UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q


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

     For  the  quarterly  period  ended  December  31,  2004

                                       OR

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

     For  the  transition  period  from  August  1,  2004  to  December 31, 2004

                       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 Identification No.)
Incorporation or Organization)

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  February  11,  2005  was  15,416,495.


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

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

               Independent Certified Public Accountants' Review Report                   3

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

               Unaudited Consolidated Statements of Operations for the two months
               and five months ended December 31, 2004 and 2003                          6

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

               Notes to Consolidated Financial Statements (Unaudited)                   8-21

           2.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                               22-41

           3.  Quantitative and Qualitative Disclosures About Market Risk               42

           4.  Controls and Procedures                                                  42

Part II    1.  Legal Proceedings                                                        43

           2.  Unregistered Sales of Equity Securities and Use of Proceeds              43

           3.  Defaults Upon Senior Securities                                          43

           4.  Submission of Matters to a Vote of Security Holders                      43

           5.  Other Information                                                        43

           6.  Exhibits and Reports on Form 8-K                                         43

           Signatures                                                                   44
</TABLE>


                                        2
<PAGE>
             Independent Certified Public Accountants' Review Report

Board of Directors and Stockholders
Penn Octane Corporation

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

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

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

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

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

The accompanying consolidated statements of income and cash flows of Penn Octane
Corporation  and  subsidiaries for the two months and five months ended December
31,  2003  were not audited, reviewed, or compiled by us and, accordingly, we do
not  express  an  opinion  or  any  other  form  of  assurance  on  them.


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

Brownsville, Texas
February 2, 2005


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

                                PENN OCTANE CORPORATION AND SUBSIDIARIES

                                       CONSOLIDATED BALANCE SHEETS

                                                 ASSETS


                                                                              December 31,
                                                                                  2004        July 31,
                                                                              (Unaudited)       2004
                                                                             --------------  -----------
<S>                                                                          <C>             <C>
Current Assets

    Cash                                                                     $      374,567  $   384,074

    Restricted cash                                                               5,367,516    6,314,071

    Trade accounts receivable (less allowance for doubtful accounts of  $0)       9,222,035    6,207,067

    Inventories                                                                   3,541,390    1,632,992

    Prepaid expenses and other current assets                                       114,204      210,520
                                                                             --------------  -----------

        Total current assets                                                     18,619,712   14,748,724

Property, plant and equipment - net                                              15,979,182   16,398,280

Lease rights (net of accumulated amortization of $772,412 and $753,330 at
December 31, 2004 and July 31, 2004)                                                381,627      400,709

Other non-current assets                                                             28,932       29,639
                                                                             --------------  -----------

            Total assets                                                     $   35,009,453  $31,577,352
                                                                             ==============  ===========
<FN>
        The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


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

                                  CONSOLIDATED BALANCE SHEETS - CONTINUED

                                   LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                               December 31,
                                                                                   2004         July 31,
                                                                               (Unaudited)        2004
                                                                              --------------  ------------
<S>                                                                           <C>             <C>
Current Liabilities

    Current maturities of long-term debt                                      $   1,874,618   $   162,694

    Revolving line of credit                                                      1,397,249     2,688,553

    LPG and fuel products trade accounts payable                                 13,215,832     7,432,728

    Other accounts payable                                                        1,661,360     1,784,643

    US and foreign taxes payable                                                     36,099         5,194

    Accrued liabilities                                                           1,007,145     1,123,979
                                                                              --------------  ------------

        Total current liabilities                                                19,192,303    13,197,791

Long-term debt, less current maturities                                              55,581     1,729,202

Minority interest in Rio Vista Energy Partners L.P.                              14,621,250             -

Commitments and contingencies                                                             -             -

Stockholders' Equity

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

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

    Common stock - $.01 par value, 25,000,000 shares authorized;
    15,316,495 and 15,285,245 shares issued and outstanding at December
    31, 2004 and July 31, 2004                                                      153,165       152,852

    Additional paid-in capital                                                   28,530,107    28,460,972

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

    Accumulated deficit                                                         (24,814,953)   (9,235,465)
                                                                              --------------  ------------

    Total stockholders' equity                                                    1,140,319    16,650,359
                                                                              --------------  ------------

            Total liabilities and stockholders' equity                        $  35,009,453   $31,577,352
                                                                              ==============  ============
<FN>
         The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


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

                                         CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      (UNAUDITED)

                                                               Two Months Ended                Five Months Ended
                                                        ------------------------------  ------------------------------
                                                         December 31,    December 31,    December 31,    December 31,
                                                             2004            2003            2004            2003
                                                        --------------  --------------  --------------  --------------
<S>                                                     <C>             <C>             <C>             <C>
Revenues                                                $  42,740,216   $  30,794,519   $ 108,252,804   $  69,343,626
Cost of goods sold                                         42,052,818      28,698,785     105,574,199      65,181,962
                                                        --------------  --------------  --------------  --------------

    Gross profit                                              687,398       2,095,734       2,678,605       4,161,664
Selling, general and administrative expenses
    Legal and professional fees                               403,592         323,717         642,863       1,085,586
    Salaries and payroll related expenses                     411,338         327,638       1,382,006         829,053
    Other                                                     461,236         344,384       1,093,007         620,299
                                                        --------------  --------------  --------------  --------------
                                                            1,276,166         995,739       3,117,876       2,534,938

    Loss on sale of CNG assets                                      -               -               -    (    500,000)
                                                        --------------  --------------  --------------  --------------
        Operating income (loss)                          (    588,768)      1,099,995    (    439,271)      1,126,726
Other income (expense)
    Interest and LPG and Fuel Products financing
    expense                                              (    293,520)   (    219,506)   (    650,363)   (    595,092)
    Interest income                                             3,237           3,905          12,317           9,244
    Minority interest in (earnings) loss of Rio Vista
    Energy Partners L.P.                                 (    172,377)              -          61,720               -
    Other income                                                    -               -               -         210,000
                                                        --------------  --------------  --------------  --------------
        Income (loss) before taxes                       (  1,051,428)        884,394    (  1,015,597)        750,878
Provision (benefit) for income tax                        (    46,116)    (     23,572)       224,795           1,428
                                                        --------------  --------------  --------------  --------------
        Net income (loss)                               $(  1,005,312)  $     907,966   $(  1,240,392)  $     749,450
                                                        ==============  ==============  ==============  ==============

Net income (loss) per common share                      $(       0.07)  $        0.06   $(       0.08)  $        0.05
                                                        ==============  ==============  ==============  ==============
Net income (loss) per common share assuming
dilution                                                $(       0.07)  $        0.06   $(       0.08)  $        0.05
                                                        ==============  ==============  ==============  ==============
Weighted average common shares outstanding                 15,289,856      15,361,647      15,287,083      15,323,533
                                                        ==============  ==============  ==============  ==============
<FN>
               The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


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

                               CONSOLIDATED STATEMENTS OF CASH FLOWS

                                            (UNAUDITED)

                                                                            Five Months Ended
                                                                     ------------------------------
                                                                      December 31,    December 31,
                                                                          2004            2003
                                                                     --------------  --------------
<S>                                                                  <C>             <C>
Cash flows from operating activities:
Net income (loss)                                                    $(  1,240,392)  $     749,450
Adjustments to reconcile net income to net cash (used in) provided
  by operating activities:
    Depreciation and amortization                                          359,358         377,477
    Amortization of lease rights                                            19,081          19,081
    Non-employee stock based costs and other                                     -          52,029
    Amortization of loan discount related to detachable warrants            40,448          76,622
    Loss on sale of CNG assets                                                   -         500,000
    Stock based compensation                                               384,574               -
    Minority interest in Rio Vista Energy Partners L.P.               (     61,720)              -
    Write down of capitalized software                                      75,890               -
Changes in current assets and liabilities:
    Trade accounts receivable                                         (  3,014,968)   (  4,889,010)
    Inventories                                                       (  1,908,398)   (    162,347)
    Prepaid and other current assets                                        96,316         220,823
    LPG and Fuel Products trade accounts payable                         5,783,104       5,097,730
    Other accounts payable and accrued liabilities                    (    240,119)   (    430,038)
    US and Foreign taxes payable                                            30,905    (     41,072)
                                                                     --------------  --------------
        Net cash provided by operating activities                          324,079       1,570,745
Cash flows from investing activities:
    Capital expenditures                                              (     16,149)   (    122,310)
    (Increase) decrease in other non-current assets                            707           1,233
                                                                     --------------  --------------
    Net cash  (used in) investing activities                          (     15,442)   (    121,077)
Cash flows from financing activities:
    (Increase) decrease in restricted cash                                 946,555    (    960,665)
    Revolving credit facilities                                       (  1,291,304)              -
    Issuance of common stock                                                28,749         122,188
    Issuance of debt                                                             -          85,968
    Reduction in debt                                                 (      2,144)   (    490,035)
                                                                     --------------  --------------
        Net cash (used in)  financing activities                      (    318,144)   (  1,242,544)
                                                                     --------------  --------------
                Net increase (decrease) in cash                       (      9,507)        207,124
Cash at beginning of period                                                384,074          71,064
                                                                     --------------  --------------
Cash at end of period                                                $     374,567   $     278,188
                                                                     ==============  ==============

Supplemental disclosures of cash flow information:
    Cash paid during the period for:
    Interest and LPG and Fuel Products financing                     $     627,147   $     472,615
                                                                     ==============  ==============
Supplemental disclosures of noncash transactions:
    Equity-common stock and warrants issued and other                $      40,699   $     334,485
                                                                     ==============  ==============
    Minority interest in Rio Vista  Energy Partners L.P.             $  14,339,092   $           -
                                                                     ==============  ==============
<FN>
      The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


                                        7
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  A  -  ORGANIZATION

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

     The Company commenced commercial operations for the purchase, transport and
     sale  of  LPG  in the fiscal year ended July 31, 1995, upon construction of
     the Brownsville Terminal Facility. The primary market for the Company's LPG
     is  the  northeastern  region  of  Mexico,  which  includes  the  states of
     Coahuila,  Nuevo  Leon  and  Tamaulipas.  Since  operations  commenced, the
     Company's  primary  customer for LPG has been P.M.I. Trading Limited (PMI).
     PMI  is  a  subsidiary  of Petroleos Mexicanos, the state-owned Mexican oil
     company,  which  is  commonly  known  by its trade name "PEMEX." PMI is the
     exclusive  importer  of  LPG into Mexico. The LPG purchased by PMI from the
     Company  is sold to PEMEX which distributes the LPG purchased from PMI into
     the  northeastern  region  of  Mexico.  Sales  of  LPG to PMI accounted for
     approximately  53.0%  of  the  Company's  total  revenues  and 76.7% of the
     Company's  total  LPG revenues for the five months ended December 31, 2004.
     The  Company's  gross  profit  is  dependent on sales volume of LPG to PMI,
     which  fluctuates  in  part  based  on  the  seasons. The demand for LPG is
     strongest  during  the  winter  season.

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

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

     For  bulk and transactional sales, the Company enters into individual sales
     contracts  for  each  sale.  Rack  sales  are subject to credit limitations
     imposed  on  each  individual buyer by the Company. The Company has several
     supply  contracts  for  each  of  the  Fuel  Products  it sells. The supply
     contracts  are  for  annual  periods  with flexible volumes but they may be
     terminated  sooner  by  the  supplier  if the Company consistently fails to
     purchase  minimum  volumes of Fuel Products. Fuel sales approximated 31% of
     total  revenues  for  the  five  months  ended  December  31,  2004.


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

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

     Certain  information  and  footnote  disclosures  normally  included  in
     consolidated  financial  statements  prepared in accordance with accounting
     principles  generally  accepted  in  the United States of America have been
     omitted.  These  unaudited consolidated financial statements should be read
     in conjunction with the consolidated financial statements and notes thereto
     included  in  the  Company's  Annual Report on Form 10-K for the 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 two months ended                   For the five months ended
                                              December 31, 2004                           December 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)               $(  1,005,312)                              $(  1,240,392)

BASIC EPS

Net income (loss) available
to common stockholders           (  1,005,312)     15,289,856  $(    0.07)   (  1,240,392)     15,287,083  $(    0.08)
                                                               ===========                                 ===========

EFFECT OF DILUTIVE SECURITIES

Warrants                                    -               -                           -               -

DILUTED EPS

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

<TABLE>
<CAPTION>
                                            For the two months ended                  For the five months ended
                                               December 31, 2003                          December 31, 2003
                                 -----------------------------------------  -----------------------------------------
                                 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)                $      907,966                             $      749,450

BASIC EPS

Net income (loss) available to
common stockholders                     907,966     15,361,647  $     0.06         749,450     15,323,533  $     0.05
                                                                ==========                                 ==========

EFFECT OF DILUTIVE SECURITIES

Warrants                                      -        345,478                           -        138,191
                                 --------------  -------------              --------------  -------------

DILUTED EPS

Net income (loss) available to
common stockholders              $      907,966     15,707,125  $     0.06  $      749,450     15,461,724  $     0.05
                                 ==============  =============  ==========  ==============  =============  ==========
</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>
                                                                   Two Months Ended               Five Months Ended
                                                            ------------------------------  ------------------------------
                                                             December 31,    December 31,    December 31,    December 31,
                                                                 2004            2003            2004            2003
                                                            --------------  --------------  --------------  --------------
<S>                                                         <C>             <C>             <C>             <C>
Net income (loss), as reported                              $(  1,005,312)  $     907,966   $(  1,240,392)  $     749,450
Add:  Stock-based employee compensation cost expense
    included in reported net income (loss), net of related
    tax effects                                                         -               -           6,877               -
Less:  Total stock-based employee compensation expense
    determined under fair value based method for all
    awards, net of related tax effects                       (      5,226)        ( 9,686)   (    321,464)   (     24,168)
                                                            --------------  --------------  --------------  --------------
Net income (loss), pro forma                                $(  1,010,538)  $     898,280   $  (1,554,979)  $     725,282
                                                            ==============  ==============  ==============  ==============

Net income (loss) per common share, as reported             $(       0.07)  $        0.06   $(       0.08)  $        0.05
                                                            ==============  ==============  ==============  ==============
Net income (loss) per common share, pro forma               $(       0.07)  $        0.06   $(       0.10)  $        0.05
                                                            ==============  ==============  ==============  ==============
Net income (loss) per common share assuming dilution,
as reported                                                 $(       0.07)  $        0.06   $(       0.08)  $        0.05
                                                            ==============  ==============  ==============  ==============
Net income (loss) per common share assuming dilution,
pro forma                                                   $(       0.07)  $        0.06   $(       0.10)  $        0.05
                                                            ==============  ==============  ==============  ==============
</TABLE>

     The  following  assumptions  were  used  for  grants  of  warrants  to
     employees  in  the five months ended December 31, 2004, to compute the fair
     value  of  the  warrants  using  the  Black-Scholes  option-pricing  model;
     dividend  yield  of  0%; expected volatility of 69%, 63%, 58% and 37%; risk
     free  interest  rate  of  3.51%,  3.52%  and  3.09% and expected lives of 5
     years, 1.75 years and 3 years.

     The  following  assumptions  were  used  for  grants  of  warrants  to
     employees  in  the five months ended December 31, 2003, 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.


                                       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>
                                                        December 31,     July 31,
                                                            2004           2004
                                                       --------------  ------------
<S>                                                    <C>             <C>
LPG:
    Midline pump station (b)                           $   2,326,985   $ 2,326,985
    Brownsville Terminal Facility: (a)
        Building                                             173,500       173,500
        Terminal facilities                                3,631,207     3,631,207
        Tank Farm                                            373,945       373,945
        Leasehold improvements                               318,807       302,657
        Equipment                                            226,285       226,285
        Truck                                                 25,968        25,968
                                                       --------------  ------------
                                                           7,076,697     7,060,547
                                                       --------------  ------------
    US - Mexico Pipelines and Matamoros Terminal
    Facility: (a)

    U.S. Pipelines and Rights of Way                       6,775,242     6,775,242
    Mexico Pipelines and Rights of Way                       993,300       993,300
    Matamoros Terminal Facility                            5,874,781     5,874,781
    Land                                                     856,358       856,358
                                                       --------------  ------------
                                                          14,499,681    14,499,681
                                                       --------------  ------------
        Total LPG                                         21,576,378    21,560,228
                                                       --------------  ------------
Other:
    Office equipment (b)                                     106,953       106,953
    Software (b)                                               1,700        77,590
                                                       --------------  ------------
                                                             108,653       184,543
                                                       --------------  ------------
                                                          21,685,031    21,744,771
    Less:  accumulated depreciation and amortization    (  5,705,849)   (5,346,491)
                                                       --------------  ------------

                                                       $  15,979,182   $16,398,280
                                                       ==============  ============

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

     Property,  plant  and  equipment, net of accumulated depreciation, includes
     $5,745,793  and $5,870,750 of costs, located in Mexico at December 31, 2004
     and  July  31,  2004,  respectively.


                                       12
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  E  -  INVENTORIES

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

<TABLE>
<CAPTION>
                                   December 31, 2004            July 31, 2004
                                  ---------  -----------  ---------  ----------
                                   Gallons       LCM       Gallons      LCM
                                  ---------  -----------  ---------  ----------
<S>                               <C>        <C>          <C>        <C>
LPG:
  Leased Pipeline                 1,175,958  $   930,156  1,175,958  $  887,815
                                             -----------  ---------
  Brownsville Terminal Facility,
    Matamoros Terminal Facility
    and railcars                    369,508      292,272    257,665     194,530
                                             -----------  ---------
  Markham Storage and other               -            -          -           -
                                  ---------  -----------  ---------  ----------

                                  1,545,466    1,222,428  1,433,623   1,082,345
                                  =========  -----------  =========

  Fuel Products                   1,847,191    2,318,962    433,566     550,647
                                  =========  -----------  =========  ----------

                                             $ 3,541,390             $1,632,992
                                             ===========             ==========
</TABLE>

NOTE  F  -  DEBT  OBLIGATIONS

<TABLE>
<CAPTION>
Debt consists of the following:
                                                     December 31,    July 31,
                                                         2004          2004
                                                     -------------  ----------
<S>                                                  <C>            <C>
Noninterest-bearing note payable, discounted at 7%,
for legal services; due in February 2002.                  137,500     137,500

Restructured Notes and $280,000 Notes                    1,711,924   1,671,456

Other debt.                                                 80,775      82,940
                                                     -------------  ----------

        Total debt                                       1,930,199   1,891,896

Less:  Current maturities                                1,874,618     162,694

    Short term debt                                              -           -
                                                     -------------  ----------

        Long-term debt                               $      55,581  $1,729,202
                                                     =============  ==========
</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  90,250  warrants  to  purchase  Rio  Vista  Common  Units (Rio Vista
     Warrants).  The Rio Vista Warrants will expire on December 15, 2006 and the
     exercise  price  will  be  determined  based  on  a  formula  whereby  the
     annualization  of  the  first  quarterly  distribution will represent a 20%
     yield  on  the  exercise  price  (see  note  L).


                                       13
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  F  -  DEBT  OBLIGATIONS  -  CONTINUED

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

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

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

     In  connection  with  the  Restructured  Notes  and  $280,000  Notes,
     Philadelphia  Brokerage  Corporation  (PBC)  acted  as  placement agent and
     received  a fee equal to 1.5% of the Restructured Notes and $280,000 Notes.
     PBC  also  received  warrants  to  purchase  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 $101,169 has been
     amortized through December 31, 2004.

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


                                       14
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  G  -  STOCKHOLDERS'  EQUITY

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

     During  December  2004,  warrants  to  purchase  a  total  of 31,250 shares
     of  common  stock  of Penn Octane were exercised resulting in cash proceeds
     to the Company of $28,750.

     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. The Company recorded an expense of $102,000
     as of December 31, 2004 based on the market value of the shares issued.

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

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

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

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

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

     BOARD  COMPENSATION  PLAN  (BOARD  PLAN)

     In  connection  with  the  Penn  Octane  Board Plan, during August 2004 the
     Board  granted  warrants  to purchase 20,000 shares of common stock of Penn
     Octane  at  exercise  prices,  as  adjusted  for the Spin-Off, of $0.72 and
     $0.71  per  share to outside directors. The warrants expire in August 2009.
     Based  on  the  provisions  of APB 25, no compensation expense was recorded
     for these warrants.

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


                                       15
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  H  -  OPTIONS  AND  WARRANTS  OF  RIO  VISTA

     GENERAL  PARTNER  OPTIONS

     Penn  Octane's  100%  interest  in  the  General  Partner  may be decreased
     to  50% as a result of the exercise by Shore Capital LLC (Shore Capital) an
     affiliate  of  Mr. Shore, and Mr. Richter of options to each acquire 25% of
     the  General  Partner  (General Partner Options). Mr. Shore and Mr. Richter
     are  each members of the board of directors of Penn Octane and the board of
     managers  of  the  General  Partner.  The exercise price for each option is
     approximately  $82,000.  The  options expire on July 10, 2006. Based on the
     provisions  of  APB  25,  the  Company  recorded  approximately  $41,000 of
     compensation  cost related to these options. Penn Octane will retain voting
     control of the General Partner pursuant to a voting agreement.

     COMMON  UNIT  WARRANTS

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


NOTE  I  -  COMMITMENTS  AND  CONTINGENCIES

     CREDIT  FACILITY,  LETTERS  OF  CREDIT  AND  OTHER

     As  of  December  31,  2004,  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 (District) for the land on which the
     Company's  Brownsville  Terminal  Facility  is located, the Pipeline Lease,
     and  in  connection  therewith  entered  into  leasehold  deeds  of  trust,
     security  agreements,  financing  statements and assignments of rent. Under
     the  RZB  Credit  Facility,  the  Company  may  not  permit  to  exist  any
     subsequent  lien,  security interest, mortgage, charge or other encumbrance
     of  any  nature on any of its properties or assets, except in favor of RZB,
     without  the  consent  of RZB. After the Spin-Off and transfer of assets to
     Rio  Vista,  RZB continues to retain a security interest in the transferred
     assets.

     Under  the  RZB  Credit  Facility,  the  Company  is  required to pay a fee
     with  respect to each letter of credit thereunder in an amount equal to the
     greater  of  (i)  $500, (ii) 2.5% of the maximum face amount of such letter
     of  credit,  or  (iii)  such  higher amount as may be agreed to between the
     Company  and  RZB.  Any  loan  amounts  outstanding  under  the  RZB Credit
     Facility  shall  accrue  interest  at a rate equal to the rate announced by
     the  JPMorgan  Chase  Bank  as  its prime rate (5.25% at December 31, 2004)
     plus  2.5%.  Pursuant to the RZB Credit Facility, RZB has sole and absolute
     discretion  to  limit  or  terminate  its  participation  in the RZB Credit
     Facility  and  to  refrain  from making any loans or issuing any letters of
     credit  thereunder. RZB also has the right to demand payment of any and all
     amounts  outstanding under the RZB Credit Facility at any time. In addition
     to  the  fees  described  above,  the Company is required to pay RZB annual
     fees of $50,000.


                                       16
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  I  -  COMMITMENTS  AND  CONTINGENCIES  -  CONTINUED

     CREDIT  FACILITY,  LETTERS  OF  CREDIT  AND  OTHER  -  CONTINUED

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

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

     In  connection  with  the  Company's  purchases  of  LPG and Fuel Products,
     letters  of  credit  are issued based on anticipated purchases. Outstanding
     letters  of  credit  for purchases of LPG and Fuel Products at December 31,
     2004  totaled  approximately $17,382,000 of which approximately $13,882,000
     represents  December 2004 purchases and approximately $3,500,000 represents
     January 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  $4,602,000  at  December 31, 2004). At
     December  31, 2004, the Company's borrowings and commitments were less than
     the amount of the Assets.

     In  connection  with  the  Company's  Fuel  Sales Business, the Company has
     issued  bonds  totaling  $662,000  to  the  states  of  California, Nevada,
     Arizona  and  Texas  (Bonds)  to  secure payments of excise and other taxes
     collected  from  customers  in  connection with sales of Fuel Products. The
     Bonds  are  partially  secured  by  letters of credit totaling $452,600. At
     December  31,  2004,  such  taxes  of  approximately  $159,529 were due. In
     addition,  in connection with the Fuel Sales Business, the Company issued a
     letter  of  credit  of  $284,000  in  connection  with the Company's use of
     pipeline  and  terminal  systems  from a third party. The letters of credit
     issued  have  all  been  secured  by  cash  in  the amount of approximately
     $739,700  which  is  included  in  restricted cash in the Company's balance
     sheet at December 31, 2004.

     LPG  and  Fuel  Products  financing  expense  associated  with  the  RZB
     Credit  Facility  totaled  $401,184  and $327,055 for the five months ended
     December 31, 2004 and 2003.

     DISTRIBUTIONS  OF  AVAILABLE  CASH

     All  Rio  Vista  unitholders,  including  the  General  Partner,  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 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.


                                       17
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  I  -  COMMITMENTS  AND  CONTINGENCIES  -  CONTINUED

     DISTRIBUTIONS  OF  AVAILABLE  CASH  -  CONTINUED

     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  the  General Partner as of the record date of February 9,
     2004. The distribution is to be paid on February 14, 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 basis in Rio Vista.

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

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

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

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

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


                                       18
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  I  -  COMMITMENTS  AND  CONTINGENCIES  -  CONTINUED

     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

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

     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 (Quarter Agreement).

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

     LPG  SUPPLY  AGREEMENTS

     The  Company's  current  long-term  supply  agreements  in  effect  as  of
     December  31, 2004 (Supply Contracts) and through January 31, 2005 required
     the  Company  to  purchase  minimum  quantities  of  LPG  totaling  up  to
     approximately  22,100,000  gallons  per  month  although  the  Monthly 2004
     Contracts  and  Quarter  Agreement  required  PMI  to  purchase  lesser
     quantities.  The  actual  amounts  supplied  under  the  Supply  Contracts
     averaged  approximately  16,501,000  gallons  per month for the five months
     ended December 31, 2004.

     During  January  2005,  the  Company  and  Koch  amended  the  Koch  Supply
     Contract  whereby  beginning February 2005 and continuing through September
     30,  2005,  the  Company will not be 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  Supply  Contracts over actual sales
     volumes  to  PMI. Under the terms of the Supply Contracts, the Company must
     provide  letters  of  credit in amounts equal to the cost of the product to
     be  purchased.  In  addition,  the  cost  of  the product purchased is tied
     directly  to overall market conditions. As a result, the Company's existing
     letter  of credit facility may not be adequate to meet the letter of credit
     requirements  under  the  agreements  with its suppliers or other suppliers
     due  to  increases  in quantities of LPG purchased and/or to finance future
     price increases of LPG.


                                       19
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  K  -  REALIZATION  OF  ASSETS

     The  accompanying  consolidated  financial  statements  have  been prepared
     in  conformity  with accounting principles generally accepted in the United
     States  of  America,  which  contemplate  continuation  of the Company as a
     going  concern.  The Company has had an accumulated deficit since inception
     and  has  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 the Monthly
     2004  Contracts  and  the  Quarter  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. The Company may incur additional
     reductions  of  gross profits on sales of LPG if (i) the volume of LPG sold
     under  the  Quarter  Agreement  and  any  future sales arrangement declines
     below  the  current  levels  of  approximately 11,000,000 gallons per month
     and/or  the  margins  are materially reduced and/or (ii) the Company cannot
     successfully  reduce  the  minimum  volumes  and/or purchase costs required
     under  LPG supply agreements. The Company may not have sufficient cash flow
     or available credit to absorb such reductions in gross profit.

     The  Company's  cash  flow  has  been  reduced as a result of lower volumes
     of  sales  to  PMI.  Additionally,  the  Company  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
     February  14,  2005. As a result of these factors, the Company may not have
     sufficient  cash  flow  to  make  future  distributions  to  Rio  Vista's
     unitholders  and/or to pay Penn Octane's obligations when due. In the event
     Penn  Octane  does not pay its obligations when due, Rio Vista's guarantees
     to  Penn  Octane and Penn Octane's creditors may be triggered. Accordingly,
     Rio  Vista  may be required to pay such obligations of Penn Octane to avoid
     foreclosure  of  its  assets  by  Penn Octane's creditors. If the Company's
     revenues  and  other  sources  of  liquidity  are  not adequate to pay Penn
     Octane's  obligations, Rio Vista may be required to reduce or eliminate the
     quarterly  distributions to unitholders and Penn Octane or Rio Vista may be
     required  to  raise  additional funds to avoid foreclosure. There can be no
     assurance  that  such  additional  funding  will  be  available  on  terms
     attractive to either Penn Octane or Rio Vista or available at all.

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


                                       20
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



NOTE  K  -  REALIZATION  OF  ASSETS  -  CONTINUED

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



NOTE  L  -  SUBSEQUENT  EVENTS

     On  February  14,  2004,  Rio  Vista  made  a  cash  distribution  of
     approximately $500,000 (see note I).

     In  connection  with  the  cash  distribution  above,  an exercise price of
     $5.00  per  warrant to purchase Rio Vista units became determinable for the
     Rio  Vista  Warrants  issued  to the holders of the Restructured Notes, the
     $280,000  Notes and to PBC (see note F). As a result of the issuance of the
     Rio  Vista  Warrants,  the  Company will record a discount of approximately
     $653,000  which  will  be  reflected  as an adjustment to the amount of the
     assets transferred to Rio Vista in connection with the Spin-Off.


                                       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
     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, the deregulation of
     the  LPG market in Mexico, the operations of the US - Mexico Pipelines, the
     Matamoros  Terminal Facility, the remaining Saltillo Terminal assets, other
     upgrades  to  facilities,  foreign  ownership of LPG operations, short-term
     obligations  and  credit  arrangements,  Fuel Sales Business, the Spin-Off,
     cash  distributions,  "Qualified  Income"  and  other  statements regarding
     matters  that  are  not historical facts, and involve predictions which are
     based  upon  a  number of future conditions that ultimately may prove to be
     inaccurate.  Actual  results,  performance  or  achievements  could  differ
     materially  from  the  results  expressed  in,  or  implied  by,  these
     forward-looking  statements.  Factors  that may cause or contribute to such
     differences  include those discussed under "Risk Factors" and "Management's
     Discussion  and Analysis of Financial Condition and Results of Operations,"
     as  well  as  those  discussed  elsewhere  in  this Report. We caution you,
     however,  that  the  following list of factors may not include all material
     risks facing the Company.

RISK  FACTORS

          Business  Factors.  The  expiration of the LPG sales contract with PMI
     effective  March  31,  2004  and the resulting lower LPG sales volumes have
     adversely  affect the Company's results of operations. Penn Octane has only
     one  customer  for  LPG, Rio Vista, and Rio Vista has only one customer for
     LPG  in  Mexico,  PMI.  The  Company just recently commenced its Fuel Sales
     Business.  The  Company  cannot  be sure that PMI will continue to purchase
     LPG  from  Rio  Vista or in quantities or prices that are profitable. There
     are  a  limited  number  of  suppliers  of  LPG that connect to Rio Vista's
     pipelines  and  a  limited  supply  of  LPG.  The  Company  may  lose  its
     competitive  advantage  when  the Company's Seadrift pipeline lease expires
     in  2013.  The  Company  may  be  unable to successfully develop additional
     sources  of  revenue  in order to reduce its dependence on 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,  our  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,  estimates  and  descriptions  of the Company's plans and
     objectives  included  or  incorporated  in  "Management's  Discussion  and
     Analysis  of  Financial  Condition and Results of Operations" and elsewhere
     in  this report are forward-looking statements. Actual future results could
     differ  materially  due to, among other things, the factors discussed above
     and elsewhere in this report.


     OVERVIEW

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


                                       23
<PAGE>
          During  the  five  months ended December 31, 2004, the Company derived
     77%  of  its  LPG  revenues  and 53% of total revenues from sales of LPG to
     PMI, its primary customer.

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

          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 $33.5
     million  for  the  five  months  ended  December  31, 2004 which represents
     approximately 31% of total revenues.

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

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

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

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

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

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


                                       24
<PAGE>
LPG  SALES

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

<TABLE>
<CAPTION>
                                       2004   2003
                                       -----  -----
<S>                                    <C>    <C>
Volume Sold
                                        26.4   39.3
    LPG (millions of gallons) - PMI      8.3    6.4
                                       -----  -----
    LPG (millions of gallons) - Other   34.7   45.7
                                       =====  =====

Average sales price

    LPG (per gallon) - PMI             $0.92  $0.69
    LPG (per gallon) - Other            0.81   0.59
</TABLE>



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

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

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

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


                                       25
<PAGE>
RESULTS  OF  OPERATIONS

TWO  MONTHS  ENDED DECEMBER 31, 2004 COMPARED WITH TWO MONTHS ENDED DECEMBER 31,
2003

     Revenues.  Revenues  for the two months ended December 31, 2004, were $42.7
million  compared with $30.8 million for the two months ended December 31, 2003,
an  increase  of  $11.9  million  or  38.8%. Of this increase, $11.9 million was
attributable  to  new  revenues generated from the Company's Fuel Sales Business
which  commenced  during  the  year  ended  July  31,  2004,  $9.0  million  was
attributable  to increases in average sales prices of LPG sold to PMI during the
two  months  ended December 31, 2004, $1.4 million was attributable to increased
average  sales  prices  of  LPG  sold to customers other than PMI during the two
months  ended  December  31, 2004 and $1.5 million was attributable to increased
volumes  of  LPG  sold  to  customers other than PMI during the two months ended
December  31,  2004, partially offset by $11.8 million attributable to decreased
volumes of LPG sold to PMI during the two months ended December 31, 2004.

     Cost  of  goods  sold. Cost of goods sold for the two months ended December
31,  2004 was $42.1 million compared with $28.7 million for the two months ended
December  31,  2003,  an  increase  of $13.4 million or 46.5%. Of this increase,
$12.0  million  was  attributable  to  new  costs of goods sold arising from the
Company's  Fuel  Sales Business which commenced operations during the year ended
July  31,  2004,  $8.7  million was attributable to increases in the cost of LPG
sold  to  PMI  during  the  two months ended December 31, 2004, $1.9 million was
attributable  to  increased costs of LPG sold to customers other than PMI during
the  two  months  ended  December  31, 2004 and $1.7 million was attributable to
increased  volumes of LPG sold to customers other than PMI during the two months
ended  December  31,  2004,  partially  offset  by $10.7 million attributable to
decreased  volume  of  LPG  sold to PMI during the two months ended December 31,
2004.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses were $1.3 million for the two months ended December 31,
2004,  compared  with  $995,739  for  the two months ended December 31, 2003, an
increase  of  $280,427  or  28.2%.   The  increase  during  the two months ended
December  31, 2004, was principally due to increases in payroll and professional
fees,  partially  offset  by  reduced  professional  fees  associated  with  the
Spin-Off.

     Other  income  (expense).  Other  expense  was  $462,660 for the two months
ended  December  31,  2004,  compared  with  $215,601  for  the two months ended
December  31, 2003.  The increase in other expense was due primarily to minority
interest  expense  of  $172,377  during  the two months ended December 31, 2004.

     Income  tax.  Due  to  the availability of net operating loss carryforwards
(approximately  $4.7  million  at July 31, 2004), the Company did not incur U.S.
income  tax  expense  during the two months ended December 31, 2004. The taxable
income  associated  with the Spin-Off was included in the Company's December 31,
2004  calculation  of  U.S.  income  tax  expense.  The Company did calculate an
alternative  minimum  income  tax benefit of $20,768 during the two months ended
December  31,  2004  due  to  losses  from operations. The Company can receive a
credit  against  any  future  tax  payments  due  to  the  extent  of  any prior
alternative  minimum taxes paid. The Company recorded a state income tax benefit
of  $47,541 that resulted from a loss from operations. The Company also incurred
Mexican  income  tax expense of $22,193 during the two months ended December 31,
2004.


FIVE MONTHS ENDED DECEMBER 31, 2004 COMPARED WITH FIVE MONTHS ENDED DECEMBER 31,
2003

     Revenues.  Revenues  for  the  five  months  ended  December 31, 2004, were
$108.3  million  compared  with $69.3 million for the five months ended December
31,  2003,  an  increase  of  $38.9  million  or  56.1%. Of this increase, $33.5
million  was  attributable  to  new  revenues  generated from the Company's Fuel
Sales  Business  which  commenced  during  the  year  ended July 31, 2004, $24.0
million  was  attributable  to  increases in average sales prices of LPG sold to
PMI  during  the  five  months  ended  December  31,  2004,  $5.7  million  was
attributable  to  increased  average sales prices of LPG sold to customers other
than  PMI  during  the  five  months  ended  December  31, 2004 and $413,982 was
attributable  to  increased  volumes  of  LPG  sold  to customers other than PMI
during  the  five  months  ended  December  31,  2004, partially offset by $24.7
million  attributable  to  decreased  volumes of LPG sold to PMI during the five
months ended December 31, 2004.


                                       26
<PAGE>
     Cost  of  goods sold. Cost of goods sold for the five months ended December
31,  2004  was  $105.6  million  compared with $65.2 million for the five months
ended  December  31,  2003,  an  increase  of  $40.4  million  or 62.0%. Of this
increase,  $33.1  million  was  attributable  to new costs of goods sold arising
from  the  Company's  Fuel  Sales Business which commenced operations during the
year  ended  July  31,  2004, $23.0 million was attributable to increases in the
cost  of  LPG  sold  to PMI during the five months ended December 31, 2004, $6.1
million  was attributable to increased costs of LPG sold to customers other than
PMI  during  the  five  months  ended  December  31,  2004  and  $435,560  was
attributable  to increased volume of LPG sold to customers other than PMI during
the  five  months  ended  December  31,  2004, partially offset by $22.4 million
attributable  to  decreased  volume  of  LPG  sold to PMI during the five months
ended December 31, 2004.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses  were  $3.1  million for the five months ended December
31,  2004  compared  with  $2.5  million  for the five months ended December 31,
2003,  an  increase  of  $582,938  or 23.0%. The increase during the five months
ended  December 31, 2004, was principally due to increases in salary and payroll
related  fees  of  $552,953, including $384,574 of non-cash fees associated with
the  issuance  of  warrants and options, other taxes associated with its Mexican
subsidiaries  and tax advisory costs associated with Rio Vista, partially offset
by reduced professional fees associated with the Spin-Off.

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

     Other  income  (expense).  Other  expense  was $576,326 for the five months
ended  December  31,  2004,  compared  with  $375,848  for the five months ended
December 31, 2003.  The increase in other expense was due primarily to increased
interest  costs  associated  with the Fuel Sales Business during the five months
ended  December  31,  2004,  reduced  income  related  to  the cancellation of a
contract  of  $210,000  which occurred during the five months ended December 31,
2003, partially  offset  by  an increase in minority interest income of $61,720
during  the  five  months  ended  December  31,  2004.

     Income  tax.  Due  to  the availability of net operating loss carryforwards
(approximately  $4.7  million  at July 31, 2004), the Company did not incur U.S.
income  tax  expense during the five months ended December 31, 2004. The taxable
income  associated  with the Spin-Off was included in the Company's December 31,
2004  calculation  of  U.S.  income  tax  expense.  The Company did calculate an
alternative  minimum  income tax expense of $65,628 during the five months ended
December  31,  2004.  The  Company  can  receive a credit against any future tax
payments  to the extent of any prior alternative minimum taxes paid. The Company
also  incurred  state  income  tax  expense related to the Spin Off of $179,053,
which  was  partially  offset  by  a  state  income  tax benefit of $42,079 that
resulted  from  a loss from operations. The Company also incurred Mexican income
tax expense of $22,193 during the five months ended December 31, 2004.


LIQUIDITY  AND  CAPITAL  RESOURCES

     General.  The  Company  has  had an accumulated deficit since its inception
and  has  a  deficit  in working capital.  In addition, substantially all of the
Company's  assets  are  pledged  or  committed  to  be  pledged as collateral on
existing  debt in connection with the Restructured Notes, the $280,000 Notes and
the  RZB  Credit  Facility  and  therefore,  the  Company maybe unable to obtain
additional financing collateralized by those assets.  The 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 December 31, 2004, the
Company  has  been  operating on month-to-month contracts with PMI and currently
operates  under a three month contract which expires March 31, 2005 (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.


                                       27
<PAGE>
     Penn  Octane  has recently completed the transfer of a major portion of its
assets  to  Rio  Vista  and the Spin-Off of Rio Vista to its stockholders.  As a
result  of  the Spin-Off, the Company's stockholders' equity has been materially
reduced  by  the  amount  of the Spin-Off and a portion of Penn Octane's current
cash  flow  from  operations  has  shifted  to  Rio  Vista as of the date of the
Spin-Off.   Therefore,  Penn  Octane's remaining cash flow may not be sufficient
to allow Penn Octane to pay its liabilities and obligations when due.  Rio Vista
is  liable  as  guarantor  on Penn Octane's collateralized debt discussed in the
preceding  paragraph  and  continues  to pledge all of its assets as collateral.
Penn Octane does not believe that it has a federal income tax in connection with
the  Spin-Off  due  to utilization of existing net operating loss carryforwards.
The  Company  estimates  alternative  minimum  tax  and  state  franchise tax of
approximately  $235,000  for  the  five  months  ended  December 31, 2004, which
include  taxes  associated  with  the  Spin-Off.  However,  the Internal Revenue
Service  (the  "IRS")  may  review  Penn Octane's federal income tax returns and
challenge  positions  that  Penn Octane may take when preparing those income tax
returns,  including positions that it may take with respect to the Spin-Off.  If
the  IRS  challenges any of the Company's positions, Penn Octane will vigorously
defend  the  positions  that  it  takes  in  preparing  its  federal income tax,
including  positions  that  it  may  take  with  respect  to the Spin-Off.    In
addition,  Rio  Vista  has agreed to indemnify Penn Octane for a period of three
years  from  the  fiscal year end that includes the date of the Spin-Off for any
federal  income  tax  liabilities  resulting from the Spin-Off in excess of $2.5
million  (see  Spin-Off  below).

     The  volume  of LPG sold to PMI has been materially reduced over historical
levels  resulting  in  a  reduction  of  the Company's cash flow (see discussion
below).  In addition on February 14, 2005, Rio Vista made a cash distribution of
approximately  $500,000  and  intends  to  make  future distributions of similar
amounts  on  a  quarterly basis to its unitholders.   Those future distributions
are  expected  to  be approximately $500,000 per quarter.  Also, during the five
months  ended  December 31, 2004, professional fees and related costs associated
with  the  Spin-Off  totaled  approximately  $550,000.  The  Company  expects to
eliminate  these costs in future periods.  However, as a result of the Spin-Off,
the  Company  estimates  that  consolidated  operating expenses will increase by
approximately  $450,000  on  an  annual  basis  as a result of additional public
company  compliance  and  income  tax  preparation  costs  related to Rio Vista.

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

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

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


                                       28
<PAGE>
     The following summary table reflects comparative cash flows for five months
ended  December  31,  2004,  and  2003.  All  information  is  in  thousands.

<TABLE>
<CAPTION>
                                                      2004     2003
                                                     ------  --------
<S>                                                  <C>     <C>
Net cash provided by (used) in operating activities  $ 324   $ 1,571
Net cash (used in) investing activities . . . . . .    (15)     (121)
Net cash used in by financing activities. . . . . .   (318)   (1,243)
                                                     ------  --------
Net increase (decrease) in cash . . . . . . . . . .  $  (9)  $   207
                                                     ======  ========
</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  "Quarter  Agreement").  The  following table describes the minimum monthly
gallons  of  LPG to be purchased by PMI and the actual monthly gallons purchased
by  PMI  under  the  Monthly  2004  Contracts  and  the  Quarterly  Agreement:

<TABLE>
<CAPTION>
                    MINIMUM        ACTUAL
                   CONTRACT        VOLUMES
                    VOLUMES         SOLD
MONTH      YEAR  (IN MILLIONS)  (IN MILLIONS)
---------  ----  -------------  -------------
<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              *
March      2005           11.1              *
</TABLE>

* Not yet available

     The  expiration  of  the  Contract  has caused a reduction in the Company's
gross revenue due to the reduction in LPG volumes sold to PMI from approximately
17  million  gallons  per  month  under the Contract to approximately 11 million
gallons  per  month  under  the  Quarterly  Agreement.

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


                                       29
<PAGE>
     The  Company's  management  believes  that  PMI's  reduction  of  volume
commitments  for  April  2004  through  March  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  Mexican  terminal
facilities.  In  the  event the volume of LPG purchased by PMI under the Quarter
Agreement  declines below the current level of approximately 11 million gallons,
the  Company  could  suffer  material  adverse  consequences  to  its  business,
financial  condition  and results of operations.  If the Company is unsuccessful
in  lowering  its  costs to offset a decline in volumes below 11 million gallons
per  month  and/or  the  Company is forced to accept similar or lower prices for
sales  to  PMI,  the  results  of  operations  of  the  Company may be adversely
affected.   The Company may not have sufficient cash flow or available credit to
absorb  such  reductions  in  gross  profit.

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

     Revenues  from  PMI  sales  totaled  approximately  $57.3 million and $58.0
million  for  the  five  months  ended December 31, 2004 and 2003, respectively,
representing approximately 53.0% and 83.6% of total revenues for the periods and
76.7%  and  83.6%  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 (the "Plant") up to 13.9 million gallons per
month  blended  in  accordance  with  required  specifications  (the  "Plant
Commitment").  For  the  five  months  ended  December 31, 2004, under the Exxon
Supply  Contract,  Exxon  has  supplied an average of approximately 10.8 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.

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

     The  Company's current long-term supply agreements in effect as of December
31,  2004 ("Supply Contracts") and through January 31, 2005 required the Company
to  purchase minimum quantities of LPG totaling up to approximately 22.1 million
gallons  per  month  although  the  Monthly 2004 Contracts and Quarter Agreement
required  PMI  to purchase lesser quantities.  The actual amounts supplied under
Supply  Contracts  averaged approximately 16.5 million gallons per month for the
five  months  ended  December  31,  2004.


                                       30
<PAGE>
     During  January 2005, the Company and Koch amended the Koch Supply Contract
whereby  beginning  February 2005 and continuing through September 30, 2005, the
Company  will  not  be 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.

     The  Company is currently purchasing LPG from the above-mentioned supplier.
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  Supply Contracts over actual sales volumes to PMI.  Under
the terms of the Supply Contracts, the Company must provide letters of credit in
amounts equal to the cost of the product to be purchased.  In addition, the cost
of  the  product  purchased is tied directly to overall market conditions.  As a
result,  the Company's existing letter of credit facility may not be adequate to
meet  the  letter of credit requirements under the agreements with its suppliers
or  other  suppliers  due  to increases in quantities of LPG purchased and/or to
finance  future  price  increases  of  LPG.

     Credit  Arrangements.  As  of  December  31,  2004, 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 (the "District") for the land on which the Company's
Brownsville  Terminal Facility is located, the Pipeline Lease, and in connection
therewith  agreed  to  enter into leasehold deeds of trust, security agreements,
financing  statements  and  assignments of rent.  Under the RZB Credit Facility,
the  Company  may  not  permit  to exist any subsequent lien, security interest,
mortgage,  charge or other encumbrance of any nature on any of its properties or
assets,  except  in  favor  of  RZB,  without  the  consent of RZB.    After the
Spin-Off and transfer of assets to Rio Vista, RZB continues to retain a security
interest  in  the  transferred  assets.

     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 (5.25% at
December 31, 2004) plus 2.5%.  Pursuant to the RZB Credit Facility, RZB has sole
and  absolute  discretion  to  limit  or  terminate its participation in the RZB
Credit  Facility  and to refrain from making any loans or issuing any letters of
credit  thereunder.  RZB  also  has  the  right to demand payment of any and all
amounts  outstanding  under the RZB Credit Facility at any time.  In addition to
the  fees  described  above,  the  Company is required to pay RZB annual fees of
$50,000.

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

     Under the terms of the RZB Credit Facility, either Penn Octane or Rio Vista
is  required  to  maintain  net  worth  of  a  minimum  of  $10.0  million.

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

     In  connection  with  the  Company's  purchases  of  LPG and Fuel Products,
letters  of  credit  are  issued  based  on anticipated purchases.   Outstanding
letters  of  credit  for purchases of LPG and Fuel Products at December 31, 2004
totaled  approximately  $17.4  million  of  which  approximately  $13.9  million
represents  December  2004  purchases  and approximately $3.5 million represents
January  2005  purchases.


                                       31
<PAGE>
     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 $4.6 million at December 31, 2004). At December 31, 2004,
the  Company's  borrowings  and  commitments  were  less  than the amount of the
Assets.

     In  connection  with  the  Company's  Fuel  Sales Business, the Company has
issued  bonds totaling $662,000 to the states of California, Nevada, Arizona and
Texas  (the "Bonds") to secure payments of excise and other taxes collected from
customers  in  connection  with sales of Fuel Products.  The Bonds are partially
secured  by  letters  of  credit  totaling $452,600.  At December 31, 2004, such
taxes  of  approximately $159,529 were due.  In addition, in connection with the
Fuel  Sales  Business,  the  Company  issued  a  letter of credit of $284,000 in
connection  with the Company's use of pipeline and terminal systems from a third
party.  The letters of credit issued have all been secured by cash in the amount
of  $739,700 which is included in restricted cash in the Company's balance sheet
at  December  31,  2004.

     LPG  and  Fuel  Products  financing  expense associated with the RZB Credit
Facility  totaled  $405,179, and $327,055 for the five months ended December 31,
2004  and  2003.

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

<TABLE>
<CAPTION>
                                                                       PAYMENTS DUE BY PERIOD
                                                                       (AMOUNTS IN MILLIONS)
                                        ----------------------------------------------------------------------------------
                                                         Less than          1 - 3            4 - 5             After
Contractual Obligations                     Total          1 Year           Years            Years            5 Years
                                        -------------  --------------  ----------------  --------------  -----------------
<S>                                     <C>            <C>             <C>               <C>             <C>

Long-Term Debt Obligations              $         1.7  $          1.7  $              -  $            -  $               -
Operating Leases                                 11.8             1.4               2.7             2.6                5.1
LPG Purchase Obligations                        581.7           126.6             243.0           212.1                  -
Other Long-Term Obligations                        .1               -                .1               -                  -
                                        -------------  --------------  ----------------  --------------  -----------------
    Total Contractual Cash Obligations  $       595.3  $        129.7  $          245.8  $        214.7  $             5.1
                                        =============  ==============  ================  ==============  =================

</TABLE>

<TABLE>
<CAPTION>
                                                                 AMOUNT OF COMMITMENT EXPIRATION
                                                                           PER PERIOD
                                                                     (AMOUNTS IN MILLIONS)
                                        ----------------------------------------------------------------------------------
Commercial                                               Less than          1 - 3            4 - 5             After
Commitments                                 Total          1 Year           Years            Years            5 Years
                                        -------------  --------------  ----------------  --------------  -----------------
<S>                                     <C>            <C>             <C>               <C>             <C>

Lines of Credit                         $         1.4  $          1.4  $              -  $            -  $               -
Standby Letters of Credit                        18.1            18.1                 -               -                  -
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        $        19.5  $         19.5  $              -  $            -  $               -
                                        =============  ==============  ================  ==============  =================
</TABLE>


                                       32
<PAGE>
     Distributions  of Available Cash.  All Rio Vista unitholders, including the
General  Partner, 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 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  the General Partner as of the record date of February 9, 2004.
The  distribution  was  paid  on  February  14,  2005.

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

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

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

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

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


                                       33
<PAGE>
     Current  law  may  change  so  as  to  cause  Rio  Vista to be taxable as a
corporation  for  federal  income tax purposes or otherwise subject Rio Vista to
entity-level  taxation.  The  Agreement  provides  that,  if a law is enacted or
existing  law  is  modified or interpreted in a manner that subject Rio Vista to
taxation  as  a  corporation  or  otherwise  subjects  Rio Vista to entity-level
taxation  for  federal,  state  or  local  income tax purposes, then the minimum
quarterly  distribution  amount  and  the  target  distribution  amount  will be
adjusted  to  reflect  the  impact  of  that  law  on  Rio  Vista.

     Pipeline Lease.  The Pipeline Lease currently expires on December 31, 2013,
pursuant  to an amendment  (the "Pipeline Lease Amendment") entered into between
the  Company  and Seadrift on May 21, 1997, which became effective on January 1,
1999 (the "Effective Date").  The Pipeline Lease Amendment provides, among other
things, for additional storage access and inter-connection with another pipeline
controlled  by Seadrift, thereby providing greater access to and from the Leased
Pipeline.  Pursuant  to the Pipeline Lease Amendment, the Company's fixed annual
rent  for  the  use  of  the  Leased  Pipeline is $1.0 million including monthly
service payments of $8,000 through March 2004.  The service payments are subject
to  an  annual adjustment based on a labor cost index and an electric power cost
index.   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  during  2005  intends  to  upgrade  its  computer and
information  systems  at  a  total  estimated  cost  of  approximately $350,000.

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

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

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


                                       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.

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

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

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

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

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

     Private  Placements  and  Other  Transactions.  In connection with the Penn
Octane  Board  Plan,  during  August 2004 the Board granted warrants to purchase
20,000 shares of common stock of Penn Octane at exercise prices, as adjusted for
the  Spin-Off, of $0.72 and $0.71 per share to outside directors.   The warrants
expire  in  August  2009.  Based  on  the  provisions of APB 25, no compensation
expense  was  recorded  for  these  warrants.

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


                                       35
<PAGE>
     In  connection  with  the  Penn Octane Board Plan, during November 2004 the
Board  granted warrants to purchase 10,000 shares of common stock of Penn Octane
at  exercise  price  of  $1.30  per  share to an outside director.  The warrants
expire  in  November  2009.  Based  on the provisions of APB 25, no compensation
expense  was  recorded  for  these  warrants.

     During  December  2004,  warrants  to  purchase a total of 31,250 shares of
common  stock  of  Penn  Octane were exercised resulting in cash proceeds to the
Company  of  $28,750.

     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.  The Company recorded an expense of $102,000 as of December
31,  2004  based  on  the  market  value  of  the  shares  issued.

     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 Mr. Shore, and Mr. Richter of options to
each  acquire  25%  of  the General Partner (the "General Partner Options"). Mr.
Shore  and Mr. Richter are each members of the board of directors of Penn Octane
and  the  board  of managers of the General Partner. The exercise price for each
option  is  approximately $82,000. The options expire on July 10, 2006. Based on
the  provisions  of  APB  25,  the  Company  recorded  approximately  $41,000 of
compensation  cost  related  to  these  options.  Penn Octane will retain voting
control of the General Partner pursuant to a voting agreement.

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

     On  February  14, 2004, Rio Vista made a cash distribution of approximately
$500,000  ($.25  per  common  unit).

     In  connection  with  the  90,250  warrants to purchase Rio Vista units the
Company  agreed  to  issue to the holders of the Restructured Notes and $280,000
Notes  and the 20,000 warrants to purchase Rio Vista units the Company agreed to
issue to PBC, the Company will record a discount of approximately $653,000 which
will  be  reflected  as an adjustment to the amount of the assets transferred to
Rio  Vista  in  connection  with  the  Spin-Off  (see  note F and L to unaudited
consolidated  financial statements).   The calculated exercise price per warrant
to  purchase  a  Rio  Vista  Unit  for  these  Rio  Vista  Warrants  is  $5.00.

     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.


                                       36
<PAGE>
     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  31%  of  total revenues for the five
months  ended  December  31,  2004.

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

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

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

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

     INTERCOMPANY  PURCHASE  AGREEMENT  FOR  LPG

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

                                       37
<PAGE>
     OMNIBUS  AGREEMENT

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

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

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

     TRANSFERRED ASSETS

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

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

     Realization of Assets.   The accompanying consolidated financial statements
have  been  prepared in conformity with accounting principles generally accepted
in  the  United States of America, which contemplate continuation of the Company
as  a going concern.  The Company has had an accumulated deficit since inception
and  has  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.


                                       38
<PAGE>
     Since  April 1, 2004, the Company has been operating under the Monthly 2004
Contracts  and  Quarter 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.    The Company may incur additional reductions of gross profits on sales
of  LPG if (i) the volume of LPG sold under the Quarter Agreement and any future
sales  agreement  declines  below the current levels of approximately 11,000,000
gallons  per  month  and/or  the  margins are materially reduced and/or (ii) the
Company  cannot  successfully  reduce  the minimum volumes and/or purchase costs
required  under LPG supply agreements.  The Company may not have sufficient cash
flow  or  available  credit  to  absorb  such  reductions  in  gross  profit.

     The  Company's  cash  flow has been reduced as a result of lower volumes of
sales  to  PMI.  Additionally,  the  Company  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 February 14, 2005.  As a
result  of  these factors, the Company may not have sufficient cash flow to make
future  distributions  to  Rio  Vista's  unitholders and/or to pay Penn Octane's
obligations  when  due.  In  the  event Penn Octane does not pay its obligations
when  due, Rio Vista's guarantees to Penn Octane and Penn Octane's creditors may
be triggered.  Accordingly, Rio Vista may be required to pay such obligations of
Penn  Octane  to avoid foreclosure of its assets by Penn Octane's creditors.  If
the  Company's  revenues  and other sources of liquidity are not adequate to pay
Penn  Octane's obligations, Rio Vista may be required to reduce or eliminate the
quarterly  distributions  to  unitholders  and  Penn  Octane or Rio Vista may be
required  to  raise  additional  funds  to  avoid  foreclosure.  There can be no
assurance  that such additional funding will be available on terms attractive to
either  Penn  Octane  or  Rio  Vista  or  available  at  all.

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

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


IMPACT OF INFLATION

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

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.


                                       39
<PAGE>
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.

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 July 1,
2005.  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 Annual
Report  on  Form  10-K  for  the  fiscal  year  ended July 31, 2004, "Summary of
Significant  Accounting  Policies".  The  Company  believes  that  the following
reflect the more critical accounting policies that affect the financial position
and  results  of  operations.

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

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

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


                                       40
<PAGE>
     Stock-based  compensation  -  The  Company  accounts  for  stock-based
     compensation  using  the  provisions  of  ABP  25 (intrinsic value method),
     which  is  permitted  by  SFAS  123.  The difference in net income, if any,
     between  the intrinsic value method and the method provided for by SFAS 123
     (fair  value  method)  is  required  to  be  disclosed  in  the  financial
     statements  on  an  annual and interim basis as a result of the issuance of
     SFAS 148.

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

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.


                                       41
<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  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.


                                       42
<PAGE>
PART  II

ITEM 1.   LEGAL PROCEEDINGS

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

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

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

          With  respect  to  the  issuances  of  securities  discussed in note G
          to  the  accompanying unaudited consolidated financial statements, 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  AND  REPORTS  ON  FORM  8-K

     a.   Exhibits


THE  FOLLOWING  EXHIBITS  ARE  FILED  AS  PART  OF  THIS  REPORT:

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

     10.1 Product Sales Agreement made and entered into the 9th day of December
          2003 by and between Penn Octane Corporation and Koch Hydrocarbon,
          L.P.

     10.2 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.

     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.


                                       43
<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



February  22,  2005       By:  /s/Ian  T.  Bothwell
                             ---------------------------------------------------
                             Ian  T.  Bothwell
                             Vice  President,  Treasurer,  Assistant  Secretary,
                             Chief  Financial  Officer


                                       44
<PAGE>