UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



                                    FORM 10-Q


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

     For the quarterly period ended January 31, 2003

                                       OR

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

For  the  transition  period  from                to
                                   --------------    ----------------

                        Commission file number: 000-24394

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

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

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

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

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

     The number of shares of Common Stock, par value $.01 per share, outstanding
on March 14, 2003 was 15,274,749.


                                        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 January 31, 2003
               (unaudited) and July 31, 2002                            4-5

               Unaudited Consolidated Statements of Operations for
               the three months
               and six months ended January 31, 2003 and 2002             6

               Unaudited Consolidated Statements of Cash Flows for
               the six months ended January 31, 2003 and 2002             7

               Notes to Unaudited Consolidated Financial Statements    8-18

           2.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations                    19-29

           3.  Quantitative and Qualitative Disclosures About
               Market Risk                                               29

           4.  Controls and Procedures                                   29

Part II    1.  Legal Proceedings                                         30

           2.  Changes in Securities and Use of Proceeds                 30

           3.  Defaults Upon Senior Securities                           30

           4.  Submission of Matters to a Vote of Security Holders       30

           5.  Other Information                                         30

           6.  Exhibits and Reports on Form 8-K                       30-31

           Signatures                                                    32

           Certifications                                             33-34
</TABLE>


                                        2
<PAGE>
             Independent Certified Public Accountants' Review Report



Board of Directors and Shareholders
Penn Octane Corporation

We  have  reviewed  the  accompanying  consolidated balance sheet of Penn Octane
Corporation  and  subsidiaries (Company) as of January 31, 2003, and the related
consolidated  statements of operations for the three months and six months ended
January  31, 2003 and 2002 and the consolidated statements of cash flows for the
six  months  ended  January  31,  2003  and  2002.  These consolidated financial
statements  are  the  responsibility  of  the  Company's  management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A  review  of  interim financial
information  consists principally of applying analytical procedures to financial
data  and  making  inquiries of persons responsible for financial and accounting
matters.  It  is  substantially  less  in  scope  than  an  audit  conducted  in
accordance  with  auditing  standards generally accepted in the United States of
America,  the  objective  of which is the expression of an opinion regarding the
consolidated  financial  statements  taken  as  a whole.  Accordingly, we do not
express  such  an  opinion.

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

We  have  previously  audited,  in  accordance with auditing standards generally
accepted  in  the United States of America, the consolidated balance sheet as of
July  31,  2002,  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 4, 2002, we expressed an unqualified
opinion  on  those  consolidated  financial  statements.   Our  report  letter
contained  a  paragraph stating that conditions existed which raised substantial
doubt  about  the  Company's  ability  to  continue as a going concern.   In our
opinion,  the  information  set  forth  in the accompanying consolidated balance
sheet  as  of  July  31,  2002,  is  fairly stated, in all material respects, in
relation  to  the  consolidated  balance  sheet  from which it has been derived.


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

Brownsville, Texas
March 7, 2003


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

                                 PENN OCTANE CORPORATION AND SUBSIDIARIES

                                        CONSOLIDATED BALANCE SHEETS

                                                  ASSETS

                                                                                January  31,
                                                                                    2003        July 31,
                                                                                (Unaudited)       2002
                                                                                -----------       ----
<S>                                                                            <C>             <C>
Current Assets

    Cash (including restricted cash of $2,853,781 and $29,701 at January 31,
    2003 and July 31, 2002)                                                    $    2,883,635  $   160,655

    Trade accounts receivable (less allowance for doubtful accounts of
    $5,783 at January 31, 2003 and July 31, 2002)                                   8,064,518    7,653,986
    Notes receivable - related parties                                                      -      414,356

    Inventories                                                                     2,533,291      938,672

    Assets held for sale                                                              720,000            -

    Mortgage receivable                                                             1,826,938    1,935,723

    Prepaid expenses and other current assets                                         312,101      254,654
                                                                               --------------  -----------
      Total current assets                                                         16,340,483   11,358,046

Property, plant and equipment - net                                                18,198,577   18,350,785

Lease rights (net of accumulated amortization of $684,638 and $661,740 at
January 31, 2003 and July 31, 2002)                                                   469,401      492,299

Other non-current assets                                                               82,215      154,209
                                                                               --------------  -----------

        Total assets                                                           $   35,090,676  $30,355,339
                                                                               ==============  ===========
</TABLE>


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


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

                                    CONSOLIDATED BALANCE SHEETS - CONTINUED

                                     LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                January 31,
                                                                                   2003           July 31,
                                                                                (Unaudited)         2002
                                                                                -----------         ----
<S>                                                                           <C>              <C>
Current Liabilities

    Current maturities of long-term debt                                      $    3,246,485   $    3,055,708

    Short-term debt                                                                2,702,918        3,085,000

    Revolving line of credit                                                               -          150,000

    LPG trade accounts payable                                                    12,356,350        8,744,432

    Other accounts payable                                                         2,031,745        3,584,848

    Accrued liabilities                                                              842,573          860,551
                                                                              --------------  ----------------
      Total current liabilities                                                   21,180,071       19,480,539

Long-term debt, less current maturities                                              136,602          612,498

Commitments and contingencies                                                              -                -

Stockholders' Equity

    Series A - Preferred stock-$.01 par value, 5,000,000 shares authorized;
    No shares issued and outstanding at January 31, 2003 and July 31, 2002                 -                -

    Series B - Senior preferred stock-$.01 par value, $10 liquidation value,
    5,000,000 shares authorized; No shares issued and outstanding at January
    31, 2003 and July 31, 2002                                                             -                -

    Common stock - $.01 par value, 25,000,000 shares authorized;
    14,863,357 and 14,870,977 shares issued and outstanding at January 31,
    2003 and July 31, 2002                                                           148,633          148,709

    Additional paid-in capital                                                    27,205,935       26,919,674

    Notes receivable from officers of the Company, a related party and
    another party for exercise of warrants, less reserve of $686,431 and
    $754,175 at January 31, 2003 and July 31, 2002                                (3,345,597)      (3,814,481)

    Accumulated deficit                                                          (10,234,968)     (12,991,600)
                                                                              --------------  ----------------

    Total stockholders' equity                                                    13,774,003       10,262,302
                                                                              --------------  ----------------

        Total liabilities and stockholders' equity                            $   35,090,676   $   30,355,339
                                                                              ===============  ===============
</TABLE>

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


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

                                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                   (UNAUDITED)

                                                      Three Months Ended                Six Months Ended
                                               -------------------------------  --------------------------------
                                                 January 31,      January 31,     January 31,      January 31,
                                                     2003            2002             2003             2002
                                               ----------------  -------------  ----------------  --------------
<S>                                            <C>               <C>            <C>               <C>
Revenues                                       $    43,621,932   $ 32,897,657   $    81,062,590   $  64,769,547

Cost of goods sold                                  40,237,561     30,635,630        75,163,800      61,881,420
                                               ----------------  -------------  ----------------  --------------

    Gross profit                                     3,384,371      2,262,027         5,898,790       2,888,127

Selling, general and administrative expenses

    Legal and professional fees                        731,677        320,834         1,051,791         944,786

    Salaries and payroll related expenses              511,096        306,586           969,833         668,931

    Other                                              182,937        261,150           508,942         513,292
                                               ----------------  -------------  ----------------  --------------

                                                     1,425,710        888,570         2,530,566       2,127,009
                                               ----------------  -------------  ----------------  --------------

        Operating income                             1,958,661      1,373,457         3,368,224         761,118

Other income (expense)

    Interest expense                                  (422,370)      (691,391)         (794,035)     (1,643,990)

    Interest income                                     13,574         16,481            82,443          29,228
                                               ----------------  -------------  ----------------  --------------

         Income (loss) before taxes                  1,549,865        698,547         2,656,632        (853,644)

Income tax benefit                                           -              -           100,000          53,306
                                               ----------------  -------------  ----------------  --------------

              Net income (loss)                $     1,549,865   $    698,547   $     2,756,632   $    (800,338)
                                               ================  =============  ================  ==============

Net income (loss) per common share             $          0.10   $       0.05   $          0.19   $       (0.05)
                                               ================  =============  ================  ==============

Net income (loss) per common share assuming
dilution                                       $          0.10   $       0.05   $          0.18   $       (0.05)
                                               ================  =============  ================  ==============

Weighted average common shares outstanding          14,866,836     14,832,871        14,868,906      14,722,282
                                               ================  =============  ================  ==============
</TABLE>


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


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

                                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                (UNAUDITED)

                                                                                  Six Months Ended
                                                                            ------------------------------
                                                                              January 31,     January 31,
                                                                                 2003            2002
                                                                            ---------------  -------------
<S>                                                                         <C>              <C>
Cash flows from operating activities:
Net income (loss)                                                           $    2,756,632   $   (800,338)
Adjustments to reconcile net income (loss) to net cash (used in) provided
  by operating activities:
    Depreciation and amortization                                                  506,969        371,600
   Amortization of lease rights                                                     22,898         22,898
    Non-employee stock based costs and other                                       104,101        262,434
    Amortization of loan discount                                                   39,583        803,099
   Interest income - officer note                                                  (67,241)             -
    Other                                                                          (83,406)        (7,786)
Changes in current assets and liabilities:
    Trade accounts receivable                                                     (410,531)     2,069,906
    Inventories                                                                 (1,594,619)     5,997,447
    Prepaid and other current assets                                              (161,549)      (450,500)
    LPG trade accounts payable                                                   3,611,918     (3,616,142)
    Obligation to deliver LPG                                                            -        187,684
    Other assets                                                                    71,995         96,517
    Other accounts payable and accrued liabilities                              (1,371,082)       872,332
                                                                            ---------------  -------------
      Net cash (used in) provided by operating activities                        3,425,668      5,809,151
Cash flows from investing activities:
    Proceeds from the sale of equipment                                             96,000              -
    Capital expenditures                                                          (367,354)      (509,836)
                                                                            ---------------  -------------
      Net cash used in investing activities                                       (271,354)      (509,836)
Cash flows from financing activities:
    Revolving credit facilities                                                   (150,000)             -
   Issuance of common stock                                                              -        137,813
    Costs of registration                                                                -           (494)
   Issuance of debt                                                                584,711              -
    Reduction in debt                                                             (866,045)    (3,067,336)
                                                                            ---------------  -------------
      Net cash provided by (used in) financing activities                         (431,334)    (2,930,017)
                                                                            ---------------  -------------
               Net increase in cash                                              2,722,980      2,369,298
Cash at beginning of period                                                        160,655      1,322,560
                                                                            ---------------  -------------
Cash at end of period                                                       $    2,883,635   $  3,691,858
                                                                            ===============  =============

Supplemental disclosures of cash flow information:
    Cash paid during the year for:
    Interest                                                                $      753,924   $    913,785
                                                                            ===============  =============
Supplemental disclosures of noncash transactions:
    Preferred stock, common stock and warrants issued                       $            -   $    974,915
                                                                            ===============  =============
    Mortgage receivable                                                     $      108,785   $          -
                                                                            ===============  =============
    Equipment exchanged for notes receivable                                $      720,000   $          -
                                                                            ===============  =============
    Unrealized loss on a derivative                                         $            -   $   (192,694)
                                                                            ===============  =============
</TABLE>


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


                                        7
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  A  -  ORGANIZATION

     Penn  Octane  Corporation  was incorporated in Delaware in August 1992. 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  on  leased  property in Brownsville, Texas (Brownsville
     Terminal  Facility)  and  owns  a  LPG  terminal  facility  in  Matamoros,
     Tamaulipas, Mexico (Matamoros Terminal Facility) and 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 which connects Exxon's Viola valve station
     in Nueces County, Texas to the inlet of the King Ranch Gas Plant (ECCPL) 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 Storage), as well as
     other  potential propane pipeline suppliers, via approximately 155 miles of
     pipeline located between Markham, Texas and the Exxon King Ranch Gas Plant.
     The Company sells LPG primarily to P.M.I. Trading Limited (PMI). PMI is the
     exclusive  importer  of  LPG  into Mexico. PMI is a subsidiary of Petroleos
     Mexicanos,  the  state-owned Mexican oil company (PEMEX). The LPG purchased
     from  the  Company  by  PMI  is  generally  destined for consumption in the
     northeastern  region  of  Mexico.

     The  Company  commenced  operations  during  the fiscal year ended July 31,
     1995,  upon  construction  of  the Brownsville Terminal Facility. Since the
     Company  began operations, the primary customer for LPG has been PMI. Sales
     of  LPG  to  PMI  accounted  for  approximately  81% of the Company's total
     revenues  for  the  six  months  ended  January  31,  2003.

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

     The  accompanying consolidated financial statements include the Company and
     its  United  States  subsidiaries,  Penn  Octane  International,  L.L.C.,
     PennWilson  CNG,  Inc.  (PennWilson)  and  Penn  CNG  Holdings,  Inc.  and
     subsidiaries, its Mexican subsidiaries, Penn Octane de Mexico, S.A. de C.V.
     (PennMex)  and  Termatsal,  S.A. de C.V. (Termatsal) and its other inactive
     Mexican  subsidiaries,  (collectively  the  Company).  All  significant
     intercompany  accounts  and  transactions  have  been  eliminated.

     The  unaudited  consolidated  balance  sheet  as  of  January 31, 2003, the
     unaudited  consolidated  statements  of operations for the three months and
     six  months  ended January 31, 2003 and 2002 and the unaudited consolidated
     statements  of  cash  flows  for  the six months ended January 31, 2003 and
     2002,  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  January  31, 2003, the unaudited consolidated results of operations
     for the three months and six months ended January 31, 2003 and 2002 and the
     unaudited  consolidated  statements  of cash flows for the six months ended
     January  31,  2003  and  2002.

     Certain  information  and  footnote  disclosures  normally  included  in
     consolidated  financial  statements  prepared in accordance with accounting
     principles  generally  accepted  in  the United States of America have been
     omitted.  These  unaudited consolidated financial statements should be read
     in conjunction with the consolidated financial statements and notes thereto
     included  in  the  Company's Annual Report on Form 10-K for the fiscal year
     ended  July  31,  2002.

     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.


                                        8
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE B - INCOME (LOSS) PER COMMON SHARE

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

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

<TABLE>
<CAPTION>
                                      For the three months ended January 31, 2003
                                      -------------------------------------------
                                        Income (Loss)      Shares      Per-Share
                                         (Numerator)    (Denominator)    Amount
                                        --------------  -------------  ----------
<S>                                     <C>             <C>            <C>
Net income (loss)                       $    1,549,865

BASIC EPS
Net income (loss) available to common
  stockholders                               1,549,865     14,866,836  $     0.10
                                                                       ==========
EFFECT OF DILUTIVE SECURITIES
Warrants                                             -        169,926
                                        --------------  -------------
DILUTED EPS
Net income (loss) available to common
  stockholders                          $    1,549,865     15,036,762  $     0.10
                                        ==============  =============  ==========
</TABLE>

<TABLE>
<CAPTION>
                                      For the three months ended January 31, 2002
                                      -------------------------------------------
                                        Income (Loss)      Shares      Per-Share
                                         (Numerator)    (Denominator)    Amount
                                        --------------  -------------  ----------
<S>                                     <C>             <C>            <C>
Net income (loss)                       $      698,547
BASIC EPS
Net income (loss) available to common
  stockholders                                 698,547     14,832,871  $     0.05
                                                                       ==========
EFFECT OF DILUTIVE SECURITIES
Warrants                                             -        544,458
                                        --------------  -------------
DILUTED EPS
Net income (loss) available to common
  stockholders                          $      698,547     15,377,329  $     0.05
                                        ==============  =============  ==========
</TABLE>


                                        9
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE B - INCOME (LOSS) PER COMMON SHARE - CONTINUED

<TABLE>
<CAPTION>
                                        For the six months ended January 31, 2003
                                        -----------------------------------------
                                        Income (Loss)      Shares      Per-Share
                                         (Numerator)    (Denominator)    Amount
                                        --------------  -------------  ----------
<S>                                     <C>             <C>            <C>
Net income (loss)                       $    2,756,632
BASIC EPS
Net income (loss) available to common
  stockholders                               2,756,632     14,868,906  $     0.19
                                                                       ==========
EFFECT OF DILUTIVE SECURITIES
Warrants                                             -         85,065
                                        --------------  -------------
DILUTED EPS
Net income (loss) available to common
  stockholders                          $    2,756,632     14,953,971  $     0.18
                                        ==============  =============  ==========
</TABLE>

<TABLE>
<CAPTION>
                                        For the six months ended January 31, 2002
                                        ------------------------------------------
                                        Income (Loss)      Shares       Per-Share
                                         (Numerator)    (Denominator)    Amount
                                        --------------  -------------  -----------
<S>                                     <C>             <C>            <C>
Net income (loss)                       $    (800,338)
BASIC EPS
Net income (loss) available to common
  stockholders                               (800,338)     14,722,282  $    (0.05)
                                                                       ===========
EFFECT OF DILUTIVE SECURITIES
Warrants                                            -               -
DILUTED EPS
Net income (loss) available to common
  stockholders                                     N/A             N/A        N/A
</TABLE>


NOTE C - NOTES FROM RELATED PARTIES

     During  October  2002,  the  Company  agreed  to  accept certain compressed
     natural  gas  refueling  station  assets  with  an  appraised fair value of
     approximately $800,000 as payment for notes (totaling $652,759 plus accrued
     interest) owed to the Company by an officer and director of the Company. In
     connection with the transaction, the Company adjusted the fair value of the
     assets  to $720,000 to reflect additional costs estimated to be incurred in
     disposing  of  the assets. The Company also recorded interest income during
     the  six  months  ended  January  31,  2003  on  the notes of approximately
     $67,241,  which  had  been  previously  been  reserved,  representing  the
     difference between the adjusted fair value of the assets and the book value
     of  the  notes.

     During  January  2003,  a  note  due  from  the  President in the amount of
     $200,000  plus  accrued interest as of January 31, 2003 was paid through an
     offset  against  previously accrued bonus and profit sharing amounts due to
     the President at January 31, 2003.


                                       10
<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>
                                                         January 31,     July 31,
                                                            2003           2002
                                                        -------------  ------------
<S>                                                     <C>            <C>
LPG:
    Brownsville Terminal Facility:
      Building                                          $    173,500   $   173,500
      Terminal facilities                                  3,631,207     3,631,207
      Tank Farm                                              370,855       370,855
      Midline pump station                                 2,443,989     2,449,628
      Leasehold improvements                                 302,657       302,657
      Capital construction in progress                        96,212        96,212
      Equipment                                              434,235       502,557
                                                        -------------  ------------
                                                           7,452,655     7,526,616
                                                        -------------  ------------
    US - Mexico Pipelines and Matamoros Terminal
    Facility:

    U.S. Pipelines and Rights of Way                       6,690,011     6,441,536
    Mexico Pipelines and Rights of Way                     1,049,235     1,049,235
    Matamoros Terminal Facility                            5,107,513     5,074,087
    Saltillo Terminal                                      1,027,267     1,027,267
    Land                                                     856,358       856,358
                                                        -------------  ------------
                                                          14,730,384    14,448,483
                                                        -------------  ------------
        Total LPG                                         22,183,039    21,975,099
                                                        -------------  ------------
Other:
      Automobile                                              10,800        10,800
      Office equipment                                        77,823        72,728
      Software                                                64,766             -
                                                        -------------  ------------
                                                             153,389        83,528
                                                        -------------  ------------
                                                          22,336,428    22,058,627
      Less:  accumulated depreciation and amortization    (4,137,851)   (3,707,842)
                                                        -------------  ------------
                                                        $ 18,198,577   $18,350,785
                                                        =============  ============
</TABLE>

     The  Company  had  previously  completed  construction of an additional LPG
     terminal  facility in Saltillo, Mexico (Saltillo Terminal). The Company was
     unable  to  receive  all the necessary approvals to operate the facility at
     that  location.  The  Company has identified an alternate site in Hipolito,
     Mexico,  a  town  located  in  the  proximity  of  Saltillo to relocate the
     Saltillo  Terminal.  The  cost of such relocation is expected to be between
     $250,000  and  $500,000.

     Property,  plant  and  equipment, net of accumulated depreciation, includes
     $6,634,666  and  $6,759,102 of costs, located in Mexico at January 31, 2003
     and  July  31,  2002,  respectively.


                                       11
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  E  -  INVENTORIES

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                      January 31, 2003        July 31, 2002
                                    ---------------------  --------------------
                                     Gallons      Cost      Gallons     Cost
                                    ---------  ----------  ---------  ---------
<S>                                 <C>        <C>         <C>        <C>
LPG:
  Leased Pipeline,
    Brownsville Terminal Facility,
    Matamoros Terminal Facility
    and railcars leased by the
    Company                         1,515,522  $  938,778  1,982,646  $772,334
  Markham Storage and other         2,575,733   1,594,513    427,003   166,338
                                    ---------  ----------  ---------  ---------
                                    4,091,255  $2,533,291  2,409,649  $938,672
                                    =========  ==========  =========  =========
</TABLE>


NOTE  F  -  DEBT  OBLIGATIONS

<TABLE>
<CAPTION>
Debt consists of the following:
                                                                                         January 31,    July 31,
                                                                                             2003         2002
                                                                                         ------------  ----------
<S>                                                                                      <C>           <C>
Promissory note issued in connection with the acquisition of the US - Mexico Pipelines
and the Matamoros Terminal Facility.                                                     $    579,341  $  837,918

Promissory note issued in connection with the acquisition of the US - Mexico Pipelines
and the Matamoros Terminal Facility.                                                          404,597     554,159

Promissory note issued in connection with the purchase of property                          1,826,938   1,935,723

New Accepting Noteholders' notes and Additional Note                                        2,702,918   3,085,000

Noninterest-bearing note payable, discounted at 7%, for legal services; due in February
2002                                                                                          137,500     137,500

Other debt                                                                                    434,711     202,906
                                                                                         ------------  ----------
                                                                                            6,086,005   6,753,206
Current maturities                                                                          3,246,485   3,055,708

Short term debt                                                                             2,702,918   3,085,000
                                                                                         ------------  ----------
                                                                                         $    136,602  $  612,498
                                                                                         ============  ==========
</TABLE>

     During June 2002, the Company and certain holders of the Restructured Notes
     and  the New Notes (New Accepting Noteholders) reached an agreement whereby
     the  due  date  for  approximately  $2,985,000  of principal due on the New
     Accepting  Noteholders'  notes  were  extended  to  December  15, 2002 (see
     below).  The New Accepting Noteholders' notes accrued interest at 16.5% per
     annum.  Interest was payable on the outstanding balances on specified dates
     through  December  15,  2002.

     During  June  2002 the Company issued a note for $100,000 (Additional Note)
     to  a holder of the Restructured Notes and the New Notes. The $100,000 note
     provided for similar terms and conditions as the New Accepting Noteholders'
     notes  (see  below).


                                       12
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE F - DEBT OBLIGATIONS - CONTINUED

     EXTENSION OF NEW ACCEPTING NOTEHOLDERS' NOTES AND ADDITIONAL NOTE

     During  December  2002,  the  Company  and certain holders of New Accepting
     Noteholders'  notes  and  holder  of  the  Additional  Note  (Extending
     Noteholders)  reached  an  agreement whereby the due date for $2,730,000 of
     principal due on the Extending Noteholders' notes were extended to December
     15,  2003.  Under  the  terms  of the agreement, the Extending Noteholders'
     notes  will  continue  to  bear  interest  at  16.5% per annum. Interest is
     payable  quarterly  on the outstanding balances beginning on March 15, 2003
     (the  December 15, 2002 interest was paid on January 1, 2003). In addition,
     the  Company  is  required  to  pay principal in equal monthly installments
     beginning  March  2003.  The  Company may prepay the Extending Noteholders'
     notes at any time. The Company is also required to pay a fee of 1.5% on the
     principal  amount of the Extending Noteholders' notes which are outstanding
     on December 15, 2002, March 15, 2003, June 15, 2003 and September 15, 2003.
     The  Company also agreed to extend the expiration date on the warrants held
     by  the  Extending  Noteholders  in  connection  with  the  issuance of the
     Extending  Noteholders'  notes to December 15, 2006. In connection with the
     extension  of  the  warrants,  the  Company recorded a discount of $316,665
     related  to  the additional value of the modified warrants of which $39,583
     has  been  amortized  for  the  period  ended  January  31,  2003.

     The  Company paid the portion of the New Accepting Noteholders' notes which
     were  not  extended,  $355,000 plus accrued interest, on December 15, 2002.

     During  March  2003, warrants to purchase 250,000 shares of common stock of
     the Company were exercised by a holder of the Warrants and New Warrants for
     which  the  exercise  price  totaling $625,000 was paid by reduction of the
     outstanding  debt  and  accrued  interest owed to the holder related to the
     Restructured  Notes.  In  addition,  during March 2003, the holder acquired
     161,392  shares  of  common  stock  of  the Company at a price of $2.50 per
     share.  The  purchase  price  was  paid  through  the  cancellation  of the
     remaining outstanding debt and accrued interest owed to the holder totaling
     $403,480.

     ISSUANCE  OF  PROMISSORY  NOTE

     During December 2002, the Company issued a note for $250,000 to a holder of
     the  Extending  Noteholders' notes. The note provides for similar terms and
     conditions  as  the  Extending  Noteholders'  notes.

     OTHER

     In connection with the note payable for legal services, the Company has not
     made  all  of the required payments. The Company provided a "Stipulation of
     Judgment"  to  the  creditor  at  the  time the note for legal services was
     issued.


                                       13
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE F - DEBT OBLIGATIONS - CONTINUED

     OTHER - CONTINUED

     CPSC  International,  Inc.  (CPSC)  agreed  to  be responsible for payments
     required by the Mortgage Note in connection with a settlement in March 2001
     between  CPSC  and  the Company. CPSC's obligations under the Mortgage Note
     are  to be paid by the Company to the extent that there are amounts owed by
     the  Company  under  the  CPSC  Note, through direct offsets by the Company
     against  the  CPSC  Note. After the CPSC Note ($579,341) is fully paid, the
     Company  will  no  longer have any payment obligation to CPSC in connection
     with  the  Mortgage Note. Thereafter, CPSC will be fully responsible to the
     Company  for any remaining obligations in connection with the Mortgage Note
     (Remaining  Obligations). However, the holder of the Mortgage Note has full
     recourse  against  the Company for any amounts due under the Mortgage Note.
     CPSC's obligations to the Company relating to the Remaining Obligations are
     collateralized  by  a  deed  of  trust lien granted by CPSC in favor of the
     Company against the land pledged as collateral under the Mortgage Note. The
     principal  of  approximately $1,816,000 plus accrued and unpaid interest is
     due  during  April  2003 and is included in current maturities of long-term
     debt  and  the  corresponding  amount  required to be paid by CPSC has been
     recorded  as  a  mortgage  receivable.  The  appraised  value  of  the land
     collateralizing the Mortgage Note exceeds the amount due under the Mortgage
     Note.

     The  Company's President is providing a personal guarantee for the punctual
     payment  and  performance  under  the CPSC Note until collateral pledged in
     connection  with  the  note  is  perfected.


NOTE  G  -  STOCKHOLDERS'  EQUITY

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

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

     During  March  2003, warrants to purchase 250,000 shares of common stock of
     the  Company  were  exercised  by  a certain holder of the Warrants and New
     Warrants,  through  reductions  of  debt  obligations  (see  note  F).

     During  March  2003,  a  holder of the Restructured Notes agreed to acquire
     161,392  shares  of  common  stock  of  the Company at a price of $2.50 per
     share.  The purchase price was paid through the cancellation of outstanding
     debt  and  accrued  interest owed to the holder totaling $403,480 (see note
     F).

     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.


                                       14
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE G - STOCKHOLDERS' EQUITY - CONTINUED

     BOARD COMPENSATION PLAN (BOARD PLAN)

     In  connection  with  the  Board Plan, during August 2002 the Board granted
     warrants  to  purchase  20,000  shares  of  common  stock of the Company at
     exercise  prices  of  $3.10  per  share  to outside directors. Based on the
     provisions  of  APB  25,  no  compensation  expense  was recorded for these
     warrants.

     In  connection  with the Board Plan, during November 2002 the Board granted
     warrants  to  purchase  10,000  shares  of  common  stock of the Company at
     exercise  prices  of  $2.27  per share to an outside director. Based on the
     provisions  of  APB  25,  no  compensation  expense  was recorded for these
     warrants.

NOTE H - COMMITMENTS AND CONTINGENCIES

     LITIGATION

     On  March  16,  1999,  the  Company settled a lawsuit in mediation with its
     former  chairman  of  the board, Jorge V. Duran. The total settlement costs
     recorded  by  the  Company  at July 31, 1999, was $456,300. The parties had
     agreed to extend the date on which the payments were required in connection
     with the settlement including the issuance of the common stock. On July 26,
     2000,  the parties executed final settlement agreements whereby the Company
     paid  the  required  cash  payment  of $150,000. During September 2000, the
     Company  issued  the  required  stock.

     On July 10, 2002, litigation was filed in the 164th Judicial District Court
     of  Harris  County, Texas by Jorge V. Duran and Ware, Snow, Fogel & Jackson
     L.L.P.  against  the  Company alleging breach of contract, common law fraud
     and statutory fraud in connection with the settlement agreement between the
     parties  dated  July 26, 2000. Plaintiffs seek actual and punitive damages.
     The Company believes the claims are without merit and intends to vigorously
     defend  against  the  lawsuit.

     On March 2, 2000, litigation was filed in the Superior Court of California,
     County of San Bernardino by Omnitrans against Penn Octane Corporation, Penn
     Wilson,  CNG  and  several other third parties alleging breach of contract,
     fraud and other causes of action related to the construction of a refueling
     station by a third party. Penn Octane Corporation and Penn Wilson have both
     been  dismissed  from  the  litigation  pursuant  to  a  summary  judgment.
     Omnitrans  has filed its appellate brief requesting reversal of the summary
     judgments  in favor of the Company and Penn Wilson. Based on proceedings to
     date, the Company believes that the claims are without merit and intends to
     vigorously  defend  against  the  lawsuit. The Company believes the summary
     judgments  will  be  upheld  and  intends to file a response to the appeal.

     On  August 7, 2002, a Mexican company, Intertek Testing Services de Mexico,
     S.A.  de  C.V.  (Plaintiff),  which  contracts  with  PMI  for  LPG testing
     services,  filed  suit  in  the Superior Court of California, County of San
     Mateo  against  the Company alleging breach of contract. The plaintiffs are
     seeking  damages  in  the  amount  of $750,000. Trial is scheduled to begin
     April  28,  2003.  The Company believes that the complaint is without merit
     and  intends  to  vigorously  defend  against  the  lawsuit.

     On  October  11,  2002, litigation was filed in the 197th Judicial District
     Court  of  Cameron  County,  Texas  by  the Company against Tanner Pipeline
     Services, Inc. ("Tanner"); Cause No. 2002-10-4448-C alleging negligence and
     aided breaches of fiduciary duties on behalf of CPSC in connection with the
     construction of the US Pipelines. The Company is seeking damages. Discovery
     is  continuing in this matter. Tanner sent notice of its intent to seek its
     attorneys  fees  as  a  sanction  in  the  event it prevails in the action.


                                       15
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE H - COMMITMENTS AND CONTINGENCIES - CONTINUED

     LITIGATION - Continued

     The  Company and its subsidiaries are also involved with other proceedings,
     lawsuits  and  claims.  The  Company believes that the liabilities, if any,
     ultimately  resulting from such proceedings, lawsuits and claims, including
     those  discussed  above,  should  not  materially  affect  its consolidated
     financial  statements.

     CREDIT FACILITY, LETTERS OF CREDIT AND OTHER

     As  of January 31, 2003, the Company had a $10,000,000 credit facility (see
     below)  with  RZB Finance L.L.C. (RZB) for demand loans and standby letters
     of  credit (RZB Credit Facility) to finance the Company's purchases of LPG.
     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 Chase Manhattan Bank
     as  its  prime rate 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  make any loan or issue any letter 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 connection with
     the  RZB  Credit  Facility,  the  Company  granted  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  agreed  to  enter into leasehold deeds of trust,
     security agreements, financing statements and assignments of rent, in forms
     satisfactory  to  RZB.  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.

     The  Company's  President,  Chairman  and  Chief  Executive  Officer  has
     personally guaranteed all of the Company's payment obligations with respect
     to  the  RZB  Credit  Facility.

     In  connection  with the Company's purchases of LPG from Exxon, El Paso NGL
     Marketing  Company, L.P. (El Paso) (which expired September 30, 2002), Duke
     Energy  NGL  Services,  Inc. (Duke) and/or Koch Hydrocarbon Company (Koch),
     letters  of  credit  are  issued  on  a  monthly basis based on anticipated
     purchases.

     In  connection  with  the  Company's  purchase of LPG, 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
     $2,853,781).  At January 31, 2003, the Company's borrowings and commitments
     were  less  than  the  amount  of  the  Assets.

     During February 2003, the RZB Credit Facility was increased to $15,000,000.
     Under  the  terms  of the increase, the Company is required to maintain net
     worth  of a minimum of $9,000,000 and is not allowed to make cash dividends
     to shareholders without the consent of RZB. The increase is effective until
     August  31,  2003  when  it  will  be automatically reduced to $12,000,000.

     CONSULTING  AGREEMENT

     Effective November 2002, the Company entered into a consulting contract for
     $30,000  a  month  for  a  period  of  six  months.


                                       16
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE H - 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 I - REALIZATION OF ASSETS

     The  accompanying  unaudited  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, significantly all of the
     Company's  assets  are  pledged or committed to be pledged as collateral on
     existing  debt in connection with the Extending Noteholders' notes, the RZB
     Credit  Facility  and  the  notes  related  to  the  Settlement. Unless RZB
     authorizes  an  extension,  the  RZB  Credit  Facility  will  be reduced to
     $12,000,000  after August 31, 2003. The Extending Noteholders' notes, which
     total  approximately  $1,980,000  at  March 7, 2003 are due on December 15,
     2003  (see  note  F).  The  Company  is  also  guarantor  of  a third party
     obligation  which  becomes  due  in  April  2003  totaling  approximately
     $1,816,000  plus  accrued  interest.

     In view of the matters described in the preceding paragraph, recoverability
     of  a  major  portion  of  the  recorded  asset  amounts  as  shown  in the
     accompanying  unaudited  consolidated  balance sheets is dependent upon the
     Company's  ability  to  obtain  additional  financing,  repay the Extending
     Noteholders'  notes  and the continued success of the Company's operations.
     The  unaudited  consolidated  financial  statements  do  not  include  any
     adjustments  related  to  the recoverability and classification of recorded
     asset  amounts  or  amounts and classification of liabilities that might be
     necessary  should  the  Company  be  unable  to  continue  in  existence.

     To  provide  the Company with the ability it believes necessary to continue
     in  existence,  management  has  entered  into  the Contract with PMI which
     increases  the  minimum  monthly  sales  volume  sold  to PMI. In addition,
     management  is  taking  steps  to  (i)  obtain  additional  sale  contracts
     commensurate  with  supply agreements (ii) increase the number of customers
     assuming deregulation of the LPG industry in Mexico, (iii) raise additional
     debt  and/or  equity  capital  and  (iv) increase and extend the RZB Credit
     Facility.

     At  July  31,  2002,  the  Company had net operating loss carryforwards for
     federal  income  tax  purposes  of  approximately  $6,700,000.


                                       17
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  J-  CONTRACTS

     LPG  SALES  TO  PMI

     Effective  March  1,  2002, the Company and PMI entered into a contract for
     the  minimum  monthly sale of 17,000,000 gallons of LPG, subject to monthly
     adjustments  based  on  seasonality (Contract). The Contract expires on May
     31,  2004, except that the Contract may be terminated by either party on or
     after  May  31,  2003  upon  90  days  written  notice, or upon a change of
     circumstances  as  defined  under  the  Contract.

     PMI  uses  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  temporarily.

     LPG  SUPPLY  AGREEMENTS

     The  Company  has  entered  into  minimum  long-term  supply agreements for
     quantities  of  LPG  totaling  approximately  24,000,000  gallons per month
     although  the  Contract  provides  for  lesser  quantities.

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


NOTE  K-  INCOME  TAX

     During  the  six  months  ended  January  31, 2003, the Company recorded an
     income  tax  benefit  of $100,000, representing a reduction for alternative
     minimum  taxes previously accrued. Due to the availability of net operating
     loss carryforwards (approximately $6,700,000 at July 31, 2002), the Company
     did not incur any additional income tax expense during the six months ended
     January  31,  2003. The Company can receive a credit against any future tax
     payments  due  to  the  extent  of any prior alternative minimum taxes paid
     ($54,375  at  January  31,  2003).


                                       18
<PAGE>
ITEM  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS

     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  2002)  refer  to  the  Company's  fiscal  year  ended  July  31.

FORWARD-LOOKING  STATEMENTS

The  statements contained in this Quarterly Report that are not historical facts
are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
Securities  Act  of 1933.  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 involve risks and
uncertainties.  From  time  to  time,  we  have made or may make forward-looking
statements,  orally  or  in  writing.  These  forward-looking statements include
statements regarding anticipated future revenues, sales, LPG supply, operations,
demand, competition, capital expenditures, the deregulation of the LPG market in
Mexico,  the  operations  of  the  US - Mexico Pipelines, the Matamoros Terminal
Facility  and  the  Saltillo Terminal, other upgrades to our facilities, foreign
ownership  of  LPG  operations,  short-term obligations and credit arrangements,
outcome  of  litigation  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 Part I of the
Company's  Annual Report on Form 10-K for the fiscal year ended July 31, 2002 as
well as those discussed elsewhere in this Report.  We caution you, however, that
this  list  of  factors  may  not  be  complete.

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 may also sell
LPG  to  U.S.  and  Canadian  customers.

     During  the  six  months ended January 31, 2003, the Company derived 81% of
its 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.

LPG  SALES

     The  following  table  shows  the  Company's  volume  sold and delivered in
gallons  and average sales price for the three months ended January 31, 2003 and
2002;

<TABLE>
<CAPTION>
                                          2003   2002
                                          ----   ----
<S>                                       <C>    <C>
Volume Sold

        LPG (millions of gallons) - PMI    61.7   62.9
        LPG (million of gallons) - Other    9.3   17.3
                                           ----   ----
                                           71.0   80.2
Average sales price

        LPG (per gallon) - PMI            $0.63  $0.40
        LPG (per gallon) - Other           0.52   0.45
</TABLE>


                                       19
<PAGE>
RESULTS  OF  OPERATIONS

THREE MONTHS ENDED JANUARY 31, 2003 COMPARED WITH THREE MONTHS ENDED JANUARY 31,
2002

     Revenues.  Revenues for the three months ended January 31, 2003, were $43.6
million compared with $32.9 million for the three months ended January 31, 2002,
an  increase  of  $10.7  million  or 32.6%.  Of this increase, $14.2 million was
attributable  to increases in average sales prices of LPG sold to PMI during the
three  months  ended  January  31,  2003  and  $1.3  million was attributable to
increased  average  sales  prices of LPG sold to customers other than PMI during
the  three  months  ended  January  31,  2003,  partially  offset  by  $733,805
attributable  to  decreased  volumes  of LPG sold to PMI during the three months
ended  January  31,  2003  and $4.2 million attributable to decreased volumes of
LPG  sold  to customers other than PMI during the three months ended January 31,
2003.

     Cost  of goods sold.  Cost of goods sold for the three months ended January
31,  2003,  was  $40.2  million compared with $30.6 million for the three months
ended January 31, 2002, an increase of $9.6 million or 31.3%.  Of this increase,
$14.4  million  was  attributable  to  increases  in the cost of LPG sold to PMI
during  the  three  months  ended January 31, 2003, partially offset by $642,251
attributable  to  decreased  volume  of  LPG sold to PMI during the three months
ended  January 31, 2003, $432,262 attributable to decreased costs of LPG sold to
customers other than PMI during the three months ended January 31, 2003 and $4.3
million attributable to decreased volume of LPG sold to customers other than PMI
during  the  three  months  ended  January  31,  2003.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative expenses were $1.4 million for the three months ended January 31,
2003,  compared  with  $888,570  for the three months ended January 31, 2002, an
increase  of  $537,140  or  60.5%.   The  increase during the three months ended
January  31, 2003 was principally due to legal, professional and consulting fees
and  payroll  related  costs.

     Other  income  (expense).  Other  income  (expense)  was $(408,796) for the
three  months  ended  January  31,  2003, compared with $(674,910) for the three
months ended January 31, 2002.  The decrease in other expenses was due primarily
to  decreased  amortization  of  discounts  on outstanding debt during the three
months  ended  January  31,  2003.

     Income  tax.   Due  to the availability of net operating loss carryforwards
(approximately  $6.7  million  at  July 31, 2002), the Company did not incur any
additional  income  tax  expense during the three months ended January 31, 2003.
The  Company  can  receive  a  credit against any future tax payments due to the
extent  of  any  prior  alternative  minimum  taxes paid ($54,375 at January 31,
2003).

SIX  MONTHS  ENDED  JANUARY  31, 2003 COMPARED WITH SIX MONTHS ENDED JANUARY 31,
2002

     Revenues.  Revenues  for  the six months ended January 31, 2003, were $81.1
million  compared  with $64.8 million for the six months ended January 31, 2002,
an  increase  of  $16.3  million  or 25.2%.  Of this increase, $16.7 million was
attributable  to increases in average sales prices of LPG sold to PMI during the
six  months  ended  January  31,  2003,  $2.1  million attributable to increased
volumes of LPG sold to PMI during the six months ended January 31, 2003 and $1.9
million  attributable to increased average sales prices of LPG sold to customers
other  than PMI during the six months ended January 31, 2003 partially offset by
$4.5  million  attributable  to decreased volumes of LPG sold to customers other
than  PMI  during  the  six  months  ended  January  31,  2003.


                                       20
<PAGE>
     Cost  of  goods  sold.  Cost of goods sold for the six months ended January
31, 2003, was $75.2 million compared with $61.9 million for the six months ended
October  31,  2002,  an  increase  of $13.3 million or 21.5%.  Of this increase,
$16.3  million  was  attributable  to  increases  in the cost of LPG sold to PMI
during  the  six  months  ended  January  31, 2003, $1.8 million attributable to
increased  volume  of  LPG  sold  to PMI during the six months ended January 31,
2003,  partially  offset by $730,319 attributable to decreased costs of LPG sold
to  customers  other  than  PMI during the six months ended January 31, 2003 and
$4.5  million  attributable  to  decreased volume of LPG sold to customers other
than  PMI  during  the  six  months  ended  January  31,  2003.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses  were $2.5 million for the six months ended January 31,
2003,  compared  with $2.1 million for the six months ended January 31, 2002, an
increase  of  $403,557  or  19.0%.   The  increase  during  the six months ended
January  31, 2003 was principally due to legal, professional and consulting fees
and  payroll  related  costs.

     Other  income (expense).  Other income (expense) was $(711,592) for the six
months  ended  January 31, 2003, compared with $(1.6) million for the six months
ended  January  31,  2002.  The  decrease  in other expense was due primarily to
decreased  and  amortization  of  discounts  on  outstanding debt during the six
months  ended  January  31,  2003.

     Income  tax.   During  the  six  months ended January 31, 2003, the Company
recorded  an  income  tax  benefit  of  $100,000,  representing  a reduction for
alternative  minimum  taxes  previously accrued.  Due to the availability of net
operating  loss carryforwards (approximately $6.7 million at July 31, 2002), the
Company  did  not  incur  any  additional  income  tax expense.  The Company can
receive  a credit against any future tax payments due to the extent of any prior
alternative  minimum  taxes  paid  ($54,375  at  January  31,  2003).

LIQUIDITY AND CAPITAL RESOURCES

     General.  The  Company  has  had an accumulated deficit since its inception
and  has  a  deficit  in working capital.  In addition, significantly all of the
Company's  assets  are  pledged  or  committed  to  be  pledged as collateral on
existing  debt  in  connection  with  the  Extending Noteholders' notes, the RZB
Credit  Facility and the notes related to the Settlement.  Unless RZB authorizes
an  extension,  the  RZB  Credit Facility will be reduced to $12.0 million after
August  31,  2003.   The  Extending  Noteholders' notes total approximately $2.0
million  at  March  7, 2003 are due on December 15, 2003 (see Private Placements
and  Other  Transactions below).  The Company is also guarantor of a third party
obligation  which  becomes due in April 2003 totaling approximately $2.0 million
plus accrued interest.  The Company may need to increase its credit facility for
increases  in  quantities  of  LPG  purchased  and/or  to  finance  future price
increases  of  LPG.  The Company depends heavily on sales to one major customer.
The  Company's sources of liquidity and capital resources historically have been
provided by sales of LPG, proceeds from the issuance of short-term and long-term
debt,  revolving  credit facilities and credit arrangements, sale or issuance of
preferred  and  common  stock  of  the Company and proceeds from the exercise of
warrants  to  purchase  shares  of  the  Company's  common  stock.

     The  following summary table reflects comparative cash flows for six months
ended January 31, 2003, and 2002. All information is in thousands.

<TABLE>
<CAPTION>
                                                       2003        2002
                                                     ---------  -----------
<S>                                                  <C>        <C>
Net cash provided by (used in) operating activities  $  3,425   $    5,810
Net cash used in investing activities . . . . . . .      (271)        (510)
Net cash provided by (used in) financing activities      (431)      (2,931)
                                                     ---------  -----------
Net increase (decrease) in cash . . . . . . . . . .  $  2,723   $    2,369
                                                     =========  ===========
Less net increase in restricted cash. . . . . . . .    (2,824)      (2,686)
                                                     ---------  -----------
Net increase (decrease) in non-restricted cash. . .  $   (101)  $     (317)
                                                     =========  ===========
</TABLE>


                                       21
<PAGE>
     Sales  to PMI.  Effective March 1, 2002, the Company and PMI entered into a
contract for the minimum monthly sale of 17.0 million gallons of LPG, subject to
monthly adjustments based on seasonality (the "Contract").  The Contract expires
on  May  31, 2004, except that the Contract may be terminated by either party on
or  after  May  31,  2003  upon  90  days  written  notice,  or upon a change of
circumstances  as  defined  under  the  Contract.

     PMI  uses  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  temporarily.

     Revenues  from  PMI  totaled approximately $66.0 million for the six months
ended  January 31, 2003, representing approximately 81% of total revenue for the
period.

     LPG  Supply  Agreements.  The  Company  has  entered into minimum long-term
supply  agreements  for  quantities  of  LPG totaling approximately 24.0 million
gallons  per  month  although  the  Contract  provides  for  lesser  quantities.

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

     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 beginning January 1, 2002 until its
expiration is $1.0 million.  The Company is required to pay a minimum charge for
storage of $300,000 per year (based on reserved storage of 8.4 million gallons).
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 has made all payments required under
the  Pipeline  Lease  Amendment.

     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
millions  gallons  per  year.


                                       22
<PAGE>
     Upgrades.  The  Company  also  intends  to  contract  for  the  design,
installation  and  construction  of pipelines which will connect the Brownsville
Terminal  Facility  to the water dock facilities at the Brownsville Ship Channel
and  install  additional storage capacity.  The cost of this project is expected
to  approximate  $2.0  million.  In  addition the Company intends to upgrade its
computer  and  information  systems  at  a  total  estimated  cost  of $350,000.

     Mortgage  Receivable.  CPSC  International,  Inc.  ("CPSC")  agreed  to  be
responsible  for  payments  required  by  the Mortgage Note in connection with a
settlement in March 2001 between CPSC and the Company.  CPSC's obligations under
the  Mortgage  Note  are  to be paid by the Company to the extent that there are
amounts  owed  by the Company under the CPSC Note, through direct offsets by the
Company  against  the  CPSC Note.  After the CPSC Note ($579,341) is fully paid,
the  Company  will  no  longer have any payment obligation to CPSC in connection
with  the  Mortgage  Note.  Thereafter,  CPSC  will  be fully responsible to the
Company  for any remaining obligations in connection with the Mortgage Note (the
"Remaining  Obligations").  However,  the  holder  of the Mortgage Note has full
recourse  against  the  Company  for  any  amounts  due under the Mortgage Note.
CPSC's  obligations  to  the  Company  relating to the Remaining Obligations are
collateralized  by  a deed of trust lien granted by CPSC in favor of the Company
against  the  land pledged as collateral under the Mortgage Note.  The principal
of  approximately  $2.0  million  plus accrued and unpaid interest is due during
April  2003  and  is  included  in  current maturities of long-term debt and the
corresponding amount required to be paid by CPSC has been recorded as a mortgage
receivable.  The  appraised  value of the land collateralizing the Mortgage Note
exceeds  the  amount  due  under  the  Mortgage  Note.

     The  Company's President is providing a personal guarantee for the punctual
payment  and  performance  under  the  CPSC  Note  until  collateral  pledged in
connection  with  the  note  is  perfected.

     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  the  Mexican Subsidiaries own, lease, or are 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 own the Mexican portion of the
assets  comprising  the US-Mexico Pipelines, the Matamoros Terminal Facility and
the  Saltillo  Terminal.  The  Company's 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.  Tergas  is  owned  90%  by  Jorge
Bracamontes,  an  officer and director of the Company, and the remaining balance
is  owned  by another officer and a consultant of the Company.  The Company pays
Tergas  its  actual  cost  for  distribution  services at the Matamoros Terminal
Facility  plus  a  small  profit.

     The  Company  had  previously  completed  construction of an additional LPG
terminal  facility  in  Saltillo, Mexico (the "Saltillo Terminal").  The Company
was  unable  to  receive  all the necessary approvals to operate the facility at
that  location.  The  Company  has  identified  an  alternate  site in Hipolito,
Mexico,  a  town  located  in the proximity of Saltillo to relocate the Saltillo
Terminal.   The  cost  of such relocation is expected to be between $250,000 and
$500,000.

     Once completed, the Company expects the newly constructed terminal facility
to be capable of off-loading LPG from railcars to trucks.  The newly constructed
terminal facility will have three truck loading racks and storage to accommodate
approximately  390,000  gallons  of  LPG.

     Once  operational,  the Company can directly transport LPG via railcar from
the  Brownsville  Terminal  Facility to the Saltillo area.  The Company believes
that  by  having the capability to deliver LPG to the Saltillo area, the Company
will be able to further penetrate the Mexican market for the sale of LPG.


                                       23
<PAGE>
     Through  its  operations  in  Mexico  and  the  operations  of  the Mexican
Subsidiaries and Tergas, 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.  Such  taxes  have  not  been  material  to  the
consolidated  financial  statements.

     Deregulation of the LPG Industry in Mexico.  The Mexican petroleum industry
is  governed by the Ley Reglarmentaria del Art culo 27 Constitutional en el Ramo
del  Petr  leo  (the  Regulatory Law to Article 27 of the Constitution of Mexico
concerning  Petroleum Affairs (the "Regulatory Law")), 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  affiliates 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 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.  Tergas'  permit to import LPG expired during August
2002.  Tergas  intends to obtain a new permit when the Mexican government begins
to  accept applications once more. 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.  Tergas  also  received  authorization  from  Mexican  Customs  authorities
regarding  the  use  of  the  US-Mexico  Pipelines  for  the importation of LPG.

     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.


                                       24
<PAGE>
     Credit  Arrangements.  As  of  January  31,  2003,  the Company had a $10.0
million  credit  facility (see below) with RZB Finance L.L.C. ("RZB") for demand
loans  and  standby letters of credit (the "RZB Credit Facility") to finance the
Company's  purchases  of  LPG. 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 Chase Manhattan Bank as
its  prime rate 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 make any loan or issue any letter 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 connection with the RZB Credit Facility, the
Company  granted  a  security  interest  and  assignment  in  any and all of the
Company's accounts, inventory, real property, buildings, pipelines, fixtures and
interests  therein or relating thereto, including, without limitation, the lease
with the Brownsville Navigation District of Cameron County for the land on which
the  Company's Brownsville Terminal Facility is located, the Pipeline Lease, and
in  connection therewith agreed to enter into leasehold deeds of trust, security
agreements,  financing statements and assignments of rent, in forms satisfactory
to  RZB.  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.

     The  Company's  President,  Chairman  and  Chief  Executive  Officer  has
personally  guaranteed  all of the Company's payment obligations with respect to
the  RZB  Credit  Facility.

     In  connection  with  the  Company's  purchases  of LPG from Exxon, El Paso
(which  expired  September  30,  2002),  Duke and/or Koch, letters of credit are
issued  on  a  monthly  basis  based  on  anticipated  purchases.

     In  connection  with  the  Company's  purchase of LPG, under the RZB Credit
Facility,  assets  related to product sales (the "Assets") are required to be in
excess of borrowings and commitments (including restricted cash of approximately
$2.8  million).  At  January  31, 2003, the Company's borrowings and commitments
were  less  than  the  amount  of  the  Assets.

     During  February  2003,  the  RZB  Credit  Facility  was increased to $15.0
million.  Under  the  terms of the increase, the Company is required to maintain
net worth of a minimum of $9.0 million and is not allowed to make cash dividends
to  shareholders  without  the  consent  of RZB. The increase is effective until
August  31,  2003  when  it  will  be  automatically  reduced  to $12.0 million.

     Consulting  Agreement.  Effective November 2002, the Company entered into a
consulting contract for $30,000 a month for a period of six months.

     Private  Placements  and Other Transactions.  During June 2002, the Company
and  certain  holders  of  the  Restructured  Notes  and the New Notes (the "New
Accepting  Noteholders")  reached  an  agreement  whereby  the  due  date  for
approximately  $3.0  million  of principal due on the New Accepting Noteholders'
notes  were  extended  to  December  15,  2002  (see  below).  The New Accepting
Noteholders' notes accrued interest at 16.5% per annum.  Interest was payable on
the  outstanding  balances  on  specified  dates  through  December  15,  2002.

     During  June  2002  the Company issued a note for $100,000 (the "Additional
Note")  to  a  holder of the Restructured Notes and the New Notes.  The $100,000
note provides for similar terms and conditions as the New Accepting Noteholders'
notes  (see  below).

     During  October  2002,  the Company agreed to accept certain the compressed
natural  gas  refueling  station  assets  with  an  appraised  fair  value  of
approximately  $800,000  as  payment  for notes (totaling ($652,759 plus accrued
interest)  owed  to  the  Company  by an officer and director of the Company. In
connection  with  the  transaction,  the  Company adjusted the fair value of the
assets  to  $720,000  to  reflect  additional  costs estimated to be incurred in
disposing  of  the  assets. The Company also recorded interest income during the
six  months  ended January 31, 2003 on the notes of approximately $67,241, which
had  been  previously  been  reserved,  representing  the difference between the
adjusted  fair  value  of  the  assets  and  the  book  value  of  the  notes.

     During  December  2002,  the  Company  and certain holders of New Accepting
Noteholders'  notes  and  holder  of  the  Additional  Note  (the  "Extending
Noteholders")  reached  an agreement whereby the due date for approximately $2.7
million  of  principal  due on the Extending Noteholders' notes were extended to
December  15, 2003. Under the terms of the agreement, the Extending Noteholders'
notes  will  continue  to  bear interest at 16.5% per annum. Interest is payable


                                       25
<PAGE>
quarterly  on the outstanding balances beginning on March 15, 2003 (the December
15,  2002  interest  was  paid  on January 1, 2003). In addition, the Company is
required  to  pay  principal in equal monthly installments beginning March 2003.
The Company may prepay the Extending Noteholders' notes at any time. The Company
is  also  required to pay a fee of 1.5% on the principal amount of the Extending
Noteholders'  notes  which are outstanding on December 15, 2002, March 15, 2003,
June  15,  2003  and  September  15, 2003. The Company also agreed to extend the
expiration  date on the warrants held by the Extending Noteholders in connection
with  the  issuance of the Extending Noteholders' notes to December 15, 2006. In
connection  with  the extension of the warrants, the Company recorded a discount
of  approximately  $317,000  related  to  the  additional  value of the modified
warrants  of which approximately $40,000 has been amortized for the period ended
January  31,  2003.

     The  Company paid the portion of the New Accepting Noteholders' notes which
were not extended, approximately $355,000 plus accrued interest, on December 15,
2002.

     During December 2002, the Company issued a note for $250,000 to a holder of
the  Extending  Noteholders'  notes.  The  note  provides  for similar terms and
conditions  as  the  Extending  Noteholders'  notes.

     During  January  2003,  a  note  due  from  the  President in the amount of
$200,000 plus accrued interest as of January 31, 2003 was paid through an offset
against previously accrued bonus and profit sharing amounts due to the President
at  January  31,  2003.

     During  March  2003, warrants to purchase 250,000 shares of common stock of
the  Company  were  exercised  by  a holder of the Warrants and New Warrants for
which  the  exercise  price  totaling  $625,000  was  paid  by  reduction of the
outstanding  debt  and  accrued  interest  owed  to  the  holder  related to the
Restructured Notes.  In addition, during March 2003, the holder acquired 161,392
shares  of  common  stock  of  the  Company  at a price of $2.50 per share.  The
purchase  price  was  paid through the cancellation of the remaining outstanding
debt  and  accrued  interest  owed  to  the  holder  totaling  $403,480.

     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.

     Litigation.  On  July  10, 2002, litigation was filed in the 164th Judicial
District Court of Harris County, Texas by Jorge V. Duran and Ware, Snow, Fogel &
Jackson L.L.P. against the Company alleging breach of contract, common law fraud
and  statutory  fraud  in  connection  with the settlement agreement between the
parties  dated  July  26, 2000. Plaintiffs seek actual and punitive damages. The
Company  believes  the claims are without merit and intends to vigorously defend
against  the  lawsuit.

     On March 2, 2000, litigation was filed in the Superior Court of California,
County  of  San  Bernardino  by  Omnitrans against Penn Octane Corporation, Penn
Wilson,  CNG  and several other third parties alleging breach of contract, fraud
and other causes of action related to the construction of a refueling station by
a  third  party.  Penn  Octane  Corporation has recently been dismissed from the
litigation  pursuant  to  a  summary judgment. Omnitrans has filed its appellate
brief  requesting  reversal of the summary judgments in favor of the Company and
Penn  Wilson. Based on proceedings to date, the Company believes that the claims
are  without  merit  and  intends  to vigorously defend against the lawsuit. The
Company  believes  the  summary  judgments  will be upheld and intends to file a
response  to  the  appeal.

     On  August 7, 2002, a Mexican company, Intertek Testing Services de Mexico,
S.A.  de  C.V.  (the  "Plaintiff"),  which  contracts  with  PMI for LPG testing
services,  filed  suit  in the Superior Court of California, County of San Mateo
against  the  Company  alleging  breach  of contract. The plaintiffs are seeking
damages  in  the  amount of $750,000. Trial is schedule to begin April 28, 2003.
The  Company  believes  that  the  complaint  is  without  merit  and intends to
vigorously  defend  against  the  lawsuit.

     On  October  11,  2002, litigation was filed in the 197th Judicial District
Court  of Cameron County, Texas by the Company against Tanner Pipeline Services,
Inc. ("Tanner"); Cause No. 2002-10-4448-C alleging negligence and aided breaches
of fiduciary duties on behalf of CPSC in connection with the construction of the
US  Pipelines.  The  Company is seeking damages. Discovery is continuing in this
matter.  Tanner  sent  notice  of  its  intent  to  seek its attorneys fees as a
sanction  in  the  event  it  prevails  in  the  action.

     The  Company and its subsidiaries are also involved with other proceedings,
lawsuits  and  claims.  The  Company  believes  that  the  liabilities,  if any,


                                       26
<PAGE>
ultimately resulting from such proceedings, lawsuits and claims, including those
discussed  above,  should  not  materially  affect  its  consolidated  financial
statements.

     Realization  of  Assets.  The  Company has had an accumulated deficit since
inception  and has a deficit in working capital.  In addition, significantly all
of  the Company's assets are pledged or committed to be pledged as collateral on
existing  debt  in  connection  with  the  Extending Noteholders' notes, the RZB
Credit  Facility and the notes related to the Settlement.  Unless RZB authorizes
an  extension,  the  RZB  Credit Facility will be reduced to $12.0 million after
August  31,  2003.  The  Extending Noteholders' notes, which total approximately
$2.0  million  at March 7, 2003, are due on December 15, 2003 (see note F to the
unaudited  consolidated financial statements).  The Company is also guarantor of
a  third party obligation which becomes due in April 2003 totaling approximately
$2.0  million plus accrued interest. The Company may need to increase its credit
facility  for  the purchase of quantities of LPG in excess of current quantities
sold  and/or  to  finance  future  price increases of LPG, if any.  Further, the
Company  may  find  it  necessary  to liquidate inventories at a loss to provide
working  capital or to reduce outstanding balances under its credit facility. In
addition,  the  Company has entered into supply agreements for quantities of LPG
totaling  approximately  24.0  million  gallons  per month although the Contract
provides  for  lesser  quantities  (see  note  J  to  the unaudited consolidated
financial  statements).  As  discussed  in  note A to the consolidated financial
statements,  the  Company  has  historically  depended  heavily on sales to PMI.

     In view of the matters described in the preceding paragraph, recoverability
of  a  major  portion of the recorded asset amounts as shown in the accompanying
unaudited consolidated balance sheets is dependent upon the Company's ability to
obtain  additional  financing,  repay  the  Extending Noteholders' notes and the
continued  success  of  the  Company's  operations.  The  unaudited consolidated
financial  statements  do  not  include  any  adjustments  related  to  the
recoverability  and  classification  of  recorded  asset  amounts or amounts and
classification  of  liabilities  that  might  be necessary should the Company be
unable  to  continue  in  existence.

     To  provide  the Company with the ability it believes necessary to continue
in  existence, management has entered into the Contract with PMI which increases
the  minimum monthly sales volume sold to PMI. In addition, management is taking
steps  to  (i)  obtain  additional  sale  contracts  commensurate  with  supply
agreements,  (ii)  increase the number of customers assuming Deregulation, (iii)
raise additional debt and/or equity capital and (iv) increase and extend the RZB
Credit  Facility.

     At  July  31,  2002,  the  Company  had net operating loss carryforward for
federal income tax purposes of approximately $6.7 million.

     As  previously  announced  through a press release, the Company is pursuing
the conversion of the Company to a public master limited partnership.


                                       27
<PAGE>
     The  following  is a summary of the Company's estimated minimum contractual
obligations  and commercial obligations as of January 31, 2003. Where applicable
LPG  prices  are  based  on the January 2003 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              $    -  $        -  $    -  $    -  $      -

Operating Leases                          13.4         1.4     2.8     2.6       6.6

LPG Purchase Obligations                 695.7       154.1   197.8   187.7     156.1
                                        ------  ----------  ------  ------  --------

    Total Contractual Cash Obligations  $709.1  $    155.5  $200.6  $190.3  $  162.7
                                        ======  ==========  ======  ======  ========
</TABLE>

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

Standby Letters of Credit                    9.9         9.9       -       -         -

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  $          9.9  $      9.9  $    -  $    -  $      -
                                  ==============  ==========  ======  ======  ========
</TABLE>


                                       28
<PAGE>
STATEMENT  BY MANAGEMENT CONCERNING REVIEW OF INTERIM INFORMATION BY INDEPENDENT
CERTIFIED  PUBLIC  ACCOUNTANTS.

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


ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK.

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

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-14(c)
promulgated  under  the  Securities  Exchange Act of 1934, as amended, within 90
days  of  the  filing  date  of  this  report.  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.


                                       29
<PAGE>
PART  II

ITEM  1.  LEGAL  PROCEEDINGS

          See  note  H  to  the  accompanying  unaudited  consolidated financial
          statements  and note K to the Company's Annual Report on Form 10-K for
          the  fiscal  year  ended  July  31,  2002.

ITEM  2.  CHANGES  IN  SECURITIES  AND  USE  OF  PROCEEDS

          See  note  G  to  the  accompanying  unaudited  consolidated financial
          statements  and  notes  I and J to the Company's Annual Report on Form
          10-K  for  the  fiscal  year  ended  July  31,  2002,  for information
          concerning  certain  sales  of  Securities.

          In  connection with the issuances of securities discussed in note G to
          the  accompanying  unaudited  consolidated  financial  statements, the
          transactions were issued without registration under the Securities Act
          of  1933,  as  amended,  in  reliance  upon  the  exemptions  from the
          registration provisions thereof, contained in Section 4(2) thereof and
          Rule  506  of  Regulation  D  promulgated  thereunder.

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 INCORPORATED HEREIN BY REFERENCE:

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

     10.01     LPG  sales  agreement  entered  into  as  of March 1, 2002 by and
               between  Penn  Octane  Corporation  ("Seller") and P.M.I. Trading
               Limited  ("Buyer").  (Incorporated  by reference to the Company's
               Quarterly  Report  on  Form  10-Q  for the quarterly period ended
               April  30,  2002 filed on June 13, 2002, SEC File No. 000-24394).

     10.02     Settlement  agreement,  dated  as of March 1, 2002 by and between
               P.M.I. Trading Limited and Penn Octane Corporation. (Incorporated
               by  reference  to the Company's Quarterly Report on Form 10-Q for
               the quarterly period ended April 30, 2002 filed on June 13, 2002,
               SEC  File  No.  000-24394).

     10.03     Form  of Amendment to Promissory Note (the "Note") of Penn Octane
               Corporation  (the  "Company")  due  June  15,  2002,  and related
               agreements  and  instruments  dated  June  5,  2002,  between the
               Company  and the holders of the Notes. (Incorporated by reference
               to  the Company's Quarterly Report on Form 10-Q for the quarterly
               period  ended April 30, 2002 filed on June 13, 2002, SEC File No.
               000-24394).


                                       30
<PAGE>
THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

     10.04     Form  of Amendment to Promissory Note (the "Note") of Penn Octane
               Corporation  (the  "Company")  due December 15, 2002, and related
               agreements  and  instruments  dated December 9, 2002, between the
               Company  and  the  holders  of  the  Notes.

     10.05     Employee  contract  entered  into  and  effective  July 29, 2002,
               between  the  Company  and  Jerome  B.  Richter.

     10.06     Equipment  Acquisition  Agreement  effective  October 18, 2002 by
               and between Penn Octane Corporation and Penn Wilson CNG, Inc., on
               the  one hand, and B&A Eco-Holdings, Inc. and Ian T. Bothwell, on
               the  other  hand.

     10.07     Bill  of  Sale  dated  October 18, 2002 between B&A Eco-Holdings,
               Inc.  and  the  Company.

     15        Accountant's  Acknowledgment

     99.1      Certification  Pursuant  to  18  U.S.C.  Section  1350 as Adopted
               Pursuant  to  Section  906  of  the Sarbanes - Oxley Act of 2002.

     b.   Reports  on  Form  8-K

               None.


                                       31
<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



March 20, 2003              By:  /s/ Ian  T.  Bothwell
                                 -----------------------------------------------
                                 Ian  T.  Bothwell
                                 Vice President, Treasurer, Assistant Secretary,
                                      Chief Financial Officer


                                       32
<PAGE>
                                  CERTIFICATION

     I, Jerome B. Richter, Chief Executive Officer, certify that:

1.   I  have  reviewed  this  quarterly  report  on  Form  10-Q  of  Penn Octane
     Corporation;

2.   Based  on  my  knowledge, this quarterly report does not contain any untrue
     statement  of  material  fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  quarterly  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included  in  this  quarterly  report,  fairly  present in all
     material  respects  the financial condition, results of operations and cash
     flows  of  the  registrant  as  of,  and for, the periods presented in this
     quarterly  report;

4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules  13a-14  and  15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
     information  relating  to  the  registrant,  including  its  consolidated
     subsidiaries,  is  made  known  to  us  by  others  within  those entities,
     particularly  during  the  period  in  which this quarterly report is being
     prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
     procedures  as  of  a  date within 90 days prior to the filing date of this
     quarterly  report  (the  "Evaluation  Date");  and

     c)  presented  in  this  quarterly  report  our  conclusions  about  the
     effectiveness  of  the  disclosure  controls  and  procedures  based on our
     evaluation  as  of  the  Evaluation  Date;

5.   The  registrant's  other certifying officers and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  functions):

     a)  all  significant  deficiencies  in  the design or operation of internal
     controls  which  could adversely affect the registrant's ability to record,
     process,  summarize  and  report financial data and have identified for the
     registrant's  auditors  any  material  weaknesses in internal controls; and

     b)  any  fraud,  whether or not material, that involves management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls;

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or  in  other  factors  that  could significantly affect internal
     controls  subsequent  to  the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

     Date: March 20, 2003
                                             /s/  Jerome B. Richter
                                          -------------------------------
                                            Chief Executive Officer


                                       33
<PAGE>
                                  CERTIFICATION

     I, Ian T. Bothwell, Chief Financial Officer, certify that:

1.   I  have  reviewed  this  quarterly  report  on  Form  10-Q  of  Penn Octane
     Corporation;

2.   Based  on  my  knowledge, this quarterly report does not contain any untrue
     statement  of  material  fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  quarterly  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included  in  this  quarterly  report,  fairly  present in all
     material  respects  the financial condition, results of operations and cash
     flows  of  the  registrant  as  of,  and for, the periods presented in this
     quarterly  report;

4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules  13a-14  and  15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
     information  relating  to  the  registrant,  including  its  consolidated
     subsidiaries,  is  made  known  to  us  by  others  within  those entities,
     particularly  during  the  period  in  which this quarterly report is being
     prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
     procedures  as  of  a  date within 90 days prior to the filing date of this
     quarterly  report  (the  "Evaluation  Date");  and

     c)  presented  in  this  quarterly  report  our  conclusions  about  the
     effectiveness  of  the  disclosure  controls  and  procedures  based on our
     evaluation  as  of  the  Evaluation  Date;

5.   The  registrant's  other certifying officers and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  functions):

     a)  all  significant  deficiencies  in  the design or operation of internal
     controls  which  could adversely affect the registrant's ability to record,
     process,  summarize  and  report financial data and have identified for the
     registrant's  auditors  any  material  weaknesses in internal controls; and

     b)  any  fraud,  whether or not material, that involves management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls;

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or  in  other  factors  that  could significantly affect internal
     controls  subsequent  to  the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


     Date: March 20, 2003
                                          /s/  Ian T. Bothwell
                                      -----------------------------
                                        Chief Financial Officer


                                       34
<PAGE>
<PAGE>