UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



                                    FORM 10-Q


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

     For  the  quarterly  period  ended  October  31,  2002

                                       OR

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

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

                       Commission file number:  000-24394

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

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


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

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

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

     The number of shares of Common Stock, par value $.01 per share, outstanding
on  December  6,  2002  was  14,870,977.


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



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

               Independent Certified Public Accountants' Review Report                    3

               Consolidated Balance Sheets as of October 31, 2002 (unaudited)           4-5
               and July 31, 2002

               Unaudited Consolidated Statements of Operations for the three months
               ended October 31, 2002 and 2001                                            6

               Unaudited Consolidated Statements of Cash Flows for the three months
               ended October 31, 2002 and 2001                                            7

               Notes to Unaudited Consolidated Financial Statements                    8-17

           2.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                              18-26

           3.  Quantitative and Qualitative Disclosures About Market Risk                27

           4.  Controls and Procedures                                                   27

Part II    1.  Legal Proceedings                                                         28

           2.  Changes in Securities and Use of Proceeds                                 28

           3.  Defaults Upon Senior Securities                                           28

           4.  Submission of Matters to a Vote of Security Holders                       28

           5.  Other Information                                                         28

           6.  Exhibits and Reports on Form 8-K                                       28-29

           7.  Signatures                                                                30
</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 October 31, 2002, and the related
consolidated  statements of operations and cash flows for the three months ended
October  31,  2002  and  2001.  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
December 6, 2002


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


                               PENN OCTANE CORPORATION AND SUBSIDIARIES

                                      CONSOLIDATED BALANCE SHEETS

                                                ASSETS


                                                                             October 31,
                                                                                2002        July 31,
                                                                             (Unaudited)      2002
                                                                            -------------  -----------
<S>                                                                         <C>            <C>
Current Assets
    Cash (including restricted cash of $2,408,281 and $29,701 at October
    31, 2002 and July 31, 2002)                                             $   2,426,177  $   160,655
    Trade accounts receivable (less allowance for doubtful accounts of
    $5,783 at October 31, 2002 and July 31, 2002)                               6,084,328    7,653,986
    Notes receivable - related parties                                            200,000      414,356
    Inventories                                                                 1,293,621      938,672
    Assets held for sale                                                          720,000            -
    Mortgage receivable                                                         1,933,341    1,935,723
    Prepaid expenses and other current assets                                     222,413      254,654
                                                                            -------------  -----------
        Total current assets                                                   12,879,880   11,358,046
Property, plant and equipment - net                                            18,241,090   18,350,785
Lease rights (net of accumulated amortization of $673,189 and $661,740 at
October 31, 2002 and July 31, 2002)                                               480,850      492,299
Other non-current assets                                                          111,483      154,209
                                                                            -------------  -----------
            Total assets                                                    $  31,713,303  $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


                                                                                October 31,
                                                                                   2002           July 31,
                                                                                (Unaudited)         2002
                                                                              ---------------  ---------------
<S>                                                                           <C>              <C>
Current Liabilities
    Current maturities of long-term debt                                      $    2,969,228   $    3,055,708
    Short-term debt                                                                2,539,000        3,085,000
    Revolving line of credit                                                       3,819,599          150,000
    LPG trade accounts payable                                                     6,662,438        8,744,432
    Other accounts payable                                                         1,905,943        3,584,848
    Accrued liabilities                                                              969,414          860,551
                                                                              ---------------  ---------------
        Total current liabilities                                                 18,865,622       19,480,539
Long-term debt, less current maturities                                              940,208          612,498
Commitments and contingencies                                                              -                -
Stockholders' Equity
    Series A - Preferred stock-$.01 par value, 5,000,000 shares authorized;
    No shares issued and outstanding at October 31, 2002 and July 31, 2002                 -                -
    Series B - Senior preferred stock-$.01 par value, $10 liquidation value,
    5,000,000 shares authorized; No shares issued and outstanding at October
    31, 2002 and July 31, 2002                                                             -                -
    Common stock - $.01 par value, 25,000,000 shares authorized;
    14,870,977 shares issued and outstanding at October 31, 2002 and July
    31, 2002                                                                         148,709          148,709
    Additional paid-in capital                                                    26,919,674       26,919,674
    Notes receivable from officers of the Company, a related party and
    another party for exercise of warrants, less reserve of $669,518 and
    $754,175 at October 31, 2002 and July 31, 2002                              (  3,376,077)    (  3,814,481)
    Accumulated deficit                                                        (  11,784,833)   (  12,991,600)
                                                                              ---------------  ---------------
    Total stockholders' equity                                                    11,907,473       10,262,302
                                                                              ---------------  ---------------
            Total liabilities and stockholders' equity                        $   31,713,303   $   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
                                                       ---------------------------------
                                                         October 31,       October 31,
                                                             2002             2001
                                                       ----------------  ---------------
<S>                                                    <C>               <C>
Revenues                                               $    37,440,658   $   31,871,890
Cost of goods sold                                          34,926,239       31,245,790
                                                       ----------------  ---------------
    Gross profit                                             2,514,419          626,100
Selling, general and administrative expenses
    Legal and professional fees                                320,114          623,952
    Salaries and payroll related expenses                      458,737          362,345
    Other                                                      326,005          252,142
                                                       ----------------  ---------------
                                                             1,104,856        1,238,439
                                                       ----------------  ---------------
        Operating income (loss)                              1,409,563       (  612,339)
Other income (expense)
    Interest expense                                    (      371,665)      (  952,599)
    Interest income                                             68,869           12,747
                                                       ----------------  ---------------
         Income (loss) before taxes                          1,106,767     (  1,552,191)
Income tax benefit                                             100,000           53,306
                                                       ----------------  ---------------
              Net income (loss)                        $     1,206,767   $(   1,498,885)
                                                       ================  ===============

Net income (loss) per common share                     $           .08   $     (   0.10)
                                                       ================  ===============
Net income (loss) per common share assuming dilution   $           .08   $      (  0.10)
                                                       ================  ===============
Weighted average common shares outstanding                  14,870,977       14,611,694
                                                       ================  ===============
</TABLE>



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


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

                                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                               (UNAUDITED)

                                                                                 Three Months Ended
                                                                            -----------------------------
                                                                              October 31     October 31,
                                                                                 2002           2001
                                                                            --------------  -------------
<S>                                                                         <C>             <C>
Cash flows from operating activities:
Net income (loss)                                                           $   1,206,767   $ (1,498,885)
Adjustments to reconcile net income (loss) to net cash (used in) provided
  by operating activities:
    Depreciation and amortization                                                 244,001        182,246
    Amortization of lease rights                                                   11,449         11,449
    Non-employee stock based costs and other                                       56,217         56,217
    Amortization of loan discount                                                       -        503,362
    Interest income - officer note                                                (67,241)             -
    Other                                                                               -        148,708
Changes in current assets and liabilities:
    Trade accounts receivable                                                   1,569,658      2,136,643
    Inventories                                                                  (354,949)        58,867
    Prepaid and other current assets                                              (23,977)       (53,230)
    LPG trade accounts payable                                                 (2,081,994)    (1,117,952)
    Obligation to deliver LPG                                                           -      4,991,029
    Other assets                                                                   42,726         43,312
    Other accounts payable and accrued liabilities                             (1,570,040)       279,946
                                                                            --------------  -------------
      Net cash (used in) provided by operating activities                        (967,383)     5,741,712
Cash flows from investing activities:
    Capital expenditures                                                         (134,306)      (357,867)
                                                                            --------------  -------------
    Net cash used in investing activities                                        (134,306)      (357,867)
Cash flows from financing activities:
    Revolving credit facilities                                                 3,669,599              -
    Costs of registration                                                               -           (248)
    Reduction in debt                                                            (302,388)      (190,050)
                                                                            --------------  -------------
      Net cash provided by (used in) financing activities                       3,367,211       (190,298)
                                                                            --------------  -------------
         Net increase in cash                                                   2,265,522      5,193,547
Cash at beginning of period                                                       160,655      1,322,560
                                                                            --------------  -------------
Cash at end of period                                                       $   2,426,177   $  6,516,107
                                                                            ==============  =============

Supplemental disclosures of cash flow information:
    Cash paid during the year for:
    Interest                                                                $     371,635   $    462,602
                                                                            ==============  =============
Supplemental disclosures of noncash transactions:
    Preferred stock, common stock and warrants issued                       $           -   $    768,832
                                                                            ==============  =============
    Mortgage receivable                                                     $       2,382   $          -
                                                                            ==============  =============
</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  73% of the Company's total
     revenues  for  the  three  months  ended  October  31,  2002.

     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  October 31, 2002, the
     unaudited  consolidated statements of operations for the three months ended
     October 31, 2002 and 2001 and the unaudited consolidated statements of cash
     flows  for  the  three  months  ended  October 31, 2002 and 2001, have been
     prepared  by  the  Company without audit. In the opinion of management, the
     unaudited  consolidated financial statements include all adjustments (which
     include  only normal recurring adjustments) necessary to present fairly the
     unaudited  consolidated financial position of the Company as of October 31,
     2002, the unaudited consolidated results of operations for the three months
     ended  October  31, 2002 and 2001 and the unaudited consolidated statements
     of  cash  flows  for  the  three  months  ended  October 31, 2002 and 2001.

     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 October 31, 2002
                                        -----------------------------------------
                                        Income (Loss)      Shares      Per-Share
                                         (Numerator)    (Denominator)    Amount
                                        --------------  -------------  ----------
<S>                                     <C>             <C>            <C>
Net income (loss)                       $    1,206,767
BASIC EPS
Net income (loss) available to common
    stockholders                             1,206,767     14,870,977  $     0.08
                                                                       ==========
EFFECT OF DILUTIVE SECURITIES
Warrants                                             -              -
                                        --------------  -------------
DILUTED EPS
Net income (loss) available to common
    stockholders                        $    1,206,767     14,870,977  $     0.08
                                        ==============  =============  ==========
</TABLE>

<TABLE>
<CAPTION>
                                        For the three months ended October 31, 2001
                                        -------------------------------------------
                                         Income (Loss)      Shares       Per-Share
                                          (Numerator)    (Denominator)    Amount
                                        ---------------  -------------  -----------
<S>                                     <C>              <C>            <C>
Net income (loss)                       $(   1,498,885)
BASIC EPS
Net income (loss) available to common
    stockholders                         (   1,498,885)     14,611,694  $(    0.10)
                                                                        ===========
EFFECT OF DILUTIVE SECURITIES
Warrants                                             -               -

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


                                        9
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


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) 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 three months
     ended  October  31,  2002  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.


NOTE  D  -  PROPERTY,  PLANT  AND  EQUIPMENT

     Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
                                                       October 31,     July 31,
                                                          2002          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                                 2,449,628     2,449,628
    Leasehold improvements                                 302,657       302,657
    Capital construction in progress                        96,212        96,212
    Equipment                                              502,664       502,557
                                                      -------------  ------------
                                                         7,526,723     7,526,616
                                                      -------------  ------------
  US - Mexico Pipelines and Matamoros Terminal
  Facility:

  U.S. Pipelines and Rights of Way                       6,472,447     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
                                                      -------------  ------------
        Total LPG                                       14,512,820    14,448,483
                                                      -------------  ------------
Other:                                                  22,039,543    21,975,099
                                                      -------------  ------------
    Automobile                                              10,800        10,800
    Office equipment                                        77,823        72,728
    Software                                                64,766             -
                                                      -------------  ------------
                                                           153,389        83,528
                                                      -------------  ------------
                                                        22,192,932    22,058,627
    Less:  accumulated depreciation and amortization    (3,951,842)   (3,707,842)
                                                      -------------  ------------
                                                      $ 18,241,090   $18,350,785
                                                      =============  ============
</TABLE>


                                       10
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  D  -  PROPERTY,  PLANT  AND  EQUIPMENT  -  CONTINUED

     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
     $6,716,235  and  $6,759,102 of costs, located in Mexico at October 31, 2002
     and  July  31,  2002,  respectively.

NOTE  E  -  INVENTORIES

     Inventories  consist  of  the  following:

<TABLE>
<CAPTION>
                                           October 31, 2002        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                         1,923,687  $  952,615   1,982,646  $  772,334
       Markham Storage and other           688,619     341,006     427,003     166,338
                                         ---------  ----------  ----------  ----------
                                         2,612,306  $1,293,621   2,409,649  $  938,672
                                         =========  ==========  ==========  ==========
</TABLE>


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE F - DEBT OBLIGATIONS


Debt consists of the following:
                                                                                         October 31,    July 31,
                                                                                             2002         2002
                                                                                         ------------  ----------
<S>                                                                                      <C>           <C>
Promissory note issued in connection with the acquisition of the US - Mexico Pipelines
and the Matamoros Terminal Facility.                                                     $    712,379  $  837,918
Promissory note issued in connection with the acquisition of the US - Mexico Pipelines
and the Matamoros Terminal Facility.                                                          480,216     554,159
Promissory note issued in connection with the purchase of property.                         1,933,341   1,935,723
New Accepting Noteholders' notes and Additional Note                                        3,085,000   3,085,000
Noninterest-bearing note payable, discounted at 7%, for legal services; due in February
2001.                                                                                         137,500     137,500
Other debt                                                                                    100,000     202,906
                                                                                         ------------  ----------
                                                                                            6,448,436   6,753,206
Current maturities                                                                          2,969,228   3,055,708
Short term debt                                                                             2,539,000   3,085,000
                                                                                         ------------  ----------
                                                                                         $    940,208  $  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 note L
     for  a  discussion  of  a  further  extension  of a portion of the notes to
     December  15,  2003). The New Accepting Noteholders' notes will continue to
     bear  interest  at  16.5% per annum. Interest is 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
     provides for similar terms and conditions as the New Accepting Noteholders'
     notes  (see  note  L).

     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.

     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.

     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 ($712,379) 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). 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 $1,908,000 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.


                                       12
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  G  -  STOCKHOLDERS'  EQUITY

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

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

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

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

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

     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  APB25,  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, 2001, 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  is  appealing  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.


                                       13
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  H  -  COMMITMENTS  AND  CONTINGENCIES  -  CONTINUED

     On  August 7, 2001, 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. The Company believes that the
     complaint  is  without  merit  and intends to vigorously defend against the
     lawsuit.

     On  October  11,  2001, litigation was filed in the 197th Judicial District
     Court  of  Cameron  County,  Texas  by  the Company against Tanner Pipeline
     Services, Inc. ("Tanner"); Cause No. 2001-10-4448-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. Trial
     is  set  for  February  24,  2003.

     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 October 31, 2002, the Company has a $13,000,000 credit facility with
     RZB  Finance  L.L.C.  (RZB)  through  December 31, 2002 (will be reduced to
     $10,000,000 after December 31, 2002 unless RZB authorizes an extension) 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  their  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.


                                       14
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  H  -  COMMITMENTS  AND  CONTINGENCIES  -  CONTINUED

     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. At October 31, 2002, the Company's
     borrowings and commitments exceeded the amount of the Assets which included
     $2,408,281 in cash, by approximately $1,700,000 (Asset Deficit). Subsequent
     to  October 31, 2002, RZB has continued to fund and issue letters of credit
     to  the  Company  despite  the  Asset  Deficit.

     CONSULTING AGREEMENT

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

     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,  has  used cash in operations and continues to have 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  New  Accepting  Noteholders'  notes,  the RZB Credit
     Facility  and  the  notes  related  to  the  Settlement.  The New Accepting
     Noteholders'  notes,  which  total  approximately $3,085,000 at December 6,
     2002,  are  due on December 15, 2002 (see note L). In addition, the Company
     has  entered  into  supply  agreements  for  quantities  of  LPG  totaling
     approximately  24,000,000  gallons per month although the Contract provides
     for lesser quantities (see note J). As discussed in note A, 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 and repay, renew or extend
     the  New  Accepting  Noteholders'  notes,  raise additional equity capital,
     resolve  uncertainties  related to the Saltillo Terminal and the success of
     the  Company's  future  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  is  taking  steps  to (i) increase sales to its
     current  customers,  (ii)  increase  the  number  of  customers  assuming
     deregulation  of  the LPG industry in Mexico, (iii) extend the terms of the
     Pipeline  Lease,  (iv)  expand  its  product  lines,  (v) obtain additional
     letters  of  credit  financing,  (vi)  raise  additional debt and/or equity
     capital, (vii) increase the current credit facility and (viii) relocate the
     Saltillo  Terminal  to  another  location  near Saltillo, Coahuila, Mexico.

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


                                       15
<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  three  months  ended October 31, 2002, 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 three months
     ended October 31, 2002. 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  October  31,  2002).


                                       16
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  L-  SUBSEQUENT  EVENTS

     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 approximately
     $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 will be 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  31,  2006.

     The  Company  is  required  to  pay  the  portion  of  the  New  Accepting
     Noteholders'  notes  which were not extended of approximately $355,000 plus
     accrued  interest  by  December  16,  2002.

     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.


                                       17
<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 also sells LPG
to  U.S.  and  Canadian  customers.

     During  the three months ended October 31, 2002, the Company derived 73% 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 October 31, 2002 and
2001;

                                                 2002        2001
                                                ------      ------

Volume  Sold

     LPG (millions of gallons) - PMI             49.6         45.0
     LPG (million of gallons) - Other            22.6         24.1
                                                -----        -----
                                                 72.2         69.1

Average  sales  price

     LPG  (per  gallon)  -  PMI               $  0.55      $  0.49
     LPG  (per  gallon)  -  Other                0.45         0.41


                                       18
<PAGE>
RESULTS  OF  OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 2002 COMPARED WITH THREE MONTHS ENDED OCTOBER 31,
2001

     Revenues.  Revenues for the three months ended October 31, 2002, were $37.4
million compared with $31.9 million for the three months ended October 31, 2001,
an  increase  of  $5.6  million  or  17.5%.  Of  this increase, $2.7 million was
attributable  to increases in average sales prices of LPG sold to PMI during the
three  months  ended  October  31,  2002, $2.5 million attributable to increased
volumes  of  LPG  sold to PMI during the three months ended October 31, 2002 and
$1.0  million  was attributable to increased average sales prices of LPG sold to
customers  other  than  PMI  during  the  three  months  ended October 31, 2002,
partially  offset  by  $689,262 attributable to decreased volumes of LPG sold to
customers  other  than  PMI  during  the  three  months  ended October 31, 2002.

     Cost  of goods sold.  Cost of goods sold for the three months ended October
31,  2002,  was  $34.9  million compared with $31.2 million for the three months
ended October 31, 2001, an increase of $3.7 million or 11.8%.  Of this increase,
$2.1 million was attributable to increases in the cost of LPG sold to PMI during
the  three months ended October 31, 2002, $2.2 million attributable to increased
volume  of  LPG  sold  to PMI during the three months ended October 31, 2002 and
$126,121 was attributable to increased costs of LPG sold to customers other than
PMI during the three months ended October 31, 2002, partially offset by $696,769
attributable  to decreased volume of LPG sold to customers other than PMI during
the  three  months  ended  October  31,  2002.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative expenses were $1.1 million for the three months ended October 31,
2002,  compared with $1.2 million for the three months ended October 31, 2001, a
decrease  of  $133,583  or  10.8%.   The  decrease during the three months ended
October  31,  2002,  was  principally due to legal and consulting fees partially
offset  by  increased  compensation  related  costs.

     Other  income  (expense).  Other  income  (expense)  was $(302,796) for the
three  months  ended  October  31,  2002, compared with $(939,852) for the three
months  ended  October  31, 2001, a decrease of $637,056.  The decrease in other
expense  was  due  primarily  to  decreased  interest  costs and amortization of
discounts  on  outstanding  debt during the three months ended October 31, 2002.

     Income  tax.   During  the three months ended October 31, 2002, 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  October  31,  2002).

LIQUIDITY  AND  CAPITAL  RESOURCES

     General.  The  Company  has had an accumulated deficit since its inception,
has  used cash in operations and continues to have 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 New
Accepting  Noteholders'  notes, the RZB Credit Facility and the notes related to
the Settlement.    The New Accepting Noteholders' notes total approximately $3.1
million  at  December  6,  2002  (see  Private Placements and Other Transactions
below).  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.


                                       19
<PAGE>
     The  following  summary  table  reflects  comparative  cash flows for three
months  ended  October  31,  2002,  and  2001.  All information is in thousands.

<TABLE>
<CAPTION>
                                                          2002            2001
                                                     --------------  ---------------
<S>                                                  <C>             <C>
Net cash provided by (used in) operating activities  $ (       967)  $        5,742
Net cash used in investing activities . . . . . . .   (        134)   (         358)
Net cash provided by (used in) financing activities          3,367    (         190)
                                                     --------------  ---------------
Net increase (decrease) in cash . . . . . . . . . .  $       2,266   $        5,194
                                                     ==============  ===============
</TABLE>

     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 $27.3 million for the three months
ended  October 31, 2002, representing approximately 73% 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, 2001 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.


                                       20
<PAGE>
      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.

     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 ($712,379) 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").  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 $1,908,000 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.

     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.


                                       21
<PAGE>
     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.

     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.

     Deregulation  of the LPG Industry in Mexico. The Mexican petroleum industry
is  governed by the Ley Reglarmentaria del Articulo 27 Constitutional en el Ramo
del  Petroleo  (the  Regulatory  Law to Article 27 of the Constitution of Mexico
concerning  Petroleum  Affairs  (the  "Regulatory  Law")),  and Ley Organica del
Petroleos  Mexicanos  y  Organismos  Subsidiarios  (the Organic Law of Petroleos
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  until  February  2003.  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.


                                       22
<PAGE>
     Credit  Arrangements.  As  of  October  31,  2002,  the Company has a $13.0
million  credit  facility  with  RZB Finance L.L.C. ("RZB") through December 31,
2002  (will  be  reduced  to  $10.0  million  after December 31, 2002 unless RZB
authorizes  an  extension)  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
their 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.  At  October  31,  2002, the Company's
borrowings and commitments exceeded the amount of the Assets which included $2.4
million in cash, by approximately $1.7 million (the "Asset Deficit"). Subsequent
to  July  31, 2002, RZB has continued to fund and issue letters of credit to the
Company  despite  the  Asset  Deficit.

     Consulting  Agreement.  Effective November 2002, the Company entered into a
consulting  contract  for  $30,000  a  month for a minimum 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  will continue to bear interest at 16.5% per annum. Interest
is  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) 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 three months ended October
31,  2002  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.


                                       23
<PAGE>
     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
quarterly  on the outstanding balances beginning on March 15, 2003 (the December
15,  2002 interest will be 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 31, 2006.

     The  Company  is  required  to  pay  the  portion  of  the  New  Accepting
Noteholders'  notes  which  were  not  extended  of  approximately $355,000 plus
accrued  interest  by  December  16,  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.

     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, 2001, 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 is appealing 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.

     On  August 7, 2001, 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. The Company believes that the complaint is
without  merit  and  intends  to  vigorously  defend  against  the  lawsuit.

     On  October  11,  2001, litigation was filed in the 197th Judicial District
Court  of Cameron County, Texas by the Company against Tanner Pipeline Services,
Inc. ("Tanner"); Cause No. 2001-10-4448-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. Trial is set for February 24,
2003.

     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.


                                       24
<PAGE>
     Realization  of  Assets.  The  Company has had an accumulated deficit since
inception,  has  used  cash  in  operations  and  continues to have 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 New Accepting Noteholders' notes, the RZB Credit Facility and the notes
related  to  the  Settlement.  The New Accepting Noteholders' notes, which total
approximately  $3.1  million  at  December 6, 2002, are due on December 15, 2002
(see note L to the unaudited consolidated financial statements). 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  and  repay,  renew  or  extend  the New Accepting
Noteholders'  notes,  to  raise additional equity capital, resolve uncertainties
related  to  the  Saltillo  Terminal  and  the  success  of the Company's future
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  is taking steps to (i) increase sales to its current
customers,  (ii)  increase  the number of customers assuming Deregulation, (iii)
extend  the  terms  of  the  Pipeline  Lease, (iv) expand its product lines, (v)
obtain additional letters of credit financing, (vi) raise additional debt and/or
equity  capital,  (vii) increase the current credit facility and (viii) relocate
the  Saltillo  Terminal  to  another  location  near Saltillo, Coahuila, Mexico.

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


                                       25
<PAGE>
     The  following  is a summary of the Company's estimated minimum contractual
obligations  and commercial obligations as of October 31, 2002. Where applicable
LPG  prices  are  based  on the October 2002 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>

Debt                                    $   6.4  $      5.5  $  0.9  $     -  $      -
Operating Leases                           13.9         1.5     2.8      2.7       6.9
LPG Purchase Obligations                  539.4        95.2   150.2    150.2     143.8
                                        -------  ----------  ------  -------  --------
    Total Contractual Cash Obligations  $ 559.7  $    102.2  $153.9  $ 152.9  $  150.7
                                        =======  ==========  ======  =======  ========
</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                   $          3.8  $      3.8  $    -  $    -  $      -
Standby Letters of Credit                    5.3         5.3       -       -         -
Guarantees                                   N/A         N/A     N/A     N/A       N/A
Standby Repurchase Obligations               N/A         N/A     N/A     N/A       N/A
Other Commercial Commitments                 N/A         N/A     N/A     N/A       N/A
                                  --------------  ----------  ------  ------  --------
    Total Commercial Commitments  $          9.1  $      9.1  $    -  $    -  $      -
                                  ==============  ==========  ======  ======  ========
</TABLE>


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.


                                       26
<PAGE>
ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK.

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

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.


                                       27
<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).


                                       28
<PAGE>
     THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

     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.


                                       29
<PAGE>
                                   SIGNATURES

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


     PENN  OCTANE  CORPORATION



December 16, 2002           By:  /s/Ian  T.  Bothwell
                                 -----------------------------------------------
                                 Ian  T.  Bothwell
                                 Vice President, Treasurer, Assistant Secretary,
                                 Chief  Financial  Officer




                                       30
<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.


                                                  /s/  Jerome  B.  Richter
                                                  ------------------------------
                                                  Chief Executive Officer


                                       31
<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.



                                                   /s/  Ian  T.  Bothwell
                                                   -----------------------------
                                                   Chief Financial Officer



                                       32
<PAGE>