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  April  30,  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                       (I.R.S. Employer
   of Incorporation or Organization)                   Identification No.)


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

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

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

     The number of shares of Common Stock, par value $.01 per share, outstanding
on  May  31,  2002  was  14,857,694.


<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 April 30, 2002 (unaudited)                 4-5
               and July 31, 2001

               Unaudited Consolidated Statements of Operations for the three months
               and nine months ended April 30, 2002 and 2001                                 6

               Unaudited Consolidated Statement of Stockholders' Equity for the nine
               months ended April 30, 2002                                                   7

               Unaudited Consolidated Statements of Cash Flows for the nine months
               ended April 30, 2002 and 2001                                                 8

               Notes to Unaudited Consolidated Financial Statements                         9-17

           2.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                                   18-27

           3.  Quantitative and Qualitative Disclosures About Market Risk                   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                         28-29

           5.  Other Information                                                            29

           6.  Exhibits and Reports on Form 8-K                                             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 sheets of Penn Octane
Corporation  and  subsidiaries  (Company)  as  of  April  30,  2002, the related
consolidated statements of operations for the three months and nine months ended
April  30, 2002, the consolidated statement of stockholders' equity for the nine
months  ended  April  30, 2002 and the consolidated statements of cash flows for
the  nine  months ended April 30, 2002 and 2001.  These 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
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 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,  2001,  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 12, 2001, 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,  2001,  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
June 7, 2002


                                        3
<PAGE>
PART I
ITEM  1.

<TABLE>
<CAPTION>
                                      PENN OCTANE CORPORATION AND SUBSIDIARIES

                                             CONSOLIDATED BALANCE SHEETS

                                                       ASSETS


                                                                                            April 30,     July 31,
                                                                                               2002         2001
                                                                                           (Unaudited)
                                                                                           ------------  -----------
<S>                                                                                        <C>           <C>
Current Assets
  Cash (including restricted cash of $1,590,998 and $971,875)                              $  1,982,126  $ 1,322,560
  Trade accounts receivable (less allowance for doubtful accounts of  $0 and $779,663)        7,093,583    4,802,897
  Notes receivable (including related parties' notes of  $414,355 and $214,355)                 614,355      439,053
  Inventories                                                                                 1,394,113   12,384,847
  Prepaid expenses and other current assets                                                     318,006      298,828
                                                                                           ------------  -----------
    Total current assets                                                                     11,402,183   19,248,185

Property, plant and equipment - net                                                          18,339,252   18,260,384
Lease rights (net of accumulated amortization of $650,291 and $615,945)                         503,748      538,094
Mortgage receivable                                                                           1,925,063    1,934,872
Other non-current assets                                                                        185,426      312,808
                                                                                           ------------  -----------
       Total assets                                                                        $ 32,355,672  $40,294,343
                                                                                           ============  ===========

           The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


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

                                CONSOLIDATED BALANCE SHEETS - CONTINUED

                                  LIABILITIES AND STOCKHOLDERS' EQUITY


                                                                              April 30,      July 31,
                                                                                2002           2001
                                                                             (Unaudited)
                                                                            -------------  -------------
<S>                                                                         <C>            <C>
Current Liabilities
  Current maturities of long-term debt                                      $    979,248   $    918,885
  Short-term debt                                                              3,083,749      5,650,430
  LPG trade accounts payable                                                  10,659,138      9,537,825
  Obligation to deliver LPG                                                            -     10,942,817
  Other accounts payable and accrued liabilities                               4,886,445      4,867,870
                                                                            -------------  -------------
    Total current liabilities                                                 19,608,580     31,917,827
Long-term debt, less current maturities                                        2,753,480      3,273,969
Commitments and contingencies                                                          -              -
Stockholders' Equity
  Series A - Preferred stock-$.01 par value, 5,000,000 shares authorized;              -              -
  No shares issued and outstanding at April 30, 2002 and July 31, 2001
  Series B - Senior preferred stock-$.01 par value, $10 liquidation value,             -              -
  5,000,000 shares authorized; No shares issued and outstanding at April
  30, 2002 and July 31, 2001
  Common stock - $.01 par value, 25,000,000 shares authorized;                   148,578        144,270
  14,857,694 and 14,427,011 shares issued and outstanding at April 30,
  2002 and July 31, 2001
  Additional paid-in capital                                                  26,941,737     25,833,822
  Notes receivable from officers of the Company and a related party for       (3,761,350)    (3,761,350)
  exercise of warrants, less reserve of $679,176 and $596,705 at April
  30, 2002 and July 31, 2001
  Accumulated deficit                                                        (13,335,353)   (17,114,195)
                                                                            -------------  -------------
  Total stockholders' equity                                                   9,993,612      5,102,547
                                                                            -------------  -------------
      Total liabilities and stockholders' equity                            $ 32,355,672   $ 40,294,343
                                                                            =============  =============

       The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


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

                                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                                  (UNAUDITED)


                                                           Three Months Ended            Nine months Ended
                                                       --------------------------  ----------------------------
                                                        April 30,     April 30,      April 30,      April 30,
                                                           2002          2001          2002           2001
                                                       ------------  ------------  -------------  -------------
<S>                                                    <C>           <C>           <C>            <C>
Revenues                                               $45,482,202   $38,116,259   $110,251,749   $124,134,679
Cost of goods sold                                      39,328,681    37,838,026    101,210,101    122,223,000
                                                       ------------  ------------  -------------  -------------
  Gross profit                                           6,153,521       278,233      9,041,648      1,911,679
Selling, general and administrative expenses
  Legal and professional fees                              331,014       217,404      1,275,800        867,337
  Salaries and payroll related expenses                    434,705       295,897      1,103,636        871,878
  Travel                                                    41,916        53,107        141,161        153,560
  Other                                                    242,243       228,008        656,290        579,039
                                                       ------------  ------------  -------------  -------------
                                                         1,049,878       794,416      3,176,887      2,471,814
                                                       ------------  ------------  -------------  -------------
    Operating income (loss)                              5,103,643      (516,183)     5,864,761       (560,135)
Other income (expense)
  Interest expense                                        (420,673)     (923,688)    (2,064,663)    (2,584,478)
  Interest income                                           (3,790)        8,728         25,438         31,019
  Settlement of litigation                                       -       (34,000)             -       (148,173)
                                                       ------------  ------------  -------------  -------------
    Income (loss) before taxes                           4,679,180    (1,465,143)     3,825,536     (3,261,767)
Provision for income taxes - net                           100,000         9,641         46,694          9,641
                                                       ------------  ------------  -------------  -------------
      Net income (loss)                                $ 4,579,180   $(1,474,784)  $  3,778,842   $ (3,271,408)
                                                       ============  ============  =============  =============

Net income (loss) per common share                     $      0.31   $     (0.10)  $       0.26   $      (0.23)
                                                       ============  ============  =============  =============
Net income (loss) per common share assuming dilution   $      0.30   $     (0.10)  $       0.25   $      (0.23)
                                                       ============  ============  =============  =============
Weighted average common shares outstanding              14,857,694    14,410,842     14,766,428     14,057,336
                                                       ============  ============  =============  =============

          The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


                                        6
<PAGE>
<TABLE>
<CAPTION>

                                             PENN OCTANE CORPORATION AND SUBSIDIARIES

                                          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                             FOR THE NINE MONTHS ENDED APRIL 30, 2002

                                                            (UNAUDITED)




                                                                                                                     ACCUMULATED
                                                     SENIOR              ADDITIONAL      STOCK-                         OTHER
                                       PREFERRED   PREFERRED    COMMON     PAID-IN      HOLDERS'     ACCUMULATED    COMPREHENSIVE
                                         STOCK       STOCK      STOCK      CAPITAL       NOTES         DEFICIT          LOSS
                                       ----------  ----------  --------  -----------  ------------  -------------  ---------------
<S>                                    <C>         <C>         <C>       <C>          <C>           <C>            <C>
Balance at July 31, 2001               $        -  $        -  $144,270  $25,833,822  $(3,761,350)  $(17,114,195)  $            -

Comprehensive income (loss)

    Net income                                                                                         3,778,842

    Unrealized loss on
      derivatives, net of tax as of
      January 31, 2002                                                                                                   (192,694)

    Realization of loss on
      derivatives, net of tax as of
      April 30, 2002                                                                                                      192,694


      Total comprehensive income

Exercise of warrants                                                788      137,025

Exchange of debt for exercise of
  warrants                                                        3,135      611,698

Discount on extension of debt                                                207,283

Other                                                                10        2,284

Stock issued as payment for
  consulting services                                               375      149,625
                                       ----------  ----------  --------  -----------  ------------  -------------  ---------------

Balance at April 30, 2002              $        -  $        -  $148,578  $26,941,737  $(3,761,350)  $(13,335,353)  $            -
                                       ==========  ==========  ========  ===========  ============  =============  ===============






                                          TOTAL
                                       ------------
<S>                                    <C>
Balance at July 31, 2001               $ 5,102,547

Comprehensive income (loss)

    Net income                           3,778,842

    Unrealized loss on
      derivatives, net of tax             (192,694)

    Reclassification adjustment
      for loss realized in net loss,
      net of tax                           192,694
                                       ------------

      Total comprehensive income         3,778,842

Exercise of warrants                       137,813

Exchange of debt for exercise of
  warrants                                 614,833

Discount on extension of debt              207,283

Other                                        2,294

Stock issued as payment for
  consulting services                      150,000
                                       ------------

Balance at April 30, 2002              $ 9,993,612
                                       ============

   The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


                                        7
<PAGE>
<TABLE>
<CAPTION>
                             PENN OCTANE CORPORATION AND SUBSIDIARIES

                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                           (UNAUDITED)


                                                                           Nine months Ended
                                                                      ---------------------------
                                                                               April 30,
                                                                      ---------------------------
                                                                          2002           2001
                                                                      -------------  ------------
<S>                                                                   <C>            <C>
Cash flows from operating activities:
Net income (loss)                                                     $  3,778,842   $(3,271,408)
Adjustments to reconcile net income (loss) to net cash  provided by
operating activities:
  Depreciation and amortization                                            608,561       577,983
  Amortization of lease rights                                              34,346        34,346
  Non-employee stock based costs                                           318,651             -
  Loan discount                                                            905,602     1,384,080
  Other                                                                     (7,785)      255,054
Changes in current assets and liabilities:
  Trade accounts receivable                                             (2,290,686)   (9,140,768)
  Inventories                                                           10,990,734       187,965
  Prepaid and other current assets                                        (352,545)       32,062
  LPG trade accounts payable                                             1,121,313     6,072,909
  Obligation to deliver LPG                                            (10,942,817)            -
  Other assets and liabilities, net                                        127,382        (6,250)
  Other accounts payable and accrued liabilities                            44,199       284,853
                                                                      -------------  ------------
   Net cash provided by (used in) operating activities                   4,335,797    (3,589,174)
Cash flows from investing activities:
  Capital expenditures                                                    (687,429)   (2,026,102)
                                                                      -------------  ------------
   Net cash used in investing activities                                  (687,429)   (2,026,102)
Cash flows from financing activities:
  Revolving credit facilities                                                    -     4,384,607
  Issuance of common stock                                                 137,813     1,439,329
  Costs of registration                                                       (505)      (83,674)
  Issuance of debt                                                         100,000       991,000
  Debt issuance costs                                                            -      (326,232)
  Reduction in debt                                                     (3,226,110)     (669,727)
                                                                      -------------  ------------
  Net cash (used in) provided by  financing activities                  (2,988,802)    5,735,303
                                                                      -------------  ------------
         Net increase in cash                                              659,566       120,027
Cash at beginning of period                                              1,322,560        25,491
                                                                      -------------  ------------
Cash at end of period                                                 $  1,982,126   $   145,518
                                                                      =============  ============
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
  Interest (including capitalized interest of $120,000 in 2001)       $  1,223,494   $ 1,240,983
                                                                      =============  ============
Supplemental disclosures of noncash transactions:
  Preferred stock, common stock and warrants issued                   $    974,915   $ 3,551,802
                                                                      =============  ============
  Notes receivable exchanged for common stock                         $          -   $  (555,661)
                                                                      =============  ============
  Mortgage receivable                                                 $          -   $ 1,925,596
                                                                      =============  ============

    The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


                                        8
<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 Exxon
     Mobil  Corporation's  (Exxon) King Ranch Gas Plant in Kleberg County, Texas
     and  Duke  Energy's  La Gloria Gas Plant in Jim Wells County, Texas, to the
     Company's  Brownsville  Terminal  Facility.  In  addition,  the Company has
     access  to  a  twelve-inch  pipeline  (ECCPL), which connects Exxon's Viola
     valve  station  in  Nueces County, Texas to the inlet of the King Ranch Gas
     Plant  as  well  as existing and other potential propane pipeline suppliers
     which  have  the  ability  to  access  the  ECCPL.  In  connection with the
     Company's  lease  agreement for the Leased Pipeline, the Company may access
     up  to  21,000,000  gallons  of  storage located in Markham, Texas (Markham
     Storage),  as  well as other potential propane pipeline exchange suppliers,
     via  approximately 155 miles of pipeline located between Markham, Texas and
     the  Exxon  King  Ranch  Gas  Plant.  The  Company also has up to 8,400,000
     gallons  of available storage in Mont Belvieu, Texas. The Company sells LPG
     primarily to P.M.I. Trading Limited (PMI). PMI is the exclusive importer of
     LPG  into  Mexico.  PMI  is  also  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  82% of the Company's total
     revenues  for  the  nine  months  ended  April  30,  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  April  30,  2002, the
     unaudited  consolidated  statements  of operations for the three months and
     nine  months  ended  April  30,  2002  and 2001, the unaudited consolidated
     statement  of stockholders' equity for the nine months ended April 30, 2002
     and the unaudited consolidated statements of cash flows for the nine months
     ended  April  30,  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 April 30, 2002, the unaudited
     consolidated  results  of  operations  for the three months and nine months
     ended  April  30,  2002  and  2001, the unaudited consolidated statement of
     stockholders'  equity  for  the  nine  months  ended April 30, 2002 and the
     unaudited  consolidated  statements of cash flows for the nine months ended
     April  30,  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,  2001.


                                        9
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  A  -  ORGANIZATION  -  CONTINUED

     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.


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 April 30, 2002  For the three months ended April 30, 2001
                                        -----------------------------------------  ------------------------------------------
                                        Income (loss)      Shares      Per-Share   Income (loss)      Shares       Per-Share
                                         (Numerator)    (Denominator)    Amount     (Numerator)    (Denominator)    Amount
                                        --------------  -------------  ----------  --------------  -------------  -----------
<S>                                     <C>             <C>            <C>         <C>             <C>            <C>
Net income (loss)                       $    4,579,180              -           -  $  (1,474,784)              -           -
BASIC EPS
Net income (loss) available to common
  stockholders                               4,579,180     14,857,694  $     0.31     (1,474,784)     14,410,842  $    (0.10)
                                                                       ==========                                 ===========
EFFECT OF DILUTIVE SECURITIES
Warrants                                             -        399,144           -              -   N/A                     -
Convertible Preferred Stock                          -              -           -              -   N/A                     -
                                        --------------  -------------              --------------  -------------
DILUTED EPS
Net income (loss) available to common
  stockholders                          $    4,579,180     15,256,838  $     0.30  $         N/A   N/A            $      N/A
                                        ==============  =============  ==========  ==============  =============  ===========
</TABLE>

<TABLE>
<CAPTION>
                                        For the three months ended April 30, 2002  For the three months ended April 30, 2001
                                        -----------------------------------------  ------------------------------------------
                                        Income (loss)      Shares      Per-Share   Income (loss)      Shares       Per-Share
                                         (Numerator)    (Denominator)    Amount     (Numerator)    (Denominator)    Amount
                                        --------------  -------------  ----------  --------------  -------------  -----------
<S>                                     <C>             <C>            <C>         <C>             <C>            <C>
Net income (loss)                       $    3,778,842              -           -  $  (3,271,408)              -           -
BASIC EPS
Net income (loss) available to common
  stockholders                               3,778,842     14,766,428  $     0.26     (3,271,408)     14,057,336  $    (0.23)
                                                                       ==========                                 ===========
EFFECT OF DILUTIVE SECURITIES
Warrants                                             -        314,533           -              -   N/A                     -
Convertible Preferred Stock                          -              -           -              -   N/A                     -
                                        --------------  -------------              --------------  -------------
DILUTED EPS
Net income (loss) available to common
  stockholders                          $    3,778,842     15,080,961  $     0.25  $         N/A   N/A            $      N/A
                                        ==============  =============  ==========  ==============  =============  ===========
</TABLE>

NOTE  C  -  NOTES  FROM  RELATED  PARTIES

     As  of  April 30, 2002, the amounts due from notes issued to the Company by
     certain  officers,  directors  and  a  related party (Note Issuers) for the
     exercise  of  warrants  have  not been paid as required by the terms of the
     notes.  All  accrued  but  unpaid  interest  from officers, directors and a
     related  party has been reserved. During November 2001, the Company and the
     Note  Issuers  agreed  to  exchange  36,717  shares  of common stock of the


                                       10
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

     Company  held  by the Note Issuers for payment of all unpaid interest owing
     to the Company through October 31, 2001 ($146,869). The Company will extend
     the  due  date  of  the  notes to October 31, 2003 when the common stock is
     exchanged.

     During  January 2002, the Company received a note in the amount of $200,000
     for a loan to the Company's president. The note bears interest at the prime
     rate and the note plus accrued interest are due on April 30, 2003. The note
     is  collateralized  by  shares  collateralizing  another  obligation of the
     President  to  the  Company.

NOTE  D  -  PROPERTY,  PLANT  AND  EQUIPMENT

     Property,  plant  and  equipment  consists  of  the  following:


<TABLE>
<CAPTION>
                                                     April 30,      July 31,
                                                        2002          2001
                                                    ------------  ------------
<S>                                                 <C>           <C>
LPG:
  Brownsville Terminal Facility:
    Building
    Terminal facilities                             $   173,500   $   173,500
    Tank Farm                                         3,631,207     3,631,207
    Midline pump station                                370,855       370,855
    Leasehold improvements                            2,449,628     2,293,121
    Capital construction in progress                    298,157       291,409
    Equipment                                            96,212        67,002
                                                        496,249       469,545
                                                    ------------  ------------
  US - Mexico Pipelines and Matamoros Terminal        7,515,808     7,296,639
  Facility:

    U.S. Pipelines and Rights of Way
    Mexico Pipelines and Rights of Way                6,322,703     6,245,614
    Matamoros Terminal Facility                         993,300       993,300
    Saltillo Terminal Facility                        5,074,087     5,078,336
    Land                                              1,027,267       799,309
      Total LPG                                         795,526       644,526
                                                    ------------  ------------
Other:                                               21,728,691    21,057,724
                                                    ------------  ------------
    Automobile
    Office equipment                                     10,800        10,800
                                                         72,728        56,266
                                                    ------------  ------------
                                                         83,528        67,066
                                                    ------------  ------------
  Less:  accumulated depreciation and amortization   21,812,219    21,124,790
                                                     (3,472,967)   (2,864,406)
                                                    ------------  ------------

                                                    $18,339,252   $18,260,384
                                                    ============  ============
</TABLE>

     The  above  includes  $6,848,134,  and  $6,738,746,  net  of  accumulated
     depreciation,  of  costs of property, plant and equipment located in Mexico
     at  April  30,  2002  and  July  31,  2001,  respectively.

NOTE  E  -  DEBT  OBLIGATIONS

     SHORT-TERM  DEBT
     ----------------

     Restructuring  of  Notes
     ------------------------

     During  December  2000,  the Company entered into agreements (Restructuring
     Agreements)  with  the  holders  of  $5,409,000  in principal amount of the
     promissory  notes  (Notes)  providing  for  the restructuring of such Notes
     (Restructuring).


                                       11
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

     Under  the  terms  of  the  Restructuring Agreements, the due dates for the
     restructured  Notes (Restructured Notes) were extended to December 15, 2001
     and  were payable on December 17, 2001 (see below). Additionally, beginning
     December  16,  2000, the annual interest rate on the Restructured Notes was
     increased  to  13.5%  (subject  to  adjustment). Interest payments were due
     quarterly  beginning  March  15,  2001.

     Issuance  of  New  Promissory  Notes
     ------------------------------------

     On  January  31,  2001,  the Company completed the placement of $991,000 in
     principal  amount  of promissory notes (New Notes), which were due December
     15,  2001,  and were payable on December 17, 2001 (see below). The terms of
     the  New  Notes  are  substantially  the  same  as  those  contained in the
     Restructured  Notes  issued  in connection with the Restructuring described
     above.

     Payment  on  Restructured  Notes
     --------------------------------

     During  August 2001 and September 2001, warrants to purchase 313,433 shares
     of common stock of the Company owned by certain holders of the Restructured
     Notes  were  exercised.  The  exercise  price  was satisfied by the Company
     reducing  the outstanding debt and accrued interest due on the Restructured
     Notes  by  $614,833.

     Extension  of  Restructured  Notes  and  New  Notes
     ---------------------------------------------------

     During  December 2001, the Company and certain holders of the New Notes and
     the Restructured Notes (Accepting Noteholders) reached an agreement whereby
     the  due date for $3,135,000 of principal due on the Accepting Noteholders'
     Restructured Notes and/or New Notes was extended to June 15, 2002 (see note
     K).  In  connection  with the extension, the Company agreed to (i) continue
     paying  interest  at a rate of 16.5% annually on the Accepting Noteholders'
     Restructured  Notes  and/or  New  Notes,  payable  quarterly,  (ii) pay the
     Accepting  Noteholders  a  fee equal to 1% of the Restructured Notes and/or
     New  Notes  extended,  (iii)  modify  the  warrants  held  by the Accepting
     Noteholders  by extending the expiration date to December 14, 2004 and (iv)
     remove  the  Company's  repurchase  rights  with  regard  to  the warrants.

     In  connection  with  the issuance of the Restructured Notes and New Notes,
     the  Company  recorded  a  discount of $1,946,634, to be amortized over the
     life of the Restructured Notes and New Notes. At April 30, 2002, the entire
     discount  has  been  amortized. Amortization of discounts totaling $749,570
     related  to  the  Restructured  Notes  and  New  Notes  is  included in the
     unaudited  consolidated  statement  of operations for the nine months ended
     April  30,  2002.

     In  connection  with  the extension of the Accepting Noteholders' warrants,
     the  Company  recorded  a  discount of $207,283, of which $156,032 has been
     amortized  as  of  April  30,  2002.


                                       12
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  E  -  DEBT  OBLIGATIONS  -  CONTINUED

     Extension  of  Restructured  Notes  and  New  Notes  -  Continued
     -----------------------------------------------------------------

     The  remaining  principal  amount of Restructured Notes and New Notes which
     were  not  extended totaled approximately $2,676,000, plus accrued interest
     and  was  paid  during  December  2001  and  January  2002.

     LONG-TERM  DEBT
     --------------

<TABLE>
<CAPTION>
Long-term debt consists of the following:
                                                                                           April 30,    July 31,
                                                                                              2002        2001
                                                                                           ----------  ----------
<S>                                                                                        <C>         <C>
Promissory note issued in connection with the acquisition of the US - Mexico Pipelines
and the Matamoros Terminal Facility, due in monthly installments of $46,000 including
interest at 9% through  February 2004 (CPSC Note); collateralized by the US portion of
the US - Mexico Pipelines                                                                  $  933,147  $1,263,634

Promissory note issued in connection with the acquisition of the US - Mexico Pipelines
and the Matamoros Terminal Facility, due in monthly installments of $29,000 including
interest at 9% through March 2004; collateralized by the US portion of the US - Mexico
Pipelines                                                                                     626,462     811,532

Promissory note issued in connection with the purchase of property, due in monthly
minimum installments of $15,000 or $.001 for each gallon that flows through the US
Pipelines including interest at 10% with a balloon payment due in April 2003  (Mortgage
Note)                                                                                       1,925,063   1,934,872

Promissory note issued in connection with the purchase of property, due in annual
installments of $20,000 plus accrued interest at 7% through May 2007.                         100,000           -

Unsecured noninterest-bearing note payable, discounted at 7%, for legal services; due in
February 2001                                                                                 137,500     147,500


Other long-term debt                                                                           10,556      35,316
                                                                                           ----------  ----------

                                                                                            3,732,728   4,192,854

Current maturities                                                                            979,248     918,885
                                                                                           ----------  ----------

                                                                                           $2,753,480  $3,273,969
                                                                                           ==========  ==========
</TABLE>

     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 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  included  in  long-term  debt  and  the  corresponding amount
     required  to  be  paid  by CPSC has been recorded as a mortgage receivable.

     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 in the event that the Company defaulted under a
     settlement  agreement.


                                       13
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  F  -  STOCKHOLDERS'  EQUITY

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

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

     During  August  and September 2001, warrants to purchase 37,500 and 275,933
     shares,  respectively,  of  common  stock  of  the Company owned by certain
     holders  of  the  Restructured Notes were exercised. The exercise price was
     satisfied  by  reductions  of  debt  obligations  (see  note  E).

     During  November  2001,  warrants  to  purchase a total of 78,750 shares of
     common  stock  of the Company were exercised, resulting in cash proceeds to
     the  Company  of  $137,813.

     STOCK  AWARD  PLAN  (PLAN)
     --------------------------

     During  September 2001, the Company issued 37,500 shares of common stock of
     the  Company  pursuant  to the Plan to a consultant in payment for services
     rendered  to  the  Company  valued  at  $150,000.

     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 2001 the Board granted
     warrants  to  purchase  10,000  and  20,000  shares  of common stock of the
     Company  at  exercise  prices  of  $3.99  and  $4.05  per  share to outside
     directors.  Based  on the provisions of APB 25, no compensation expense was
     recorded  for  these  warrants.

     In  connection  with the Board Plan, during November 2001 the Board granted
     warrants  to  purchase  30,000  shares  of  common  stock of the Company at
     exercise  prices  of $3.66 per share to a newly appointed outside director.
     Based on the provisions of APB 25, no compensation expense was recorded for
     these  warrants.


                                       14
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  G  -  COMMITMENTS  AND  CONTINGENCIES

     LITIGATION

     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  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 PennWilson have been
     dismissed  from  the  litigation  pursuant  to  summary  judgments.

     On July 10, 2001, litigation was filed in the 164th Judicial District Court
     of  Harris County, Texas by Jorge V. Duran, a former chairman of the board,
     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  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 Company has no
     contract  with the Plaintiff and, therefore, believes that the complaint is
     without  merit  and  intends  to  vigorously  defend  against  the lawsuit.

     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 should not
     materially  affect  its  consolidated  financial  statements.

     CREDIT  FACILITY,  LETTERS  OF  CREDIT  AND  OTHER

     As  of  April  30, 2002, the Company has a $20,000,000 credit facility with
     RZB  Finance  L.L.C.  (RZB)  and  Bayerische  Hypo-und  Vereinsbank
     Aktiengeselischaft,  New  York  Branch (HVB), whereby RZB and HVB will each
     participate  up  to $10,000,000 toward the total credit facility 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 amounts outstanding under the RZB Credit Facility
     shall accrue interest at a rate equal to the rate announced by the JPMorgan
     Chase  Bank  as  its  prime  rate  plus  2.5%.  Pursuant  to the RZB Credit
     Facility,  RZB  and  HVB each have 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  (including  cash  of  $1,590,998  at  April 30, 2002),
     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.
     HVB  has  not participated in the RZB Credit Facility since September 2001,
     effectively  reducing  the  Company's  credit  facility  to  $10,000,000.


                                       15
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  G  -  COMMITMENTS  AND  CONTINGENCIES  -  CONTINUED

     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), 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.

     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  H  -  REALIZATION  OF  ASSETS

     The  accompanying  consolidated  financial statements have been prepared in
     conformity  with  accounting  principles  generally  accepted in the United
     States of America, which contemplate continuation of the Company as a going
     concern.  The  Company  has had an accumulated deficit since inception, 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  Restructured  Notes,  the  New  Notes, the RZB Credit Facility and the
     notes  related to the Settlement. The Restructured Notes and the New  Notes
     total  $3,135,000 at April 30, 2002 (see note K).  In addition, the Company
     entered  into  supply  agreements for quantities of LPG totaling 26,500,000
     gallons  per  month  (actual  deliveries have been approximately 22,400,000
     gallons  for  the three months ended April 30, 2002) although the new sales
     agreement  with  PMI  provides  for  lesser  quantities  (see  note  I). 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  consolidated  balance  sheets is dependent upon the Company's
     ability  to  obtain  additional  financing,  repay,  renew  or  extend  the
     Restructured Notes and the New Notes referred to in the preceding paragraph
     and  to  raise  additional equity capital, resolve uncertainties related to
     the  Saltillo  Terminal  Facility  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 its customer base assuming deregulation of
     the  LPG  industry  in Mexico, (iii) extend the terms of the Pipeline Lease
     and  the  Brownsville  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  Facility  to  another location in or near
     Saltillo,  Coahuila,  Mexico.

     At  July  31,  2001,  the  Company had net operating loss carryforwards for
     federal  income  tax  purposes of approximately $12,000,000. The ability to
     utilize  such net operating loss carryforwards may be significantly limited
     by  the application of the "change of ownership" rules under Section 382 of
     the  Internal  Revenue  Code.


                                       16
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  I-  CONTRACTS

     LPG  SALES  TO  PMI

     Upon  the expiration of the Old Agreements, PMI confirmed to the Company in
     writing  (Confirmation)  on  April  26,  2001, the following terms of a new
     agreement  (Proposed  Agreement)  effective  April  1,  2001,  subject  to
     revisions  to  be  provided  by  PMI's  legal  department. The Confirmation
     provided  for  minimum  monthly  volumes  of  19,000,000 gallons at indexed
     variable  posted prices plus premiums that provided the Company with annual
     fixed  margins,  which  were to increase annually over a three year period.
     The  Company  was  also entitled to receive additional fees for any volumes
     which  were  undelivered. From April 1, 2001 through December 31, 2001, the
     Company  and  PMI operated under the terms provided for in the Confirmation
     for  which  a  total  of  approximately 36,224,000 gallons were undelivered
     (recorded  as  obligation  to  deliver LPG). During January 1, 2002 through
     February  28,  2002,  PMI  purchased  monthly  volumes  of  approximately
     17,000,000  gallons  per  month  at  slightly  higher  premiums  than those
     specified  in  the  Confirmation.

     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.

     In  connection  with  the  Contract, the parties also executed a settlement
     agreement  (Settlement  Agreement), whereby the parties released each other
     in  connection  with  all  disputes  between the parties arising during the
     period April 1, 2001 through February 28, 2002, and previous claims related
     to  the  contract  for  the  period  April  1, 2000 through March 31, 2001.

     In  addition  to  the  amounts described above, during the month of January
     2002  and  for the period from February 1, 2002 through March 31, 2002, the
     Company delivered to PMI the remaining portion of the obligation to deliver
     LPG  (3,906,000  gallons  and  32,318,000  gallons,  respectively).

NOTE J - INCOME TAX

     During  the  nine  months  ended  April  30,  2002,  the Company recorded a
     provision  for  income  taxes  of $100,000 (which was partially offset by a
     refund  previously received), representing alternative minimum tax due. Due
     to  the  availability  of  net  operating loss carryforwards (approximately
     $12,000,000  at  July  31,  2001), the Company did not incur any additional
     income  tax  expense  during  the  three  months  ended April 30, 2002. The
     Company  can  receive  a credit against, any future tax payments due to the
     extent  of  any  prior  alternative  minimum  taxes  paid.

NOTE K- SUBSEQUENT EVENT - UNAUDITED

     Extension  of  Restructured  Notes  and  New  Notes

     During  June 2002, the Company and certain holders of the New Notes and the
     Restructured Notes (New Accepting Noteholders) reached an agreement whereby
     the  due  date  for  approximately  $2,985,000  of principal due on the New
     Accepting Noteholders' Restructured Notes and/or New Notes were extended to
     December 15, 2002. The Company has the option to pay the notes or a portion
     thereof  on  a pro rata basis, on August 15, 2002 and October 15, 2002. The
     New  Accepting  Noteholders'  Restructured  Notes  and/or  New  Notes  will
     continue  to  bear  interest at 16.5% per annum. Interest is payable on the
     outstanding balances on July 1, 2002 (previously June 15, 2002), August 15,
     2002,  October  15,  2002 and December 15, 2002. The Company also agreed to
     pay a fee of 1.5% on the principal amount of the New Accepting Noteholders'
     Restructured Notes and/or New Notes, due July 1, 2002. The principal amount
     of  the  Restructured Notes and/or New Notes which were not extended is due
     on  June  15,  2002.


                                       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 unaudited
consolidated  financial  statements  of  the  Company  and related notes thereto
appearing  elsewhere  herein.

FORWARD-LOOKING  STATEMENTS

     The  statements  contained in this 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 Facility, 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, 2001, 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 northeastern 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 nine months ended April 30, 2002, the Company derived 82% 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.


                                       18
<PAGE>
LPG  SALES

     The  following  table  shows  the  Company's  volume  sold and delivered in
gallons  and  average  sales price for the three and nine months ended April 30,
2002  and  2001.

<TABLE>
<CAPTION>
                                       Three months ended April 30,      Nine months ended April 30,
                                     --------------------------------  -------------------------------
                                          2002             2001             2002            2001
                                     ---------------  ---------------  --------------  ---------------
<S>                                  <C>              <C>              <C>             <C>

Volume Sold and Delivered

  LPG (millions of gallons) - PMI               85.1             41.3           193.0            131.3
  LPG (millions of gallons) - Other             14.3             16.3            55.7             50.0
                                     ---------------  ---------------  --------------  ---------------
                                                99.4             57.6           248.7            181.3
                                     ===============  ===============  ==============  ===============

Average sales price

  LPG (per gallon) - PMI             $          0.48  $          0.71  $         0.47  $          0.73
  LPG (per gallon) - Other                      0.36             0.53            0.36             0.58
</TABLE>


RESULTS  OF  OPERATIONS

THREE  MONTHS  ENDED  APRIL  30, 2002 COMPARED WITH THREE MONTHS ENDED APRIL 30,
2001

     Revenues.  Revenues  for  the three months ended April 30, 2002, were $45.5
million,  including $15.3 million (32.3 million gallons) related to the delivery
during  the  quarter  of LPG associated with the obligation to deliver, compared
with  $38.1  million  for  the three months ended April 30, 2001, an increase of
$7.4  million  or  19.3%.  This  increase was attributable to increases of $20.8
million  associated  with  increased volumes of LPG sold to PMI during the three
months  ended  April  30,  2002,  partially  offset by decreases of $9.9 million
attributable  to decreases in average sales prices of LPG sold to PMI during the
three  months  ended  April  30,  2002,  $2.8  million attributable to decreased
average  sales  prices  of LPG sold to customers other than PMI during the three
months  ended  April  30, 2002 in connection with the Company's desire to reduce
quantities  of  inventory  and $732,654 attributable to decreased volumes of LPG
sold  to  customers other than PMI during the three months ended April 30, 2002.

     Cost of goods sold. Cost of goods sold for the three months ended April 30,
2002,  was  $39.3 million compared with $37.8 million for the three months ended
April  30,  2001,  an  increase of $1.5 million or 3.9%. Of this increase, $17.7
million was attributable to increased volume of LPG sold to PMI during the three
months  ended  April 30, 2002 and $1.0 million was attributable to net increases
in other operating costs associated with LPG during the three months ended April
30,  2002,  partially  offset  by $10.0 million attributable to decreases in the
cost  of  LPG  sold  to  PMI  during the three months ended April 30, 2002, $6.9
million  attributable to the decreased costs of LPG sold to customers other than
PMI  in  connection  with the Company's desire to reduce quantities of inventory
during  the  three  months  ended  April  30,  2002 and $380,730 attributable to
decreased volume of LPG sold to customers other than PMI during the three months
ended  April  30,  2002.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses  were $1.0 million for the three months ended April 30,
2002,  compared  with  $794,416  for  the  three months ended April 30, 2001, an
increase  of  $255,462  or  32.2%.   The  increase during the three months ended
April  30,  2002, was principally due to increased salary costs and professional
fees.

     Other  income  (expense).  Other  income  (expense)  was $(424,463) for the
three months ended April 30, 2002, compared with $(948,960) for the three months
ended April 30, 2001, a decrease of $524,497.  The decrease in other expense was
due  primarily  to  decreased  interest  costs  and amortization of discounts on
outstanding  debt  during  the  three  months  ended  April  30,  2002.


                                       19
<PAGE>
     Income  tax.   During  the  three  months ended April 30, 2002, the Company
recorded  a  provision  for  income  taxes of $100,000, representing alternative
minimum  tax  due.  Due  to the availability of net operating loss carryforwards
(approximately  $12.0  million  at July 31, 2001), the Company did not incur any
additional income tax expense during the three months ended April 30, 2002.  The
Company  can receive a credit against, any future tax payments due to the extent
of  any  prior  alternative  minimum  taxes  paid.

NINE  MONTHS ENDED APRIL 30, 2002 COMPARED WITH NINE MONTHS ENDED APRIL 30, 2001

     Revenues.  Revenues  for  the nine months ended April 30, 2002, were $110.3
million,  including $22.0 million (39.6 million gallons) related to the delivery
during  the  period  December 2001 through April 2002 of LPG associated with the
obligation  to  deliver,  compared with $124.1 million for the nine months ended
April  30,  2001, a decrease of $13.9 million or 11.2%.  Of this decrease, $33.6
million was attributable to decreases in average sales prices of LPG sold to PMI
during  the nine months ended April 30, 2002, and $11.1 million was attributable
to decreased average sales prices of LPG sold to customers other than PMI during
the nine months ended April 30, 2002, in connection with the Company's desire to
reduce  quantities  of inventory, partially offset by increases of $28.9 million
attributable  to  increased  volumes  of  LPG  sold  to  PMI  and  $2.0  million
attributable to increased volumes of LPG sold to customers other than PMI during
the  nine  months  ended  April  30,  2002.

     Cost of goods sold.  Cost of goods sold for the nine months ended April 30,
2002,  was $101.2 million compared with $122.2 million for the nine months ended
April  30,  2001, a decrease of $21.0 million or 17.2%.  Of this decrease, $37.7
million  was attributable to decreases in the cost of LPG sold to PMI during the
nine  months  ended  April  30,  2002,  $10.1  million  was  attributable to the
decreased  costs  of LPG sold to customers other than PMI in connection with the
Company's  desire to reduce quantities of inventory during the nine months ended
April  30,  2002, partially offset by increases of $23.5 million attributable to
increased volume of LPG sold to PMI during the nine months ended April 30, 2002,
$2.4  million  attributable  to  increased volume of LPG sold to customers other
than  PMI during the nine months ended April 30, 2002, and $937,467 attributable
to  net  increases  in other operating costs associated with LPG during the nine
months  ended  April  30,  2002.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses  were  $3.2 million for the nine months ended April 30,
2002,  compared  with  $2.5 million for the nine months ended April 30, 2001, an
increase of $705,073 or 28.5%.   The increase during the nine months ended April
30,  2002,  was  principally  due  to nonrecurring legal and consulting fees and
salary  increases.

     Other  income (expense).  Other income (expense) was $(2.0) million for the
nine  months  ended  April  30,  2002, compared with $(2.7) million for the nine
months  ended  April  30,  2001,  a decrease of $662,407.  The decrease in other
expense  was  due  primarily  to  decreased  interest  costs and amortization of
discounts  on  outstanding  debt  during  the  nine months ended April 30, 2002.

     Income  tax.   During  the  nine  months  ended April 30, 2002, the Company
recorded a provision for income taxes of $100,000 (which was partially offset by
a refund previously received), representing alternative minimum tax due.  Due to
the  availability  of  net  operating  loss  carryforwards  (approximately $12.0
million  at  July 31, 2001), the Company did not incur any additional income tax
expense during the three months ended April 30, 2002.  The Company can receive a
credit  against,  any  future  tax  payments  due  to  the  extent  of any prior
alternative  minimum  taxes  paid.


                                       20
<PAGE>
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 Restructured
Notes,  the  New  Notes,  the  RZB  Credit Facility and the notes related to the
Settlement.  The  Restructured  Notes and the New Notes total approximately $3.1
million  at  April  30,  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.

     The  following  summary  table reflects comparative cash flows for the nine
months  ended  April  30,  2002  and  2001.  All  information  is  in thousands.

<TABLE>
<CAPTION>
                                                      APRIL 30,    APRIL 30,
                                                        2002         2001
                                                     -----------  -----------
<S>                                                  <C>          <C>
Net cash provided by (used in) operating activities  $    4,336   $   (3,589)
Net cash used in investing activities . . . . . . .        (687)      (2,026)
Net cash provided by (used in) financing activities      (2,989)       5,735
                                                     -----------  -----------
Net increase in cash. . . . . . . . . . . . . . . .  $      660   $      120
                                                     ===========  ===========
</TABLE>

     Sales  to PMI.  Upon the expiration of the Old Agreements, PMI confirmed to
the  Company  in  writing  (the "Confirmation") on April 26, 2001, the following
terms  of  a  new  agreement (the "Proposed Agreement") effective April 1, 2001,
subject to revisions to be provided by PMI's legal department.  The Confirmation
provided for minimum monthly volumes of 19.0 million gallons at indexed variable
posted prices plus premiums that provided the Company with annual fixed margins,
which were to increase annually over a three year period.   The Company was also
entitled  to  receive  additional  fees  for any volumes which were undelivered.
From April 1, 2001 through December 31, 2001, the Company and PMI operated under
the  terms  provided  for in the Confirmation for which a total of approximately
36.2  million  gallons were undelivered (recorded as obligation to deliver LPG).
During  January 1, 2002 through February 28, 2002, PMI purchased monthly volumes
of approximately 17.0 million gallons per month at slightly higher premiums than
those  specified  in  the  Confirmation.

     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.

     In  connection  with  the  Contract, the parties also executed a settlement
agreement  (Settlement  Agreement),  whereby  the parties released each other in
connection with all disputes between the parties arising during the period April
1,  2001  through February 28, 2002, and previous claims related to the contract
for  the  period  April  1,  2000  through  March  31,  2001.

     In  addition  to  the  amounts described above, during the month of January
2002  and  for  the  period  from  February  1, 2002 through March 31, 2002, the
Company  delivered to PMI the remaining portion of the obligation to deliver LPG
(3.9  million  gallons  and  32.3  million  gallons,  respectively).

     LPG  Supply Agreements.  The Company has entered into supply agreements for
quantities  of LPG totaling approximately 26.5 million gallons per month (actual
deliveries  have  been  approximately  22.4 million gallons for the three months
ended  April  30,  2002)  although the new sales agreement with PMI provides for
lesser  quantities  (see  note  I  to  the  unaudited  consolidated  financial
statements).


                                       21
<PAGE>
     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,  El  Paso Supply, 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  is  $1.0  million  for the use of the Leased Pipeline beginning January 1,
2001  until  its expiration. 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 reserved up to 12.6 million
gallons of storage through December 31, 2002, and may reserve up to 21.0 million
gallons  each  year  thereafter  provided  that the Company notifies Seadrift in
advance.

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

     The Company recently began utilizing 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 gallons per year and
360  million  gallons  per  year.

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

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

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


                                       22
<PAGE>
     In connection with the above, in August 2001, Tergas received a permit from
the  Mexican  government  to  import LPG. Tergas has also received authorization
from  Mexican  customs  authorities regarding the use of the US-Mexico Pipelines
for  the  importation  of  LPG.

     Although  Tergas  is  currently able to import LPG into Mexico by virtue of
the  permit,  the Mexican government has asked Tergas to defer use of the permit
and,  as  a result, the Company has not sold 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  in  the near future. 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
PMI.

     The  point  of sale for LPG which flows through the US-Mexico Pipelines for
delivery  to the Matamoros Terminal Facility is the United States-Mexico border.
Revenue  is  not  recognized  on  these  transactions  until  physical delivery.

     Credit  Arrangements  and  Other.  As  of April 30, 2002, the Company has a
$20.0  million  credit  facility  with RZB Finance L.L.C. ("RZB") and Bayerische
Hypo-und  Vereinsbank  Aktiengeselischaft,  New York Branch ("HVB"), whereby RZB
and  HVB  will  each  participate  up  to  $10.0 million toward the total credit
facility 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  amounts outstanding under the RZB Credit Facility shall
accrue interest at a rate equal to the rate announced by the JPMorgan Chase Bank
as  its  prime  rate plus 2.5%. Pursuant to the RZB Credit Facility, RZB and HVB
each have 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 (including cash of approximately $1.6
million  at  April  30,  2002),  inventory, real property, buildings, pipelines,
fixtures  and  interests  therein  or  relating  thereto,  including,  without
limitation, the lease with the Brownsville Navigation District of Cameron County
(the  "District")  for  the  land  on  which  the Company's Brownsville Terminal
Facility  is  located, the Pipeline Lease, and in connection therewith agreed to
enter  into  leasehold deeds of trust, security agreements, financing statements
and  assignments  of  rent,  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. HVB
has  not  participated  in  the  RZB  Credit  Facility  since  September  2001,
effectively  reducing  the  Company's  credit  facility  to  $10.0  million.

     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, Duke
and/or  Koch,  letters  of  credit  are  issued  on  a  monthly  basis  based on
anticipated  purchases.


                                       23
<PAGE>
     Private  Placements  and  Other  Transactions.  During  December  2000, the
Company  entered  into  agreements  (the  "Restructuring  Agreements")  with the
holders  of  $5.4  million  in  principal  amount  of  the promissory notes (the
"Notes")  providing  for  the  restructuring  of  such  remaining  Notes  (the
"Restructuring").

     Under  the  terms  of  the  Restructuring Agreements, the due dates for the
restructured notes (the "Restructured Notes") were extended to December 15, 2001
and  were  payable  on  December  17,  2001 (see below). Additionally, beginning
December  16,  2000,  the  annual  interest  rate  on the Restructured Notes was
increased to 13.5% (subject to adjustment). Interest payments were due quarterly
beginning  March  15,  2001.

     Under  the  terms  of  the  Restructuring  Agreements,  the Company is also
required  to  provide  the  holders of the Restructured Notes with collateral to
secure the Company's payment obligations under the Restructured Notes consisting
of  a  senior  interest  in  substantially all of the Company's assets which are
located  in  the  United  States  (the  "US  Assets")  and  Mexico (the "Mexican
Assets"),  excluding  inventory,  accounts  receivable  and sales contracts with
respect  to  which  the  Company  is  required  to grant a subordinated security
interest (collectively referred to as the "Collateral"). The Company's President
has  also pledged 2.0 million shares of common stock of the Company owned by the
President  (1.0  million  shares  to  be  released  when  the  required security
interests in the US Assets have been granted and perfected and all of the shares
are to be released when the required security interests in all of the Collateral
have  been  granted  and perfected). The granting and perfection of the security
interests  in  the  Collateral, as prescribed under the Restructured Notes, have
not  been finalized. Accordingly, the interest rate under the Restructured Notes
increased  to  16.5% on March 16, 2001 (see below). The Collateral is also being
pledged  in  connection  with the issuance of other indebtedness by the Company.
PMG  has  agreed  to  serve  as  the  collateral  agent.

     On  January  31,  2001,  the Company completed the placement of $991,000 in
principal  amount  of promissory notes (the "New Notes") which were due December
15, 2001 and were payable on December 17, 2001 (see below). The terms of the New
Notes  are  substantially  the same as those contained in the Restructured Notes
issued in connection with the Restructuring described above. As described above,
the  Company's  payment  obligations  under  the  New  Notes  will  also  be
collateralized  by  the Collateral and the shares of the Company which are being
pledged  by  the  Company's  President.

     During  August 2001 and September 2001, warrants to purchase 313,433 shares
of  common  stock  of  the  Company owned by certain holders of the Restructured
Notes  were  exercised. The exercise price was satisfied by the Company reducing
the  outstanding  debt  and  accrued  interest  due on the Restructured Notes by
$614,833.

     During  December 2001, the Company and certain holders of the New Notes and
the  Restructured  Notes  (the  "Accepting  Noteholders")  reached  an agreement
whereby  the  due  date  for  approximately $3.0 million of principal due on the
Accepting  Noteholders' Restructured Notes and/or New Notes was extended to June
15,  2002.  In connection with the extension, the Company agreed to (i) continue
paying  interest  at  a  rate  of  16.5%  annually on the Accepting Noteholders'
Restructured  Notes  and/or New Notes, payable quarterly, (ii) pay the Accepting
Noteholders  a  fee  equal  to  1%  of  the  Restructured Notes and/or New Notes
extended,  (iii)  modify  the  warrants  held  by  the  Accepting Noteholders by
extending the expiration date to December 14, 2004 and (iv) remove the Company's
repurchase  right  with  regard  to  the  warrants.

     In  connection  with  the issuance of the Restructured Notes and New Notes,
the  Company  recorded  a discount of approximately $1.9 million to be amortized
over  the  life  of the Restructured Notes and New Notes. At April 30, 2002, the
entire  discount has been amortized. Amortization of discounts totaling $749,570
related  to  the  Restructured  Notes and New Notes is included in the unaudited
consolidated  statement  of operations for the nine months ended April 30, 2002.

     In  connection  with  the extension of the Accepting Noteholders' warrants,
the  Company  recorded  a  discount  of  $207,283,  of  which  $156,032 has been
amortized  as  of  April  30,  2002.

     The  remaining  principal  amount of Restructured Notes and New Notes which
were  not extended totaled approximately $2.7 million, plus accrued interest and
was  paid  during  December  2001  and  January  2002.

     During  June 2002, the Company and certain holders of the New Notes and the
Restructured  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'  Restructured  Notes  and/or  New Notes were extended to
December  15,  2002.  The  Company  has the option to pay the notes or a portion
thereof  on  a  pro rata basis, on August 15, 2002 and October 15, 2002. The New
Accepting Noteholders' Restructured Notes and/or New Notes will continue to bear
interest  at 16.5% per annum. Interest is payable on the outstanding balances on
July  1,  2002 (previously June 15, 2002), August 15, 2002, October 15, 2002 and
December 15, 2002. The Company also agreed to pay a fee of 1.5% on the principal
amount  of  the  New Accepting Noteholders' Restructured Notes and/or New Notes,
due  July  1,  2002.  The  principal amount of the Restructured Notes and/or New
Notes which were not extended is due on June 15, 2002.


                                       24
<PAGE>
     During  September 2001, the Company issued 37,500 shares of common stock of
the  Company  to  a  consultant  in payment for services rendered to the Company
valued  at  $150,000.

     During  November  2001,  warrants  to  purchase a total of 78,750 shares of
common  stock  of  the Company were exercised, resulting in cash proceeds to the
Company  of  $137,813.

     As  of  April 30, 2002, the amounts due from notes issued to the Company by
certain  officers,  directors  and  a related party (the "Note Issuers") for the
exercise  of  warrants have not been paid as required by the terms of the notes.
All accrued but unpaid interest from officers, directors and a related party has
been  reserved. During November 2001, the Company and the Note Issuers agreed to
exchange  36,717  shares of common stock of the Company held by the Note Issuers
for payment of all unpaid interest owing to the Company through October 31, 2001
($146,869).  The  Company  will  extend the due date of the notes to October 31,
2003  when  the  common  stock  is  exchanged.

     During  January  2002 the Company received a note in the amount of $200,000
for a loan to the Company's president. The note bears interest at the prime rate
and  the  note  plus  accrued  interest  are  due on April 30, 2003. The note is
collateralized  by shares collateralizing another obligation of the president to
the  Company.

     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 March 2, 2000, litigation was filed in the Superior Court of
California,  County  of  San  Bernardino  by  Omnitrans  against  Penn  Octane
Corporation,  Penn  Wilson  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 PennWilson have
recently  been  dismissed  from  the  litigation  pursuant to summary judgments.

     On July 10, 2001, litigation was filed in the 164th Judicial District Court
of  Harris  County, Texas by Jorge V. Duran, a former chairman of the board, 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  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 Company has no contract
with  the Plaintiff and, therefore, believes that the complaint is without merit
and  intends  to  vigorously  defend  against  the  lawsuit.

     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 should not
materially  affect  its  consolidated  financial  statements.


                                       25
<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  Restructured  Notes,  the  New Notes, the RZB Credit Facility and the
notes  related to the Settlement. The Restructured Notes and the New Notes total
approximately  $3.1  million  at  April  30,  2002 (see  note K 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. In addition, the
Company  entered  into  supply  agreements  for  quantities  of  LPG  totaling
approximately  26.5  million  gallons  per  month  (actual  deliveries have been
approximately  22.4  million  gallons for the three months ended April 30, 2002)
although  the  new  sales agreement with PMI provides for lesser quantities (see
note I to the unaudited consolidated financial statements). As discussed in note
A  to  the accompanying unaudited 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
consolidated  balance  sheets  is dependent upon the Company's ability to obtain
additional  financing, repay, renew or extend the Restructured Notes and the New
Notes  referred  to  in  the  preceding paragraph and to raise additional equity
capital, resolve uncertainties related to the Saltillo Terminal Facility and the
success  of  the  Company's  future  operations.  The  accompanying  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 its customer base assuming Deregulation, (iii) extend
the  terms  of  the  Pipeline  Lease  and the Brownsville 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 Facility to another location
in  or  near  Saltillo,  Coahuila,  Mexico.

     At  July  31,  2001,  the  Company had net operating loss carryforwards for
federal  income  tax  purposes  of  approximately $12.0 million.  The ability to
utilize  such  net  operating loss carryforwards may be significantly limited by
the  application  of  the  "change  of ownership" rules under Section 382 of the
Internal  Revenue  Code.

     The  following  is a summary of the Company's estimated minimum contractual
obligations  and  commercial  obligations as of April 30, 2002. Where applicable
LPG prices are based on the April 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                                  $  3.7  $      1.0  $  2.7  $    -  $      -
Operating Leases                        15.5         1.4     2.8     2.8       8.5
LPG Purchase Obligations               515.7       107.3   127.2   127.2     153.9
                                      ------  ----------  ------  ------  --------
  Total Contractual Cash Obligations  $534.9  $    109.7  $132.7  $130.0  $  162.4
                                      ======  ==========  ======  ======  ========
</TABLE>


                                       26
<PAGE>
STATEMENT  BY MANAGEMENT CONCERNING REVIEW OF INTERIM INFORMATION BY INDEPENDENT
CERTIFIED  PUBLIC  ACCOUNTANTS.

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

ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK.

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


                                       27
<PAGE>
PART  II

ITEM 1.   LEGAL PROCEEDINGS

          See  note  G  to  the  accompanying  unaudited  consolidated financial
          statements  and note L to the Company's Annual Report on Form 10-K for
          the  fiscal  year  ended  July  31,  2001.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          See  note  F  to  the  accompanying  unaudited  consolidated financial
          statements  and  notes  J and K to the Company's Annual Report on Form
          10-K  for  the  fiscal  year  ended  July  31,  2001,  for information
          concerning  certain  sales  of  Securities.

          In  connection  with  the issuances of securities discussed in notes E
          and F 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

          The 2001 Annual Meeting of Stockholders of the Company (the "Meeting")
          was  held at the Company's executive offices on December 14, 2001. The
          record  date  for  the  Meeting was November 19, 2001. Proxies for the
          meeting  were  solicited pursuant to Regulation 14A under the Exchange
          Act.  There  was  no  solicitation  in opposition to management's five
          proposals,  and  all  of  the  nominees  for election as director were
          elected.  The  results  of  the  voting  by  the stockholders for each
          proposal  are  presented  below.

<TABLE>
<CAPTION>
          Proposal  #1     Election  of  Directors


          Name of Director Elected  Votes For   Votes Withheld
          ------------------------  ----------  --------------
<S>                                 <C>         <C>
            Jerome B. Richter       11,065,592         165,130
            Jorge R. Bracamontes    11,065,592         165,130
            Ian T. Bothwell         11,065,592         165,130
            Jerry L. Lockett        11,065,592         165,130
            Charles Handly          11,065,592         165,130
            Stewart J. Paperin      11,065,592         165,130
            Harvey L. Benenson      11,065,592         165,130
            Emmett M. Murphy        11,065,592         165,130
</TABLE>

Proposal  #2   Proposal to ratify the compensation of the outside directors  of
               the  Company  by  the  issuance  of  warrants  of  the  Company.

<TABLE>
<CAPTION>
                       For        Against  Abstain
                       ---------  -------  -------
<S>                               <C>      <C>
                       6,518,165  359,477   17,370
</TABLE>

Proposal  #3   Proposal  to  ratify the issuance of warrants of the  Company  to
               certain  executive officers of the Company as bonus compensation.

<TABLE>
<CAPTION>
                       For        Against  Abstain
                       ---------  -------  -------
<S>                               <C>      <C>
                       6,492,465  377,077   25,470
</TABLE>

Proposal  #4   Proposal  to  ratify  the  adoption  of  a warrant plan for the
               benefit  of  Company  officers,  directors,  employees,  and
               consultants.


                                       28
<PAGE>
<TABLE>
<CAPTION>
                       For        Against  Abstain
                       ---------  -------  -------
<S>                               <C>      <C>
                       6,527,365  361,477    6,170
</TABLE>

Proposal  #5   Proposal to ratify the appointment of Burton McCumber  &  Cortez,
               L.L.P.  as the independent auditors of the Company for the fiscal
               year  ending  July  31,  2002.

<TABLE>
<CAPTION>
                       For         Against  Abstain
                       ----------  -------  -------
<S>                                <C>      <C>
                       10,962,222  259,950    8,550
</TABLE>

ITEM 5.   OTHER INFORMATION

          None.

ITEM 6.   EXHIBITS  AND  REPORTS  ON  FORM  8-K

     a.   Exhibits

     THE  FOLLOWING  EXHIBITS  ARE  INCORPORATED  HEREIN  BY  REFERENCE:

     10.01     Form  of Amendment to Promissory Note (the "Note") of Penn Octane
               Corporation  (the  "Company")  due December 15, 2001, and related
               agreements  and  instruments dated November 28, 2001, 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  October  31,  2001 filed on December 17, 2001, SEC
               File  No.  000-24394).

     THE  FOLLOWING  EXHIBITS  ARE  FILED  AS  PART  OF  THIS  REPORT:

     10.02     LPG  sales  agreement  entered  into  as  of March 1, 2002 by and
               between  Penn  Octane  Corporation  ("Seller") and P.M.I. Trading
               Limited  ("Buyer").

     10.03     Settlement  agreement,  dated  as of March 1, 2002 by and between
               P.M.I.  Trading  Limited  and  Penn  Octane  Corporation.

     10.04     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.

     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



June 13, 2002            By:  /s/  Ian T. Bothwell
                              --------------------
                              Ian  T.  Bothwell
                              Vice  President,  Treasurer,  Assistant Secretary,
                              Chief  Financial  Officer


                                       30
<PAGE>