby providing greater access to and from the Leased
Pipeline.  Pursuant  to the Pipeline Lease Amendment, the Company's fixed annual
rent  for  the  use  of  the  Leased  Pipeline is $1.0 million including monthly
service payments of $8,000 through March 2004.  The service payments are subject
to  an  annual adjustment based on a labor cost index and an electric power cost
index.  The  Company  is also required to pay for a minimum volume of storage of
$300,000  per  year (based on reserved storage of 8.4 million gallons) beginning
January  1,  2000.   In  connection  with  the  Pipeline  Lease, the Company may
reserve  up  to  21.0  million  gallons  each  year thereafter provided that the
Company  notifies  Seadrift  in  advance.

     The  Pipeline  Lease Amendment provides for variable rental increases based
on  monthly  volumes  purchased and flowing into the Leased Pipeline and storage
utilized.  The  Company  believes that the Pipeline Lease Amendment provides the
Company  increased  flexibility  in negotiating sales and supply agreements with
its  customers  and  suppliers.

     The  Company  at  its  own expense, installed a mid-line pump station which
included  the  installation  of additional piping, meters, valves, analyzers and
pumps along the Leased Pipeline to increase the capacity of the Leased Pipeline.
The  Leased  Pipeline's  capacity is estimated to be between 300 million and 360
million  gallons  per  year.


                                       32
<PAGE>
     Other.  The Company intends to upgrade its computer and information systems
at  a  total  estimated  cost  of  approximately  $350,000.

     Acquisition of Mexican Subsidiaries.   Effective April 1, 2001, the Company
completed the purchase of 100% of the outstanding common stock of both Termatsal
and  PennMex  (the  "Mexican  Subsidiaries"), previous affiliates of the Company
which were principally owned by a former officer and director (see note D to the
consolidated  financial  statements).  The Company paid a nominal purchase price
of  approximately  $5,000  for  each  Mexican  subsidiary.  As  a  result of the
acquisition, the Company has included the results of the Mexican Subsidiaries in
its unaudited consolidated financial statements for the three ended October 2004
and  2003.  Since  inception through the acquisition date, the operations of the
Mexican Subsidiaries had been funded by the Company and such amounts funded were
included  in  the Company's consolidated financial statements.   Therefore there
are  no  material  differences  between  the  amounts previously reported by the
Company  and  the  amounts  that would have been reported by the Company had the
Mexican  Subsidiaries  been  consolidated  since  inception.

     During  July  2003,  the  Company acquired an option to purchase Tergas, an
affiliate  95%  owned  by  Mr.  Soriano  and  the remaining balance owned by Mr.
Abelardo Mier, a consultant of the Company, for a nominal price of approximately
$5,000.  Since  inception  the  operations  of  Tergas  have  been funded by the
Company  and  the  assets,  liabilities  and results of operations of Tergas are
included  in  the  Company's  consolidated  financial  statements.

     Mexican  Operations.  Under  current  Mexican  law,  foreign  ownership  of
Mexican  entities  involved  in  the distribution of LPG or the operation of LPG
terminal  facilities  is  prohibited.  Foreign  ownership  is  permitted  in the
transportation  and  storage  of  LPG.  Mexican  law also provides that a single
entity  is  not  permitted  to  participate  in more than one of the defined LPG
activities  (transportation,  storage  or  distribution).  PennMex  has  a
transportation  permit  and  Termatsal  owns,  leases,  or  is in the process of
obtaining  the  land  or  rights  of way used in the construction of the Mexican
portion  of  the US-Mexico Pipelines, and owns the Mexican portion of the assets
comprising  the  US-Mexico  Pipelines  and  the Matamoros Terminal Facility. The
Company's  consolidated  Mexican affiliate, Tergas, S.A. de C.V. ("Tergas"), has
been  granted  the  permit  to  operate  the Matamoros Terminal Facility and the
Company  relies  on  Tergas'  permit  to  continue  its  delivery  of LPG at the
Matamoros  Terminal  Facility.  The  Company  pays  Tergas  its  actual cost for
distribution  services  at  the Matamoros Terminal Facility plus a small profit.

     Through  its  operations  in  Mexico  and  the  operations  of  the Mexican
Subsidiaries and Tergas, a consolidated affiliate, the Company is subject to the
tax  laws  of  Mexico which, among other things, require that the Company comply
with  transfer pricing rules, the payment of income, asset and ad valorem taxes,
and  possibly  taxes  on  distributions  in  excess  of  earnings.  In addition,
distributions to foreign corporations, including dividends and interest payments
may  be  subject  to  Mexican  withholding  taxes.

     Deregulation of the LPG Industry in Mexico.  The Mexican petroleum industry
is  governed by the Ley Reglarmentaria del Art culo 27 Constitutional en el Ramo
del  Petr  leo  (the  Regulatory Law to Article 27 of the Constitution of Mexico
concerning  Petroleum Affairs (the "Regulatory Law")), and Ley Org nica del Petr
leos Mexicanos y Organismos Subsidiarios (the Organic Law of Petr leos Mexicanos
and  Subsidiary  Entities  (the  "Organic Law")).  Under Mexican law and related
regulations,  PEMEX  is  entrusted  with  the central planning and the strategic
management  of  Mexico's  petroleum  industry,  including importation, sales and
transportation  of  LPG.  In  carrying out this role, PEMEX controls pricing and
distribution  of  various  petrochemical  products,  including  LPG.

     Beginning  in  1995,  as  part  of  a  national  privatization program, the
Regulatory  Law  was  amended to permit private entities to transport, store and
distribute  natural gas with the approval of the Ministry of Energy.  As part of
this  national  privatization  program,  the  Mexican  Government is expected to
deregulate  the  LPG  market ("Deregulation").  In June 1999, the Regulatory Law
for LPG was changed to permit foreign entities to participate without limitation
in  the  defined LPG activities related to transportation and storage.  However,
foreign entities are prohibited from participating in the distribution of LPG in
Mexico.  Upon  Deregulation,  Mexican  entities  will be able to import LPG into
Mexico.  Under  Mexican  law, a single entity is not permitted to participate in
more  than  one  of  the  defined  LPG  activities  (transportation, storage and
distribution).  The  Company  or  its  consolidated affiliate expect to sell LPG
directly  to  independent Mexican distributors as well as PMI upon Deregulation.
The  Company  anticipates  that  the  independent  Mexican  distributors will be
required to obtain authorization from the Mexican government for the importation
of  LPG  upon  Deregulation  prior  to entering into contracts with the Company.


                                       33
<PAGE>
     During  July  2001, the Mexican government announced that it would begin to
accept  applications  from  Mexican  companies  for  permits  to  allow  for the
importation  of  LPG  pursuant to provisions already provided for under existing
Mexican  law.

     In  connection  with  the above, in August 2001, Tergas received a one year
permit  from  the  Mexican government to import LPG.  During September 2001, the
Mexican government decided to delay the implementation of Deregulation and asked
Tergas  to defer use of the permit and as a result, the Company did not sell LPG
to  distributors  other  than  PMI.  In March 2002, the Mexican government again
announced its intention to issue permits for free importation of LPG into Mexico
by  distributors  and others beginning August 2002, which was again delayed.  To
date  the  Mexican  government  has  continued  to  delay  implementation  of
Deregulation.  Tergas'  permit to import LPG expired during August 2002.  Tergas
intends  to  obtain  a  new  permit  when the Mexican government again begins to
accept  applications.  As a result of the foregoing, it is uncertain as to when,
if  ever,  Deregulation will actually occur and the effect, if any, it will have
on  the  Company.  However,  should  Deregulation  occur,  it  is  the Company's
intention  to  sell  LPG  directly  to distributors in Mexico as well as to PMI.

     The  point  of sale for LPG which flows through the US-Mexico Pipelines for
delivery  to the Matamoros Terminal Facility is the United States-Mexico border.
For  LPG  delivered  into  Mexico,  PMI  is  the  importer  of  record.

     Private  Placements  and  Other  Transactions.  In connection with the Penn
Octane  Board  Plan,  during  August 2004 the Board granted warrants to purchase
20,000  shares  of  common  stock of Penn Octane at exercise prices of $1.93 and
$1.94  per  share  to  outside  directors.   The warrants expire in August 2009.
Based  on  the  provisions  of  APB 25, no compensation expense was recorded for
these  warrants.

     On  September  30,  2004,  pursuant to the terms of an employment agreement
dated as of May 13, 2003 with Mr. Shore, the Company issued warrants to purchase
763,737  shares  of Penn Octane's common stock at an exercise price of $1.14 per
share.   The  warrants  expire on July 10, 2006.  Based on the provisions of APB
25,  no  compensation  expense  was  recorded  for  these  warrants.

     In  connection  with  the  Penn Octane Board Plan, during November 2004 the
Board  granted warrants to purchase 10,000 shares of common stock of Penn Octane
at  exercise  price  of  $1.30  per  share to an outside director.  The warrants
expire  in  November  2009.  Based  on the provisions of APB 25, no compensation
expense  was  recorded  for  these  warrants.

     In  connection  with  warrants previously issued by the Company, certain of
these  warrants  contain  a  call provision whereby the Company has the right to
purchase the warrants for a nominal price if the holder of the warrants does not
elect  to  exercise  the  warrants  during  the  call  provision  period.

     OPTIONS  AND  WARRANTS  OF  RIO  VISTA

     GENERAL PARTNER OPTIONS. Penn Octane's 100% interest in the General Partner
is  expected to be decreased to 50% as a result of the exercise by Shore Capital
LLC  ("Shore  Capital") an affiliate of Mr. Shore, and Mr. Richter of options to
each  acquire  25%  of the General Partner (the "General Partner Options").  Mr.
Shore  and Mr. Richter are each members of the board of directors of Penn Octane
and  the  board  of managers of the General Partner.  It is anticipated that Mr.
Richter  and  Shore  Capital  will exercise their General Partner Options in the
near future. The exercise price for each option is approximately $82,000.  Based
on  the  provisions  of  APB  25,  the Company recorded approximately $41,000 of
compensation  cost  related  to  these  options.  Penn Octane will retain voting
control  of  the  General  Partner  pursuant  to  a  voting  agreement.

     COMMON  UNIT WARRANTS.  In connection with Mr. Shore's employment agreement
with Penn Octane, Shore Capital received warrants to acquire 97,415 common units
of  Rio  Vista  at $8.47 per unit.  Based on the provisions of APB 25, Rio Vista
recorded  $343,875  of compensation cost related to these warrants on October 1,
2004, the initial exercise date. The warrants expire on July 10, 2006.


                                       34
<PAGE>
     Fuel  Sales  Business.  During  June 2004, the Company began the Fuel Sales
Business.  The  Company  sells  Fuel Products through transactional, bulk and/or
rack  transactions.  Typical  transactional  and  bulk sales are made based on a
predetermined  net  spread  between  the  purchase  and  sales price over posted
monthly  variable  prices  and/or daily spot prices. Rack sales transactions are
based  on  variable  sale prices charged by the Company which are tied to posted
daily  spot  prices and purchase costs which are based on a monthly average or 3
day  average based on posted prices. The Company pays pipeline and terminal fees
based  on  regulated  rates.

     The  Fuel  Sales  Business  on  the  west  coast  of  the  United States is
characterized  by  limited  pipeline  and terminal space to move sufficient Fuel
Products  to  locations  where demand for Fuel Products exists.  The Company has
the  ability  to  access  to  certain  pipeline  and terminal systems located in
California,  Arizona,  Nevada  and  Texas,  where it is able to deliver its Fuel
Products.  The markets where the Company has targeted its products are generally
in  areas  where  the  Fuel  Products  are  difficult  to  deliver  due  to  the
infrastructure  limitations  and  accordingly,  the Company's access provides an
advantage  over  other  potential  competitors  who may not have access to these
pipelines  or terminals.  In addition, the Company's supply contracts provide it
with  greater  flexibility to manage changes in the prices of the Fuel Products.
The  Company  believes  it  has an advantage over other competitors based on its
favorable  supply  contracts  and  existing  access  to  certain  pipelines  and
terminals.

     For  bulk and transactional sales, the Company enters into individual sales
contracts  for  each sale.  Rack sales are subject to credit limitations imposed
on  each  individual  buyer  by  the  Company.  The  Company  has several supply
contracts  for  each  of the Fuel Products it sells.    The supply contracts are
for  annual  periods  with flexible volumes but they may be terminated sooner by
the  supplier  if  the Company consistently fails to purchase minimum volumes of
Fuel  Products.

     The  ability  of  the  Company to participate in the Fuel Sales Business is
largely  dependent on the Company's ability to finance its supplies.  Currently,
the  Company  utilizes  the RZB Credit Facility to finance the purchases of Fuel
Products.  Based  on  the  Company's  LPG purchase commitments, increases in the
costs  of  LPG and/or the increases in the costs of Fuel Products, the amount of
financing  available  for  the  Fuel  Sales  Business  may  be  reduced.

     Federal  and  State  agencies  require  the Company to obtain the necessary
regulatory  and  other  approvals  for  its  Fuel  Sales  Business.

     The  Spin-Off.  On  July 10, 2003, Penn Octane formed Rio Vista, a Delaware
limited  partnership, the General Partner, a Delaware limited liability company,
RVOP,  a  Delaware limited partnership (0.1% owned by Rio Vista Operating GP LLC
and 99.9% owned by Rio Vista) and Rio Vista Operating GP LLC, a Delaware limited
liability  company (wholly owned by Rio Vista) for the purpose of completing the
Spin-Off.  During  September  2003,  the  Company's  Board  of Directors and the
Independent  Committee  of its Board of Directors formally approved the terms of
the  Spin-Off  (see  below) and Rio Vista filed a Form 10 registration statement
with the Securities and Exchange Commission ("SEC").   On September 30, 2004 the
Common  Units  of  Rio  Vista  were  distributed  to Penn Octane's stockholders.

     As  a  result  of  the  Spin-Off,  Rio  Vista  owns  and  operates the LPG,
distribution, transportation and marketing business previously conducted by Penn
Octane.  Rio  Vista sells LPG directly to PMI and purchases LPG from Penn Octane
under  a  long-term  supply  agreement.

     INTERCOMPANY  PURCHASE  AGREEMENT  FOR  LPG

     Penn  Octane  entered  into  a  long-term  supply  agreement with Rio Vista
pursuant  to  which Rio Vista agrees to purchase all of its LPG requirements for
sales  which  utilize  the assets transferred to Rio Vista by Penn Octane to the
extent  Penn  Octane  is  able  to supply such LPG requirements.  This agreement
further  provides  that  Rio  Vista  has no obligation to purchase LPG from Penn
Octane to the extent the distribution of such LPG to Rio Vista's customers would
not require the use of any of the assets Penn Octane contributed to Rio Vista or
Penn Octane ceases to have the right to access the Seadrift pipeline.


                                       35
<PAGE>
OMNIBUS  AGREEMENT

     In  connection  with  the  Spin-Off,  Penn  Octane  entered into an Omnibus
Agreement  with Rio Vista and its subsidiaries that governs, among other things,
indemnification  obligations  among  the parties to the agreement, related party
transactions,  the  provision  of general administration and support services by
Penn  Octane.

     The  Omnibus  Agreement prohibits Rio Vista from entering into any material
agreement with Penn Octane without the prior approval of the conflicts committee
of  the  board  of managers of the General Partner.  For purposes of the Omnibus
Agreement,  the  term  material agreements means any agreement between Rio Vista
and  Penn  Octane that requires aggregate annual payments in excess of $100,000.

     The  Omnibus  Agreement may be amended by written agreement of the parties;
provided,  however  that  it  may  not  be  amended  without the approval of the
conflicts  committee  of  the  General Partner if such amendment would adversely
affect  the unitholders of Rio Vista.  The Omnibus Agreement has an initial term
of  five  years  that  automatically  renews for successive five-year terms and,
other  than  the  indemnification  provisions, will terminate if Rio Vista is no
longer  an  affiliate  of  Penn  Octane.

     TRANSFERRED ASSETS

     The  following  assets  of  Penn  Octane  were transferred to the operating
     subsidiary  of  Rio  Vista  on  September  30,  2004:

     Brownsville Terminal Facilities
     US Mexico Pipelines, including various rights of way and land obtained in
          connection with operation of US Pipelines between Brownsville Terminal
          Facility  and  the  US  Border
     Inventory located in storage tanks and pipelines located in Brownsville
          (and  extending to storage and pipelines located in assets held by the
          Mexican  subsidiaries)
     Contracts and Leases (assumed and/or assigned):
          Lease Agreements:
               Port of Brownsville:
                    LPG Terminal Facility
                    Tank Farm Lease
          US  State  Department  Permit
          Other  licenses and permits in connection with ownership and operation
               of  the  US  pipelines  between  Brownsville  and  US  border
     Investment in Subsidiaries:
          Penn Octane  de  Mexico, S. de R.L. de C.V., consisting primarily of a
               permit  to transport LPG from the Mexican Border to the Matamoros
               Terminal  Facility
          Termatsal,  S.  de  R.L.  de  C.V.,  consisting primarily of land, LPG
               terminal  facilities,  Mexican  pipelines  and rights of way, and
               equipment  used  in  the  transportation  of LPG from the Mexican
               border  to  the  Matamoros  terminal  facility  and  various  LPG
               terminal  equipment
          Penn  Octane  International  LLC
     Option to acquire Tergas, S.A. de C.V.


     Realization of Assets.   The accompanying consolidated financial statements
have  been  prepared in conformity with accounting principles generally accepted
in  the  United States of America, which contemplate continuation of the Company
as  a going concern.  The Company has had an accumulated deficit since inception
and  has  historically  had  a  deficit  in  working  capital.  In  addition,
substantially all of the Company's assets are pledged or committed to be pledged
as  collateral  on  existing debt in connection with the Restructured Notes, the
$280,000  Notes  and  the  RZB  Credit Facility and therefore, the Company maybe
unable  to  obtain additional financing collateralized by those assets.  The RZB
Credit  Facility  may  be insufficient to finance the Company's LPG sales and/or
Fuel  Products  sales,  assuming  increases  in  product  costs  per  gallon, or
volumetric  growth  in  product  sales, and maybe terminated by RZB with 90 days
notice.


                                       36
<PAGE>
     Since  April 1, 2004, the Company has been operating under the Monthly 2004
Contracts  with  PMI (see note J).  The monthly volumes of LPG sold to PMI since
April 1, 2004 have been materially less than historical levels.  As discussed in
note  J,  the  Company  has  LPG  supply  contracts which require it to purchase
volumes  of  LPG  materially in excess of monthly volumes under the Monthly 2004
Contracts  (Mismatched  LPG).  The  volume  of the Mismatched LPG was materially
lower  prior  to April 1, 2004 than subsequent to April 1, 2004, and the Company
was  able to dispose of the Mismatched LPG prior to April 1, 2004 at  acceptable
margins.  The Company may incur additional reductions of  gross profits on sales
of  LPG  in  disposing of the Mismatched LPG if (i) the volume of LPG sold under
the  Monthly  2004  Contracts declines below the current levels of approximately
11,000,000  gallons  per  month and/or the margins are materially reduced and/or
(ii)  the Company cannot successfully reduce the minimum volumes and/or purchase
costs  required  under  the  LPG  supply  agreements.  The  Company may not have
sufficient  cash  flow  or  available  credit to absorb such reductions in gross
profit.

     The  Company's  cash  flow has been reduced as a result of lower volumes of
sales  to  PMI.  Additionally, the Company will also incur the additional public
company  compliance  and  income  tax  preparation  costs  for  Rio Vista.  As a
result,  the  Company may not have sufficient cash flow to make distributions to
Rio  Vista's  unitholders and to pay Penn Octane's obligations when due.  In the
event  Penn Octane does not pay its obligations when due, Rio Vista's guarantees
to  Penn  Octane and Penn Octane's creditors may be triggered.  Accordingly, Rio
Vista  may  be  required  to  pay  such  obligations  of  Penn  Octane  to avoid
foreclosure of its assets by Penn Octane's creditors.  If the Company's revenues
and  other  sources  of  liquidity  are  not  adequate  to  pay  Penn  Octane's
obligations,  Rio  Vista  may  be  required to reduce or eliminate the quarterly
distributions  to  unitholders  and  Penn Octane or Rio Vista may be required to
raise  additional  funds  to  avoid foreclosure.  There can be no assurance that
such  additional  funding  will  be available on terms attractive to either Penn
Octane  or  Rio  Vista  or  available  at  all.

     In  view  of  the  matters  described  in  the  preceding  paragraphs,
recoverability  of  the  recorded  asset  amounts  shown  in  the  accompanying
consolidated  balance  sheet  is  dependent  upon  the ability of the Company to
generate  sufficient  cash  flow through operations or additional debt or equity
financing  to pay its liabilities and obligations when due.  The ability for the
Company  to  generate  sufficient  cash  flows is significantly dependent on the
continued  sale  of  LPG to PMI at acceptable monthly sales volumes and margins,
the  success  of  the  Fuel  Sales  Business  and the adequacy of the RZB Credit
Facility  to  finance  such sales.  The consolidated financial statements do not
include  any  adjustments  related  to  the recoverability and classification of
recorded  asset  amounts or amounts and classification of liabilities that might
be  necessary  should  the  Company  be  unable  to  continue  in  existence.

     To  provide  the Company with the ability it believes necessary to continue
in  existence,  management  is  negotiating  with  PMI  to increase LPG sales at
acceptable monthly volumes and margins.  In addition, management is taking steps
to  (i) expand its Fuel Sales Business, (ii) further diversify its operations to
reduce  dependency  on  sales of LPG, (iii) increase the amount of financing for
its  products  and  operations,  and  (iv)  raise  additional debt and/or equity
capital.


IMPACT OF INFLATION

     Inflation  in the United States has been relatively low in recent years and
did  not  have  a  material  impact  on  the  unaudited  consolidated  financial
statements  of  the  Company.  However, inflation remains a factor in the United
States  economy  and  could  increase  the  Company's cost to acquire or replace
property,  plant  and  equipment  as  well  as  our  labor  and  supply  costs.


                                       37
<PAGE>
ENVIRONMENTAL MATTERS

The  Company's  operations  are  subject  to  environmental laws and regulations
adopted  by various governmental authorities in the jurisdictions in which these
operations  are  conducted.  Under  the  Omnibus  Agreement,  Penn  Octane  will
indemnify  Rio Vista for five years after the completion of the Spin-Off against
certain  potential  environmental  liabilities  associated  with  the  assets it
contributed  to  Rio  Vista relating to events or conditions that existed before
the  completion  of  the  Spin-Off.

RECENTLY  ISSUED  FINANCIAL  ACCOUNTING  STANDARDS

During  2004,  the  Company  adopted  Financial  Accounting  Standards  Board
Interpretation  No.  46,  "Consolidation of Variable Entities" ("FIN 46"), which
was amended by FIN 46R.  This interpretation of Accounting Research Bulletin No.
51,  "Consolidated  Financial  Statements",  addresses consolidation by business
enterprises  of  variable  interest entities ("VIE") that do not have sufficient
equity investment at risk to permit the entity to finance its activities without
additional  subordinated financial support.  FIN 46R requires the beneficiary of
a  VIE  to  consolidate  in its financial statements the assets, liabilities and
results of operations of the VIE.  Tergas, an affiliate of the Company, is a VIE
and  therefore,  its  assets,  liabilities  and  results of operations have been
included  in the accompanying unaudited consolidated financial statements of the
Company.


CRITICAL  ACCOUNTING  POLICIES

The  unaudited  consolidated  financial  statements  of  the Company reflect the
selection  and  application  of  accounting policies which require management to
make  significant  estimates  and judgments.  See note B to the Company's Annual
Report  on  Form  10-K  for  the  fiscal  year  ended July 31, 2004, "Summary of
Significant  Accounting  Policies".  The  Company  believes  that  the following
reflect the more critical accounting policies that affect the financial position
and  results  of  operations.

     Revenues  recognition  -  the  Company  expects in the future to enter into
     sales  agreements  to  sell  LPG  for future delivery. The Company will not
     record  sales  until  the  LPG  is  delivered  to  the  customer.

     Impairment  of  long-lived assets - The determination of whether impairment
     has  occurred  is  based  on  an  estimate  of  undiscounted  cash  flows
     attributable  to  assets in future periods. If impairment has occurred, the
     amount  of  the impairment loss recognized will be determined by estimating
     the fair value of the assets and recording a loss if the fair value is less
     than  the  carrying  value.  Assessments  of  impairment  are  subject  to
     management's  judgments  and based on estimates that management is required
     to  make.

     Depreciation  and amortization expenses - Property, plant and equipment are
     carried  at  cost  less  accumulated  depreciation  and  amortization.
     Depreciation  and  amortization rates are based on management's estimate of
     the  future  utilization  and  useful  lives  of  the  assets.

     Stock-based  compensation  -  The  Company  accounts  for  stock-based
     compensation using the provisions of ABP 25 (intrinsic value method), which
     is permitted by SFAS 123. The difference in net income, if any, between the
     intrinsic  value method and the method provided for by SFAS 123 (fair value
     method)  is  required  to  be  disclosed  in the financial statements on an
     annual  and  interim  basis  as  a  result  of  the  issuance  of SFAS 148.

     Allowance  for  doubtful  accounts  -  The carrying value of trade accounts
     receivable  is  based  on  estimated  fair value. The determination of fair
     value  is  subject to management's judgments and is based on estimates that
     management  is  required  to  make.


                                       38
<PAGE>
STATEMENT  BY MANAGEMENT CONCERNING REVIEW OF INTERIM INFORMATION BY INDEPENDENT
CERTIFIED  PUBLIC  ACCOUNTANTS.

     The  unaudited consolidated financial statements included in this filing on
Form  10-Q  have  been reviewed by Burton McCumber & Cortez, L.L.P., independent
certified  public  accountants,  in  accordance  with  established  professional
standards  and  procedures  for  such  review.  The  report of Burton McCumber &
Cortez,  L.L.P.  commenting  on  their  review,  accompanies  the  unaudited
consolidated  financial  statements  included  in  Item  1  of  Part  I.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     To  the  extent  that  the Company maintains quantities of LPG inventory in
excess  of  commitments for quantities of undelivered LPG and/or has commitments
for  undelivered  LPG in excess of inventory balances, the Company is exposed to
market  risk  related  to  the  volatility  of  LPG  prices.  In  the event that
inventory  balances  exceed  commitments  for undelivered LPG, during periods of
falling LPG prices, the Company may sell excess inventory to customers to reduce
the  risk  of  these  price  fluctuations.  In  the  event  that commitments for
undelivered  LPG  exceed  inventory balances, the Company may purchase contracts
which  protect  the  Company  against  future  price  increases  of  LPG.

     The  Company  does  not  maintain  quantities of LPG inventory in excess of
quantities  actually  ordered  by PMI.  Therefore, the Company has not currently
entered into and does not currently expect to enter into any arrangements in the
future  to  mitigate  the  impact  of  commodity  price  risk.

     To  the  extent the Company maintains quantities of Fuel Products inventory
in  excess  of  commitments  for  quantities  of  undelivered Fuel Products, the
Company  is  exposed  to  market  risk related to the volatility of Fuel Product
prices.  In the event that inventory balances exceed commitments for undelivered
Fuel  Products,  during periods of falling Fuel Products prices, the Company may
sell  excess  inventory  to  customers  to  reduce  the  risk  of  these  price
fluctuations.

     The  Company  has  historically borrowed only at fixed interest rates.  All
current  interest  bearing  debt  is at a fixed rate.  Trade accounts receivable
from the Company's limited number of customers and the Company's trade and other
accounts  payable  do not bear interest.  The Company's credit facility with RZB
does  not bear interest since generally no cash advances are made to the Company
by RZB.  Fees paid to RZB for letters of credit are based on a fixed schedule as
provided  in the Company's agreement with RZB.  Therefore, the Company currently
has  limited,  if  any,  interest  rate  risk.

     The  Company  routinely  converts  U.S.  dollars  into Mexican pesos to pay
terminal  operating  costs  and income taxes.  Such costs have historically been
less  than $1 million per year and the Company expects such costs will remain at
less  than  $1  million in any year.  The Company does not maintain Mexican peso
bank  accounts  with  other  than  nominal balances.  Therefore, the Company has
limited,  if  any,  risk  related  to  foreign  currency  exchange  rates.


ITEM  4.  CONTROLS  AND  PROCEDURES.

     The  Company's  management,  including  the principal executive officer and
principal financial officer, conducted an evaluation of the Company's disclosure
controls  and  procedures, as such term is defined under Rule 13a-15 promulgated
under  the  Securities Exchange Act of 1934, as of the end of the period.  Based
on  their  evaluation,  the  Company's principal executive officer and principal
accounting  officer  concluded  that  the  Company's  disclosure  controls  and
procedures  are  effective.

     There  have  been no significant changes (including corrective actions with
regard  to  significant  deficiencies  or  material weaknesses) in the Company's
internal  controls  or  in  other  factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in paragraph above.


                                       39
<PAGE>
PART  II

ITEM 1.   LEGAL PROCEEDINGS

          See  note L to the Company's Annual Report on Form 10-K for the fiscal
          year  ended  July  31,  2004.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

          See  note  G  to  the  accompanying  unaudited  consolidated financial
          statements  and  notes  J and K to the Company's Annual Report on Form
          10-K  for  the  fiscal  year  ended  July  31,  2004,  for information
          concerning  certain  sales  of  Securities.

          In  connection with the issuances of securities discussed in note G to
          the  accompanying  unaudited  consolidated  financial  statements, the
          transactions  were  exempt under registration under the Securities Act
          of  1933,  as  amended  pursuant  to  Section 4(2) thereof because the
          issuance  did  not  involve  any  public  offering  of  securities.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          None.

ITEM 4.   SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

          None.

ITEM 5.   OTHER INFORMATION

          None.

ITEM 6.   EXHIBITS  AND  REPORTS  ON  FORM  8-K

     a.   Exhibits

<TABLE>
<CAPTION>
THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

Exhibit No.
-----------
<S>          <C>

    15       Accountant's Acknowledgment

    31.1     Certification Pursuant to Rule 13a - 14(a) / 15d - 14(a) of the Exchange Act.

    31.2     Certification Pursuant to Rule 13a - 14(a) / 15d - 14(a) of the Exchange Act.

    32       Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
             Section 906 of the Sarbanes -Oxley Act of 2002.
</TABLE>


                                       40
<PAGE>
                                   SIGNATURES

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


                                   PENN  OCTANE  CORPORATION


December 15, 2004                  By:  /s/Ian T. Bothwell
                                        ----------------------------------------
                                        Ian T. Bothwell
                                        Vice President, Treasurer, Assistant
                                           Secretary, Chief Financial Officer


                                       41
<PAGE>