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 March 31, 2005

                                       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
May 13, 2005 was 15,522,745.


                                        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

                     Unaudited Consolidated Balance Sheets as of March 31,          4-5
                     2005 and December 31, 2004

                     Unaudited Consolidated Statements of Operations for the
                     three months ended March 31, 2005 and 2004                      6

                     Unaudited Consolidated Statements of Cash Flows for the
                     three months ended March 31, 2005 and 2004                      7

                     Notes to Consolidated Financial Statements (Unaudited)         8-21

           2.        Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                           22-40


           3.        Quantitative and Qualitative Disclosures About Market
                     Risk                                                            41

           4.        Controls and Procedures                                         41

Part II    1.        Legal Proceedings                                               42

           2.        Unregistered Sales of Equity Securities and Use of
                     Proceeds                                                        42

           3.        Defaults Upon Senior Securities                                 42

           4.        Submission of Matters to a Vote of Security Holders             42

           5.        Other Information                                               42

           6.        Exhibits                                                        42

           Signatures                                                                43
</TABLE>


                                        2
<PAGE>
             Independent Certified Public Accountants' Review Report

Board of Directors and Stockholders
Penn Octane Corporation

We  have reviewed the consolidated balance sheets of Penn Octane Corporation and
subsidiaries  (Company)  as  of  March  31,  2005 and December 31, 2004, and the
consolidated  statements of operations and cash flows for the three months ended
March  31,  2005.  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.

The  accompanying  consolidated  statements of operations and cash flows of Penn
Octane  Corporation  and  subsidiaries for the three months ended March 31, 2004
were  not  audited,  reviewed,  or  compiled  by  us and, accordingly, we do not
express an opinion or any other form of assurance on them.

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 (not
presented  herein),  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.

Our  auditors'  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 to the
accompanying  unaudited  interim  consolidated  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
April 25, 2005


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

                                 PENN OCTANE CORPORATION AND SUBSIDIARIES

                                        CONSOLIDATED BALANCE SHEETS

                                                  ASSETS

                                                (UNAUDITED)


                                                                                 March 31,   December 31,
                                                                                   2005          2004
                                                                                -----------  -------------
<S>                                                                             <C>          <C>
Current Assets
    Cash                                                                        $   140,893  $     374,567
    Restricted cash                                                               4,683,705      5,367,516
    Trade accounts receivable (less allowance for doubtful accounts of  $0)      11,058,446      9,222,035
    Inventories                                                                   2,066,780      3,541,390
    Prepaid expenses and other current assets                                       233,636        114,204
                                                                                -----------  -------------
      Total current assets                                                       18,183,460     18,619,712
Property, plant and equipment - net                                              15,785,658     15,979,182
Lease rights (net of accumulated amortization of $783,861 and $772,412 at
March 31, 2005 and December 31, 2004)                                               370,178        381,627
Other non-current assets                                                             29,702         28,932
                                                                                -----------  -------------
           Total assets                                                         $34,368,998  $  35,009,453
                                                                                ===========  =============
</TABLE>

   The accompanying notes and accountants' report are an integral part of these
                                   statements.


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

                                  CONSOLIDATED BALANCE SHEETS - CONTINUED

                                    LIABILITIES AND STOCKHOLDERS' EQUITY

                                                (UNAUDITED)


                                                                                March 31,     December 31,
                                                                                  2005            2004
                                                                              -------------  --------------
<S>                                                                           <C>            <C>
Current Liabilities
    Current maturities of long-term debt                                      $  1,562,176   $   1,874,618
    Revolving line of credit                                                     5,818,836       1,397,249
    LPG and fuel products trade accounts payable                                 7,268,950      13,215,832
    Other accounts payable                                                       1,181,174       1,661,360
    U.S. and foreign taxes payable                                                  15,953          36,099
    Accrued liabilities                                                          2,170,756       1,007,145
                                                                              -------------  --------------
      Total current liabilities                                                 18,017,845      19,192,303
Long-term debt, less current maturities                                             82,014          55,581
Minority interest in Rio Vista Energy Partners L.P.                             14,719,331      14,614,370
Commitments and contingencies                                                            -               -
Stockholders' Equity

    Series A - Preferred stock-$.01 par value, 5,000,000 shares authorized;
    No shares issued and outstanding at March 31, 2005 and December 31,
    2004                                                                                 -               -

    Series B - Senior preferred stock-$.01 par value, $10 liquidation value,
    5,000,000 shares authorized; No shares issued and outstanding at March
    31, 2005 and December 31, 2004                                                       -               -

    Common stock - $.01 par value, 25,000,000 shares authorized;
    15,522,745 and 15,316,495 shares issued and outstanding at March 31,
    2005 and December 31, 2004                                                     155,227         153,165

    Additional paid-in capital                                                  28,741,122      28,536,987

    Note receivable from an officer of the Company and another party for
    exercise of warrants, less reserve of $468,693 at March 31, 2005 and
    December 31, 2004                                                           (2,728,000)     (2,728,000)

    Accumulated deficit                                                        (24,618,541)    (24,814,953)
                                                                              -------------  --------------
    Total stockholders' equity                                                   1,549,808       1,147,199
                                                                              -------------  --------------
                                                                              $ 34,368,998   $  35,009,453
                                                                              =============  ==============
        Total liabilities and stockholders' equity
</TABLE>

   The accompanying notes and accountants' report are an integral part of these
                                   statements.


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

                              CONSOLIDATED STATEMENTS OF OPERATIONS

                                           (UNAUDITED)


                                                                          Three Months Ended
                                                                      --------------------------
                                                                       March 31,     March 31,
                                                                          2005          2004
                                                                      ------------  ------------
<S>                                                                   <C>           <C>
Revenues                                                              $59,726,894   $50,787,314
Cost of goods sold                                                     57,337,945    47,690,864
                                                                      ------------  ------------
    Gross profit                                                        2,388,949     3,096,450
Selling, general and administrative expenses
    Legal and professional fees                                           447,426       274,933
    Salaries and payroll related expenses                                 648,450       757,915
    Other                                                                 520,427       201,864
                                                                      ------------  ------------
                                                                        1,616,303     1,234,712
                                                                      ------------  ------------

      Operating income                                                    772,646     1,861,738
Other income (expense)
    Interest and LPG and Fuel Products financing expense                 (391,942)     (350,297)
    Interest income                                                         4,363        42,335
    Minority interest in earnings of Rio Vista Energy Partners L.P.      (169,045)            -
    Other income                                                                -             -
                                                                      ------------  ------------
        Income before taxes                                               216,022     1,553,776
Provision for income tax                                                   19,610        34,590
                                                                      ------------  ------------
        Net income                                                    $   196,412   $ 1,519,186
                                                                      ============  ============

Net income per common share                                           $      0.01   $      0.10
                                                                      ============  ============
Net income per common share assuming dilution                         $      0.01   $      0.10
                                                                      ============  ============
Weighted average common shares outstanding                             15,422,120    15,302,336
                                                                      ============  ============
</TABLE>

   The accompanying notes and accountants' report are an integral part of these
                                   statements.


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

                             CONSOLIDATED STATEMENTS OF CASH FLOWS

                                          (UNAUDITED)

                                                                        Three Months Ended
                                                                    ---------------------------
                                                                      March 31,     March 31,
                                                                        2005           2004
                                                                    -------------  ------------
<S>                                                                 <C>            <C>
Cash flows from operating activities:
Net income                                                          $    196,412   $ 1,519,186
Adjustments to reconcile net income to net cash (used in) provided
  by operating activities:
    Depreciation and amortization                                        255,986       240,614
    Amortization of lease rights                                          11,449        11,449
    Non-employee stock based costs and other                                   -        41,622
    Amortization of loan discount related to detachable warrants          81,846        28,326
    Interest income                                                            -       (32,334)
    Minority interest in Rio Vista Energy Partners L.P.                  169,045             -
Changes in current assets and liabilities:
    Trade accounts receivable                                        ( 1,836,411)   (  848,359)
    Inventories                                                        1,474,610       182,499
    Prepaid and other current assets                                    (119,431)    ( 495,216)
    LPG and Fuel Products trade accounts payable                      (5,946,882)   (2,045,580)
    Other accounts payable and accrued liabilities                       783,431      (439,963)
    US and Foreign taxes payable                                         (20,146)       24,590
                                                                    -------------  ------------
      Net cash (used in) provided by operating activities             (4,950,091)   (1,813,166)
Cash flows from investing activities:
    Capital expenditures                                                  (6,999)      107,434
    Property held for sale                                                     -       220,000
    (Increase) decrease in other non-current assets                         (770)        ( 750)
                                                                    -------------  ------------
      Net cash  provided by  (used in) investing activities              ( 7,769)      326,684
Cash flows from financing activities:
    (Increase) decrease in restricted cash                               683,811     1,431,501
    Revolving credit facilities                                        4,421,587             -
    Issuance of common stock                                              97,750             -
    Distributions paid by Rio Vista to limited partners                 (477,664)            -
    Reduction in debt                                                     (1,298)     (203,520)
                                                                    -------------  ------------
      Net cash provided by (used in)  financing activities             4,724,186     1,227,981
                                                                    -------------  ------------
          Net increase (decrease) in cash                              ( 233,674)    ( 258,501)
Cash at beginning of period                                              374,567       278,188
                                                                    -------------  ------------
Cash at end of period                                               $    140,893   $    19,687
                                                                    =============  ============

Supplemental disclosures of cash flow information:
    Cash paid during the period for:
    Interest and LPG and Fuel Products financing expense            $    303,044   $   397,809
                                                                    =============  ============
Supplemental disclosures of noncash transactions:
    Equity-common stock and warrants issued and other               $    108,450   $   167,170
                                                                    =============  ============
    Stock exchanged for note receivable                             $          -   $   169,520
                                                                    =============  ============
</TABLE>

   The accompanying notes and accountants' report are an integral part of these
                                   statements.


                                        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  47.5%  of  the  Company's  total  revenues  and 91.7% of the
     Company's  LPG  revenues  for  the  three  months ended March 31, 2005. 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  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. Fuel sales approximated 48.1% of
     total revenues for the three months ended March 31, 2005.


                                          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  unaudited  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.

     During  December  2004,  Penn  Octane  changed  its  fiscal  year  end from
     July 31 to December 31.


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

     The  accompanying  unaudited consolidated financial statements include Penn
     Octane  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 U.S. 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. de R.L. 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 sheets as of March 31, 2005 and December
     31,  2004,  the  unaudited  consolidated  statements of operations and cash
     flows  for  the  three  months  ended  March  31,  2005 and 2004, 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 March 31,
     2005  and  December  31,  2004,  the  unaudited  consolidated  results  of
     operations  and  cash  flows  for the three months ended March 31, 2005 and
     2004.

     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 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 March 31, 2005        For the three months ended March 31, 2004
                                 -----------------------------------------------  -----------------------------------------------
                                  Income (loss)      Shares         Per-Share      Income (loss)      Shares         Per-Share
                                   (Numerator)    (Denominator)      Amount         (Numerator)    (Denominator)      Amount
                                 ---------------  -------------  ---------------  ---------------  -------------  ---------------
<S>                              <C>              <C>            <C>              <C>              <C>            <C>

Net income (loss)                $       196,412                                  $     1,519,186

BASIC EPS

Net income (loss) available to
common stockholders                      196,412     15,422,120  $          0.01        1,519,186     15,302,336  $          0.10
                                                                 ===============                                  ===============

EFFECT OF DILUTIVE SECURITIES
Warrants                                       -         78,291                                 -              -
                                 ---------------  -------------                   ---------------  -------------
DILUTED EPS

Net income (loss) available to
common stockholders              $       196,412     15,500,411  $          0.01  $     1,519,186     15,302,336  $          0.10
                                 ===============  =============  ===============  ===============  =============  ===============
</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
                                                               ------------------------
                                                                March 31,    March 31,
                                                                  2005         2004
                                                               -----------  -----------
<S>                                                            <C>          <C>
Net income (loss), as reported                                 $  196,412   $1,519,186
Add:   Stock-based employee compensation cost expense
       included in reported net income (loss), net of related
       tax effects                                                      -            -
Less:  Total stock-based employee compensation expense
       determined under fair value based method for all
       awards, net of related tax effects                         (34,443)      (9,724)
                                                               -----------  -----------
Net income (loss), pro forma                                   $  161,969   $1,509,462
                                                               ===========  ===========

Net income (loss) per common share, as reported                $     0.01   $     0.10
                                                               ===========  ===========
Net income (loss) per common share, pro forma                  $     0.01   $     0.10
                                                               ===========  ===========
Net income (loss) per common share assuming dilution,
 as reported                                                   $     0.01   $     0.10
                                                               ===========  ===========
Net income (loss) per common share assuming dilution,
pro forma                                                      $     0.01   $     0.10
                                                               ===========  ===========
</TABLE>

     The  following assumptions were used for grants of warrants to employees in
     the  three  months  ended  March 31, 2005, to compute the fair value of the
     warrants  using  the  Black-Scholes option-pricing model; dividend yield of
     0%;  expected  volatility of 68% and 63%; risk free interest rate of 4.08%,
     3.51%  and  3.52%  and  expected  lives  of  5  years.

     The  following assumptions were used for grants of warrants to employees in
     the  three  months  ended  March 31, 2004, to compute the fair value of the
     warrants  using  the  Black-Scholes option-pricing model; dividend yield of
     0%;  expected  volatility  of 72% and 81%; risk free interest rate of 3.22%
     and  3.27%  and  expected  lives  of  5  years.

     During  December  2004,  the  Financial  Accounting  Standards Board (FASB)
     issued  Statement  of  Financial Accounting Standard No. 123 (revised 2004)
     "Share-Based Payment" (SFAS 123R). SFAS 123R replaces SFAS 123, "Accounting
     for  Stock-Based  Compensation", and supercedes APB Opinion 25, "Accounting
     for  Stock  Issued to Employees" (APB 25). SFAS 123R requires that the cost
     of  share-based  payment  transactions  (including those with employees and
     non-employees)  be  recognized  in the financial statements as compensation
     cost.  That  cost  will  be  measured  based on the fair value of equity or
     liability  instrument  issued.  SFAS  123R  is  effective  for  the Company
     beginning  January 1, 2006. The Company will apply the modified prospective
     method as provided for in SFAS 123R, and therefore the financial statements
     of the Company for interim and annual periods prior to the adoption of SFAS
     123R  will  not  reflect  any  restatements.


                                       11
<PAGE>
                    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:

<TABLE>
<CAPTION>
                                                        March 31,     December 31,
                                                           2005           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                               318,807         318,807
      Equipment                                            226,285         226,285
      Truck                                                 25,968          25,968
                                                       ------------  --------------
                                                         7,076,697       7,076,697
                                                       ------------  --------------
    US - Mexico Pipelines and Matamoros Terminal
    Facility: (a)(c)

    U.S. Pipelines and Rights of Way                     6,782,242       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
                                                       ------------  --------------
                                                        14,506,681      14,499,681
                                                       ------------  --------------
        Total LPG                                       21,583,378      21,576,378
                                                       ------------  --------------
Other:
    Office equipment (b)                                   106,953         106,953
    Software (b)                                            57,163           1,700
                                                       ------------  --------------
                                                           164,116         108,653
                                                       ------------  --------------
                                                        21,747,494      21,685,031
    Less:  accumulated depreciation and amortization    (5,961,836)     (5,705,849)
                                                       ------------  --------------

                                                       $15,785,658   $  15,979,182
                                                       ============  ==============
</TABLE>

    (a)  Rio Vista assets
    (b)  Penn Octane and Subsidiaries other than Rio Vista
    (c)  Rio  Vista owns, leases, or is in the process of obtaining the land
         or rights of way used related to the US-Mexico Pipelines

    Property,  plant  and  equipment,  net  of  accumulated  depreciation,
    includes  $5,643,844 and $5,745,793 of costs located in Mexico at March 31,
    2005 and December 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  FIFO cost or market (LCM) and
     consist of the following:

<TABLE>
<CAPTION>
                                                   March 31, 2005       December 31, 2004
                                               ---------------------  ---------------------
                                                Gallons      LCM       Gallons      LCM
                                               ---------  ----------  ---------  ----------
<S>                                            <C>        <C>         <C>        <C>
         LPG:
            Leased Pipeline                    1,175,958  $1,027,840  1,175,958  $  930,156
            Brownsville Terminal Facility and
              Matamoros Terminal Facility        295,688     258,445    369,508     292,272
            Markham Storage and other            609,701     532,906          -           -
                                               ---------  ----------  ---------  ----------

                                               2,081,347   1,819,191  1,545,466   1,222,428
                                               =========              =========

             Fuel Products                       151,578     247,589  1,847,191   2,318,962
                                               =========  ----------  =========  ----------

                                                          $2,066,780             $3,541,390
                                                          ==========             ==========
</TABLE>


NOTE  F  -  DEBT  OBLIGATIONS

<TABLE>
<CAPTION>
Debt consists of the following:
                                                                                           March 31,    December 31,
                                                                                             2005           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                                                        1,371,751      1,711,924

Other debt.                                                                                    134,939         80,775
                                                                                         -------------  -------------
         Total debt                                                                          1,644,190      1,930,199
Less:  Current maturities                                                                    1,562,176      1,874,618
                                                                                         -------------  -------------
         Long-term debt                                                                  $      82,014  $      55,581
                                                                                         =============  =============
</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 issued an additional
     37,500  warrants  to  purchase  shares  of  common  stock of Penn Octane to
     certain holders of the Restructured Notes.

     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  110,250  warrants  (which  includes  20,000 warrants to purchase Rio
     Vista  common units held by Philadelphia Brokerage Corporation (see below))
     to  purchase  Rio  Vista  Common  Units (Rio Vista Warrants). The Rio Vista
     Warrants  will  expire on December 15, 2006 and the exercise price is $5.00
     per  warrant.


                                          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, who 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 20,000 units in Rio Vista. 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 $125,450 has been
     amortized through March 31, 2005.

     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.


NOTE  G  -  STOCKHOLDERS'  EQUITY

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

     During  January  2005,  the  Company  issued 100,000 shares of common stock
     of Penn Octane to a consultant in payment of amounts owed by the Company at
     December 31, 2004.

     During  March  2005,  warrants  to  purchase a total  of 106,250 shares  of
     common  stock  of  Penn Octane were exercised resulting in cash proceeds to
     the Company of $97,750.

     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.


                                          14
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  G  -  STOCKHOLDERS'  EQUITY  -  CONTINUED

     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.

     On  September  30,  2004,  pursuant to the terms of an employment agreement
     dated  May 13, 2003 with Richard Shore, Jr., 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.

     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.

     PENN  OCTANE  2001  WARRANT  PLAN

     On  March  9,  2005,  the  board  of  directors of Penn Octane approved the
     grant  of  warrants  to purchase a total of 1,005,000 shares of Penn Octane
     common  stock  under Penn Octane's 2001 Warrant Plan previously approved by
     the  Penn  Octane  stockholders.  Of  the total number of warrants granted,
     625,000  were  granted  to  executive officers of Penn Octane, 255,000 were
     issued  to  outside  directors  of Penn Octane and 125,000 were issued to a
     consultant.  The  exercise price for the warrants is $1.50 per share, which
     was  the  closing  price  for Penn Octane's common stock as reported by the
     Nasdaq  Stock  Market  on  March  9,  2005.  Warrants  granted to executive
     officers vest in equal monthly installments over a period of 36 months from
     the  date  of  grant.  Warrants  granted to outside directors vest in equal
     monthly installments over a period of 12 months from the date of grant. All
     warrants become fully exercisable upon a change in control event and expire
     five years from the date of grant.


NOTE  H  -  OPTIONS  AND  WARRANTS  OF  RIO  VISTA

     GENERAL  PARTNER  OPTIONS

     Penn  Octane's  100%  interest  in  the General Partner may be decreased to
     50%  as  a  result of the exercise by Shore Capital LLC (Shore Capital), an
     affiliate of Richard Shore, Jr., and Mr. Richter of options to each acquire
     25%  of  the  General Partner (General Partner Options). The exercise price
     for  each  option  is approximately $82,000. The options expire on July 10,
     2006.  Following  the  exercise of any of the General Partner 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. The warrants expire on July 10, 2006.


                                       15
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE H - OPTIONS AND WARRANTS OF RIO VISTA

     COMMON UNIT WARRANTS - CONTINUED

     On  March  9,  2005,  the  board  of managers of the General Partner of Rio
     Vista, approved the Rio Vista 2005 Equity Incentive Plan (the "2005 Plan").
     The  2005  Plan  permits  the  grant  of  common  unit options, common unit
     appreciation rights, restricted common unit and phantom common units to any
     person  who  is  an  employee  (including  to  any  executive  officer)  or
     consultant  of  Rio  Vista  or  the General Partner or any affiliate of Rio
     Vista  or  the  General  Partner.  The 2005 Plan provides that each outside
     manager  of  the General Partner shall be granted a common unit option once
     each  fiscal  year for not more than 5,000 common units, in an equal amount
     as  determined  by  the  board  of managers. The aggregate number of common
     units authorized for issuance as awards under the 2005 Plan is 750,000. The
     2005  Plan  shall  remain  available for the grant of awards until March 9,
     2015, or such earlier date as the board of managers may determine. The 2005
     Plan  is  administered  by  the  compensation  committee  of  the  board of
     managers.  Under  the  terms  of  the Agreement and applicable rules of the
     Nasdaq Stock Market, no approval by the common unitholders of Rio Vista was
     required.

     On  March  9,  2005,  the  board  of managers of the General Partner of Rio
     Vista  approved  the grant of options to purchase a total of 108,750 common
     units  under  the 2005 Plan. Of the total number of options granted, 93,750
     were  granted  to certain executive officers of the General Partner and Mr.
     Richter  and 15,000 were issued to outside managers of the General Partner.
     The  exercise price for the options is $12.51 per common unit, which is the
     average  of  the  high  and  low sales prices for Rio Vista common units as
     reported  by  the Nasdaq Stock Market on March 9, 2005. The options granted
     to executive officers (including Mr. Richter) were fully vested on the date
     of  grant.  The  options  granted to outside managers vest in equal monthly
     installments over a period of 12 months from the date of grant. All options
     become  fully  exercisable  upon a change in control event and expire three
     years from the date of grant.

NOTE I - COMMITMENTS AND CONTINGENCIES

     CREDIT FACILITY, LETTERS OF CREDIT AND OTHER

     As  of  March  31,  2005,  Penn  Octane  had  a $20,000,000 credit facility
     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.  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 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.


                                          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

     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 (5.75% at March 31, 2005) 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  agreement  and  current LPG prices, the amount available to finance
     Fuel  Products  and  LPG  purchases  in  excess of current minimum purchase
     commitments is limited 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 purchase 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 $10,000,000.

     Jerome  B.  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 March 31, 2005
     totaled  approximately  $10,507,000  of  which  approximately  $7,972,000
     represents  March  2005  purchases  and approximately $2,535,000 represents
     April  2005  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 $4,200,000 at March 31, 2005). At March
     31,  2005,  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 March 31,
     2005,  such taxes of approximately $800,577 were due. The letters of credit
     issued  have  all  been  secured  by  cash  in  the amount of approximately
     $458,000  which  is  included  in  restricted cash in the Company's balance
     sheet at March 31, 2005.

     LPG  and  Fuel  Products  financing  expense associated with the RZB Credit
     Facility totaled $203,301 and $185,013 for the three months ended March 31,
     2005 and 2004.


                                       17
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE I - COMMITMENTS AND CONTINGENCIES - CONTINUED

     DISTRIBUTIONS  OF  AVAILABLE  CASH

     All  Rio  Vista  unitholders  have  the  right  to receive distributions of
     "available  cash"  as  defined  in  the  Rio  Vista  partnership  agreement
     (Agreement)  from  Rio  Vista  in  an  amount equal to at least 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 General Partner receives a distribution corresponding to its
     2%  general  partnership interest. 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 Rio
     Vista  common  units  and the General Partner as described in the Agreement
     based  on  a  formula  whereby  the  General  Partner  will  receive
     disproportionately  more  distributions  per  percentage  interest than the
     holders  of  the  common  units as annual cash distributions exceed certain
     milestones.

     On February 14, 2005, Rio Vista made a cash distribution of $487,000.

     On  April  21,  2005,  the  board  of  managers  of  Rio Vista approved the
     payment  of  a  $0.25  cash  distribution  per unit to all Rio Vista common
     unitholders  and  a corresponding distribution to the General Partner as of
     the  record  date of May 9, 2005. The distribution is to be paid on May 13,
     2005 (see note L).

     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 tax 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.


                                       18
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE I - COMMITMENTS AND CONTINGENCIES - CONTINUED

     PARTNERSHIP TAX TREATMENT - CONTINUED

     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 downward 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.


NOTE  J  -  CONTRACTS

     LPG  SALES  TO  PMI

     During  December  2004,  the  Company  and  PMI  entered into a three month
     agreement  for the period January 1, 2005 to March 31, 2005 for the minimum
     sale  of  11,700,000  gallons of LPG for the months of January and February
     and  11,050,000 gallons of LPG for the month of March (Quarterly Agreement)
     at  reduced  margins  compared  with  those  in  effect during 2004. Actual
     volumes  sold  were  12,700,000  gallons,  9,900,000  gallons and 9,600,000
     gallons  for January, February and March 2005, respectively. In April 2005,
     the  Company  entered  into a one month contract with PMI for the sale of a
     minimum  of  10,450,000  gallons at a further reduction in margin (see note
     L).

     The  shortfall  for  the  month  of  February  2005 was attributable to the
     Company  not having a sufficient supply of LPG to meet the minimum contract
     volume.  The  shortfall for the month of March 2005 was attributable to PMI
     not  purchasing  the  minimum  contract  volume.  In  accordance  with  the
     Quarterly Agreement, PMI paid approximately $104,000 representing the total
     amount due associated with the shortfall volumes for March 2005.

     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 prior agreements.

     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.


                                       19
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  J  -  CONTRACTS

     LPG  SUPPLY  AGREEMENTS

     The  Company's agreement with Exxon expires in 2009 (Exxon Supply Contract)
     requires  the  Company to purchase minimum quantities of LPG totaling up to
     approximately  13,900,000  gallons  per  month  although the actual amounts
     supplied  under  the Exxon Supply Contract averaged approximately 9,295,000
     gallons  per  month  for  the  three  months  ended  March  31,  2005.

     During  January  2005, the Company amended the Koch supply contract whereby
     beginning  February  2005  and  continuing  through September 30, 2005, the
     Company  is  not  required to purchase any LPG from Koch under the existing
     Koch  supply  contract.  In  addition under the terms of the amendment, the
     Koch  supply  contract  terminates  on  September  30,  2005.

     In  addition  to  the  LPG  costs  charged  by  its  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 Exxon Supply Contract over actual sales
     volumes  to  PMI. Under the terms of the Exxon Supply Contract, 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  Exxon Supply Contract or other suppliers if there
     are increases in quantities of LPG purchased and/or to finance future price
     increases of LPG.


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 may
     be  unable  to  obtain additional financing collateralized by those assets.
     The  Restructured  Notes  and the $280,000 Notes are due December 15, 2005.
     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  monthly
     agreements  and  the Quarterly Agreement with PMI (see note J). The monthly
     volumes  of  LPG  sold to PMI since April 1, 2004 have been materially less
     than  historical  levels  and  since  April  1,  2005 the margins have been
     materially  reduced.  The  Company's  gross  profits  on  sales  may  be
     insufficient  to  pay  its expenses if (i) the volume of LPG sold under any
     future  sales  agreements  declines  below  an  average  of  approximately
     11,000,000 gallons per month and/or the margins are materially reduced from
     historical levels (see note L), and/or (ii) the Company cannot successfully
     reduce  the  minimum volumes and/or purchase costs required under the Exxon
     Supply  Contract  and/or  (iii)  the Company cannot sufficiently reduce its
     other  expenses,  and/or (iv) the Company's new Fuel Sales Business, is not
     sufficiently  successful.


                                       20
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  K  -  REALIZATION  OF  ASSETS

     The  Company's  cash  flow  has  been  materially  reduced  as  a result of
     materially  lower  volumes  of sales to PMI and materially reduced margins.
     Additionally,  the Company has begun to incur the additional public company
     compliance  and  income  tax preparation costs for Rio Vista. Rio Vista has
     declared  and  will pay a cash distribution on May 13, 2005. As a result of
     these  factors,  the  Company  may not have sufficient cash flow to pay its
     obligations  when  due  and/or  make  future  distributions  to Rio Vista's
     unitholders.  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 against its assets by Penn
     Octane's  creditors.  If  the  Company's  revenues  and  other  sources  of
     liquidity  are  not  adequate  to  pay  its  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  such  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. If additional amounts cannot be raised and the
     Company  is unable to restructure its obligations, the Company would suffer
     material  adverse  consequences  to  its  business, financial condition and
     results  of  operations  and  Penn  Octane and/or Rio Vista would likely be
     required  to  seek  other  alternatives,  which  could  include the sale of
     assets,  closure of operations and up to and including protection under the
     U.S. bankruptcy laws.

     In  view  of  the  matters  described  in  the  preceding  paragraphs,
     recoverability  of  the  recorded  asset  amounts shown in the accompanying
     unaudited  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
     average  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  unaudited  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 on a long-term basis. 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,
     (iv)  raise additional debt and/or equity capital and (v) reduce its supply
     costs  and  operating  expenses.


NOTE  L  -  SUBSEQUENT  EVENTS

     On  May  5,  2005,  the  Company  entered  into a contract with PMI for the
     sale of a minimum of 6,000,000 gallons of LPG for the period May 5, 2005 to
     May  31,  2005 at the reduced margin received in April 2005. For the period
     May 1, 2005 to May 4, 2005, PMI did not purchase any LPG from the Company.

     On  May  13,  2005,  Rio  Vista  made  a cash distribution of $487,000 (see
     note I).


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

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

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

FORWARD-LOOKING  STATEMENTS

The  statements contained in this Quarterly Report that are not historical facts
are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
Securities  Act  of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements may be identified by the use of forward-looking
terms such as "believes," "expects," "may," "will", "should" 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,  LPG  pricing,
operations,  demand,  competition,  capital  expenditures,  future acquisitions,
additional  financing,  the  deregulation  of  the  LPG  market  in  Mexico, the
operations  of  the  US - Mexico Pipelines, the Matamoros Terminal Facility, 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, "Qualifying 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
effective  March  31, 2004 and the resulting lower LPG sales volumes and margins
have  adversely  affected  the Company's results of operations.  Penn Octane has
one  major  customer for LPG, Rio Vista, and Rio Vista has only one customer for
LPG in Mexico, PMI.  The Company commenced its Fuel Sales Business less than one
year  ago.  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  PMI.  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  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.

     Internal  Control  Factors.   Pursuant to Section 404 of the Sarbanes Oxley
Act of 2002, beginning with the fiscal year ended December 31, 2005, the Company
is  required  to  complete an annual evaluation of its internal control systems.
In  addition,  the  Company's  independent  auditors  are required to provide an
opinion  regarding  such  evaluation  and the adequacy of the Company's internal
accounting  controls.  The  Company's  internal  controls  may  be  found  to be
inadequate,  deficiencies  or  weaknesses may be discovered, and remediation may
not  be  successful.  As  the Company grows, the Company will need to strengthen
its  internal control systems. If the Company acquires an existing business, the
internal  control  systems  of  the  acquired business may be inadequate and may
require  additional  strengthening.

     Projections. Projections, estimates and descriptions of the Company's plans
and  objectives  included  herein 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.  To the extent that Penn
Octane  purchases  quantities  of LPG under its supply contract in excess of LPG
sold  to  PMI,  the  Company  sells  the excess LPG to U.S. and other customers.


                                       23
<PAGE>
     During  the three months ended March 31, 2005, the Company derived 47.5% of
its  total  revenues  and  91.7%  of  LPG 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.

     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 $28.8 million for the three
months  ended  March  31,  2005  which  represents  approximately 48.1% 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.


LPG  SALES

     The  following  table  shows  the  Company's  volume  sold and delivered in
gallons  and  average  sales price for the three months ended March 31, 2005 and
2004;

<TABLE>
<CAPTION>
                                       2005   2004
                                       -----  -----
<S>                                    <C>    <C>
Volume Sold

    LPG (millions of gallons) - PMI     32.3   57.4
    LPG (millions of gallons) - Other    3.6   11.1
                                       -----  -----
                                        35.9   68.5
                                       =====  =====
Average sales price

    LPG (per gallon) - PMI             $0.88  $0.76
    LPG (per gallon) - Other            0.72   0.51
</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
Matamoros  Terminal  Facility and increased competition from U.S. suppliers (see
below).  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 U.S. imports of LPG by
PEMEX and that the LPG volumes which are actually produced from the Burgos Basin
would  not eliminate the need for U.S. 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.


                                       25
<PAGE>
RESULTS  OF  OPERATIONS

THREE  MONTHS  ENDED  MARCH  31, 2005 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2004

     Revenues.  Revenues  for  the three months ended March 31, 2005, were $59.7
million  compared  with $50.8 million for the three months ended March 31, 2004,
an  increase  of  $8.9  million  or  17.6%.  Of this increase, $28.8 million was
attributable  to  new  revenues generated from the Company's Fuel Sales Business
which  commenced  operations  in  June  2004,  $7.0  million was attributable to
increases  in  average  sales  prices of LPG sold to PMI during the three months
ended  March  31,  2005  and  $3.0 million was attributable to increased average
sales  prices  of  LPG  sold to customers other than PMI during the three months
ended  March  31,  2005,  partially  offset  by  $22.0  million  attributable to
decreased  volumes  of  LPG  sold to PMI during the three months ended March 31,
2005  and  $7.8  million  was  attributable  to decreased volumes of LPG sold to
customers other than PMI during the three months ended March 31, 2005.

     Cost  of  goods  sold.  Cost of goods sold for the three months ended March
31,  2005  was  $57.3  million  compared with $47.7 million for the three months
ended  March  31, 2004, an increase of $9.6 million or 20.2%.  Of this increase,
$27.7  million  was  attributable  to  new  costs of goods sold arising from the
Company's  Fuel  Sales  Business  which  commenced operations in June 2004, $6.6
million  was attributable to increases in the cost of LPG sold to PMI during the
three months ended March 31, 2005 and $4.1 million was attributable to increased
costs  of  LPG  sold  to  customers other than PMI during the three months ended
March  31,  2005,  partially  offset  by $19.8 million attributable to decreased
volume  of LPG sold to PMI during the three months ended March 31, 2005 and $8.7
million  was  attributable  to  decreased volumes of LPG sold to customers other
than  PMI  during  the  three  months  ended  March  31,  2005.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses  were $1.6 million for the three months ended March 31,
2005,  compared  with $1.2 million for the three months ended March 31, 2004, an
increase  of $381,591 or 30.9%. The increase during the three months ended March
31,  2005  was principally due to increases in professional fees and Texas state
franchise  taxes  and  Mexican  ad  valorem  taxes,  partially offset by reduced
payroll  related  costs.  The  above  amounts  include  selling,  general  and
administrative  expenses  related to the Fuel Sales Business of $172,328 for the
three  months  ended  March  31,  2005.

     Other  income  (expense).  Other  expense was $556,624 for the three months
ended  March  31,  2005, compared with $307,962 for the three months ended March
31,  2004.  The increase in other expense was due primarily to minority interest
in  the  earnings  of Rio Vista of $169,045, increased interest costs associated
with  the  Fuel Sales Business of $80,816 and reduced interest income during the
three  months  ended  March  31,  2005.

     Income tax. The Company calculated income taxes of $19,610 during the three
months  ended  March 31, 2005. Income taxes consisted of alternative minimum tax
of $1,461, state income tax expense of $16,756 and Mexican income tax expense of
$1,393 during the three months ended March 31, 2005.


                                       26
<PAGE>
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, and therefore, the Company may be unable to obtain
additional  financing collateralized by those assets. The Restructured Notes and
the  $280,000  Notes  are  due  December 15, 2005. 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. From April 1, 2004 to March 31, 2005, the
Company  has  been  operating under monthly contracts with PMI and under a three
month  contract  which  expired March 31, 2005. Since April 1, 2005, the Company
has operated under monthly contracts with PMI (see below). The Company's sources
of  liquidity  and capital resources historically have been provided by sales of
LPG  and  Fuel  Products, 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.

     The  Company's  cash  flow  has  been  materially  reduced  as  a result of
materially  lower  volumes  of  sales  to  PMI  and  materially reduced margins.
Additionally,  the  Company  has  begun  to  incur the additional public company
compliance  and  income  tax  preparation  costs  for  Rio Vista.  Rio Vista has
declared  and  paid  a  cash distribution on May 13, 2005.  As a result of these
factors,  the  Company  may not have sufficient cash flow to pay its obligations
when  due  and/or  make future distributions to Rio Vista's unitholders.  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  against  its  assets  by Penn Octane's creditors.  If the Company's
revenues and other sources of liquidity are not adequate to pay its 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 such 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.

     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
pay  its  obligations  and  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.

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

     If  additional  amounts  cannot  be  raised  and  the  Company is unable to
restructure  its  obligations,  the  Company  would  suffer  material  adverse
consequences  to its business, financial condition and results of operations and
Penn Octane and/or Rio Vista would likely be required to seek other alternatives
which  could  include  the  sale  of  assets,  closure  of  operations up to and
including protection under the U.S. bankruptcy laws.

     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  received  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.


                                       27
<PAGE>
     The  following  summary  table  reflects  comparative  cash flows for three
months ended March 31, 2005, and 2004. All information is in thousands.

<TABLE>
<CAPTION>
                                                        2005      2004
                                                      --------  --------
<S>                                                   <C>       <C>
Net cash  (used) in operating activities . . . . . .  $(4,950)  $(1,813)
Net cash (used in) provided by  investing activities       (8)      326
Net cash provided by financing activities. . . . . .    4,724     1,228
                                                      --------  --------
Net increase (decrease) in cash. . . . . . . . . . .  $ ( 234)  $(  259)
                                                      ========  ========
</TABLE>

     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  entered into monthly agreements for the sale of LPG (the
"Monthly  2004  Contracts").   During December 2004, the Company and PMI entered
into  a  three  month agreement for the period January 1, 2005 to March 31, 2005
(the  "Quarterly  Agreement") at margins lower than those in effect during 2004.
For  April  2005,  the  Company  entered  into a one month agreement with PMI at
further  reduced  margins.   On May 5, 2005, the Company entered into a contract
with  PMI  for  the sale of a minimum of 6,000,000 gallons of LPG for the period
May  5,  2005 to May 31, 2005 at the reduced margin received in April 2005.  For
the  period  May  1,  2005 to May 4, 2005, PMI did not purchase any LPG from the
Company.   The  following  table describes the minimum monthly volumes of LPG to
be  purchased  by  PMI  and  the  actual  monthly volumes purchased by PMI under
monthly  contracts  from  April 1, 2004 through December 31, 2004, the Quarterly
Agreement  and  contracts  for  April  and  May  2005:

<TABLE>
<CAPTION>
                    MINIMUM        ACTUAL
                   CONTRACT        VOLUMES
                    VOLUMES         SOLD
                 (IN MILLIONS   (IN MILLIONS
MONTH      YEAR   OF GALLONS)    OF GALLONS)
---------  ----  -------------  -------------
<S>        <C>   <C>            <C>
April      2004           13.0           13.1
May        2004           13.0           13.4
June       2004           13.0           13.8
July       2004           11.7           12.3
August     2004           11.7           12.4
September  2004           11.7           11.8
October    2004           11.1           10.9
November   2004           11.1           12.4
December   2004           11.1           13.9
January    2005           11.7           12.7
February   2005           11.7            9.9
March      2005           11.1            9.6
April      2005           10.5           10.8
May        2005            6.0              *
<FN>

*   Not yet available
</TABLE>


      The  shortfall  for  the  month  of  February 2005 was attributable to the
Company  not  having a sufficient supply of LPG to meet minimum contract volume.
The shortfall for the month of March 2005 was attributable to PMI not purchasing
the  minimum  contract  volume.  In accordance with the Quarterly Agreement, PMI
paid  approximately  $104,000  representing the total amount due associated with
the  shortfall  volumes  for  March  2005.


                                       28
<PAGE>
     If  the  actual  volume  sold in May 2005 approximates the minimum contract
volume,  cash  flows  for May 2005 will be less than expected cash operating and
other  expenses,  by  approximately $300,000 assuming current expense levels and
excluding  net  cash flows associated with the Fuel Sales Business,. The Company
intends  to  take  certain  measures  to  reduce  cash operating costs and other
expenses  immediately.  There can be no assurance that costs and expenses can be
reduced  sufficiently to mitigate negative cash flows at such reduced volumes at
current or lower margins.

     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  prior  agreements.  Until the terms of a new long-term contract
are  reached,  the  Company  expects to enter into additional monthly agreements
similar  to  the  Quarterly  Agreement.

     The  Company's  management  believes  that  PMI's  reduction  of  volume
commitments  for  April  2004  through  May  2005  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 Matamoros Terminal
Facility  and  increased  competition  from  U.S.  suppliers  (see Recent Trends
above).  In the event the volume of LPG purchased by PMI under future agreements
decline  below  an  average of approximately 11 million gallons per month and/or
margins  are  further  reduced,  the  Company  could  suffer  material  adverse
consequences  to its business, financial condition and results of operations. If
the  Company  is  unsuccessful  in lowering its LPG costs to offset a decline in
volumes  and/or  the  Company  is  forced to accept similar or lower margins 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  sales  totaled  approximately  $28.4 million and $43.4
million  for  the  three  months  ended  March  31, 2005 and 2004, respectively,
representing approximately 47.5% and 85.5% of total revenues for the periods and
91.7% and 85.6% 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 up to 13.9 million gallons per month blended in
accordance  with  required specifications.  For the three months ended March 31,
2005,  under  the  Exxon  Supply  Contract,  Exxon  has  supplied  an average of
approximately  9.3  million  gallons  of  LPG per month.   The purchase price is
indexed  to  variable  posted  prices.

     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.


                                          29
<PAGE>
     During  January  2005, the Company amended the Koch supply contract whereby
beginning  February  2005 and continuing through September 30, 2005, the Company
is  not  required  to  purchase any LPG from Koch under the existing Koch supply
contract. In addition under the terms of the amendment, the Koch supply contract
terminates on September 30, 2005.

     For  the  month  of  January  2005,  under  the  Koch supply contract, Koch
supplied  6.5  million  gallons  of  propane.

     During  April 2005, 9.2 million gallons of LPG was supplied under the Exxon
Supply  Contract  and 1.2 million gallons were purchased on a spot monthly basis
from  another  supplier.

     The  Company  is  currently purchasing LPG under the Exxon Supply Contract.
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.

     In  addition  to  the  LPG  costs charged by its supplier, 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  Exxon  Supply  Contract over actual sales volumes to PMI.
Under  the  terms of the Exxon Supply Contract, 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 Exxon Supply
Contract  or  other  suppliers  if  there  are  increases  in  quantities of LPG
purchased and/or to finance future price increases of LPG.

     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.  Fuel  sales  approximated 48.1% of total revenues for the three
months  ended  March  31,  2005.

     Fuel  Sales  totaled  $28.8  million  and  cost  of  fuel  and other direct
operating  expenses  totaled $28.0 during the three months ended March 31, 2005.
Future  success  of  the Fuel Sales Business is dependent on the demand for Fuel
Products  in  the  Company's  markets  and  the  Company's  ability  to  manage
fluctuations  in  the  price  of  such  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 commitments under the Exxon Supply Contract,
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.


                                          30
<PAGE>
     Federal  and  State  agencies  require  the Company to obtain the necessary
regulatory and other approvals for its Fuel Sales Business.

     Credit Arrangements.  As of March 31, 2005, Penn Octane had a $20.0 million
credit  facility  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.  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 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.

     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 (5.75% at
March  31,  2005)  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  agreement  and  current LPG prices, the amount available to finance Fuel
Products  and LPG purchases in excess of current minimum purchase commitments is
limited 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 $10.0 million.

     Jerome  B.  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 March 31, 2005 totaled
approximately $10.5 million of which approximately $8.0 million represents March
2005  purchases  and approximately $2.5 million represents April 2005 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  $4.2 million at March 31, 2005). At March 31, 2005, 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 March 31, 2005, such taxes
of  approximately $800,577 were due.  The letters of credit issued have all been
secured  by  cash  in  the amount of approximately $458,000 which is included in
restricted cash in the Company's balance sheet at March 31, 2005.

     LPG  and  Fuel  Products  financing  expense associated with the RZB Credit
Facility  totaled  $203,301,  and  $185,013 for the three months ended March 31,
2005  and  2004.


                                       31
<PAGE>
     The  following  is a summary of the Company's estimated minimum contractual
obligations  and  commercial obligations as of March 31, 2005. Where applicable,
LPG  prices  are based on the March 31, 2005 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               $   1.5  $      1.5  $         -  $          -  $      -
Operating Leases                             8.8         1.1          2.0           2.0       3.7
LPG Purchase Obligations                   608.6       135.3        270.6         202.7         -
Other Long-Term Obligations                   .1           -           .1             -         -
                                         -------  ----------  -----------  ------------  --------
     Total Contractual Cash Obligations  $ 619.0  $    137.9  $     272.7  $      204.7  $    3.7
                                         =======  ==========  ===========  ============  ========
</TABLE>

<TABLE>
<CAPTION>
                                                        AMOUNT OF COMMITMENT EXPIRATION
                                                                  PER PERIOD
                                                             (AMOUNTS IN MILLIONS)
                                   ----------------------------------------------------
                                   Total Amounts   Less than   1 - 3   4 - 5     Over
Commercial Commitments               Committed       1 Year    Years   Years   5 Years
---------------------------------  --------------  ----------  ------  ------  --------
<S>                                <C>             <C>         <C>     <C>     <C>
Lines of Credit                    $          5.8  $      5.8  $    -  $    -  $      -
Standby Letters of Credit                    11.0        11.0       -       -         -
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  $         16.8  $     16.8  $    -  $    -  $      -
                                   ==============  ==========  ======  ======  ========
</TABLE>


     Distributions of Available Cash.  All Rio Vista unitholders, have the right
to  receive  distributions  of  "available  cash"  as  defined  in the Rio Vista
partnership agreement (the "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  General  Partner  receives  a  distribution corresponding to its 2% general
partnership interest.  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 Rio
Vista  common  units and the General Partner as described in the Agreement based
on  a  formula  whereby the General Partner will receive disproportionately more
distributions  per  percentage  interest than the holders of the common units as
annual  cash  distributions  exceed  certain  milestones.

     On  January  14,  2005,  the  Board  of  Managers of Rio Vista approved the
payment  of  a  $0.25  cash  distribution  per  unit  to  all  Rio  Vista common
unitholders  and  a  corresponding distribution to the General Partner as of the
record  date  of  February  9,  2005.  The  distribution of $487,000 was paid on
February  14,  2005.

     On  April 21, 2005, the Board of Managers of Rio Vista approved the payment
of  a $0.25 cash distribution per unit to all Rio Vista common unitholders and a
corresponding  distribution to  the General Partner as of the record date of May
9,  2005.  The  distribution of $487,000 was paid on May 13, 2005 (see note L to
the  unaudited  consolidated  financial  statements).


                                          32
<PAGE>
     Rio  Vista's  ability to make distributions may be impacted by sales to PMI
at  acceptable  volumes  and  margins,  payments  on  its  guarantees, costs and
expenses and the inability to obtain additional financing on its pledged assets.
Although  Penn  Octane  is not required to do so, to the extent that Penn Octane
has  sufficient  cash  to do so, it intends to lend amounts to Rio Vista to meet
the  minimum  distributions.  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/or Penn Octane and/or
Rio Vista may be required to raise additional funds to avoid foreclosure against
their  assets.  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.

     The following is a reconciliation of Rio Vista's consolidated net income to
distributable  cash  flow for the three months ended December 31, 2004 and March
31,  2005.

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                         --------------------------------
                                                          December 31,
                                                              2004        March 31, 2005
                                                         --------------  ----------------
<S>                                                      <C>             <C>
Net income (loss)                                        $     (63,000)  $       172,000
    Plus interest and other expense, net                       101,000           119,000
    Plus depreciation and amortization                         178,000           205,000
    Plus other non-cash expenses                               344,000                 -
                                                         --------------  ----------------
EBITDA                                                         560,000           496,000
Less cash interest, net                                       (101,000)          (61,000)
                                                         --------------  ----------------
Distributable cash flow                                        459,000           435,000
Distributable cash flow applicable to general partner           (9,000)           (9,000)
                                                         --------------  ----------------
Distributable cash flow applicable to limited partners   $     450,000   $       426,000
                                                         ==============  ================
</TABLE>

     Rio  Vista  utilizes  two financial measures, EBITDA and distributable cash
flow,  which  are not defined in GAAP.  Management uses these financial measures
because  they  are  widely  accepted  financial  indicators used by investors to
compare  partnership  performance.  In  addition, management believes that these
measures  provide investors an enhanced perspective of the operating performance
of  Rio  Vista's  assets  and the cash flow the business is generating.  Neither
EBITDA  nor distributable cash flow are intended to represent cash flows for the
period, nor are they presented as an alternative to net income.  They should not
be  considered  in  isolation  or  as  substitutes  for a measure of performance
prepared  in  accordance  with  GAAP.

     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  tax  basis  in  Rio  Vista.

     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".


                                          33
<PAGE>
     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  downward  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.  The  service  payments  are  subject to an annual adjustment
based  on  a  labor cost index and an electric power cost index.   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.

     Other.  The Company intends to upgrade its computer and information systems
at  a  total  estimated  cost  of  approximately  $350,000  during  2005.

     Mexican  Operations.  Under  current  Mexican  law,  foreign  ownership  of
Mexican  entities  involved  in  the  distribution  of  LPG  or the operation of
receiving,  conveying,  storing and delivering LPG to final users is prohibited.
Foreign  ownership  is  permitted  in  the  transportation  and  storage of LPG.
Mexican  law  also provides that an entity with a permit to transport LPG is not
permitted  to  obtain  permits  for the other defined LPG activities (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.  de  R.L. 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.


                                       34
<PAGE>
     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.

     During  July  2003,  the  Company acquired an option to purchase Tergas, an
affiliate  95%  owned by Mr.  Vicente 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.

     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")), Reglamento de Gas Licuado
de  Petroleo  (Regulation  of  LPG)  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 Regulation of LPG
was  enacted 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, an entity with a permit to transport LPG is not permitted to
obtain  permits for the other defined LPG activities (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.

     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.  During  January  2005,  the
Company  issued 100,000 shares of common stock of Penn Octane to a consultant in
payment  of  amounts  owed  by  the  Company  at  December  31,  2004.

     During March 2005, warrants to purchase a total of 106,250 shares of common
stock of Penn Octane were exercised resulting in cash proceeds to the Company of
$97,750.


                                          35
<PAGE>
     On  September  30,  2004,  pursuant to the terms of an employment agreement
dated  May  13,  2003  with  Richard  Shore, Jr., 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.

     On  March 9, 2005, the board of directors of Penn Octane approved the grant
of  warrants to purchase a total of 1,005,000 shares of Penn Octane common stock
under  Penn  Octane's  2001  Warrant Plan previously approved by the Penn Octane
stockholders.  Of  the total number of warrants granted, 625,000 were granted to
executive  officers  of Penn Octane, 255,000 were issued to outside directors of
Penn Octane and 125,000 were issued to a consultant.  The exercise price for the
warrants  is  $1.50  per  share,  which  was the closing price for Penn Octane's
common  stock as reported by the Nasdaq Stock Market on March 9, 2005.  Warrants
granted  to  executive officers vest in equal monthly installments over a period
of 36 months from the date of grant.  Warrants granted to outside directors vest
in equal monthly installments over a period of 12 months from the date of grant.
All  warrants become fully exercisable upon a change in control event and expire
five  years  from  the  date  of  grant.

     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
may be decreased to 50% as a result of the exercise by Shore Capital LLC ("Shore
Capital"),  an  affiliate  of  Richard Shore, Jr., and Mr. Richter of options to
each  acquire  25%  of the General Partner (the "General Partner Options").  The
exercise price for each option is approximately $82,000.   The options expire on
July  10,  2006.   Following the exercise of any of the General Partner 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.  The  warrants  expire  on  July 10, 2006.

     The  Company  issued  90,250  warrants  to  purchase Rio Vista units to the
holders  of  the  Restructured  Notes  and $280,000 Notes and 20,000 warrants to
purchase  Rio  Vista  units  to  PBC  (see  note F to the unaudited consolidated
financial  statements).  The calculated exercise price per warrant to purchase a
Rio  Vista  Unit  for  these  Rio  Vista  Warrants  is  $5.00.

     On  March  9,  2005,  the  board  of managers of the General Partner of Rio
Vista, approved the Rio Vista 2005 Equity Incentive Plan (the "2005 Plan").  The
2005  Plan  permits  the  grant of common unit options, common unit appreciation
rights,  restricted common unit and phantom common units to any person who is an
employee  (including to any executive officer) or consultant of Rio Vista or the
General  Partner  or any affiliate of Rio Vista or the General Partner. The 2005
Plan  provides that each outside manager of the General Partner shall be granted
a common unit option once each fiscal year for not more than 5,000 common units,
in an equal amount as determined by the board of managers.  The aggregate number
of  common  units  authorized  for  issuance  as  awards  under the 2005 Plan is
750,000.  The  2005  Plan  shall  remain available for the grant of awards until
March 9, 2015, or such earlier date as the board of managers may determine.  The
2005  Plan  is  administered  by  the  compensation  committee  of  the board of
managers.  Under  the  terms of the Agreement and applicable rules of the Nasdaq
Stock  Market,  no approval by the common unitholders of Rio Vista was required.


                                       36
<PAGE>
     On March 9, 2005, the board of managers of the General Partner of Rio Vista
approved  the grant of options to purchase a total of 108,750 common units under
the  2005  Plan.  Of the total number of options granted, 93,750 were granted to
certain executive officers of the General Partner and Mr Richter and 15,000 were
issued  to  outside  managers of the General Partner. The exercise price for the
options  is  $12.51  per  common  unit, which is the average of the high and low
sales  prices  for Rio Vista common units as reported by the Nasdaq Stock Market
on  March  9,  2005.  The  options  granted to executive officers (including Mr.
Richter)  were fully vested on the date of grant. The options granted to outside
managers  vest in equal monthly installments over a period of 12 months from the
date  of  grant.  All  options become fully exercisable upon a change in control
event and expire three years from the date of grant.

     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,
all  of  Penn Octane's limited partnership interest in Rio Vista was distributed
to Penn Octane's stockholders.  Each stockholder of Penn Octane on September 30,
2004,  received  on common unit of the limited partnership interest of Rio Vista
for  every  eight  shares  of  Penn  Octane's  common  stock  owned.

     As  a  result  of  the  Spin-Off,  Rio  Vista  owns  and  operates the LPG,
distribution, transportation and marketing business previously conducted by Penn
Octane.  All  of  the  assets  transferred  to  Rio Vista in connection with the
Spin-Off  have  been  transferred  at  historical  costs and related accumulated
depreciation  of  Penn  Octane  at  the  date  of the Spin-Off.  Rio Vista began
selling  LPG  to  PMI  upon the completion of the Spin-Off and at that time also
began purchasing LPG from Penn Octane under the LPG Supply Agreement.

     The  General  Partner  is  responsible  for  managing  the  operations  and
activities of Rio Vista. Common unitholders do not participate in the management
of Rio Vista. Penn Octane controls Rio Vista by virtue of its current ownership,
management  and  voting  control of the General Partner. Therefore, Rio Vista is
accounted  for  as  a  consolidated  subsidiary  of  Penn  Octane  for financial
accounting  purposes.

     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.

     Under the LPG Supply Agreement, Penn Octane supplies all of Rio Vista's LPG
requirements  in connection with its LPG sales obligations to PMI. The purchases
of the LPG are at fluctuating prices and are determined based on the cost of LPG
under  Penn  Octane's  agreements with its LPG suppliers for volumes sold to Rio
Vista  for  sale  to  PMI  or  to  other Rio Vista customers, other direct costs
related  to  PMI  and other LPG sales of Rio Vista and a formula that takes into
consideration  operating  costs  of Penn Octane and Rio Vista. Rio Vista expects
the aggregate costs per gallon to purchase LPG (less any applicable adjustments)
to  be below the aggregate sales prices per gallon of LPG sold to PMI. Rio Vista
believes  that  its  LPG  Supply  Agreement with Penn Octane provides it with an
advantage  over  competitors  in the supply of LPG to PMI based on Penn Octane's
adequate  volumes  and  price  provided  for  in  its  agreements  with  its LPG
suppliers, and Penn Octane's Leased Pipeline which takes the LPG directly to Rio
Vista's  Brownsville  Terminal  Facility  from  those  suppliers.  The  Leased
Pipeline's  capacity  is  estimated  to be between 25.0 million and 30.0 million
gallons  per  month.

     Under  the  terms  of  the  Exxon Supply Contract, Penn Octane 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,  Penn  Octane's  existing  letter  of credit
facility may not be adequate to meet the letter of credit requirements under the
Exxon Supply Contract or other suppliers if there are increases in quantities of
LPG  purchased  and/or  to  finance  future  price  increases  of  LPG.


                                          37
<PAGE>
     The LPG Supply Agreement terminates on the earlier to occur of:

     -  Penn  Octane ceases to have the right to access the Leased Pipeline that
          connects to Rio Vista's Brownsville Terminal Facility; and
     -  Rio  Vista  ceases  to  sell  LPG using any of the assets contributed by
          Penn Octane to Rio Vista pursuant to the Spin-Off.

     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.

     Realization  of  Assets.   The  Company's  unaudited consolidated financial
statements  included  elsewhere  herein,  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  may  be  unable  to  obtain  additional  financing
collateralized  by  those  assets. The Restructured Notes and the $280,000 Notes
are  due  December  15,  2005.  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  monthly
agreements  and  Quarterly  Agreement  with  PMI  (see  note  J to the unaudited
consolidated  financial  statements).  The  monthly  volumes  of LPG sold to PMI
since  April  1, 2004 have been materially less than historical levels and since
April  1,  2005  the  margins have been materially reduced.  The Company's gross
profits  on  sales  may be insufficient to pay its expenses if (i) the volume of
LPG  sold  under  any  future  sales  agreements  declines  below  an average of
11,000,000  gallons  per  month  and/or  the margins are materially reduced from
historical  levels,  and/or  (ii)  the  Company  cannot  successfully reduce the
minimum  volumes  and/or purchase costs required under the Exxon Supply Contract
and/or  (iii)  the Company cannot sufficiently reduce its other expenses, and/or
(iv)  the  Company's  new  Fuel  Sales  Business is not sufficiently successful.

     The  Company's  cash  flow  has  been  materially  reduced  as  a result of
materially  lower  volumes  of  sales  to  PMI  and  materially reduced margins.
Additionally,  the  Company  has  begun  to  incur the additional public company
compliance  and  income  tax  preparation  costs  for  Rio Vista.  Rio Vista has
declared  and  paid  a  cash distribution on May 13, 2005.  As a result of these
factors,  the  Company  may not have sufficient cash flow to pay its obligations
when  due  and/or make future distributions to Rio Vista's unitholders.   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  against  its  assets  by Penn Octane's creditors.  If the Company's
revenues and other sources of liquidity are not adequate to pay its 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  such  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.   If additional amounts cannot be raised and
the  Company  is unable to restructure its obligations, the Company would suffer
material  adverse  consequences  to  its  business,


                                          38
<PAGE>
financial  condition  and results of operations and Penn Octane and/or Rio vista
would likely be required to seek other alternatives which could include the sale
of  assets,  closure of operations up to and including protection under the U.S.
bankruptcy laws.

     In  view  of  the  matters  described  in  the  preceding  paragraphs,
recoverability of the recorded asset amounts shown in the accompanying unaudited
consolidated  balance  sheet  included  elsewhere  herein, 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
average  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
unaudited  consolidated  financial  statements  included elsewhere herein 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  on  a long-term basis.  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, (iv) raise additional
debt  and/or  equity  capital  and  (v)  reduce  its  supply costs and operating
expenses.


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.

     The  Company  may  be  adversely  impacted  as a result of increases in LPG
prices,  which  are  related to oil and natural gas prices, because of limits on
the  RZB  Credit  Facility.

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.

     In  November  2004,  the  FASB  issued  Statement  of  Financial Accounting
Standard  No.  151,  "Inventory  Costs  -  An Amendment of ARB No. 43 Chapter 4"
("SFAS  151")  which  clarifies  that abnormal amounts of idle facility expense,
freight,  handling  costs  and  spoilage  should be expensed as incurred and not
included  in  overhead.  Further,  SFAS  151  requires  that allocation of fixed
production  overheads  to conversion costs should be based on normal capacity of
the  production  facilities.  The  provisions  in  SFAS  151  are  effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.  The
Company  has  determined  that SFAS 151 will not have a material impact on their
consolidated results of operations, financial position or cash flows.


                                          39
<PAGE>
     During December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 123 (revised 2004)
"Share-Based Payment" ("SFAS 123R"). SFAS 123R replaces SFAS 123, "Accounting
for Stock-Based Compensation", and supercedes APB Opinion 25, "Accounting for
Stock Issued to Employees" ("APB 25"). SFAS 123R requires that the cost of
share-based payment transactions (including those with employees and
non-employees) be recognized in the financial statements as compensation cost.
That cost will be measured based on the fair value of equity or liability
instrument issued. SFAS 123R is effective for the Company beginning January 1,
2006. The Company currently accounts for stock options issued to employees under
APB 25.

     In  December  2004,  the  FASB  issued  Statement  of  Financial Accounting
Standard  No.  153, "Exchanges of Nonmonetary Assets-An Amendment of APB Opinion
No.  29"  ("SFAS  153").  The  amendments  made  by  SFAS  153  are based on the
principle  that  exchanges on nonmonetary assets should be measured based on the
fair  value  of  the assets exchanged.  The provisions in SFAS 153 are effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June
15,  2005.  Early application is permitted and companies must apply the standard
prospectively.  The  Company  has  determined  that  SFAS  153  will  not have a
material  impact on their consolidated results of operations, financial position
or  cash  flows.

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
consolidated financial statements included in its 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.

     Revenue  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 APB 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.

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.


                                       40
<PAGE>
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 generally 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.


                                          41
<PAGE>
PART II

ITEM 1.   LEGAL PROCEEDINGS

          See note L to the Company's consolidated financial statements included
          in  its  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  included  elsewhere  herein  and  notes  J  and  K  to the
          Company's  consolidated  financial  statements  included in its Annual
          Report  on  Form  10-K  for  the  fiscal year ended July 31, 2004, for
          information concerning certain sales of Securities.

          With respect to the issuances of securities discussed in note G to the
          accompanying  unaudited  consolidated  financial  statements  included
          elsewhere herein, the transactions were exempt from registration under
          the  Securities  Act of 1933, 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

          THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE TO PREVIOUSLY
          FILED REPORTS, AS NOTED.

Exhibit  No.
------------

10.1      Amendment to Product Sales Agreement made effective as of the 28th day
          of  January  2005  by  and  between  Penn  Octane Corporation and Koch
          Hydrocarbon,  L.P.  (Incorporated  by  reference  to  the  Company's
          Transition  Report  on  Form  10-Q  for  the  transition  period ended
          December  31, 2004 filed on February 22, 2005, SEC File No. 000-24394)


THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

10.2*     Penn  Octane  Corporation  2001  Warrant  Plan

10.3*     Rio  Vista  Energy  Partners  L.P.  2005  Equity  Incentive  Plan

  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.

  *  indicates  management  contract  or  compensatory  plan  or arrangement.


                                       42
<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


May 20, 2005                          By:   /s/Ian  T.  Bothwell
                                            --------------------
                                            Ian  T.  Bothwell
                                            Vice President, Treasurer, Assistant
                                            Secretary, Chief Financial Officer


                                       43