UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



                                  FORM 10-Q / A


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

    For the quarterly period ended October 31, 2003

                                       OR

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

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

                       Commission file number:  000-24394

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

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

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

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

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

     Indicate  by  check mark whether the registrant is an accelerated filer (as
defined  in  Rule  12b-2  of  the  Exchange  Act).  Yes     No  X
                                                        ---    ---

The  number  of shares of Common Stock, par value $.01 per share, outstanding on
December  5,  2003  was  15,363,010.


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


<S>      <C>                                                                        <C>
         ITEM                                                                       PAGE NO.
         ----                                                                       --------

Part I    1.  Financial Statements

              Independent Certified Public Accountants' Review Report                      3

              Consolidated Balance Sheets as of October 31, 2003 (unaudited)             4-5
              and July 31, 2003

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

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

              Notes to Consolidated Financial Statements (Unaudited)                    8-21

          2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                                22-35

          3.  Quantitative and Qualitative Disclosures About Market Risk                  35

          4.  Controls and Procedures                                                     35

Part II   1.  Legal Proceedings                                                           36

          2.  Changes in Securities and Use of Proceeds                                   36

          3.  Defaults Upon Senior Securities                                             36

          4.  Submission of Matters to a Vote of Security Holders                         36

          5.  Other Information                                                           36

          6.  Exhibits and Reports on Form 8-K                                         36-37

          Signatures                                                                      38
</TABLE>


                                        2
<PAGE>
             Independent Certified Public Accountants' Review Report



Board of Directors and Shareholders
Penn Octane Corporation

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

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

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

We  have  previously  audited,  in  accordance with auditing standards generally
accepted  in  the United States of America, the consolidated balance sheet as of
July  31,  2003,  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 September 19, 2003, 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,  2003,  is  fairly stated, in all material respects, in
relation  to  the  consolidated  balance  sheet  from which it has been derived.


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

Brownsville, Texas
December 4, 2003


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

                               PENN OCTANE CORPORATION AND SUBSIDIARIES

                                      CONSOLIDATED BALANCE SHEETS

                                                ASSETS


                                                                                          October 31,
                                                                             July 31,        2003
                                                                               2003       (Unaudited)
                                                                            -----------  -------------

Current Assets
<S>                                                                         <C>          <C>

     Cash                                                                   $    71,064  $      92,026

     Restricted cash                                                          3,404,782      2,552,308

     Trade accounts receivable (less allowance for doubtful accounts of
     $5,783 at October 31, 2003 and July 31, 2003)                            4,143,458      8,067,619

     Inventories                                                                878,082        864,510

     Assets held for sale                                                       720,000        220,000
     Prepaid expenses and other current assets                                  476,109        418,534
                                                                            -----------  -------------

       Total current assets                                                   9,693,495     12,214,997

Property, plant and equipment - net                                          17,677,830     17,550,770
Lease rights (net of accumulated amortization of $718,984 and $707,535 at
October 31, 2003 and July 31, 2003)                                             446,504        435,055
Other non-current assets                                                         19,913         17,380
                                                                            -----------  -------------
         Total assets                                                       $27,837,742  $  30,218,202
                                                                            ===========  =============
<FN>
       The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>



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

                                  CONSOLIDATED BALANCE SHEETS - CONTINUED

                                   LIABILITIES AND STOCKHOLDERS' EQUITY


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

    Current maturities of long-term debt                                      $    746,933   $    491,432

    Short-term debt                                                              1,744,128      1,790,484

    LPG trade accounts payable                                                   7,152,098      9,868,586

    Other accounts payable                                                       2,470,880      2,498,821

    Foreign taxes payable                                                           60,000         85,000

    Accrued liabilities                                                          1,083,966        906,763
                                                                              -------------  -------------

      Total current liabilities                                                 13,258,005     15,641,086

Long-term debt, less current maturities                                             60,000         60,000

Commitments and contingencies                                                            -              -

Stockholders' Equity

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

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

    Common stock - $.01 par value, 25,000,000 shares authorized;
    15,346,385 and 15,274,749 shares issued and outstanding at October 31,
    2003 and July 31, 2003                                                         152,747        153,464

    Additional paid-in capital                                                  28,298,301     28,453,481

    Notes receivable from an officer of the Company and another party for
    exercise of warrants, less reserve of $519,174 and $516,653 at October 31,
    2003 and July 31, 2003                                                      (2,897,520)    (2,897,520)

    Accumulated deficit                                                        (11,033,791)   (11,192,309)
                                                                              -------------  -------------

    Total stockholders' equity                                                  14,519,737     14,517,116
                                                                              -------------  -------------

            Total liabilities and stockholders' equity                        $ 27,837,742   $ 30,218,202
                                                                              =============  =============
<FN>
         The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>


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

                            CONSOLIDATED STATEMENTS OF OPERATIONS

                                         (UNAUDITED)


                                                                     Three months Ended
                                                                 ----------------------------
                                                                  October 31,    October 31,
                                                                     2002           2003
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Revenues                                                         $ 37,440,658   $ 38,549,107
Cost of goods sold                                                 34,926,239     36,483,177
                                                                 -------------  -------------
    Gross profit                                                    2,514,419      2,065,930
Selling, general and administrative expenses
    Legal and professional fees                                       320,114        761,869
    Salaries and payroll related expenses                             458,737        501,415
    Other                                                             326,005        275,915
                                                                 -------------  -------------
                                                                    1,104,856      1,539,199
    Estimated reduction in value of assets held for sale                    -     (  500,000)
                                                                 -------------  -------------
        Operating income                                            1,409,563         26,731

Other income (expense)
    Interest and LPG financing expense                             (  371,665)     ( 375,586)
    Interest income                                                    68,869          5,339
       Other income                                                         -        210,000
                                                                 -------------  -------------
         Income (loss) before taxes                                 1,106,767      ( 133,516)
Benefit (provision) for income tax                                    100,000     (   25,000)
                                                                 -------------  -------------
              Net income (loss)                                  $  1,206,767   $  ( 158,516)
                                                                 =============  =============


Net income (loss) per common share                               $       0.08   $     ( 0.01)
                                                                 =============  =============

Net income (loss) per common share assuming dilution             $       0.08   $   (   0.01)
                                                                 =============  =============

Weighted average common shares outstanding                         14,870,977     15,298,261
                                                                 =============  =============
<FN>
   The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>



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

                                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                               (UNAUDITED)


                                                                                 Three months Ended
                                                                            ----------------------------
                                                                             October 31,    October 31,
                                                                                2002           2003
                                                                            -------------  -------------
<S>                                                                         <C>            <C>
Cash flows from operating activities:
Net income(loss)                                                            $  1,206,767   $   (158,516)
Adjustments to reconcile net income (loss) to net cash (used in) provided
  by operating activities:
    Depreciation and amortization                                                244,001        222,060
    Amortization of lease rights                                                  11,449         11,449
    Non-employee stock based costs and other                                      56,217         31,217
    Amortization of loan discount related to the detachable warrants                   -         51,081
    Interest income - officer note                                               (67,241)             -
    Estimated reduction in value of assets held for sale                               -        500,000
Changes in current assets and liabilities:
    Trade accounts receivable                                                  1,569,658     (3,924,161)
    Inventories                                                                 (354,949)        13,572
    Prepaid and other current assets                                             (23,977)        26,358
    LPG trade accounts payable                                                (2,081,994)     2,716,488
    Other accounts payable and accrued liabilities                            (1,570,040)       (73,991)
    Foreign taxes payable                                                              -         25,000
                                                                            -------------  -------------
      Net cash (used in) provided by operating activities                     (1,010,109)      (559,443)
Cash flows from investing activities:
    Capital expenditures                                                        (134,306)       (94,999)
    Decrease in other non-current assets                                          42,726          2,531
                                                                            -------------  -------------
    Net cash used in investing activities                                        (91,580)       (92,468)
Cash flows from financing activities:
    (Increase) decrease in restricted cash                                    (2,378,580)       852,474
    Revolving credit facilities                                                3,669,599              -
    Issuance of common stock                                                           -         80,625
    Issuance of debt                                                                   -         60,000
    Reduction in debt                                                           (302,388)      (320,226)
                                                                            -------------  -------------
    Net cash provided by (used in) financing activities                          988,631        672,873
                                                                            -------------  -------------
        Net (decrease) increase in cash                                         (113,058)        20,962
Cash at beginning of period                                                      130,954         71,064
                                                                            -------------  -------------
Cash at end of period                                                       $     17,896   $     92,026
                                                                            =============  =============

Supplemental disclosures of cash flow information:
    Cash paid during the year for:
    Interest                                                                $    371,635   $    325,915
                                                                            =============  =============
Supplemental disclosures of noncash transactions:
    Mortgage receivable/ note payable                                       $      2,382   $          -
                                                                            =============  =============
    Equipment exchanged for note receivable                                 $    720,000   $          -
                                                                            =============  =============
<FN>
        The accompanying notes and accountants' report are an integral part of these statements.
</TABLE>



                                        7
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  A  -  ORGANIZATION

     Penn  Octane  Corporation  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 approximately 23 miles
     of pipelines (US - Mexico Pipelines) which connect the Brownsville Terminal
     Facility  to  the  Matamoros Terminal Facility. The Company has a long-term
     lease  agreement  for approximately 132 miles of pipeline (Leased Pipeline)
     which  connects  ExxonMobil  Corporation's  (Exxon) King Ranch Gas Plant in
     Kleberg  County,  Texas  and Duke Energy's La Gloria Gas Plant in Jim Wells
     County, Texas, to the Company's Brownsville Terminal Facility. In addition,
     the  Company  has  access  to a twelve-inch pipeline which connects Exxon's
     Viola  valve station in Nueces County, Texas to the inlet of the King Ranch
     Gas  Plant (ECCPL) as well as existing and other potential propane pipeline
     suppliers  which  have  the ability to access the ECCPL. In connection with
     the  Company's  lease  agreement  for  the Leased Pipeline, the Company may
     access  up  to  21,000,000  gallons  of  storage  located in Markham, Texas
     (Markham  Storage),  as well as other potential propane pipeline suppliers,
     via  approximately 155 miles of pipeline located between Markham, Texas and
     the  Exxon  King Ranch Gas Plant. The Company sells LPG primarily to P.M.I.
     Trading  Limited  (PMI).  PMI is the exclusive importer of LPG into Mexico.
     PMI  is  a  subsidiary  of Petroleos Mexicanos, the state-owned Mexican oil
     company  (PEMEX).  The  LPG  purchased from the Company by PMI is generally
     destined  for  consumption  in  the  northeastern  region  of  Mexico.

     The  Company  commenced  operations  during  the fiscal year ended July 31,
     1995,  upon  construction  of  the Brownsville Terminal Facility. Since the
     Company  began operations, the primary customer for LPG has been PMI. Sales
     of  LPG  to  PMI  accounted  for  approximately  80% of the Company's total
     revenues  for  the  three  months  ended  October  31,  2003.

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

     The  accompanying consolidated financial statements include the Company and
     its  United  States  subsidiaries  including  its recently formed Rio Vista
     Energy  Partners L.P. and its subsidiaries, all inactive (see note M), 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 are eliminated.

     The  unaudited  consolidated  balance  sheet  as  of  October 31, 2003, the
     unaudited  consolidated statements of operations for the three months ended
     October 31, 2003 and 2002 and the unaudited consolidated statements of cash
     flows  for  the  three  months  ended  October 31, 2003 and 2002, have been
     prepared  by  the  Company without audit. In the opinion of management, the
     unaudited  consolidated financial statements include all adjustments (which
     include  only normal recurring adjustments) necessary to present fairly the
     unaudited  consolidated financial position of the Company as of October 31,
     2003, the unaudited consolidated results of operations for the three months
     ended  October  31, 2003 and 2002 and the unaudited consolidated statements
     of  cash  flows  for  the  three  months  ended  October 31, 2003 and 2002.

     Certain  information  and  footnote  disclosures  normally  included  in
     consolidated  financial  statements  prepared in accordance with accounting
     principles  generally  accepted  in  the United States of America have been
     omitted.  These  unaudited consolidated financial statements should be read
     in conjunction with the consolidated financial statements and notes thereto
     included  in  the  Company's Annual Report on Form 10-K for the fiscal year
     ended  July  31,  2003.

     Certain  reclassifications  have  been  made  to  prior  period balances to
     conform  to  the  current  presentation.  All  reclassifications  have been
     consistently  applied  to  the  periods  presented.


                                        8
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  B  -  INCOME  (LOSS)  PER  COMMON  SHARE

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

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

<TABLE>
<CAPTION>
                                       For the three months ended October 31, 2002
                                       --------------------------------------------
                                         Income (Loss)      Shares      Per-Share
                                          (Numerator)    (Denominator)    Amount
                                         --------------  -------------  ----------
<S>                                      <C>             <C>            <C>
Net income (loss)                        $    1,206,767

BASIC EPS
Net income (loss) available to common
    stockholders                              1,206,767     14,870,977  $     0.08
                                                                        ==========

EFFECT OF DILUTIVE SECURITIES
Warrants                                              -              -
                                         --------------  -------------

DILUTED EPS
Net income (loss) available to common
    stockholders                         $    1,206,767     14,870,977  $     0.08
                                         ==============  =============  ==========
</TABLE>


<TABLE>
<CAPTION>
                                        For the three months ended October 31, 2003
                                        -------------------------------------------
                                        Income (Loss)      Shares       Per-Share
                                         (Numerator)    (Denominator)    Amount
                                        --------------  -------------  -----------
<S>                                     <C>             <C>            <C>
Net income (loss)                       $    (158,516)

BASIC EPS
Net income (loss) available to common
     stockholders                            (158,516)     15,298,261  $    (0.01)
                                                                       ===========

EFFECT OF DILUTIVE SECURITIES
Warrants                                            -               -

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


                                        9
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  C  -  STOCK-BASED  COMPENSATION

     In  December  2002,  the  FASB  issued  SFAS  No. 148, an amendment of FASB
     Statement  No.  123.  This  statement  provides  alternative  methods  of
     transition  for  a  voluntary  change  to  the  fair  value based method of
     accounting  for  stock-based  employee compensation. Additionally, SFAS No.
     148  amends  the  disclosure  requirements  of  SFAS  No.  123,  to require
     prominent disclosures in both annual and interim financial statements about
     the  method  of  accounting  for  stock-based employee compensation and the
     effect  of the method used on reported results. The transition guidance and
     annual  disclosure provisions are effective for financial statements issued
     for  fiscal  years  ending  after December 15, 2002. The interim disclosure
     provisions  are  effective  for  financial  reports  containing  financial
     statements  for  interim  periods  beginning  after  December 15, 2002. The
     Company  adopted  the  interim disclosure provisions of SFAS No. 148 during
     the  third  quarter  of  fiscal  2003.

     The  Company  accounts  for  stock  option  plans  in  accordance  with the
     provisions  of  APB No. 25, "Accounting for Stock Issued to Employees", and
     related  interpretations which recognizes compensation expense on the grant
     date  if  the current market price of the stock exceeds the exercise price.

     Had  compensation  cost  related  to the warrants granted to employees been
     determined  based on the fair value at the grant dates, consistent with the
     provisions  of SFAS 123, the Company's pro forma net income (loss), and net
     income  (loss)  per  common  share  would  have  been  as  follows:

<TABLE>
<CAPTION>
                                                                               Three months Ended
                                                                          ----------------------------
                                                                           October 31,    October 31,
                                                                              2002           2003
                                                                          -------------  -------------
<S>                                                                       <C>            <C>

   Net income (loss), as reported                                         $  1,206,767   $   (158,516)

   Less:  Total stock-based employee compensation expense determined
   under fair value based method for all awards, net of related tax
   effects                                                                    (654,567)       (52,914)
                                                                          -------------  -------------
   Net income (loss), pro forma                                           $    552,200   $   (211,430)
                                                                          =============  =============


   Net income (loss) per common share, as reported                        $       0.08   $      (0.01)
                                                                          =============  =============

   Net income (loss)  per common share, pro forma                         $       0.04   $      (0.01)
                                                                          =============  =============

    Net  income (loss) per common share assuming dilution, as  reported   $       0.08   $      (0.01)
                                                                          =============  =============

    Net income (loss) per common share assuming dilution,   pro forma     $       0.04   $      (0.01)
                                                                          =============  =============
</TABLE>


     The  following assumptions were used for grants of warrants to employees in
     the  three  months ended October 31, 2003, to compute the fair value of the
     warrants  using  the  Black-Scholes option-pricing model; dividend yield of
     0%;  expected  volatility  of  81%;  risk  free  interest rate of 3.27% and
     expected  lives  of  5  years.

     The  following assumptions were used for grants of warrants to employees in
     the  three  months ended October 31, 2002, to compute the fair value of the
     warrants  using  the  Black-Scholes option-pricing model; dividend yield of
     0%;  expected  volatility  of  79%;  risk  free  interest rate of 1.81% and
     expected  lives  of  5  years.


                                       10
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  D  -  ESTIMATED  REDUCTION  IN  VALUE  OF  ASSETS  HELD  FOR  SALE

     During  November  2003,  the  Company  granted  a third party the option to
     purchase  its  compressed  natural  gas  (CNG)  equipment for $220,000. The
     proposed  buyer  paid  the  Company  $3,000  for the option and the parties
     agreed  to execute definitive documents no later than January 26, 2004. The
     Company is not obligated to complete the sale beyond the expiration date of
     the  option  and under terms which cannot be mutually agreed upon among the
     parties  including  warranty  terms,  indemnifications and form of payment.
     Although  the  consummation  of  the  sale  is not certain, the Company has
     reduced  the  carrying value of the assets to the value agreed to above and
     accordingly  has  recorded  a charge of $500,000 for the three months ended
     October  31,  2003.  The  Company will record a gain to the extent that the
     Company  ultimately  realizes  any  amounts  in  excess  of  $220,000.


NOTE  E  -  PROPERTY,  PLANT  AND  EQUIPMENT

     Property,  plant  and  equipment  consists  of  the  following:

<TABLE>
<CAPTION>
                                                         July 31,     October 31,
                                                           2003          2003
                                                       ------------  -------------
<S>                                                    <C>           <C>
LPG:
  Midline pump station                                 $ 2,443,988   $  2,443,988
  Brownsville Terminal Facility: (a)
    Building                                               173,500        173,500
    Terminal facilities                                  3,631,207      3,631,207
    Tank Farm                                              373,945        373,945
    Leasehold improvements                                 302,657        302,657
    Capital construction in progress                        96,212         96,212
    Equipment                                              226,285        226,285
                                                       ------------  -------------
                                                         7,247,794      7,247,794
                                                       ------------  -------------
    US - Mexico Pipelines and Matamoros Terminal
    Facility: (a)

    U.S. Pipelines and Rights of Way                     6,680,242      6,775,242
    Mexico Pipelines and Rights of Way                     993,300        993,300
    Matamoros Terminal Facility                          5,107,514      5,107,514
    Saltillo Terminal                                    1,027,267      1,027,267
    Land                                                   856,358        856,358
                                                       ------------  -------------
                                                        14,664,681     14,759,681
                                                       ------------  -------------
         Total LPG                                      21,912,475     22,007,475
                                                       ------------  -------------
Other:
    Office equipment                                        93,201         93,201
    Software                                                75,890         75,890
                                                       ------------  -------------
                                                           169,091        169,091
                                                       ------------  -------------
                                                        22,081,566     22,176,566
    Less:  accumulated depreciation and amortization    (4,403,736)    (4,625,796)
                                                       ------------  -------------

                                                       $17,677,830   $ 17,550,770
                                                       ============  =============

<FN>
    (a)  See  note  M.
</TABLE>


                                       11
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE E - PROPERTY, PLANT AND EQUIPMENT - CONTINUED

     The  Company  had  previously  completed  construction of an additional LPG
     terminal  facility in Saltillo, Mexico (Saltillo Terminal). The Company was
     unable  to  receive  all the necessary approvals to operate the facility at
     that  location. While the terminal is not currently operable, the equipment
     is  capable  of  being  used  for  its intended purpose at any other chosen
     location. The Company has identified an alternate site in Hipolito, Mexico,
     a  town  located  in the proximity of Saltillo to establish a LPG terminal.

     The  Company  has  accounted  for  the  Saltillo Terminal at cost. The cost
     included  in  the  balance sheet is comprised primarily of dismantled pipe,
     dismantled steel structures, steel storage tanks, pumps and compressors and
     capitalized  engineering  costs  related to the design of the terminal. The
     cost  of dismantling the terminal at the Saltillo location was expensed and
     on-going  storage  fees  have  also  been  expensed.  The  expense  of  the
     relocation,  which  is  estimated  to be $500,000, will also be expensed as
     incurred.


     Property,  plant  and  equipment, net of accumulated depreciation, includes
     $6,355,672  and  $6,427,387 of costs, located in Mexico at October 31, 2003
     and  July  31,  2003,  respectively.


NOTE  F  -  INVENTORIES

     Inventories  consist  of  the  following:

<TABLE>
<CAPTION>
                                      July 31, 2003      October 31, 2003
                                   -------------------  ---------  --------
                                    Gallons     Cost     Gallons     Cost
                                   ---------  --------  ---------  --------
LPG:
<S>                                <C>        <C>       <C>        <C>
   Leased Pipeline                 1,175,958  $638,623  1,175,958  $672,817
   Brownsville Terminal Facility,
   Matamoros Terminal Facility
   and railcars leased by the
     Company                         440,771   239,368    335,044   191,693
                                                                   --------
   Markham Storage and other             168        91          -         -
                                   ---------  --------  ---------  --------

                                   1,616,897  $878,082  1,511,002  $864,510
                                   =========  ========  =========  ========
</TABLE>
NOTE  G  -  DEBT  OBLIGATIONS

<TABLE>
<CAPTION>
Debt consists of the following:

                                                                                                July 31,   October 31,
                                                                                                  2003         2003
                                                                                               ----------  ------------
<S>                                                                                            <C>         <C>
Promissory note issued in connection with the acquisition of the US - Mexico Pipelines and
the Matamoros Terminal Facility.                                                               $  284,731  $    163,858

Promissory note issued in connection with the acquisition of the US - Mexico Pipelines and
the Matamoros Terminal Facility.                                                                  198,178       117,300

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

Extending Noteholders' notes and $250,000 Note.                                                 1,744,128     1,790,484

Other debt.                                                                                       186,524       132,774
                                                                                               ----------  ------------

          Total debt                                                                            2,551,061     2,341,916

Less:  Current maturities                                                                         746,933       491,432

          Short term debt                                                                       1,744,128     1,790,484
                                                                                               ----------  ------------

          Long-term debt                                                                       $   60,000  $     60,000
                                                                                               ==========  ============
</TABLE>


                                       12
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE G - DEBT OBLIGATIONS - CONTINUED

     EXTENSION OF NEW ACCEPTING NOTEHOLDERS' NOTES AND ADDITIONAL NOTE

     During  December  2002,  the  Company  and certain holders of New Accepting
     Noteholders'  notes  and  holder  of  the  Additional  Note  (Extending
     Noteholders)  reached  an  agreement whereby the due date for $2,730,000 of
     principal due on the Extending Noteholders' notes were extended to December
     15,  2003  (see  note  O).  Under the terms of the agreement, the Extending
     Noteholders' notes bear interest at 16.5% per annum. Interest has been paid
     quarterly  on  the  outstanding balances since March 15, 2003 (the December
     15,  2002 interest was paid on January 1, 2003) through September 15, 2003.
     In  addition,  the Company was required to pay certain amounts of principal
     beginning  March  2003  (approximately  $1,114,000  of  principal  was paid
     through  the  period ended October 31, 2003 of which $1,000,000 was reduced
     in  connection with the exercise of warrants and purchase of common stock -
     see  below).  The  Company was allowed to prepay the Extending Noteholders'
     notes  at  any  time.  The Company also paid a fee of 1.5% on the principal
     amount  of  the  Extending  Noteholders'  notes  which  was  outstanding on
     December  15,  2002,  March 15, 2003, June 15, 2003 and September 15, 2003.
     The  Company also agreed to extend the expiration date on the warrants held
     by  the  Extending  Noteholders  in  connection  with  the  issuance of the
     Extending  Noteholders'  notes to December 15, 2006. In connection with the
     extension  of  the  warrants,  the  Company recorded a discount of $316,665
     related  to the additional value of the modified warrants of which $291,124
     has been amortized through October 31, 2003 ($51,081 has been amortized for
     the  three  months  ended  October  31,  2003).

     During  March  2003, warrants to purchase 250,000 shares of common stock of
     the Company were exercised by a holder of the Warrants and New Warrants for
     which  the  exercise  price  totaling  $625,000  was paid by reduction of a
     portion  of  the  outstanding  debt and accrued interest owed to the holder
     related  to  the  Restructured  Notes.  In addition, during March 2003, the
     holder acquired 161,392 shares of common stock of the Company at a price of
     $2.50  per  share.  The purchase price was paid through the cancellation of
     the  remaining  outstanding  debt  and  accrued interest owed to the holder
     totaling $403,480. In connection with this transaction the Company recorded
     additional  interest  expense  of  approximately  $68,000  representing the
     difference  between  the  market  value  and  sales price on the day of the
     transaction.

     ISSUANCE  OF  PROMISSORY  NOTE

     During  December  2002,  the  Company  issued a note for $250,000 ($250,000
     Note)  to  a  holder of the Extending Noteholders' notes. The note provides
     for similar terms and conditions as the Extending Noteholders' notes. As of
     October  31,  2003  the  Company  repaid  $50,000  of  principal.

     OTHER

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


                                       13
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE G - DEBT OBLIGATIONS - CONTINUED

     OTHER - CONTINUED

     During September 2003, the Company entered into a settlement agreement with
     one  of  the  holders  of  a  promissory note issued in connection with the
     acquisition  of the US-Mexico Pipelines and the Matamoros Terminal Facility
     whereby the noteholder was required to reimburse the Company for $50,000 to
     be  paid  through  the  reduction of the final payments of the noteholder's
     note  (see  note  I).

     Mr.  Richter is providing a personal guarantee for the punctual payment and
     performance under the CPSC Note until collateral pledged in connection with
     the  note  is  perfected.


NOTE  H  -  STOCKHOLDERS'  EQUITY

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

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

     During  September  2003, warrants to purchase 32,250 shares of common stock
     of  the Company were exercised resulting in cash proceeds to the Company of
     $80,625.

     During  September 2003, the Company issued 21,818 shares of common stock of
     the  Company  to  Mr.  Bracamontes,  a  former  officer and director of the
     Company  which  had  been previously accrued but unissued at July 31, 2003.

     During October 2003, cashless warrants to purchase 103,685 shares of common
     stock of the Company were exercised. The exercise price of the warrants was
     $2.50  per  share and the market price of the Company's common stock on the
     date  of  exercise  was  $3.01  per share, resulting in the net issuance of
     17,568  shares  of  common stock of the Company. The Company had previously
     expensed  the  cost  associated  with  the  warrants when the warrants were
     originally  granted.

     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 2003 the Board granted
     warrants  to  purchase  20,000  shares  of  common  stock of the Company at
     exercise prices of $3.22 and $3.28 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 2003 the Board granted
     warrants  to  purchase  10,000  shares  of  common  stock of the Company at
     exercise  price  of  $2.61  per  share to an 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 I - 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 Penn Wilson, have
     both  been  dismissed  from  the litigation pursuant to a summary judgment.
     Omnitrans  appealed  the  summary judgment in favor of the Company and Penn
     Wilson.  During  August  2003,  the  Appellate  Court  issued a preliminary
     decision  denying Omnitran's appeal of the summary judgment in favor of the
     Company  and  Penn  Wilson.  Oral  arguments  on  the  appeal were heard in
     November  2003  and  the  Company  prevailed  on  its  summary  judgment.

     On  October  11,  2001, litigation was filed in the 197th Judicial District
     court  of  Cameron  County,  Texas  by  the Company against Tanner Pipeline
     Services,  Inc.  (Tanner); Cause No. 2001-10-4448-C alleging negligence and
     aided  breaches  of  fiduciary duties on behalf of CPSC International, Inc.
     (CPSC)  in  connection  with  the  construction of the US Pipelines. During
     September 2003, the Company entered into a settlement agreement with Tanner
     whereby Tanner was required to reimburse the Company for $50,000 to be paid
     through  the reduction of the final payments on Tanner's note (see note G).

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


                                       15
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  I  -  COMMITMENTS  AND  CONTINGENCIES  -  CONTINUED

     CREDIT  FACILITY,  LETTERS  OF  CREDIT  AND  OTHER

     As  of October 31, 2003, the Company had a $15,000,000 credit facility (see
     below)  with  RZB  Finance L.L.C. (RZB) through January 31, 2004 for demand
     loans  and  standby  letters of credit (RZB Credit Facility) to finance the
     Company's purchases of LPG. Under the RZB Credit Facility, the Company pays
     a  fee  with respect to each letter of credit thereunder in an amount equal
     to  the  greater  of (i) $500, (ii) 2.5% of the maximum face amount of such
     letter  of  credit, or (iii) such higher amount as may be agreed to between
     the  Company  and  RZB.  Any  loan amounts outstanding under the RZB Credit
     Facility shall accrue interest at a rate equal to the rate announced by the
     Chase  Manhattan  Bank  as  its  prime  rate plus 2.5%. Pursuant to the RZB
     Credit Facility, RZB has sole and absolute discretion to limit or terminate
     its  participation in the RZB Credit Facility and to make any loan or issue
     any  letter  of credit thereunder. RZB also has the right to demand payment
     of  any  and  all  amounts outstanding under the RZB Credit Facility at any
     time.  In  connection  with  the RZB Credit Facility, the Company granted a
     security  interest and assignment in any and all of the Company's accounts,
     inventory,  real  property,  buildings,  pipelines,  fixtures and interests
     therein  or relating thereto, including, without limitation, the lease with
     the  Brownsville  Navigation  District of Cameron County (District) for the
     land  on  which the Company's Brownsville Terminal Facility is located, the
     Pipeline  Lease, and in connection therewith agreed to enter into leasehold
     deeds  of  trust, security agreements, financing statements and assignments
     of  rent,  in forms satisfactory to RZB. Under the RZB Credit Facility, the
     Company  may  not  permit  to exist any subsequent lien, security interest,
     mortgage,  charge  or  other  encumbrance  of  any  nature  on  any  of its
     properties  or  assets, except in favor of RZB, without the consent of RZB.

     Mr.  Richter  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, Duke Energy
     NGL  Services,  Inc.  (Duke),  Koch Hydrocarbon Company (Koch) and/or other
     suppliers,  letters  of  credit  are  issued  on  a  monthly basis based on
     anticipated  purchases.  Outstanding  letters of credit at October 31, 2003
     totaled  approximately  $10,640,000.

     In  connection  with  the  Company's  purchase of LPG, under the RZB Credit
     Facility,  assets  related  to product sales (Assets) are required to be in
     excess  of  borrowings  and  commitments  (including  restricted  cash  of
     $2,552,308  at  October  31,  2003).  At  October  31,  2003, the Company's
     borrowings  and  commitments  were  less  than  the  amount  of the Assets.

     Under  the  terms  of  the  RZB Credit Facility, the Company is required to
     maintain  net  worth  of a minimum of $9,000,000 and is not allowed to make
     cash  dividends to shareholders without the consent of RZB. The $15,000,000
     credit  facility  is  effective  until  January  31,  2004  when it will be
     automatically  reduced  to  $12,000,000.

     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.


                                       16
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE J - REALIZATION OF ASSETS

     The  accompanying  consolidated  financial statements have been prepared in
     conformity  with  accounting  principles  generally  accepted in the United
     States of America, which contemplate continuation of the Company as a going
     concern. The Company has had an accumulated deficit since inception and has
     a  deficit  in  working  capital.  In  addition,  significantly  all of the
     Company's  assets  are  pledged or committed to be pledged as collateral on
     existing  debt  in  connection  with  the Extending Noteholders' notes, the
     $250,000  Note,  the  RZB  Credit  Facility  and  the  notes related to the
     settlement.  Unless  RZB  authorizes  an extension, the RZB Credit Facility
     will  be  reduced  to  $12,000,000  after  January  31, 2004. The Extending
     Noteholders' notes and the $250,000 Note, which total $1,816,025 at October
     31,  2003,  including  accrued  interest, are due on December 15, 2003 (see
     notes  G  and  O).

     In  addition  to the above, the Company intends to Spin-Off a major portion
     of  its  assets  to  its  stockholders  (see  note  M).  As a result of the
     Spin-Off,  the Company's stockholders' equity will be materially reduced by
     the  amount of the Spin-Off, which may result in a deficit in stockholders'
     equity  and  a  portion  of the Company's current cash flow from operations
     will be shifted to the Partnership. Therefore, the Company's remaining cash
     flow  may  not be sufficient to allow the Company to pay its federal income
     tax  liability,  if  any, resulting from the Spin-Off and other liabilities
     and  obligations  when  due. The Partnership will be liable as guarantor on
     the  Company's collateralized debt discussed in the preceding paragraph and
     will  continue  to pledge all of its assets as collateral. In addition, the
     Partnership has agreed to indemnify the Company for a period of three years
     from  the  fiscal  year  end that includes the date of the Spin-Off for any
     federal  income  tax  liabilities  resulting from the Spin-Off in excess of
     $2,500,000.

     In  view  of  the  matters  described  in  the  preceding  paragraphs,
     recoverability  of  the  recorded  asset  amounts shown in the accompanying
     consolidated balance sheet is dependent upon (1) the ability of the Company
     to  restructure certain of the obligations discussed in the first paragraph
     and/or  generate sufficient cash flow through operations or additional debt
     or equity financing to pay its liabilities and obligations when due, or (2)
     the  ability  of  the  Partnership  to  meet its obligations related to its
     guarantees  and tax indemnification in the event the Spin-Off occurs if the
     Company  does  not accomplish the restructuring or generate sufficient cash
     flow.  The  ability  for  the  Company  and  the  Partnership  to  generate
     sufficient  cash flows is significantly dependent on the continued sales of
     LPG  to  PMI  at  acceptable  monthly  sales  volumes  and  margins.  The
     consolidated financial statements do not include any adjustments related to
     the  recoverability and classification of recorded asset amounts or amounts
     and  classification  of  liabilities  that  might  be  necessary should the
     Company  be  unable  to  continue  in  existence.


     To  provide  the Company with the ability it believes necessary to continue
     in  existence,  management  is  negotiating with PMI to extend the contract
     (see  note  K)  and increase the minimum monthly sales volume. In addition,
     management  is  taking  steps  to  (i)  obtain  additional  sale  contracts
     commensurate  with  supply agreements (ii) increase the number of customers
     assuming deregulation of the LPG industry in Mexico, (iii) raise additional
     debt  and/or  equity  capital,  (iv)  increase  and  extend  the RZB Credit
     Facility  and  (v)  restructure certain of its liabilities and obligations.

                                       17
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  K  -  CONTRACTS

     LPG  SALES  TO  PMI

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

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

     LPG  SUPPLY  AGREEMENTS

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

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


NOTE  L  -  INCOME  TAX

     During  the  three  months  ended October 31, 2003, the Company recorded an
     income  tax expense of $25,000 related to Mexican income taxes. The Company
     can  receive  a credit against any future tax payments due to the extent of
     any  prior  alternative  minimum  taxes paid ($54,375 at October 31, 2003).


                                       18
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE M - SPIN-OFF OF SUBSIDIARY

     On  July  10,  2003,  the  Company  formed  Rio  Vista Energy Partners L.P.
     (Partnership),  a  Delaware  partnership. The Partnership is a wholly owned
     subsidiary  of the Company. The Partnership has two subsidiaries, Rio Vista
     Operating  Partnership  L.P. (.1% owned by Rio Vista Operating G.P. LLC and
     99.9% owned by the Company) and Rio Vista Operating GP LLC (wholly owned by
     the Partnership). The above subsidiaries are newly formed and are currently
     inactive.

     The  Company formed the Partnership for the purpose of transferring a 99.9%
     interest  in  Rio  Vista  Operating Partnership L.P. (L.P. Transfer), which
     will  own  substantially  all  of the Company's owned pipeline and terminal
     assets  in Brownsville and Matamoros (Asset Transfer), in exchange for a 2%
     general  partner  interest  and  a  98% limited partnership interest in the
     Partnership.  The  Company  intends to spin off 100% of the limited partner
     units  to  its common stockholders (Spin-Off), resulting in the Partnership
     becoming  an  independent  public company. The remaining 2% general partner
     interest  will  be  initially  owned  and controlled by the Company and the
     Company  will  be  responsible  for  the management of the Partnership. The
     Company  will  account  for  the  Spin-Off  at  historical  cost.

     During September 2003, the Company's Board of Directors and the Independent
     Committee  of  its  Board  of  Directors formally approved the terms of the
     Spin-Off  and  the  Partnership filed a Form 10 registration statement with
     the  Securities and Exchange Commission. The Board of Directors anticipates
     that  the  Spin-Off  will occur in 2004, subject to a number of conditions,
     including  the  receipt  of  an  independent  appraisal of the assets to be
     transferred  by  the  Company  to  the  Partnership  in connection with the
     Spin-Off  that  supports an acceptable level of federal income taxes to the
     Company  as  a  result  of the Spin-Off; the absence of any contractual and
     regulatory  restraints  or  prohibitions preventing the consummation of the
     Spin-Off; and final action by the Board of Directors to set the record date
     and  distribution  date  for  the  Spin-Off  and  the  effectiveness of the
     registration  statement.

     Each shareholder of the Company will receive one common unit of the limited
     partnership  interest  in  the  Partnership  for  every eight shares of the
     Company's  common  stock  owned  as  of  the  record  date.

     Warrants  issued  to  holders  of  the existing unexercised warrants of the
     Company  will  be  exchanged  in  connection  with the Spin-Off whereby the
     holder  will  receive  options to acquire unissued units in the Partnership
     and  unissued  common  shares  of  the Company in exchange for the existing
     warrants.  The  number  of  units  and  shares  subject to exercise and the
     exercise price will be set to equalize each option's value before and after
     the  Spin-Off.

     Ninety-eight percent of the cash distributions from the Partnership will be
     distributed  to  the  limited  unit  holders  and  the remaining 2% will be
     distributed  to  the general partner for distributions up to $1.25 per unit
     annually  (approximately  $2,500,000  per year). Distributions in excess of
     that  amount  will  be  shared  by the limited unit holders and the general
     partner  based  on  a  formula  whereby  the  general  partner will receive
     disproportionately  more  distributions  per  unit  than  the  limited unit
     holders  as  annual  cash  distributions  exceed  certain  milestones.

     Subsequent  to the L.P. Transfer, the Partnership will sell LPG directly to
     PMI  and  will  purchase  LPG  from  the  Company  under a long-term supply
     agreement.  The  purchase  price  of  the  LPG  from  the  Company  will be
     determined  based  on  the Company's cost to acquire LPG and a formula that
     takes  into  consideration  operating  costs  of  both  the Company and the
     Partnership.


                                       19
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE M - SPIN-OFF OF SUBSIDIARY - CONTINUED

     In  connection  with  the  Spin-Off,  the  Company will grant to Mr. Jerome
     Richter,  the  Company's  Chairman  and  Chief Executive Officer, and Shore
     Capital  LLC  (Shore),  a company owned by Mr. Richard Shore, the Company's
     President,  options  to  each purchase 25% of the limited liability company
     interests in the general partner of the Partnership. It is anticipated that
     Mr.  Richter  and  Shore  will exercise these options immediately after the
     Spin-Off  occurs.  The  exercise price for each option will be the pro rata
     share  (.5%)  of  the Partnership's tax basis capital immediately after the
     Spin-Off.  The  Company  will  retain  voting  control  of  the Partnership
     pursuant  to  a  voting  agreement. In addition, Shore will also receive an
     option  to  acquire  5%  of  the  common stock of the Company and 5% of the
     limited  partnership  interest  in the Partnership at a combined equivalent
     exercise  price  of  $2.20  per  share.

     The  Partnership  will  be  liable  as  guarantor  for  the  Company's
     collateralized  debt  (see  note  G) and will continue to pledge all of its
     assets  as  collateral.  The Partnership may also be prohibited from making
     any distributions to unit holders if it would cause an event of default, or
     if  an  event  of default is existing, under the Company's revolving credit
     facilities,  or  any  other covenant which may exist under any other credit
     arrangement  or  other  regulatory  requirement  at  the  time.

     The  Spin-Off will be a taxable transaction for federal income tax purposes
     (and  may  also  be  taxable  under applicable state, local and foreign tax
     laws)  to  both  the  Company  and its stockholders. The Company intends to
     treat  the  Spin-Off  as  a  "partial  liquidation"  for federal income tax
     purposes.  A  "partial  liquidation" is defined under Section 302(e) of the
     Code  as  a  distribution  that  (i)  is  "not  essentially equivalent to a
     dividend," as determined at the corporate level, which generally requires a
     genuine  contraction of the business of the corporation, (ii) constitutes a
     redemption  of  stock  and  (iii)  is  made  pursuant  to a plan of partial
     liquidation  and  within  the  taxable year in which the plan is adopted or
     within  the  succeeding  taxable  year.

     The  Company may have a federal income tax liability in connection with the
     Spin-Off.  If  the  income  tax  liability  resulting  from the Spin-Off is
     greater  than  $2,500,000,  the  Partnership  has  agreed  to indemnify the
     Company  for  any  tax liability resulting from the transaction which is in
     excess  of  that  amount.

     Because  the  Company will have control of the Partnership by virtue of its
     ownership  and  related  voting  control  of  the  general  partner,  the
     Partnership  will  continue  to  be  consolidated  with the Company and the
     interests of the limited partners will be classified as minority interests.

     Had  the  transaction  been  consummated  on October 31, 2003 the amount of
     stockholders'  equity  reflected  in  the  Company's pro forma consolidated
     balance  sheet  would have been reduced by approximately $15,000,000 with a
     corresponding  credit  to  minority interest. This would have resulted in a
     deficit  in  stockholders'  equity  of  approximately  $500,000.

     Had  the  transaction  been consummated as of August 1, 2003, the Company's
     pro forma consolidated net loss for the three months ended October 31, 2003
     would  have been approximately $(1,500,000) after giving effect to minority
     interest  related  to  the  Spin-Off  and estimated expenses related to the
     estimated  intrinsic value associated with the options granted to Shore and
     Mr.  Richter.  As  a  result  of  the  foregoing, loss per share would have
     increased  to  approximately  $(.10).


                                       20
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  N  -  OTHER  INCOME

     In  connection  with  a  contract  to  upgrade its computer and information
     systems,  the  Company  entered  into an agreement with a vendor during the
     year  ended July 31, 2003. On October 1, 2003, the vendor agreed to pay the
     Company $210,000 for cancellation of the contract. This amount was included
     in  earnings  during  the  quarter  ending  October  31,  2003.


NOTE  O  -  SUBSEQUENT  EVENT

     The  Extending  Noteholders' notes and the $250,000 Note (Notes) matured on
     December  15,  2003.  The  Company  did  not pay the Notes at maturity. The
     Company  is  negotiating  with the holders of the Notes to renew and extend
     the  Notes.


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

     The  following  discussion  of  the  Company's  results  of  operations and
liquidity  and  capital  resources  should  be  read  in  conjunction  with  the
consolidated  financial  statements  of  the  Company  and related notes thereto
appearing  elsewhere  herein.  References to specific years preceded by "fiscal"
(e.g.  fiscal  2003)  refer  to  the  Company's  fiscal  year  ended  July  31.

FORWARD-LOOKING  STATEMENTS

The  statements contained in this Quarterly Report that are not historical facts
are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
Securities  Act  of 1933.  These forward-looking statements may be identified by
the  use  of forward-looking terms such as "believes," "expects," "may," "will",
"should"  or  anticipates"  or by discussions of strategy that involve risks and
uncertainties.  From  time  to  time,  we  have made or may make forward-looking
statements,  orally  or  in  writing.  These  forward-looking statements include
statements regarding anticipated future revenues, sales, LPG supply, operations,
demand, competition, capital expenditures, the deregulation of the LPG market in
Mexico,  the  operations  of  the  US - Mexico Pipelines, the Matamoros Terminal
Facility  and  the  Saltillo Terminal, other upgrades to our facilities, foreign
ownership  of  LPG  operations,  short-term obligations and credit arrangements,
outcome  of  litigation,  the  proposed Spin-off  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,  2003 as well as those discussed elsewhere in this Report.  We caution
you,  however,  that  this  list  of  factors  may  not  be  complete.

OVERVIEW

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

     During  the three months ended October 31, 2003, the Company derived 80% of
its  revenues  from  sales  of  LPG  to  PMI,  its  primary  customer.

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

LPG  SALES

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

<TABLE>
<CAPTION>
                                       2002   2003
                                       -----  -----

Volume Sold

<S>                                    <C>    <C>
    LPG (millions of gallons) - PMI     49.6   48.6
    LPG (millions of gallons) - Other   22.6   14.3
                                       -----  -----
                                        72.2   62.9
                                       =====  =====
Average sales price

    LPG (per gallon) - PMI             $0.55  $0.64
    LPG (per gallon) - Other            0.45   0.53
</TABLE>


RESULTS  OF  OPERATIONS


                                       22
<PAGE>
THREE MONTHS ENDED OCTOBER 31, 2003 COMPARED WITH THREE MONTHS ENDED OCTOBER 31,
2002

     Revenues.  Revenues  for the three months ended October 31, 2003 were $38.5
million compared with $37.4 million for the three months ended October 31, 2002,
an  increase  of  $1.1  million  or  3.0%.  Of  this  increase, $4.3 million was
attributable  to increases in average sales prices of LPG sold to PMI during the
three  months  ended  October  31,  2003,  and  $1.9 million was attributable to
increased  average  sales  prices of LPG sold to customers other than PMI during
the  three  months  ended  October  31,  2003,  partially  offset  by  $664,614
attributable  to  decreased  volumes  of LPG sold to PMI during the three months
ended October 31, 2003 and $4.4 million attributable to decreased volumes of LPG
sold to customers other than PMI during the three months ended October 31, 2003.

     Cost  of  goods sold. Cost of goods sold for the three months ended October
31,  2003  was  $36.5  million  compared with $34.9 million for the three months
ended  October  31, 2002, an increase of $1.6 million or 4.5%. Of this increase,
$4.3 million was attributable to increases in the cost of LPG sold to PMI during
the  three  months  ended  October 31, 2003 and $2.6 million was attributable to
increased  costs of LPG sold to customers other than PMI during the three months
ended  October  31,  2003,  partially  offset  by  $4.7  million attributable to
decreased volume of LPG sold to customers other than PMI during the three months
ended October 31, 2003 and $581,650 attributable to decreased volume of LPG sold
to  PMI  during  the  three  months  ended  October  31,  2003.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative expenses were $1.5 million for the three months ended October 31,
2003  compared with $1.1 million for the three months ended October 31, 2002, an
increase  of  $434,343  or  39.3%.  The  increase  during the three months ended
October  31,  2003  was  principally  due  to  legal and other professional fees
related  to  the  Spin-Off.

     Other income (expense). Other income (expense) was $(660,247) for the three
months  ended  October  31,  2003, compared with $(302,796) for the three months
ended  October  31,  2002.  The  increase in other expenses was due primarily to
increased  amortization  of  discounts  on  outstanding  debt  incurred  and the
estimated  reduction in value of the assets held for sale of $500,000 during the
three  months  ended  October  31,  2003,  partially offset by $210,000 of other
income  related  to  the  cancellation  of  a  contract.

     Income  tax.  The  Company  incurred  $25,000 of Mexican income tax expense
during  the  three  months  ended  October  31,  2003.

LIQUIDITY  AND  CAPITAL  RESOURCES

     General. The Company has had an accumulated deficit since its inception and
has  a  deficit  in  working  capital.  In  addition,  significantly  all of the
Company's  assets  are  pledged  or  committed  to  be  pledged as collateral on
existing  debt in connection with the Extending Noteholders' notes, the $250,000
Note,  the  RZB  Credit Facility and the notes related to the settlement. Unless
RZB  authorizes  an  extension, the RZB Credit Facility will be reduced to $12.0
million  after  January  31,  2004.  The  Extending  Noteholders'  notes and the
$250,000  Note,  which total approximately $1.8 million at October 31, 2003 were
due  on December 15, 2003 (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.


                                       23
<PAGE>

     In  addition  to the above, the Company intends to Spin-Off a major portion
of  its  assets  to its stockholders. As a result of the Spin-Off, the Company's
stockholders'  equity  will be materially reduced by the amount of the Spin-Off,
which  may  result  in  a  deficit  in stockholders' equity and a portion of the
Company's  current cash flow from operations will be shifted to the Partnership.
Therefore,  the Company's remaining cash flow may not be sufficient to allow the
Company  to pay its federal income tax liability resulting from the Spin-Off, if
any,  and  other  liabilities  and obligations when due. The Partnership will be
liable  as  guarantor  on  the  Company's  collateralized  debt discussed in the
preceding paragraph and will continue to pledge all of its assets as collateral.
In addition, the Partnership has agreed to indemnify the Company for a period of
three  years from the fiscal year end that includes the date of the Spin-Off for
any federal income tax liabilities resulting from the Spin-Off in excess of $2.5
million  (see  Rio  Vista  Energy  Partners  L.P.  below).

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

<TABLE>
<CAPTION>
                                                          2003     2002
                                                         ------  --------
<S>                                                      <C>     <C>
Net cash (used in) operating activities . . . . . . . .  $(559)  $(1,010)
Net cash (used in) investing activities . . . . . . . .    (92)      (92)
Net cash provided by (used in) financing activities . .    672       989
                                                         ------  --------
Net (decrease) increase in cash . . . . . . . . . . . .  $  21   $ ( 113)
                                                         ------  --------
</TABLE>


                                       24
<PAGE>
     Sales  to  PMI. Effective March 1, 2002, the Company and PMI entered into a
contract for the minimum monthly sale of 17.0 million gallons of LPG, subject to
monthly  adjustments based on seasonality (the "Contract"). The Contract expires
on May 31, 2004, except that the Contract may be terminated by either party 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,  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.

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

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

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

     Pipeline  Lease. The Pipeline Lease currently expires on December 31, 2013,
pursuant  to  an amendment (the "Pipeline Lease Amendment") entered into between
the  Company  and Seadrift on May 21, 1997, which became effective on January 1,
1999  (the "Effective Date"). The Pipeline Lease Amendment provides, among other
things, for additional storage access and inter-connection with another pipeline
controlled  by Seadrift, thereby providing greater access to and from the Leased
Pipeline.  Pursuant  to the Pipeline Lease Amendment, the Company's fixed annual
rent  for  the  use  of  the  Leased  Pipeline is $1.0 million including monthly
service  payments of $8,000 through March 2004. The service payments are subject
to  an  annual adjustment based on a labor cost index and an electric power cost
index.  The  Company  is also required to pay for a minimum volume of storage of
$300,000  per  year (based on reserved storage of 8.4 million gallons) beginning
January  1, 2000. In connection with the Pipeline Lease, the Company may reserve
up  to  21.0  million  gallons  each  year  thereafter provided that the Company
notifies  Seadrift  in  advance.

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

     The  Company  at  its  own expense, installed a mid-line pump station which
included  the  installation  of additional piping, meters, valves, analyzers and
pumps along the Leased Pipeline to increase the capacity of the Leased Pipeline.
The  Leased  Pipeline's  capacity is estimated to be between 300 million and 360
millions  gallons  per  year.


                                       25
<PAGE>
     Upgrades. The Company also intends to contract for the design, installation
and  construction  of  pipelines  which  will  connect  the Brownsville Terminal
Facility  to  the  water  dock  facilities  at  the Brownsville Ship Channel and
install  additional  storage  capacity.  The cost of this project is expected to
approximate  $2.0  million.  In  addition  the  Company  intends  to upgrade its
computer  and  information  systems  at  a  total  estimated  cost  of $350,000.

     Sales  of  Assets.  Based on the Company's recognition that the sale of the
CNG  assets  may require considerable additional time and expense to dispose of,
managements'  desire  to  focus  on the LPG business, and the Company's need for
cash,  during  November  2003,  the  Company granted a third party the option to
purchase  its  CNG  equipment  for $220,000. The proposed buyer paid the Company
$3,000  for the option and the parties agreed to execute definitive documents no
later  than  January 26, 2004. The Company is not obligated to complete the sale
beyond  the  expiration  date  of  the  option  and  under terms which cannot be
mutually  agreed  upon  among  the  parties  including  warranty  terms,
indemnifications  and  form of payment. Although the consummation of the sale is
not  certain,  the  Company  has reduced the carrying value of the assets to the
value  agreed to above and accordingly has recorded a charge of $500,000 for the
three  months  ended  October  31,  2003.

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

     During  July  2003, the Company acquired an option to purchase Tergas for a
nominal  price of approximately $5,000 from Mr. Soriano and Mr. Abelardo Mier, a
consultant  of  the  Company.

     Mexican Operations. Under current Mexican law, foreign ownership of Mexican
entities  involved  in  the distribution of LPG or the operation of LPG terminal
facilities  is  prohibited. Foreign ownership is permitted in the transportation
and  storage  of  LPG.  Mexican  law  also  provides that a single entity is not
permitted  to  participate  in  more  than  one  of  the  defined LPG activities
(transportation,  storage  or distribution). PennMex has a transportation permit
and the other Mexican Subsidiary owns, leases, or is in the process of obtaining
the land or rights of way used in the construction of the Mexican portion of the
US-Mexico  Pipelines,  and  own the Mexican portion of the assets comprising the
US-Mexico  Pipelines, the Matamoros Terminal Facility and the Saltillo Terminal.
The  Company's  Mexican  affiliate,  Tergas,  S.A.  de C.V. ("Tergas"), has been
granted  the  permit  to operate the Matamoros Terminal Facility and the Company
relies  on  Tergas'  permit  to  continue  its  delivery of LPG at the Matamoros
Terminal  Facility. Tergas is owned 95% by Mr. Soriano and the remaining balance
is  owned  by  Mr. Mier (see above). The Company pays Tergas its actual cost for
distribution  services  at  the Matamoros Terminal Facility plus a small profit.

     The  Company  had  previously  completed  construction of an additional LPG
terminal facility in Saltillo, Mexico (the "Saltillo Terminal"). The Company was
unable  to  receive  all the necessary approvals to operate the facility at that
location. While the terminal is not currently operable, the equipment is capable
of being used for its intended purpose at any other chosen location. The Company
has  identified  an  alternate  site  in Hipolito, Mexico, a town located in the
proximity  of  Saltillo  to  establish  a  LPG  terminal.

     The  Company  has  accounted  for  the  Saltillo Terminal at cost. The cost
included  in  the  balance  sheet  is  comprised  primarily  of dismantled pipe,
dismantled  steel  structures,  steel  storage  tanks, pumps and compressors and
capitalized engineering costs related to the design of the terminal. The cost of
dismantling  the  terminal  at  the  Saltillo location was expensed and on-going
storage  fees  have  also been expensed. The expense of the relocation, which is
estimated  to  be  $500,000,  will  also  be  expensed  as  incurred.

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


                                       26
<PAGE>
     Once  operational,  the Company can directly transport LPG via railcar from
the  Brownsville  Terminal  Facility  to the Saltillo area. The Company believes
that  by  having the capability to deliver LPG to the Saltillo area, the Company
will  be  able  to  further  penetrate  the  Mexican market for the sale of LPG.

     Through  its  operations  in  Mexico  and  the  operations  of  the Mexican
Subsidiaries and Tergas, the Company is subject to the tax laws of Mexico which,
among other things, require that the Company comply with transfer pricing rules,
the  payment  of  income,  asset  and  ad  valorem  taxes, and possibly taxes on
distributions  in  excess  of  earnings.  In  addition, distributions to foreign
corporations,  including  dividends  and  interest  payments  may  be subject to
Mexican  withholding  taxes.

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

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

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

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

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


                                       27
<PAGE>
     Credit  Arrangements.  As  of  October  31,  2003,  the Company has a $15.0
million credit facility with RZB Finance L.L.C. ("RZB") through January 31, 2004
for  demand  loans  and standby letters of credit (the "RZB Credit Facility") to
finance  the  Company's  purchases  of  LPG.  Under the RZB Credit Facility, the
Company pays a fee with respect to each letter of credit thereunder in an amount
equal  to  the greater of (i) $500, (ii) 2.5% of the maximum face amount of such
letter  of  credit,  or (iii) such higher amount as may be agreed to between the
Company  and  RZB.  Any  loan  amounts outstanding under the RZB Credit Facility
shall  accrue  interest  at  a  rate equal to the rate announced by the JPMorgan
Chase Bank as its prime rate plus 2.5%. Pursuant to the RZB Credit Facility, RZB
has  sole  and  absolute discretion to limit or terminate their participation in
the  RZB  Credit  Facility  and  to  make any loan or issue any letter of credit
thereunder.  RZB  also  has  the  right to demand payment of any and all amounts
outstanding  under  the  RZB Credit Facility at any time. In connection with the
RZB  Credit  Facility, the Company granted a security interest and assignment in
any  and  all  of  the  Company's accounts, inventory, real property, buildings,
pipelines,  fixtures  and  interests  therein  or  relating  thereto, including,
without  limitation,  the  lease  with  the  Brownsville  Navigation District of
Cameron County for the land on which the Company's Brownsville Terminal Facility
is located, the Pipeline Lease, and in connection therewith agreed to enter into
leasehold  deeds  of  trust,  security  agreements,  financing  statements  and
assignments  of  rent,  in  forms  satisfactory  to  RZB.  Under  the RZB Credit
Facility,  the  Company  may  not  permit to exist any subsequent lien, security
interest,  mortgage,  charge  or  other  encumbrance of any nature on any of its
properties  or  assets,  except  in  favor  of  RZB, without the consent of RZB.

     Mr.  Richter  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, Duke, Koch
and/or other suppliers, letters of credit are issued on a monthly basis based on
anticipated purchases. Outstanding letters of credit at October 31, 2003 totaled
approximately  $10.6  million.

     In  connection  with  the  Company's  purchase of LPG, under the RZB Credit
Facility,  assets  related to product sales (the "Assets") are required to be in
excess  of borrowings and commitments (including restricted cash of $2.6 million
at  October  31,  2003).  At  October  31,  2003,  the  Company's borrowings and
commitments  were  less  than  the  amount  of  the  Assets.

     Under  the  terms  of  the  RZB Credit Facility, the Company is required to
maintain  net worth of a minimum of $9.0 million and is not allowed to make cash
dividends  to  shareholders without the consent of RZB. The $15.0 million credit
facility  is  effective  until  January  31,  2004 when it will be automatically
reduced  to  $12.0  million.

     Private  Placements  and  Other Transactions. During June 2002, the Company
and  certain  holders  of  the  Restructured  Notes  and the New Notes (the "New
Accepting  Noteholders")  reached  an  agreement  whereby  the  due  date  for
approximately  $3.0  million  of principal due on the New Accepting Noteholders'
notes  were  extended to December 15, 2002. The New Accepting Noteholders' notes
will  continue  to  bear interest at 16.5% per annum. Interest is payable on the
outstanding  balances  on specified dates through December 15, 2002. The Company
paid  a  fee  of  1.5% on the principal amount of the New Accepting Noteholders'
notes  on  July  1,  2002.  The  principal  amount  and  unpaid  interest of the
Restructured  Notes  and/or  New Notes which were not extended were paid on June
15,  2002.

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


                                       28
<PAGE>
     During  December  2002,  the  Company  and certain holders of New Accepting
Noteholders'  notes  and  holder  of  the  Additional  Note  (the  "Extending
Noteholders")  reached  an  agreement  whereby  the due date for $2.7 million of
principal  due on the Extending Noteholders' notes were extended to December 15,
2003  (see  below). Under the terms of the agreement, the Extending Noteholders'
notes  bear interest at 16.5% per annum. Interest has been paid quarterly on the
outstanding  balances  since  March 15, 2003 (the December 15, 2002 interest was
paid  on  January  1, 2003) through September 15, 2003. In addition, the Company
was  required  to  pay  certain  amounts  of  principal  beginning  March  2003
(approximately  $1.1  million  of  principal  was  paid through the period ended
October  31,  2003  of  which  $1.0  million  was reduced in connection with the
exercise  of warrants and purchase of common stock - see below). The Company was
allowed to prepay the Extending Noteholders' notes at any time. The Company also
paid  a  fee of 1.5% on the principal amount of the Extending Noteholders' notes
which  was  outstanding  on December 15, 2002, March 15, 2003, June 15, 2003 and
September 15, 2003. The Company also agreed to extend the expiration date on the
warrants  held  by  the Extending Noteholders in connection with the issuance of
the  Extending  Noteholders'  notes to December 15, 2006. In connection with the
extension  of  the warrants, the Company recorded a discount of $316,665 related
to  the  additional  value  of  the modified warrants of which $291,124 has been
amortized  through  October  31,  2003 ($51,081 has been amortized for the three
months  ended  October  31,  2003).

     During December 2002, the Company issued a note for $250,000 (the "$250,000
Note")  to  a  holder of the Extending Noteholders' notes. The note provides for
similar  terms and conditions as the Extending Noteholders' notes. As of October
31,  2003  the  Company  repaid  $50,000  of  principal.

     During  March  2003, warrants to purchase 250,000 shares of common stock of
the  Company  were  exercised  by  a holder of the Warrants and New Warrants for
which the exercise price totaling $625,000 was paid by reduction of a portion of
the  outstanding  debt  and  accrued  interest owed to the holder related to the
Extending  Noteholders'  notes.  In  addition,  during  March  2003,  the holder
acquired  161,392  shares of common stock of the Company at a price of $2.50 per
share.  The  purchase  price  was paid through the cancellation of the remaining
outstanding  debt  and accrued interest owed to the holder totaling $403,480. In
connection  with  this  transaction  the  Company  recorded  additional interest
expense  of approximately $68,000 representing the difference between the market
value  and  sales  price  on  the  day  of  the  transaction.

     The  Extending  Noteholders'  notes  and  $250,000  Note (Notes) matured on
December 15, 2003. The Company did not pay the Notes at maturity. The Company is
negotiating  with  the  holders  of  the  Notes  to  renew and extend the Notes.

     During  September  2003, warrants to purchase 32,250 shares of common stock
of  the  Company  were  exercised  resulting  in cash proceeds to the Company of
$80,625.

     During  September 2003, the Company issued 21,818 shares of common stock of
the  Company  to  the former officer and director as severance compensation (see
above).  In  connection with the issuance of the shares, the Company recorded an
expense  of  approximately  $75,000 during the year ended July 31, 2003 based on
the  market  value  of  the  stock.

     During October 2003, cashless warrants to purchase 103,685 shares of common
stock  of  the  Company  were  exercised. The exercise price of the warrants was
$2.50  per  share and the market price of the Company's common stock on the date
of  exercise was $3.01 per share, resulting in the net issuance of 17,568 shares
of  common  stock  of  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.


                                       29
<PAGE>

     Settlement  of Litigation. On October 11, 2001, litigation was filed in the
197th  Judicial  District  Court of Cameron County, Texas by the Company against
Tanner  Pipeline  Services,  Inc.  ("Tanner"); Cause No. 2001-10-4448-C alleging
negligence  and  aided  breaches  of  fiduciary  duties  on  behalf  of  CPSC
International,  Inc.  (CPSC)  in  connection  with  the  construction  of the US
Pipelines.  During  September  2003,  the  Company  entered  into  a  settlement
agreement  with  Tanner whereby Tanner was required to reimburse the Company for
$50,000 to be paid through the reduction of the final payments on Tanner's note.

     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 Penn Wilson have
both recently been dismissed from the litigation pursuant to a summary judgment.
Omnitrans  appealed  the  summary  judgments  in  favor  of the Company and Penn
Wilson.  During  August  2003, the Appellate Court issued a preliminary decision
denying  Omnitran's  appeal  of the summary judgment in favor of the Company and
Penn  Wilson.  Oral  arguments on the appeal were heard in November 2003 and the
Company  prevailed  on  its  summary  judgment.

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

     Other  Income.  In  connection  with a contract to upgrade its computer and
information  systems, the Company entered into an agreement with a vendor during
the  year  ended July 31, 2003. On October 1, 2003, the vendor agreed to pay the
Company  $210,000  for cancellation of the contract. This amount was included in
earnings  during  the  quarter  ending  October  31,  2003.

     Realization  of  Assets. The accompanying consolidated financial statements
have  been  prepared in conformity with accounting principles generally accepted
in  the  United States of America, which contemplate continuation of the Company
as  a  going concern. The Company has had an accumulated deficit since inception
and  has  a  deficit  in  working capital. In addition, significantly all of the
Company's  assets  are  pledged  or  committed  to  be  pledged as collateral on
existing  debt in connection with the Extending Noteholders' notes, the $250,000
Note,  the  RZB  Credit Facility and the notes related to the settlement. Unless
RZB  authorizes  an  extension, the RZB Credit Facility will be reduced to $12.0
million  after  January  31,  2004.  The  Extending  Noteholders'  notes and the
$250,000  Note,  which  total  approximately  $1.8  million at October 31, 2003,
including  accrued  interest,  are due on December 15, 2003 (see notes G and O).

     In  addition  to the above, the Company intends to Spin-Off a major portion
of its assets to its stockholders (see note M). As a result of the Spin-Off, the
Company's  stockholders'  equity will be materially reduced by the amount of the
Spin-Off, which may result in a deficit in stockholders' equity and a portion of
the  Company's  current  cash  flow  from  operations  will  be  shifted  to the
Partnership.  Therefore, the Company's remaining cash flow may not be sufficient
to  allow the Company to pay its federal income tax liability, if any, resulting
from  the  Spin-Off  and  other  liabilities  and  obligations  when  due.  The
Partnership  will  be  liable  as guarantor on the Company's collateralized debt
discussed  in  the  preceding  paragraph  and will continue to pledge all of its
assets  as  collateral. In addition, the Partnership has agreed to indemnify the
Company  for  a period of three years from the fiscal year end that includes the
date  of  the Spin-Off for any federal income tax liabilities resulting from the
Spin-Off  in  excess  of  $2.5  million.

     In  view  of  the  matters  described  in  the  preceding  paragraphs,
recoverability  of  the  recorded  asset  amounts  shown  in  the  accompanying
consolidated  balance  sheet is dependent upon (1) the ability of the Company to
restructure  certain  of the obligations discussed in the first paragraph and/or
generate  sufficient  cash  flow through operations or additional debt or equity
financing to pay its liabilities and obligations when due, or (2) the ability of
the  Partnership  to  meet  its  obligations  related  to its guarantees and tax
indemnification  in  the  event  the  Spin-Off  occurs  if  the Company does not
accomplish  the  restructuring or generate sufficient cash flow. The ability for
the  Company  and  the  Partnership  to  generate  sufficient  cash  flows  is
significantly  dependent  on  the  continued  sales  of LPG to PMI at acceptable
monthly  sales  volume and margins. The consolidated financial statements do not
include  any  adjustments  related  to  the recoverability and classification of
recorded  asset  amounts or amounts and classification of liabilities that might
be  necessary  should  the  Company  be  unable  to  continue  in  existence.


                                       30
<PAGE>
     To  provide  the Company with the ability it believes necessary to continue
in  existence,  management  is  negotiating with PMI to extend the contract (see
note  K)  and increase the minimum monthly sales volume. In addition, management
is taking steps to (i) obtain additional sale contracts commensurate with supply
agreements  (ii)  increase  the number of customers assuming deregulation of the
LPG  industry in Mexico, (iii) raise additional debt and/or equity capital, (iv)
increase  and  extend the RZB Credit Facility and (v) restructure certain of its
liabilities  and  obligations.

     Rio  Vista  Energy  Partners  L.P. On July 10, 2003, the Company formed Rio
Vista  Energy  Partners  L.P.  (the  "Partnership"), a Delaware partnership. The
Partnership is a wholly owned subsidiary of the Company. The Partnership has two
subsidiaries,  Rio  Vista  Operating  Partnership  L.P.  (.1% owned by Rio Vista
Operating  G.P.  LLC  and 99.9% owned by the Company) and Rio Vista Operating GP
LLC  (wholly  owned by the Partnership). The above subsidiaries are newly formed
and  are  currently  inactive.

     The  Company formed the Partnership for the purpose of transferring a 99.9%
interest in Rio Vista Operating Partnership L.P. (L.P. Transfer), which will own
substantially  all  of  the  Company's  owned  pipeline  and  terminal assets in
Brownsville  and  Matamoros (the "Asset Transfer"), in exchange for a 2% general
partner  interest and a 98% limited partnership interest in the Partnership. The
Company  intends  to  spin  off  100% of the limited partner units to its common
stockholders  (the  "Spin-Off"),  resulting  in  the  Partnership  becoming  an
independent  public  company.  The remaining 2% general partner interest will be
initially  owned  and  controlled  by  the  Company  and  the  Company  will  be
responsible  for the management of the Partnership. The Company will account for
the  Spin-Off  at  historical  cost.

     During September 2003, the Company's Board of Directors and the Independent
Committee  of its Board of Directors formally approved the terms of the Spin-Off
and  the  Partnership filed a Form 10 registration statement with the Securities
and  Exchange  Commission.  The Board of Directors anticipates that the Spin-Off
will  occur in 2004, subject to a number of conditions, including the receipt of
an  independent  appraisal of the assets to be transferred by the Company to the
Partnership in connection with the Spin-Off that supports an acceptable level of
federal  income taxes to the Company as a result of the Spin-Off; the absence of
any  contractual  and  regulatory  restraints  or  prohibitions  preventing  the
consummation  of the Spin-Off; and final action by the Board of Directors to set
the  record date and distribution date for the Spin-Off and the effectiveness of
the  registration  statement.

     Each shareholder of the Company will receive one common unit of the limited
partnership  interest in the Partnership for every eight shares of the Company's
common  stock  owned  as  of  the  record  date.

     Warrants  issued  to  holders  of  the existing unexercised warrants of the
Company  will  be  exchanged  in connection with the Spin-Off whereby the holder
will  receive  options to acquire unissued units in the Partnership and unissued
common  shares  of the Company in exchange for the existing warrants. The number
of  units  and  shares subject to exercise and the exercise price will be set to
equalize  each  option's  value  before  and  after  the  Spin-Off.

     Ninety-eight percent of the cash distributions from the Partnership will be
distributed to the limited unit holders and the remaining 2% will be distributed
to  the  general  partner  for  distributions  up  to  $1.25  per  unit annually
(approximately  $2.5  million  per year). Distributions in excess of that amount
will  be  shared  by the limited unit holders and the general partner based on a
formula  whereby  the  general  partner  will  receive  disproportionately  more
distributions  per  unit  than  the  limited  unit  holders  as  annual  cash
distributions  exceed  certain  milestones.

     Subsequent  to the L.P. Transfer, the Partnership will sell LPG directly to
PMI  and  will purchase LPG from the Company under a long-term supply agreement.
The  purchase  price of the LPG from the Company will be determined based on the
Company's  cost  to  acquire  LPG  and  a  formula that takes into consideration
operating  costs  of  both  the  Company  and  the  Partnership.


                                       31
<PAGE>

     In  connection  with  the  Spin-Off,  the  Company will grant to Mr. Jerome
Richter,  the  Company's Chairman and Chief Executive Officer, and Shore Capital
LLC  ("Shore"),  a  company owned by Mr. Richard Shore, the Company's President,
options  to  each purchase 25% of the limited liability company interests in the
general partner of the Partnership. It is anticipated that Mr. Richter and Shore
will  exercise these options immediately after the Spin-Off occurs. The exercise
price  for each option will be the pro rata share (.5%) of the Partnership's tax
basis  capital  immediately  after  the Spin-Off. The Company will retain voting
control  of  the  Partnership pursuant to a voting agreement. In addition, Shore
will also receive an option to acquire 5% of the common stock of the Company and
5%  of  the  limited  partnership  interest  in  the  Partnership  at a combined
equivalent  exercise  price  of  $2.20  per  share.

     The  Partnership  will  be  liable  as  guarantor  for  the  Company's
collateralized  debt  (see  note G to the consolidated financial statements) and
will  continue  to  pledge  all of its assets as collateral. The Partnership may
also  be  prohibited  from  making any distributions to unit holders if it would
cause  an  event  of  default,  or if an event of default is existing, under the
Company's  revolving  credit  facilities,  or any other covenant which may exist
under  any other credit arrangement or other regulatory requirement at the time.

     The  Spin-Off will be a taxable transaction for federal income tax purposes
(and  may also be taxable under applicable state, local and foreign tax laws) to
both the Company and its stockholders. The Company intends to treat the Spin-Off
as  a  "partial  liquidation"  for  federal  income  tax  purposes.  A  "partial
liquidation"  is defined under Section 302(e) of the Code as a distribution that
(i)  is  "not  essentially  equivalent  to  a  dividend,"  as  determined at the
corporate  level, which generally requires a genuine contraction of the business
of  the  corporation,  (ii)  constitutes a redemption of stock and (iii) is made
pursuant  to  a plan of partial liquidation and within the taxable year in which
the  plan  is  adopted  or  within  the  succeeding  taxable  year.

     The  Company may have a federal income tax liability in connection with the
Spin-Off.  If  the  income  tax liability resulting from the Spin-Off is greater
than  $2.5  million, the Partnership has agreed to indemnify the Company for any
tax  liability resulting from the transaction which is in excess of that amount.

     The  Company  believes  that  the Spin-Off, which effectively separates the
Partnership,  as  a  limited  partnership, from the Company will provide greater
growth  opportunities for each company and the following overall benefits to the
Company's  shareholders:


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

     -    Raising  Capital.  As a limited partnership, the Company believes that
          the  Partnership  will  have  an improved ability to raise capital for
          expansion.  This  expansion  will  benefit the Company directly though
          anticipated  contractual  arrangements  between  the  parties  and
          indirectly,  through  the  Company's  general  partner  interest.

     -    Acquisitions.  Due  to  industry  preference  and familiarity with the
          limited  partnership  structure,  the  Company  anticipates  that  the
          Company  will  improve  its  competitiveness in making acquisitions of
          assets  that  generate "qualifying income," as this term is defined in
          Section  7704  of  the  Internal  Revenue  Code.

     -    Recognition.  As  a  limited partnership, the Company anticipates that
          both  the  Company  and the Partnership will receive increased analyst
          coverage  and  acceptance  in  the  marketplace.


                                       32
<PAGE>
     Liquidity:
     ---------

     The  Partnership  expects  that  once  the period for minimum distributions
commences,  it  will  distribute  to  the holders of common units on a quarterly
basis  at  least the minimum quarterly distribution of $0.25 per common unit, or
$1.00  per  year,  to  the  extent that the Partnership has sufficient cash from
operations  after  establishment  of  cash  reserves  and  payment  of expenses,
including  the  reimbursement of the general partner fees and the guarantees and
tax agreement discussed below. The Company intends to restructure certain of its
liabilities  and  obligations  to  the  extent  possible,  but  there  can be no
assurance  that  such  restructuring  can  be  accomplished  or  that it will be
adequate  to allow the Company to pay such liabilities and obligations when due.

     A  portion  of  the  Company's  current  cash  flow from operations will be
shifted  to  the  Partnership  as  a  result  of  the Spin-Off. As a result, the
Company's remaining cash flow from operations may not be sufficient to allow the
Company  to pay its federal income tax liability resulting from the Spin-Off, if
any,  and  other  liabilities  and obligations when due. The Partnership will be
liable  as guarantor and will continue to pledge all of its assets as collateral
on  the  Company's  existing  debt obligations. In addition, the Partnership has
agreed to indemnify the Company for a period of three years from the fiscal year
end  that  includes  the  date  of  the  Spin-Off  for  any  federal  income tax
liabilities  resulting from the Spin-Off in excess of $2.5 million. However as a
result  of  the distributions, the Partnership may not have sufficient cash flow
to  pay  any  obligations  related  to  its  guarantees  and  tax  agreement.

     If  the Company's cash flow from operations is not adequate to satisfy such
payment  of  liabilities and obligations and/or tax liabilities when due and the
Partnership  is  unable  to  satisfy  its  guarantees and /or tax agreement, the
Company  may  be  required to pursue additional debt and/or equity financing. In
such  event, the Company's management does not believe that the Company would be
able  to obtain such financing from traditional commercial lenders. In addition,
there  can  be  no assurance that such additional financing will be available on
terms  attractive to the Company or at all. If additional financing is available
through  the  sale  of  the Company's equity and/or other securities convertible
into  equity  securities  through  public or private financings, substantial and
immediate  dilution  to  existing  stockholders may occur. There is no assurance
that  the  Company  would  be able to raise any additional capital if needed. If
additional financing cannot be accomplished and the Company is unable to pay its
liabilities  and  obligations  when  due  or  to  restructure  certain  of  its
liabilities  and  obligations,  the  Company  may  suffer  material  adverse
consequences  to  its  business,  financial condition and results of operations.


                                       33
<PAGE>
     Contractual  Obligations  and  Commercial  Commitments.  The following is a
summary  of  the  Company's  estimated  minimum  contractual  obligations  and
commercial  obligations as of October 31, 2003. Where applicable, LPG prices are
based  on the October 2003 monthly average as published by Oil Price Information
Services.

<TABLE>
<CAPTION>
                                               PAYMENTS  DUE  BY  PERIOD
                                                (AMOUNTS  IN  MILLIONS)

----------------------------------------------------------------------------------
                                              Less than   1 - 3   4 - 5    After
Contractual Obligations               Total     1 Year    Years   Years   5 Years
-----------------------------------  -------  ----------  ------  ------  --------
<S>                                  <C>      <C>         <C>     <C>     <C>

Long-Term Debt Obligations           $     -  $        -  $    -  $    -  $      -
Operating Leases                        12.5         1.5     2.8     2.6       5.6
LPG Purchase Obligations               538.1       110.3   174.1   174.1      79.6
Other Long-Term Obligations                -           -       -       -         -
                                     -------  ----------  ------  ------  --------
 Total Contractual Cash Obligations  $ 550.6  $    111.8  $176.9  $176.7  $   85.2
                                     =======  ==========  ======  ======  ========
</TABLE>


<TABLE>
<CAPTION>
                                            AMOUNT  OF  COMMITMENT  EXPIRATION
                                                       PER  PERIOD
                                                  (AMOUNTS IN MILLIONS)

-------------------------------------------------------------------------------------
Commercial                      Total Amounts   Less than   1 - 3   4 - 5     Over
Commitments                        Committed       1 Year    Years   Years   5 Years
-------------------------------  --------------  ----------  ------  ------  --------
<S>                              <C>             <C>         <C>     <C>     <C>

 Lines of Credit                 $            -  $        -  $    -  $    -  $      -
 Standby Letters of Credit                 10.6        10.6       -       -         -
 Guarantees                                 N/A         N/A     N/A     N/A       N/A
 Standby Repurchase Obligations             N/A         N/A     N/A     N/A       N/A
 Other Commercial Commitments               N/A         N/A     N/A     N/A       N/A
                                 --------------  ----------  ------  ------  --------
 Total Commercial Commitments    $         10.6  $     10.6  $    -  $    -  $      -
                                 ==============  ==========  ======  ======  ========
</TABLE>


                                       34
<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.

     The  Company  does  not  maintain  quantities of LPG inventory in excess of
quantities  actually  ordered  by  PMI. Therefore, the Company has not currently
entered into and does not currently expect to enter into any arrangements in the
future  to  mitigate  the  impact  of  commodity  price  risk.

     The  Company  has  historically  borrowed only at fixed interest rates. All
current interest bearing debt is at a fixed rate. Trade accounts receivable from
the  Company's  limited  number  of  customers and the Company's trade and other
accounts  payable  do  not bear interest. The Company's credit facility with RZB
does  not bear interest since generally no cash advances are made to the Company
by  RZB. Fees paid to RZB for letters of credit are based on a fixed schedule as
provided  in  the Company's agreement with RZB. Therefore, the Company currently
has  limited,  if  any,  interest  rate  risk.

     The  Company  routinely  converts  U.S.  dollars  into Mexican pesos to pay
terminal  operating  costs  and  income taxes. Such costs have historically been
less  than $1 million per year and the Company expects such costs will remain at
less  than $1 million dollars in any year. The Company does not maintain Mexican
peso  bank accounts with other than nominal balances. Therefore, the Company has
limited,  if  any,  risk  related  to  foreign  currency  exchange  rates.

ITEM  4.  CONTROLS  AND  PROCEDURES.

     The  Company's  management,  including  the principal executive officer and
principal financial officer, conducted an evaluation of the Company's disclosure
controls  and  procedures,  as  such  term  is  defined  under  Rule  13a-14(c)
promulgated  under  the  Securities  Exchange Act of 1934, as amended, within 90
days of the filing date of this report. Based on their evaluation, the Company's
principal  executive officer and principal accounting officer concluded that the
Company's  disclosure  controls  and  procedures  are  effective.

     There  have  been no significant changes (including corrective actions with
regard  to  significant  deficiencies  or  material weaknesses) in the Company's
internal  controls  or  in  other  factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in paragraph above.


                                       35
<PAGE>
<TABLE>
<CAPTION>
PART  II

<S>      <C>
ITEM 1.  LEGAL PROCEEDINGS

         See  note I to the accompanying unaudited consolidated financial statements
         and  note K to the Company's Annual Report on Form 10-K for the fiscal year
         ended  July  31,  2003.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         See  note H to the accompanying unaudited consolidated financial statements
         and  notes  I  and  J  to  the Company's Annual Report on Form 10-K for the
         fiscal  year  ended July 31, 2003, for information concerning certain sales
         of  Securities.

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

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

         None.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K
</TABLE>

     a.  Exhibits

<TABLE>
<CAPTION>
THE  FOLLOWING  EXHIBITS  ARE  INCORPORATED  HEREIN  BY  REFERENCE:

<S>          <C>
Exhibit No.
-----------

10.01        LPG sales agreement entered into as of March 1, 2002 by and between Penn Octane Corporation
             ("Seller") and P.M.I. Trading Limited ("Buyer"). (Incorporated by reference to the Company's Quarterly
             Report on Form 10-Q for the quarterly period ended October 31, 2002 filed on June 13, 2002, SEC File
             No. 000-24394).

10.02        Settlement agreement, dated as of March 1, 2002 by and between P.M.I. Trading Limited and Penn
             Octane Corporation. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
             the quarterly period ended October 31, 2002 filed on June 13, 2002, SEC File No. 000-24394).

10.03        Form of Amendment to Promissory Note (the "Note") of Penn Octane Corporation (the "Company") due
             December 15, 2002, and related agreements and instruments dated December 9, 2002, between the
             Company and the holders of the Notes.  (Incorporated by reference to the Company's Quarterly Report
             on Form 10-Q for the quarterly period ended January 31, 2003 filed on March 20, 2003, SEC File No.
             000-24394).

10.04        Employee contract entered into and effective July 29, 2002, between the Company and Jerome B.
             Richter.  (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly
             period ended January 31, 2003 filed on March 20, 2003, SEC File No. 000-24394).
</TABLE>





                                       36
<PAGE>

<TABLE>
<CAPTION>
THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS OF THIS REPORT:
<S>     <C>
15      Accountant's Acknowledgment

31.1    Certification Pursuant to Rule 13a - 14(a) / 15d - 14(a) of the Exchange Act.

31.2    Certification Pursuant to Rule 13a - 14(a) / 15d - 14(a) of the Exchange Act.

32      Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes -Oxley Act of 2002.
</TABLE>


     b.  Reports  on  Form  8-K

          None.

                                       37
<PAGE>
                                   SIGNATURES

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


                            PENN OCTANE CORPORATION



May 21, 2004              By: /s/Ian T. Bothwell
                                -----------------------------------------------
                                Ian T. Bothwell
                                Vice President, Treasurer, Assistant Secretary,
                                Chief Financial Officer


                                       38
<PAGE>