PENN OCTANE CORP, S-3/A, 2000-10-06

PENN OCTANE CORP
S-3/A, 2000-10-06
PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS)

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<PAGE> 1

As filed with the Securities and Exchange Commission on October 6, 2000

REGISTRATION NO. 333-41502

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

-------------------------

AMENDMENT NO. 2 TO

FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

-------------------------

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

DELAWARE 52-1790357
(State or Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)

77-530 ENFIELD LANE, BUILDING D
PALM DESERT, CALIFORNIA 92211
(760) 772-9080
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's
Principal Executive Offices)

JEROME B. RICHTER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
77-530 ENFIELD LANE, BUILDING D
PALM DESERT, CALIFORNIA 92211
(760) 772-9080

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

COPIES TO:

ALLAN B. DUBOFF
NIA STEFANY
RICHMAN, MANN, CHIZEVER, PHILLIPS & DUBOFF
9601 WILSHIRE BOULEVARD, PENTHOUSE
BEVERLY HILLS, CALIFORNIA 90210
(310) 274-8300 (PHONE)
(310) 274-2831 (FAX)

Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable from time to time after the effective date of this registration
statement.

If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]

If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

<PAGE> 2

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed
of Securities to be Amount to be Offering Price Per Maximum Amount of
Registered Registered Unit(1) Aggregate Offering Registration Fee
Price(1)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.01 per share 7,357,111 $6.59 $48,510,951 $14,310.73
===================================================================================================
</TABLE>

(1) Estimated solely for purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on
the average of the high and low prices per share of Common Stock of the
registrant as reported on the Nasdaq SmallCap Market on October 5,
2000.

------------------------------

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.

<PAGE> 3

PENN OCTANE CORPORATION

7,357,111 SHARES

COMMON STOCK

Stockholders of the company are offering 7,357,111 shares of common
stock. They will sell the stock on the open market at market price or in
negotiated transactions. Our common stock is quoted on the Nasdaq SmallCap
market under the symbol POCC. On October 5, 2000, the closing price for our
stock was $6.63 per share.

------------------------------

YOU SHOULD CAREFULLY CONSIDER EACH OF THE RISK
FACTORS DESCRIBED UNDER "RISK FACTORS" BEGINNING
ON PAGE 4 OF THIS PROSPECTUS.

------------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATORS HAVE APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
IT IS ILLEGAL FOR ANY PERSON TO TELL YOU OTHERWISE.

------------------------------

The date of this prospectus is October 6, 2000

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----

<S> <C>
SUMMARY ................................................ 1

RISK FACTORS ........................................... 4

FORWARD-LOOKING STATEMENTS ............................. 13

USE OF PROCEEDS ........................................ 13

SELLING STOCKHOLDERS ................................... 13

PLAN OF DISTRIBUTION ................................... 24

LEGAL MATTERS .......................................... 24

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........ 24

INDEMNIFICATION ........................................ 25

AVAILABLE INFORMATION .................................. 25
</TABLE>

<PAGE> 5

SUMMARY

This summary highlights selected information from this prospectus and
may not contain all of the information that is important to you. We encourage
you to read the prospectus in its entirety.

THE COMPANY

We are engaged in the purchase, transportation and sale of liquefied
petroleum gas, which is commonly called "LPG." We began commercial operations in
July 1994. Our primary market is the rapidly growing northeast region of Mexico.
This region includes the states of Coahuila, Nuevo Leon and Tamaulipas. We
believe we have a competitive advantage in the supply of LPG for the northeast
region of Mexico because of our access to pipelines and terminal facilities
which allow us to bring supplies of LPG close to consumers of LPG in major
cities in that region. We sell our LPG primarily to P.M.I. Trading Limited who
distributes the LPG purchased from us into the northeast region of Mexico. PMI
is the exclusive importer of LPG into Mexico. PMI is also a subsidiary of
Petroleos Mexicanos, the state-owned Mexican oil company, which is commonly
known by its trade name "PEMEX." Since 1994, our primary customer for LPG has
been PMI.

We own and operate a terminal facility in Brownsville, Texas. We have a
long-term lease agreement for approximately 132 miles of pipeline from gas
plants in Texas to the Brownsville terminal facility. We have expanded our LPG
operations in Mexico to include the delivery of LPG via pipelines directly from
the Brownsville terminal facility to a terminal facility in Matamoros, Mexico.
The new pipelines and the Matamoros terminal facilities were principally
constructed and owned by CPSC International, Inc., which filed for bankruptcy
during March 2000. Subsequently, we purchased all of the new pipelines and the
Matamoros terminal facilities owned by CPSC, which is currently subject to final
documentation and approval by the U.S. Bankruptcy Court. We utilize our
affiliated Mexican companies including Penn Octane de Mexico, S.A., de C.V.,
Termatsal, S.A. de C.V. and Tergas, S.A. de C.V. to conduct the business
operations of the Mexican portion of the new pipelines and the Matamoros
terminal facilities. We have made and will continue to make additional
improvements to the new pipelines and the Matamoros terminal facilities.

We intend to upgrade the leased pipeline to increase capacity. We have
upgraded the Brownsville terminal facility to allow for the loading of LPG by
railcars. We are responsible for funding these upgrades.

We are constructing and intend to have Tergas operate a new terminal
facility in Saltillo, Mexico capable of loading LPG by railcars. This will
directly link the Brownsville terminal facility and the Saltillo terminal
facilities. We are funding the Saltillo terminal facilities.

We believe our business strengths and opportunities include:

- our lease rights to the pipeline and our ownership of the new
pipelines

- the geographic proximity of the Brownsville terminal facility
and the Matamoros terminal facilities and the to be completed
Saltillo terminal facilities to the northeast region of Mexico

- our relationships with key purchasers and suppliers of LPG

- growing LPG industry with significant barriers to entry

Our business and operations are subject to numerous risks, some of which
are described in the Risk Factors section beginning on page 4 of this
prospectus.

<PAGE> 6

THE OFFERING

This prospectus pertains to an offering by some of our current
stockholders of shares of our stock which they currently own or may acquire
through the exercise of stock purchase warrants. We have registered this
offering because of registration rights held by some of the selling
stockholders. The selling stockholders are not required to sell the common stock
being offered; sales are entirely at the discretion of each selling stockholder.

All of the offered shares are being offered by the selling stockholders.
We will not be selling any stock as part of this offering. The selling
stockholders will receive the proceeds from the sale of the offered stock. We
will not receive any of the proceeds, but if the selling stockholders exercise
warrants, we will receive proceeds from the sale of stock to those selling
stockholders. The stockholders will sell the stock on the open market at market
price or in negotiated transactions.

We will pay the costs of registering these shares. We are entitled to
reimbursement by some of the selling stockholders for a portion of these costs.

<TABLE>
<S> <C>
Common Stock Offered by the Selling Stockholders......... 7,357,111 shares

Nasdaq SmallCap Market Symbol............................ POCC
</TABLE>

OUR CONTACT

Jerome B. Richter
President and Chief Executive Officer
77-530 Enfield Lane, Building D
Palm Desert, California 92211
(760) 772-9080

2
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share data)

Year Ended July 31,

<TABLE>
<CAPTION>
Nine months
Ended
SELECTED FINANCIAL DATA 1995 1996 1997 1998 1999 April 30, 2000
-------- -------- -------- -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ..................................... $ 14,787 $ 26,271 $ 29,699(1) $ 30,801(1) $ 35,338(1) $ 60,662

Income (loss) from continuing operations ..... (2,047) (724) (2,886) (2,072) 1,125 1,526

Net income (loss) ............................ (2,047) (724) (2,923) (3,744) 545 1,526

Net income (loss) per common share ........... (.47) (.14) (.48) (.43) .05 .12

Total assets ................................. 6,159 5,190 5,496 6,698 8,909 30,245

Long-term debt, less current maturities ...... 95 1,060 1,113 60 259 2,843
</TABLE>

(1) The operations of PennWilson for the period from February 12, 1997 (date
of incorporation) through May 25, 1999, the date operations were
discontinued, are presented in the consolidated financial statements as
discontinued operations.

<TABLE>
<CAPTION>
July 31, 1999 April 30, 2000
------------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:

Cash ............................................... $ 1,032 $ 1,195

Total assets ....................................... 8,909 30,245

Long-term debt, less current maturities ............ 259 2,843

Total stockholders' equity ......................... 4,051 9,599

Total liabilities and stockholders' equity ......... $ 8,909 $30,245
</TABLE>

3
<PAGE> 8

RISK FACTORS

Before you invest in our stock, you should be aware that there are risks
in doing so, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus, any prospectus supplement and the documents we have incorporated by
reference.

If any of the following risks actually occurs, then our business,
financial condition or results of operations could be materially adversely
affected. In such event, the trading price of our stock could decline and you
may lose all or part of your investment.

WE MAY NOT BE ABLE TO CONTINUE OPERATIONS AS A RESULT OF CONTRACTUAL
OBLIGATIONS, DEFICITS IN WORKING CAPITAL, OUTSTANDING LITIGATION AND IF WE ARE
UNABLE TO FINALIZE THE CPSC AGREEMENT.

Our independent certified public accountants have expressed doubt about
our ability to continue as a going concern. We have not sustained profitable
operations, we have outstanding litigation, we have not sustained surplus
working capital, we have not finalized agreements related to the purchase of
CPSC's interest in the new pipelines and the Matamoros terminal facilities, and
we have entered into purchase commitments for LPG substantially in excess of
minimum contractual sales commitments. If we are adversely affected by any of
these factors we may not be able to continue operations. For further information
about the accountant's concern, see Form 10-K, fiscal year 1999 -- "Report of
Independent Certified Accountant" and Form 10-Q, quarter ended April 30, 2000 --
"Review by Independent Certified Accountant."

WE NEED ADDITIONAL FINANCING FOR WORKING CAPITAL AND FUTURE GROWTH AND MAY NOT
BE ABLE TO OBTAIN IT.

We will need to raise additional capital to finance our future growth,
including our current expansion projects, unanticipated working capital needs,
and capital expenditure requirements. We may need to raise additional money to
take advantage of unanticipated opportunities, such as more rapid international
expansion of our LPG operations or acquisitions of companies that are
complementary to our current operations, or to develop new products or services.
Additionally, we may need to increase our credit facility for additional
opportunities, increases in purchases of LPG supplies, and/or increases in the
costs of LPG. We may also need to finance the excess inventory resulting from
LPG purchase commitments over actual sales volumes, pay for the purchase of the
CPSC interests or refinance short-term obligations. For further information
concerning our capital needs, see Form 10-Q, quarter ended April 30, 2000 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Private Placement and Other
Transactions."

If we decide to raise additional funds by borrowing, we likely would
become subject to restrictive financial terms or we may be limited as a result
of existing loan covenants and any new financing will likely be subject to
restrictive financial terms. If we raise additional funds through the sale of
equity securities, the percentage ownership of our then current stockholders
would be reduced and may be diluted and, if such equity securities take the form
of preferred stock, the holders of such preferred stock may have rights,
preferences or privileges senior to those of holders of common stock. If we are
unable to obtain additional capital or are unable to obtain additional capital
timely on acceptable terms, we may not be able to expand our business, meet
working capital requirements and debt payment obligations which could adversely
affect our business and ability to compete. For a more detailed discussion of
these financial matters, see Form 10-Q, quarter ended April 30, 2000 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

4
<PAGE> 9

IN OUR BUSINESS THERE IS CURRENTLY ONLY ONE CUSTOMER OF LPG AND WE CANNOT BE
SURE THAT THIS CUSTOMER WILL CONTINUE TO PURCHASE LPG FROM US OR IN AMOUNTS THAT
ARE PROFITABLE.

PMI is a subsidiary of PEMEX, the state oil and gas company of Mexico.
Under current Mexican law, PMI is the exclusive importer of LPG into Mexico. We
derive a substantial portion of our revenues from sales of LPG to PMI, under
sales agreements that expire on March 31, 2001. LPG sales to PMI accounted for
substantially all of our total sales for the fiscal years ended July 31, 1995,
1996, 1997, 1998, 1999, and the nine months ended April 30, 2000. Our sales of
LPG to PMI were interrupted from August 1996 to September 1996 pending the
negotiation of a new sales agreement. The Mexican Government has taken initial
measures to privatize the petroleum industry in Mexico, and we believe that the
LPG market in Mexico will eventually be completely deregulated. As a result of
such deregulation, PMI would no longer be the exclusive importer of LPG into
Mexico. At that time we will need to negotiate new sales agreements with PMI or
other Mexican distributors of LPG. We are currently unable to predict the timing
of deregulation or its effect on our sales of LPG. Until deregulation is in
effect, we will not be able to expand our LPG customer base and we will remain
dependent for substantially all of our revenues upon sales of LPG to PMI. The
loss of PMI as our customer, any disruption or expiration of the PMI sales
agreements, or any failure to renew the PMI sales agreements upon their
expiration, would result in a substantial reduction in revenues to us and would
harm our business, operating results and financial condition. We are not sure
that we will be able to negotiate future sales agreements with PMI or upon
deregulation, with other Mexican distributors of LPG. Even if we are able to
negotiate new sales agreements there can be no assurance that the terms will be
as favorable to us, or that we will be able to successfully compete against
other companies. We also are not sure that upon deregulation our business will
be impacted favorably. For additional information on our sales of LPG and the
effect of deregulation on our business, see Form 10-K, fiscal year 1999 --
"Business -- Liquefied Petroleum Gas" and "Business -- Liquefied Petroleum
Gas -- Deregulation of the LPG Market in Mexico."

OUR PURCHASE CONTRACTS REQUIRE US TO PURCHASE LPG EVEN IF WE HAVE NO MARKET FOR
IT OR ARE UNABLE TO ACCEPT IT.

Our LPG purchase agreements currently require that we purchase LPG in
volumes in excess of sales commitments and we currently have no other markets to
profitably dispose of the surplus. In addition, volumes committed to be
purchased from us under the PMI sales agreements have been historically much
lower than those committed to under our current purchase agreements. We also may
be required to pay through-put fees, blending fees, costs associated with
pipeline interconnections and other fees. We believe that the terms of the
purchase agreements are commensurate with the anticipated future demand for LPG
in Mexico. If we are unable to accept, store and/or relocate the minimum volume
requirements under existing supply agreements, we may incur material additional
operating losses.

Until the new pipelines and Matamoros terminal facilities and Saltillo
terminal facilities are completed and fully utilized, we will be unable to
deliver the quantities of LPG which we have currently committed to purchase.

We believe that any costs associated with any unsold supply will be
short-term in nature and that we will be successful in storing and/or relocating
it at costs which are sustainable. If we cannot store and/or relocate the unsold
supply as currently planned, we may incur material additional operating losses.

THERE ARE A LIMITED NUMBER OF SUPPLIERS OF LPG THAT CONNECT TO OUR PIPELINES AND
CORRESPONDING AVAILABLE SUPPLY OF LPG WHICH ALLOW US TO COMPETE IN OUR BUSINESS.

We have entered into supply agreements with various suppliers for the
purchase of LPG which extend for periods ranging from approximately three to ten
years. The LPG supply is for sufficient volumes to meet our estimated sales
needs, but is in excess of current contractual sales commitments. There can be
no assurance, however, that our suppliers will be able to supply us with
adequate volumes of LPG to meet a significant increase in demand beyond the
levels currently being supplied, or that we will be able to continue the supply
agreements with our suppliers beyond the current terms and/or

5
<PAGE> 10

negotiate new supply agreements upon their expiration. Any disruption in our
future supply of LPG would harm our operating results and financial condition.

We will be relying on our suppliers to meet their obligations under
their supply agreements. Under certain conditions, our suppliers may not be able
to deliver the required LPG supply due to many factors, including internal
disruptions in service as a result of refinery breakdowns, maintenance, or
weather. We may not be able to accept LPG from our suppliers as a result of many
factors including breakdowns effecting the leased pipeline, the new pipelines,
the Brownsville terminal facility and the Matamoros terminal facilities or due
to matters affecting our customers ability to receive product from our terminal
facilities. In addition, we may not be able to accept LPG due to lower than
expected sales volumes or unavailable storage. We intend to provide LPG to our
Saltillo Terminal facilities by railcars. The railcars and railroad are owned
and operated by third parties. Therefore, our ability to deliver LPG to our
Saltillo Terminal facilities could be adversely affected by operating
arrangements with third parties or conditions affecting the railcar and the
railroad. If our suppliers are unable to deliver supply to us or we are unable
to accept the supply from our suppliers, or we are unable to arrange for
delivery of supply to our Saltillo Terminal facilities, we will not be able to
compete in our business and our sales will decline.

WE MAY BE LESS PROFITABLE DURING WARMER MONTHS.

Because our LPG sales are directly related to heating requirements,
weather patterns can have a material effect on our sales of LPG. Temperatures in
future years might be above normal, resulting in lower sales of LPG. Our
agreements for monthly LPG supply purchases are constant rather than seasonal.
If our sales of LPG are seasonal, we may have to store or dispose LPG volumes
which are below sales volumes. This may effect our profitability.

WE MAINTAIN LPG INVENTORY BALANCES AND COULD SUFFER LOSSES DUE TO LPG PRICE
VOLATILITY.

To the extent that we maintain quantities of LPG inventory, we are
exposed to market risk related to the volatility of LPG prices. During periods
of falling LPG prices, we may sell excess inventory to customers to reduce the
risk of these price fluctuations.

WE MAY LOSE OUR COMPETITIVE ADVANTAGE WHEN OUR PIPELINE LEASE EXPIRES IN 2013.

One of our primary assets is a lease with Seadrift Corporation under
which we have the exclusive use of the pipeline. We currently rely exclusively
on the pipeline for transporting LPG to our Brownsville terminal facility. The
term of the pipeline lease expires December 31, 2013. There can be no assurance
that we will be able to renew the pipeline lease upon its expiration. If we
cannot renew the lease or implement competitive alternatives, we may lose our
competitive advantage.

WE COULD LOSE OUR COMPETITIVE ADVANTAGE IF OUR BROWNSVILLE LEASE IS NOT RENEWED.

We have a lease with the Brownsville Navigation District of Cameron
County, Texas for use of property on which we have constructed and operate our
Brownsville terminal facility and from which the leased pipeline and the new
pipelines connect. Under the Brownsville lease, we have the right to use the
land on which the Brownsville terminal facility is located and we have a
pipeline easement, providing us with access to public water dock facilities
until October 14, 2003. Although we expect to be able to extend the term of the
Brownsville lease through 2013, we cannot be sure that we will be able to extend
or renew the Brownsville lease beyond its current expiration date. Our inability
to renew or extend the Brownsville lease would harm our business, operating
results and financial condition.

6
<PAGE> 11

The Brownsville lease provides that if we comply with all the lease
conditions and covenants, then at the end of the lease, we may remove the
leasehold improvements. If we should fail to comply with all the lease
conditions and covenants, then we might lose these leasehold improvements at the
end of the lease, which could harm our business, operating results and financial
condition. For more information on the Brownsville lease, see Form 10-K, Fiscal
Year End 1999 -- "Business -- Liquefied Petroleum Gas -- Brownsville Terminal
Facility."

WE ARE AT RISK OF ECONOMIC LOSS DUE TO FIXED MARGIN CONTRACTS.

We currently purchase and sell LPG under fixed margin agreements with
our customers and suppliers. Under these agreements, the buying and selling
price of LPG is based on similarly indexed variable posted prices intended to
provide us with a fixed spread between the resale price and the purchase cost of
LPG. While these contracts and arrangements in theory provide us with a fixed
margin, actual profits from sales may be affected by costs of goods sold other
than by the purchase price of LPG, such as costs relating to transportation,
storage, leases, maintenance and financing. We generally try to purchase LPG in
volumes equal to projected sales. However, mismatches in volumes and prices of
LPG purchased from suppliers and resold to customers could cause lower overall
profits or losses to us.

WE MAY LOSE OUR COMPETITIVE ADVANTAGE IF OTHER SUPPLIERS ENTER THE MARKET.

Several companies, including PEMEX, offer products and services that
compete directly with our LPG products and services. The attractiveness of our
business could attract additional competitors. As we expand into new geographic
markets in connection with the sale of LPG, we will face competition from other
suppliers. Upon deregulation or other changes in the petroleum industry, the
attractiveness of our business may cause greater competition. Many of our
competitors have greater financial, technical and marketing resources and
greater experience and name recognition than we have. To the extent our
competitors attempt to compete in our market niche in the supply of LPG in
northeastern Mexico, we may be forced to reduce our profit margin in order to
maintain or expand our market share.

THE OUTCOME OF PENDING LITIGATION MAY HARM OUR BUSINESS.

On June 19, 2000, Penn Octane Corporation, CPSC, Cowboy Pipeline Service
Company, Inc., and Cowboy's sole shareholder reached a settlement whereby we
agreed to purchase the remaining 50% interest in the new pipelines and Matamoros
terminal facilities. The settlement is subject to final documentation and
approval of the U.S. Bankruptcy Court. As a result of this settlement, we may
incur additional costs to complete the new pipelines and Matamoros terminal
facilities, the amount of which cannot presently be determined. Because these
costs are not known, there is no certainty that we will:

- acquire the remaining 50% interest in the new pipelines and Matamoros
terminal facilities,

- utilize the new pipelines and Matamoros terminal facilities or

- realize our recorded investment in the new pipelines and Matamoros
terminal facilities.

We are also involved in other litigation of which the outcome cannot be
determined at the present time. If the outcome is not in our favor, we may have
to pay out a settlement and lose our ability to be profitable.

7
<PAGE> 12

MANAGEMENT OWNS A LARGE NUMBER OF SHARES OF PENN OCTANE CORPORATION AND MAY
PREVENT A CHANGE IN CONTROL.

As of September 15, 2000, some officers and directors and their
affiliates beneficially own 5,203,397 shares of our outstanding common stock,
which is 35.99% of the voting power of Penn Octane Corporation, including 29.62%
held by Mr. Richter, our Chairman of the Board, President and Chief Executive
Officer. As a result, current directors and officers can exert significant
influence over the election of all of the members of our Board of Directors and
corporate actions requiring stockholder approval. This concentration of
ownership may have the effect of delaying or preventing a change in control of
Penn Octane Corporation, including transactions in which the holders of the
common stock might otherwise sell their stock for more than market value. We are
not aware of any agreement by or among any of our directors and officers to act
together.

OUR SUCCESS MAY BE DEPENDENT UPON RETAINING KEY MEMBERS OF MANAGEMENT SUCH AS
JEROME RICHTER, IAN BOTHWELL, AND JORGE BRACAMONTES.

The success of our operations during the near future will depend largely
upon the services of its three senior officers, Jerome B. Richter, Chairman of
the Board, President and Chief Executive Officer; Ian T. Bothwell, Vice
President, Treasurer, Assistant Secretary, Chief Financial Officer and Principal
Accounting Officer; and Jorge R. Bracamontes, Executive Vice President and
Secretary, as well as President and Chief Executive Officer of Penn Octane de
Mexico, Termatsal, and Tergas. Our continued growth and success depends in part
on our ability to hire and keep qualified managers and on the ability of our
executive officers and key employees to manage our operations successfully. The
loss of any of our senior management or key personnel, or our inability to hire
and keep key management personnel in the future, could have a material adverse
effect on our results of operations and financial condition. We currently have
only one executive employment agreement, which is with Mr. Richter. We have no
key-man life insurance policies on any of our three senior officers. If we lose
the services of any of Messrs. Richter, Bothwell or Bracamontes, we cannot be
sure that we would be able to find a suitable replacement. Any loss of a senior
officer may harm our business, operating results and financial conditions. We
are dependent upon Mr. Bracamontes to act in our best interest in respect of the
interests in Mexican affiliates which we do not control. If Mr. Bracamontes were
to die, his interests in Penn Octane de Mexico, Termatsal and Tergas would pass
to other persons who may or may not control these companies in ways beneficial
to us. If Penn Octane de Mexico, Termatsal and/or Tergas were to do business
with our competitors or otherwise act against our interest, serious harm could
be done to our business, operating results and financial condition.

SALES MADE IN THE OFFERING MIGHT CAUSE A CHANGE IN THE CONTROL OF PENN OCTANE
CORPORATION AND NEGATIVELY IMPACT OUR STOCK PRICE.

If none of the warrants were exercised and the selling stockholders sold
only the 3,442,123 shares of offered stock which they presently own, these sales
would represent approximately 25% of the 13,757,678 outstanding shares. If all
of the 3,914,988 warrants held by selling stockholders were exercised and all of
the 7,357,111 shares being offered under this prospectus were sold, these sales
would represent approximately 41% of the 17,822,666 shares then outstanding. The
transfer of percentages of the outstanding stock this large might cause a change
of control of Penn Octane Corporation and may adversely impact the market price
of our common stock.

WE MAY ISSUE ADDITIONAL STOCK AND DILUTE OUR CURRENT SHAREHOLDERS.

3,914,988 shares of the common stock being offered are issuable upon the
exercise of warrants; none of this stock is presently outstanding. As of
September 15, 2000, 13,757,678 shares of our common stock was outstanding. If
all of the 4,064,988 warrant shares were issued upon exercise of the warrants,
including 150,000 warrant shares which are not being offered, there would be a
total of 17,822,666 shares then outstanding. Additionally, we have reserved up
to 150,000 shares of common stock for issuance under our 1997 Stock Award Plan,
of which 118,186 were unissued as of September 15, 2000.

8
<PAGE> 13

The remaining authorized but unissued 7,059,148 shares of common stock,
5,000,000 shares of Series A Preferred Stock, and 4,910,000 shares of Series B
Preferred Stock may be issued without any action or approval of our stockholders
if the aggregate total number of shares does not exceed 20% of the outstanding
shares sold in a transaction and, with respect to the Series B Preferred Stock,
with such designations, rights, preferences and designations as the Board of
Directors shall decide. Although there are no present plans, agreements or
undertakings involving the issuance of such shares, except as disclosed in this
prospectus, any issuance could be used as a method of discouraging, delaying or
preventing a change in control of Penn Octane Corporation or could significantly
dilute the public ownership of Penn Octane Corporation, which could adversely
affect the market for our common stock. We cannot provide any assurance that we
will not undertake to issue such shares if we deem it appropriate to do so.

WE HAVE NEVER PAID DIVIDENDS AND DO NOT EXPECT TO DO SO IN THE FORESEEABLE
FUTURE.

We have not paid any cash dividends on our common stock since our
initial public offering of common stock in January 1993 and do not expect to pay
any dividends on our common stock in the foreseeable future. The payment of
future dividends will be at the discretion of the Board of Directors and will
depend on, among other things, our earnings, capital requirements and financial
condition. We cannot be sure that our results of operations will ever permit the
payment of such dividends. As many natural resource companies pay dividends, the
absence of dividend payments could cause our stock to be priced lower in the
market.

THE DEMAND FOR LPG MAY BE REDUCED DUE TO THE USE OF OTHER ALTERNATIVE FUELS AND
TECHNOLOGICAL CHANGES.

Factors affecting alternative fuel preferences include availability of
refineries, pipelines and other systems of distribution, costs and environmental
safety. These factors may discourage potential customers from selecting LPG as a
fuel over other alternative fuels in the market and thereby reduce the demand
for LPG. If other alternative fuels become more widely accepted than LPG for
home cooking and heating, our revenues are likely to decline. The growth and
success of our LPG operations in Mexico may be affected by the growth and
success of natural gas as a replacement for home cooking and heating, our
revenues are likely to decline. The growth and success of our LPG operations in
Mexico may be affected by the growth and success of natural gas as a replacement
for home cooking and heating and the expansion of propane as an alternative fuel
to gasoline for vehicles.

WE MAY NOT BE PROFITABLE BECAUSE OUR LPG OPERATIONS ARE HAZARDOUS AND COULD END
UP BEING VERY COSTLY.

The LPG business has a variety of operating risks, such as fire,
explosions, blow-outs, pipe failure, clogs and environmental hazards such as gas
or chemical spills, gas leaks, ruptures or discharges of toxic gases. Our
operations could also be disrupted by hurricanes, floods, fires and other acts
of God. Any of these occurrences could result in substantial losses to us due to
injury, loss of life, damage to property, natural resources and equipment,
pollution or other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. If there is a
disruption or loss as a result of the above, we may not have adequate resources
to make timely repairs or replacements to restore operations effectively.

There are many environmental hazards in the storage, handling and
transportation of LPG. LPG may be discharged in many ways, such as leakage from
pipelines, dispensing equipment, transportation facilities, and storage tanks,
and sudden discharges from damage or explosion. LPG degrades slowly in soil and
water, which makes clean-up costly, and LPG may travel through soil to water
supplies.

Our operations, and their environmental hazards, are or will be subject
to a variety of U.S. and Mexican federal, state and municipal environmental laws
and regulations. We must comply with environmental requirements on use of land
and the storage, handling, and transportation of fuels. Such laws and
regulations may cause liability to the governments

9
<PAGE> 14

of the United States or Mexico, or to other third parties, in the event of
discharges and may require us to incur costs to remedy such discharges. Although
we believe that our operations are in compliance with applicable environmental
laws and regulations, we cannot be sure that this is or will be true. We have
not budgeted any material amounts for environmental compliance for the current
fiscal year. Risks of substantial costs and liabilities are inherent in
pipeline, terminal and processing operations, and we cannot be sure that
significant costs and liabilities will not be covered. While we have no
knowledge of any planned regulatory changes, our plans for our operations could
be harmed if environmental regulatory changes impose more difficult requirements
on our operations.

We maintain insurance against some, but not all, potential risks. We
cannot be sure such insurance will be adequate to cover all losses or exposure
for liability or that we will timely receive insurance proceeds. We do not know
whether insurance will continue to be available at acceptable premium levels or
at all. Losses not covered fully by insurance could harm our ability to be
profitable.

OUR BUSINESS MAY BE HARMED BY UNSTABLE ECONOMIC, POLITICAL AND SOCIAL CONDITIONS
IN MEXICO.

A large portion of our business is conducted in Mexico or with Mexican
companies. This subjects us to a number of risks that would not be present if we
did business only in the United States. Some of these risks are described below.

MEXICAN ECONOMIC, POLITICAL AND SOCIAL CONDITIONS MAY CHANGE AND ADVERSELY
AFFECT OUR OPERATIONS.

Our business involves activities in Mexico, including sales of LPG to
PMI, contracts to, and leases among, Mexican companies, reliance on Mexican
affiliated companies and employees, and the operation of LPG pipelines and
terminal facilities in Mexico. Our operations in Mexico are subject to social,
political, economic and other uncertainties which, if they occur, could harm our
business. These uncertainties include:

- risks of renegotiation or nullification of existing contracts

- changing laws and policies affecting trade and investment

- changing laws affecting business operations

- overlapping or different tax structures

- war

- expropriation

- nationalization of assets

- the general hazards associated with the assertion of sovereignty over
areas in which operations are conducted

- changing social and political conditions

- changing economic conditions including:

- high inflation

- high interest rates

- unemployment

- devaluation of the peso

- governmental cutbacks in spending

The Mexican government exercises significant influence over the Mexican
economy. We cannot determine what effect the Mexican government will have on the
Mexican economy or on our business. Future Mexican government actions could have
a significant effect on market conditions, prices and returns on investments in
Mexico, including those of our business.

10
<PAGE> 15

Adverse social, political or economic developments in or affecting
Mexico, could harm our operations, hinder our ability to obtain additional
financing, or have a negative impact on our Mexican customers.

The operation of the Mexican portion of the new pipelines, the Matamoros
terminal facilities and the Saltillo terminal facilities are regulated by the
laws of Mexico. We employ Mexican citizens to perform the required services. The
successful administration of the Mexican operations is subject to many risk
factors including cultural differences in business operations, language
barriers, international logistics and physical distances which may impede
immediate access to these facilities. The new pipelines, the Matamoros terminal
facilities, and the Saltillo terminal facilities are expected to be administered
and operated under Mexican business standards which may vary from American
business standards. This includes differences in technology, utilities,
equipment, financial reporting and operating procedures. Our business may be
harmed if we are unable to properly administer operations in Mexico.

WE MAY NOT BE ABLE TO CONTINUE OPERATIONS BECAUSE MEXICO RESTRICTS FOREIGN
OWNERSHIP, REQUIRING US TO RELY ON MEXICAN NATIONALS TO CONDUCT OUR BUSINESS.

Due to Mexican restrictions on ownership of companies distributing LPG,
we operate in Mexico through companies owned by Mexican citizens, forcing us to
rely upon third parties rather than directly owning and operating Mexican
facilities. Our three Mexican affiliates, Penn Octane de Mexico, Termatsal and
Tergas, are principally owned by Jorge R. Bracamontes, a Mexican citizen and an
officer and director of Penn Octane Corporation.

In owning and controlling Penn Octane de Mexico, Termatsal, and Tergas,
Mr. Bracamontes is acting on our behalf at our request. While we believe that
the arrangements comply with Mexican law, Mexican authorities could assert that
we are the actual owner of the Mexican affiliated companies and take action to
modify or terminate our Mexican operations. We have not obtained any Mexican
government approvals of our arrangements with Mr. Bracamontes because we believe
that none are required.

We are dependent upon Mr. Bracamontes to act in our best interests.
While we expect Mr. Bracamontes will do so, we cannot be certain that he will.
And, if Mr. Bracamontes were to die, his stock in our Mexican affiliated
companies would pass to other persons who may or may not control these companies
in ways beneficial to us. If our Mexican affiliated companies were to do
business with our competitors or otherwise act against our interests, serious
harm could be done to our business, operating results and financial conditions.

In connection with our Mexican operations, we have implemented
contractual and ownership structures of our Mexican affiliated companies and the
underlying assets and contracts to realize our investment as currently planned.
Although we believe we have complied with Mexican regulatory laws, we may not
have.

THE LPG MARKET IN MEXICO IS UNDERGOING DEREGULATION THE RESULTS OF WHICH MAY
HINDER OUR ABILITY TO NEGOTIATE ACCEPTABLE CONTRACTS WITH DISTRIBUTORS.

The Mexican LPG Market is in the process of deregulation which, when
fully implemented, will allow foreign companies to sell LPG directly to Mexican
customers other than PMI. This will likely require us to negotiate supply
contracts with new companies.

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. Upon the completion of deregulation, Mexican entities
will be able to import LPG into Mexico. Accordingly, we expect to sell LPG
directly to independent Mexican distributors as well as PMI. These distributors
may be required to obtain authorization from the Mexican government for the
importation of LPG prior to entering into contracts with us, and they may not be
able to obtain that authorization quickly or at all. We may not be able to
negotiate or secure any acceptable contracts with the

11
<PAGE> 16

distributors. If we are able to negotiate contracts directly with distributors
located in the northeast region of Mexico, the terms of the contracts may differ
substantially from the terms of the PMI sales agreement. We do not know if this
would be favorable to us and we are unable to predict the impact of deregulation
on the Mexican LPG market and our business.

OUR CONTRACTS AND MEXICAN BUSINESS OPERATIONS ARE SUBJECT TO VOLATILITY IN
CURRENCY EXCHANGE RATES WHICH COULD NEGATIVELY IMPACT OUR EARNINGS.

Since we commenced operations in Mexico, there has been substantial
volatility in the peso-dollar exchange rate. Based on the history of volatility
in Mexican exchange rates, if we enter into peso-denominated contracts in
Mexico, we are subject to the substantial risk of exchanging such payments into
U.S. dollars at unfavorable rates of exchange. Although our PMI sales agreements
require payment for sales of LPG in U.S. dollars, upon deregulation, we
anticipate entering into contracts with Mexican customers in the future which
may permit payment to us in pesos. We cannot be sure future exchange rate
fluctuations will not adversely affect:

- the relative value of payments we received under future peso-dominated
contracts with its Mexican customers.

- our costs of goods and services sold.

- our operating margins.

- the ability of our Mexican customers to continue doing business with us.

The overall impact of future exchange rate fluctuations on our financial
statements cannot be accurately predicted, and may result in exchange rate
losses. Fluctuations in the peso-dollar exchange rate may harm our earning
potential. For more information on the effect of rate fluctuations on our
business, see Form 10-K,fiscal year 1999 -- "Business -- Liquefied Petroleum
Gas."

12
<PAGE> 17

FORWARD-LOOKING STATEMENTS

The statements contained in this prospectus 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, operations, demand,
competition, capital expenditures, the deregulation of the LPG market in Mexico,
the completion and operations of the new pipelines, the Matamoros terminal
facilities, the Saltillo terminal facilities, and our upgrades, foreign
ownership of LPG operations, credit arrangements, and other statements regarding
matters that are not historical facts, involve predictions which are based upon
a number of future conditions that ultimately may prove to be inaccurate. Our
actual results, performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements. Factors
that may cause or contribute to such differences include those discussed under
"Risk Factors," Form 10-K, fiscal year 1999 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," Form
10-Q, quarter ended April 30, 2000 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as those discussed
elsewhere in this prospectus. We caution you however, that this list of factors
may not be complete.

USE OF PROCEEDS

The selling stockholders selling their shares of common stock will
receive the proceeds from any sales, not us. Some of the shares to be sold are
already owned by the selling stockholders, and the remainder are issuable to
them upon exercise of warrants. See the table in "Selling Stockholders." We
would receive the proceeds of sale upon the exercise of these warrants. The
total amount we would receive if all of these warrants were exercised is
approximately $15,081,952 This includes approximately $5,426,970 from exercise
of warrants which will not vest until more than 60 days subsequent to September
15, 2000. We have not made any plans for use of these proceeds other than to add
them to working capital.

SELLING STOCKHOLDERS

All of the common stock being offered in this prospectus is being
offered by the stockholders listed below. We have registered this offering
because of registration rights held by some of the selling stockholders. The
selling stockholders are not required to sell all or any of the shares listed as
being offered. Some of the common stock listed in the table is not presently
owned by the selling stockholders, but is issuable upon exercise of warrants.
The selling stockholders are not required sell the stock. We believe that the
registration of the shares underlying the warrants, even though we may not be
obligated to do so, will encourage the warrant holders to exercise the warrants,
thereby benefitting us through the warrant stock sales.

This table shows the names of the selling stockholders, how many shares
they own, the maximum number of shares they plan to sell in this offering, how
many shares they will own if they sell the planned maximum number of shares, and
the percentage of the total number of shares they will own before and after
their sales.

13
<PAGE> 18

<TABLE>
<CAPTION>
Shares Beneficially Owned Number of Shares to Shares Beneficially
Prior to Offering be Sold in Offering Owned After Offering
--------------------------------- ------------------- ----------------------------------
Name Number Percent Number Percent
---- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
CEC, Inc. 1,521,834(2) 10.71% 1,020,834(2) 501,000 3.53%
The Apogee Fund, L.P. 1,100,000 8.00% 950,000 150,000 1.09%
Western Wood Equipment
Corp. 758,163(3) 5.32% 500,000(3) 258,163 1.81%
Jorge Bracamontes(b) 555,200(4) 3.94% 530,000(4) 25,200(88) (*)
Trellus Partners L.P. 534,000(5) 3.85% 125,000(5) 409,000 2.95%
Van Moer Santerre & Co. 440,000 3.20% 322,500 117,500 (*)
Jerry L. Lockett(c) 366,225(6) 2.60% 330,000(6) 36,225(88) (*)

Ian T. Bothwell(d) 340,000(7) 2.45% 330,000(7) 10,000(88) (*)
Europa International Inc. 337,500(8) 2.43% 337,500(8) -- --
Igor Kent 280,000 2.04% 280,000 -- --
Jose Vicente Soriano 200,000(9) 1.43% 200,000(9) -- --
Stewart Paperin(e) 190,000(10) 1.37% 130,000(10) 60,000(89) (*)
Lincoln Trust Company FBO
Perry D. Snavely
IRA 184,062(11) 1.33% 184,062(11) -- --
RA Associates, LLC 181,818 1.32% 181,818 -- --
Steve Payne 165,909 1.21% 165,909 -- --
Valor Capital Management 112,500(12) (*) 112,500(12) -- --
Ware, Snow, Fogel & Jackson, 100,000 (*) 100,000 -- --
L.L.P., as escrow agent for
Jorge V. Duran
Kenneth G. Oberman(f) 97,000(13) (*) 30,000(13) 67,000 (*)
Fredric N. Richman 79,000(14) (*) 79,000(14) -- --
Clint Norton 69,000(15) (*) 69,000(15) -- --
Pennsylvania Mercant Group 68,685(16) (*) 68,685(16) -- --
Amir L. Ecker 61,940(17) (*) 61,940(17) -- --
Southwest Concept Inc. 46,000(18) (*) 46,000(18) -- --
</TABLE>

14
<PAGE> 19

Sterling 2000 Investments 40,000(20) (*) 40,000(20) -- --

Bear Stearns Security Corp.
F/A/O Almarc Trading LLC 37,500(21) (*) 37,500(21) -- --

Donaldson, Lufkin & Jenrette
Securities Corporation,
Custodian SEP FBO James F
Meara IRA 30,375(22) (*) 29,375(22) 1,000 (*)

James Meara, Jr 29,375(23) (*) 29,375(23) -- --

Dennis L. Adams 25,000(24) (*) 25,000(24) -- --
FBO Alexander A. Maguire,
IRA Rollover HHG Custodian 25,000(25) (*) 25,000(25) -- --

Lostly Capital Management 25,000(26) (*) 25,000(26) -- --

Marci & Company as
Custodian FBO James W
Weaver IRA 25,000(27) (*) 25,000(27) -- --

The Ecker Family Partnership 25,000(28) (*) 25,000(28) -- --

WIN Capital Corp. 20,000(29) (*) 7,500(29) 12,500 (*)

Paul Buongiorno 19,250(30) (*) 6,250(30) 13,000 (*)

Kien Hean Chen and Yung San
Chen JTTEN 18,750(31) (*) 18,750(31) -- --

The Investor Relations Group 15,000 (*) 15,000 -- --

Peter S. Rawlings 13,500(32) (*) 13,500(32) -- --

Allen J. Butler and Kay W
Butler JTTEN 12,500(33) (*) 12,500(33) -- --

Victor M. Dandridge III 12,500(34) (*) 12,500(34) -- --

Donald Lufkin & Jenrette
Securities Corp. as Custodian
FBO R. Scott Williams IRA 12,500(35) (*) 12,500(35) -- --
</TABLE>

15
<PAGE> 20

Richard W. Hubbert 12,500(37) (*) 12,500(37) -- --

Richard A. Jacoby 12,500(38) (*) 12,500(38) -- --

Rupley Holdings Inc. 12,500(39) (*) 12,500(39) -- --

Greg Wood 12,500(40) (*) 12,500(40) -- --

Donaldson Lufkin & Jenrette
Securities Corp. as custodian
FBO Leonid Roytman IRA 10,000(41) (*) 10,000(41) -- --

Gerald M. Chizever 10,000(42) (*) 10,000(42) -- --

Dian Griesel 10,000(43) (*) 10,000(43) -- --

Joe Martinez(g) 10,000 (*) 10,000 -- --

Peter J. Almeroth 9,376(44) (*) 9,376(44) -- --

R. Scott Williams 9,000(45) (*) 9,000(45) -- --

Phillip R. Leicht 8,650(46) (*) 8,650(46) -- --

Marc R. Gordon Esq. And Mrs. 8,126(47) (*) 3,126(47) 5,000 (*)
Helen Gordon JTWROS

Irvin Block 6,250(48) (*) 6,250(48) -- --

Janis Chack 6,250(49) (*) 6,250(49) -- --

Claudie Williams c/f Daniel
Joseph Williams UGMA/PA 6,250(50) (*) 6,250(50) -- --

Donald A. Wissner and
Beverlie F. Wissner
JTTEN 6,250(51) (*) 6,250(51) -- --

Donaldson Lufkin & Jenrette
Securities Corp. as custodian
FBO Joseph Evancich IRA 6,250(52) (*) 6,250(52) -- --

Cathy A. Wichert 6,250(53) (*) 6,250(53) -- --

Carolyn Wittenbraker 6,250(54) (*) 6,250(54) -- --

Wycliffe Capital Management 6,250(55) (*) 6,250(55) -- --
</TABLE>

<PAGE> 21

Alexander A. Maguire 5,000(57) (*) 5,000(57) -- --

Joseph M. Evancich 4,750(58) (*) 4,750(58) -- --

William B. Packer Jr 4,726(59) (*) 4,726(59) -- --

Robert Ayerle and Patricia
Ayerle JTTEN 4,726(60) (*) 4,726(60) -- --

Ben Buongiorno 4,625(61) (*) 3,125(61) 1,500 (*)

Beral Corporation 3,500 (*) 3,500 -- --

Quaestor USA Corporation 3,500 (*) 3,500 -- --

Frank A. Abruzzese 3,375(62) (*) 3,375(62) -- --

Susan M. Barrett 3,126(63) (*) 3,126(63) -- --

Donaldson Lufkin & Jenrette
Securities Corp. as custodian
FBO Ira Lish IRA 3,126(64) (*) 3,126(64) -- --

Virginia M.W. Gardiner 3,126(65) (*) 3,126(65) -- --

Harry John Cornbleet and
Phillis Joanne Cornbleet 3,126(66) (*) 3,126(66) -- --

Henry B. Maguire Spouse IRA 3,126(67) (*) 3,126(67) -- --

Thomas V. Lefevre 3,126(68) (*) 3,126(68) -- --

Edward H. Maguire 3,126(69) (*) 3,126(69) -- --

Susanna P. Maguire 3,126(70) (*) 3,126(70) -- --

O'Brien Transport, Inc. 3,126(71) (*) 3,126(71) -- --

Pennsylvania Merchant Group
401K Plan FBO Joseph
Evancich 3,125(72) (*) 3,125(72) -- --

Allan B. Duboff 2,500(73) (*) 2,500(73) -- --

Donaldson Lufkin & Jenrette
Securities Corp. as custodian
FBO G. Barth IRA 2,500(74) (*) 2,500(74) -- --

Linda P. Nicholas 1,600(75) (*) 1,600(75) -- --
</TABLE>

17
<PAGE> 22

Parec Portfolio Partners 1,600(77) (*) 1,600(77) -- --

Brian S. Colligan 1,000(78) (*) 1,000(78) -- --

Jerry S. Phillips 1,000(79) (*) 1,000(79) -- --

G. Kirk Ellis 1,000(80) (*) 1,000(80) -- --

Nia Stefany 1,000(81) (*) 1,000(81) -- --

Raylene Pyren 1,000(82) (*) 1,000(82) -- --

Richard L. Mann 1,000(83) (*) 1,000(83) -- --

Ronald D. Garber 1,000(84) (*) 1,000(84) -- --

Darya Pace 500(85) (*) 500(85) -- --

Jens Koepke 500(86) (*) 500(86) -- --

Wendy Muramoto 500(87) (*) 500(87) -- --
---------- --------- ---------
12,980,699 7,357,111 5,623,588
========== ========= =========
</TABLE>

(a) Mr. Richter currently serves as our President, Chief Executive
Officer and Chairman of the Board.

(b) Mr. Bracamontes currently serves as our Executive Vice
President, Secretary, and is a Director.

(d) Mr. Bothwell currently serves as our Vice President,
Treasure/Assistant Secretary, Chief Financial Officer, Principal
Accounting Officer, and is a Director.

(e) Mr. Paperin currently serves as a Director.

(f) Mr. Oberman currently serves as a Director

(*) Less than 1%

Percentage of ownership for each holder is calculated on 13,757,678 shares of
common stock outstanding on September 15, 2000. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes shares
over which the holder has voting or investment power, subject to community
property laws. All shares of common stock subject to options or warrants
(including those that are not currently exercisable or exercisable within 60
days subsequent to September 15, 2000) are considered to be beneficially owned
by the person holding the options or warrants for computing that person's
percentage, but are not treated as outstanding for computing the percentage of
any other person.

(1) Includes 540,000 shares of common stock issuable upon exercise
of common stock purchase warrants prior to this offering and
530,000 shares of common stock issuable upon exercise of common
stock purchase

18
<PAGE> 23

warrants to be sold in this offering, of which 356,481 shares of
common stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(2) Includes 454,167 shares of common stock issuable upon exercise
of common stock purchase warrants.

(3) Includes 500,000 shares of common stock issuable upon exercise
of common stock purchase warrants.

(4) Includes 340,000 shares of common stock issuable upon exercise
of common stock purchase warrants prior to this offering and
330,000 shares of common stock issuable upon exercise of common
stock purchase warrants to be sold in this offering, of which
213,889 shares of common stock are issuable upon exercise of
common stock purchase warrants which will not vest until later
than 60 days subsequent to September 15, 2000.

(5) Includes 125,000 shares of common stock issuable upon exercise
of common stock purchase warrants.

(6) Includes 340,000 shares of common stock issuable upon exercise
of common stock purchase warrants prior to this offering and
330,000 shares of common stock issuable upon exercise of common
stock purchase warrants to be sold in this offering, of which
145,593 shares of common stock are issuable upon exercise of
common stock purchase warrants which will not vest until later
than 60 days subsequent to September 15, 2000.

(7) Includes 140,000 shares of common stock issuable upon exercise
of common stock purchase warrants prior to this offering and
130,000 shares of common stock issuable upon exercise of common
stock purchase warrants to be sold in this offering, of which
71,296 shares of common stock are issuable upon exercise of
common stock purchase warrants which will not vest until later
than 60 days subsequent to September 15, 2000.

(8) Includes 112,500 shares of common stock issuable upon exercise
of common stock purchase warrants.

(9) Includes 200,000 shares of common stock issuable upon exercise
of common stock purchase warrants, of which 142,593 shares of
common stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(10) Includes 140,000 shares of common stock issuable upon exercise
of common stock purchase warrants prior to this offering and
130,000 shares of common stock issuable upon exercise of common
stock purchase warrants to be sold in this offering, of which
78,519 and 68,704 shares of common stock are issuable upon
exercise of common stock purchase warrants, respectively, which
will not vest until later than 60 days subsequent to September
15, 2000.

(11) Includes 78,333 shares of common stock issuable upon exercise of
common stock purchase warrants.

(12) Includes 37,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(13) Includes 30,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

19
<PAGE> 24

(14) Includes 79,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 56,324 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(15) Includes 46,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(16) Includes 68,685 shares of common stock issuable upon exercise of
common stock purchase warrants.

(17) Includes 61,940 shares of common stock issuable upon exercise of
common stock purchase warrants.

(18) Includes 31,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(19) Includes 42,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(20) Includes 40,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(21) Includes 37,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(22) Includes 29,375 shares of common stock issuable upon exercise of
common stock purchase warrants.

(23) Includes 29,375 shares of common stock issuable upon exercise of
common stock purchase warrants.

(24) Includes 25,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(25) Includes 25,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(26) Includes 25,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(27) Includes 25,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(28) Includes 25,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(29) Includes 7,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(30) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(31) Includes 18,750 shares of common stock issuable upon exercise of
common stock purchase warrants.

(32) Includes 13,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(33) Includes 12,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(34) Includes 12,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(35) Includes 12,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(36) Includes 12,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

20
<PAGE> 25

(37) Includes 12,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(38) Includes 12,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(39) Includes 12,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(40) Includes 12,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(41) Includes 10,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(42) Includes 10,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 7,130 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(43) Includes 10,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(44) Includes 9,376 shares of common stock issuable upon exercise of
common stock purchase warrants.

(45) Includes 9,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(46) Includes 8,650 shares of common stock issuable upon exercise of
common stock purchase warrants.

(47) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(48) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(49) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(50) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(51) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(52) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(53) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(54) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(55) Includes 6,250 shares of common stock issuable upon exercise of
common stock purchase warrants.

(56) Includes 5,200 shares of common stock issuable upon exercise of
common stock purchase warrants.

(57) Includes 5,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(58) Includes 4,750 shares of common stock issuable upon exercise of
common stock purchase warrants.

(59) Includes 4,726 shares of common stock issuable upon exercise of
common stock purchase warrants.

21
<PAGE> 26

(60) Includes 4,726 shares of common stock issuable upon exercise of
common stock purchase warrants.

(61) Includes 3,125 shares of common stock issuable upon exercise of
common stock purchase warrants.

(62) Includes 3,375 shares of common stock issuable upon exercise of
common stock purchase warrants.

(63) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(64) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(65) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(66) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(67) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(68) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(69) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(70) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(71) Includes 3,126 shares of common stock issuable upon exercise of
common stock purchase warrants.

(72) Includes 3,125 shares of common stock issuable upon exercise of
common stock purchase warrants.

(73) Includes 2,500 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 1,782 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(74) Includes 2,500 shares of common stock issuable upon exercise of
common stock purchase warrants.

(75) Includes 1,600 shares of common stock issuable upon exercise of
common stock purchase warrants.

(76) Includes 1,600 shares of common stock issuable upon exercise of
common stock purchase warrants.

(77) Includes 1,600 shares of common stock issuable upon exercise of
common stock purchase warrants.

(78) Includes 1,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 713 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(79) Includes 1,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 713 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(80) Includes 1,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 713 shares of common
stock are issuable upon exercise of common stock purchase
warrants which

22
<PAGE> 27

will not vest until later than 60 days subsequent to September
15, 2000.

(81) Includes 1,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 713 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(82) Includes 1,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 713 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(83) Includes 1,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 713 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(84) Includes 1,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 713 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(85) Includes 500 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 356 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(86) Includes 500 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 356 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(87) Includes 500 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 356 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

(88) Includes 10,000 shares of common stock issuable upon exercise of
common stock purchase warrants.

(89) Includes 10,000 shares of common stock issuable upon exercise of
common stock purchase warrants, of which 7,222 shares of common
stock are issuable upon exercise of common stock purchase
warrants which will not vest until later than 60 days subsequent
to September 15, 2000.

23
<PAGE> 28

PLAN OF DISTRIBUTION

The selling stockholders will be selling their stock either on the
Nasdaq SmallCap market, at quoted prices, or directly to buyers at negotiated
prices. We will pay the costs of registering these shares. We are entitled to
reimbursement by some of the selling stockholders for a portion of these costs.
Offering these shares for sale does not guarantee that anyone will buy them.

LEGAL MATTERS

The law firm of Richman, Mann, Chizever, Phillips & Duboff, of Beverly
Hills, California, will pass upon the validity of the securities offered by this
prospectus. Although the firm does not own any stock or warrants to purchase
stock in Penn Octane Corporation, ten attorneys and three other employees of the
firm collectively own warrants to purchase 100,000 shares and all of them are
included among the selling stockholders.

INCORPORATION OF DOCUMENTS BY REFERENCE

We are incorporating by reference in this Prospectus our Annual Report
on Form 10-K for the fiscal year ended July 31, 1999, our Quarterly Report on
Form 10-Q for the quarter ended October 31, 1999, our Quarterly Report on Form
10-Q for the quarter ended January 31, 2000, and our Quarterly Report on Form
10-Q for the quarter ended April 30, 2000, filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.

The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose to you important information
contained in other documents filed with the SEC by referring you to those
documents. The information incorporated by reference is an important part of
this prospectus. Information we later file with the SEC will automatically
update and supersede this information. We also incorporate by reference the
documents listed below:

- our Annual Report on Form 10-K for the fiscal year ended July
31, 1998;

- all other reports filed under Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by our
last Annual Report on Form 10-K (July 31, 1999).

- the description of the common stock in our registration
statement on Form 8-A (File No. 0-24394) filed under the
Securities Exchange Act of 1934 on June 20, 1994, and any
amendments or reports filed to update the description; and

- all documents filed by us under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 between the date of
this prospectus and the termination of the offering.

If information in incorporated documents conflicts with information in
this prospectus, you should rely on the most recent information. If information
in an incorporated document conflicts with information in another incorporated
document, you should rely on the most recent incorporated document.

24
<PAGE> 29

You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:

Penn Octane Corporation
77-530 Enfield Lane, Building D
Palm Desert, California 92211
Telephone: (760) 772-9080

You should rely only on the information in this prospectus or any
prospectus supplement or incorporated by reference in them. We have not
authorized anyone else to provide you with different information. We are making
offers of the securities only in states where the offer is permitted. You should
not assume that the information in this prospectus or any prospectus supplement
is accurate as of any date other than the date on the front of those documents.

INDEMNIFICATION

Our certificate of incorporation allows us to indemnify our officers and
directors to the maximum extent allowed under Delaware law. This includes
indemnification for liability which could arise under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant under these provisions, the registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforeceable.

AVAILABLE INFORMATION

Information about Penn Octane Corporation, including audited financial
statements, can be found in our Annual Report on Form 10-K which we filed with
the SEC.

This prospectus is part of a Registration Statement on Form S-3 that has
been filed with the SEC. It does not include all of the information that is in
the registration statement and the additional documents filed as exhibits with
it. For more detail you should read the exhibits themselves.

We are subject to the informational requirements of the Exchange Act
and, in accordance with it, are required to file reports, proxy and information
statements and other information with the Commission. Such reports, proxy and
information statements and other information can be inspected and copied at the
Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of filed
reports, proxy and information statements and other information can be obtained
form the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates or in some cases by
accessing the Commission's World Wide Web site at http://www.sec.gov. Our common
stock is traded on the Nasdaq SmallCap Market under the symbol POCC, and such
reports, proxy statements and other information concerning Penn Octane
Corporation also can be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.

25
<PAGE> 30

--------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY PENN OCTANE CORPORATION, AND SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER
TO BUY, COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME AFTER THE DATE OF THE PROSPECTUS OR THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PENN OCTANE CORPORATION AFTER THE
DATE OF THIS PROSPECTUS.

--------------------

7,357,111 SHARES

PENN OCTANE CORPORATION

COMMON STOCK

--------------------

PROSPECTUS

--------------------

OCTOBER 6, 2000

<PAGE> 31

PART II

ITEM 14.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth an itemized estimate of fees and expenses
payable by the registrant in connection with the offering described in this
registration statement:

<TABLE>
<S> <C>
SEC registration fee ............................................. $ 14,311
Nasdaq additional listing fee .................................... $105,417
Counsel fees and expenses ........................................ $154,000
Accounting fees and expenses ..................................... $ 20,000
Blue Sky fees and expenses ....................................... -0-
Printing expenses ................................................ $ 26,000
Transfer agent and registrar fees ................................ -0-
Miscellaneous .................................................... $ 32,000
--------
Total ............................................................ $351,728
</TABLE>

All of the above expenses will be paid by the registrant. The registrant
is entitled to reimbursement by some of the selling stockholders for a portion
of such costs.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a
corporation generally to indemnify any person ("indemnitee") who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action by or in the right of
the corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation, in a similar position with another corporation or
entity, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. With respect to actions or suits by or in the right of the
corporation, however, an indemnitee who acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation is generally limited to attorneys' fees and other expenses, and no
indemnification shall be made if such person is adjudged liable to the
corporation unless and only to the extent that a court of competent jurisdiction
determines that indemnification is appropriate. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by

II-1
<PAGE> 32

the (i) stockholders, (ii) board of directors by a majority vote of directors
who were not parties to such action, suit or proceeding or (iii) independent
counsel, that indemnification of the indemnitee is proper because such has met
the applicable standard of conduct. Section 145 provides that indemnification
under its provisions is not exclusive of other rights of indemnification to
which a person may be entitled under any by-law, agreement, vote of stockholders
or disinterested directors or otherwise.

The Company's by-laws provide that the Company will indemnify, to the
fullest extent permitted by law, any person or such person's heir, distributees,
next of kin, successors, appointees, executors, administrators, legal
representatives and assigns who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company was a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, domestic or foreign, against expenses, attorneys'
fees, court costs, judgments, fines, amounts paid in settlement and other losses
actually and reasonably incurred by such person in connection with such action,
suit or proceeding.

The Restated Certificate of Incorporation, as amended also provides that
no director of the Company will be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such a
director as a director other than for: (i) any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) liability under Section 174 of the General Corporation Law of Delaware, or
(iv) any transaction from which such director derived an improper personal
benefit.

ITEM 16. EXHIBITS

<TABLE>
Exhibit No.
-----------

<S> <C>
5 Opinion of Richman, Mann, Chizever, Phillips & Duboff

23.1 Consent of Richman, Mann, Chizever, Phillips & Duboff. (included
in Exhibit 5)

23.2 Consent of Burton McCumber & Cortez, LLP

24 Powers of attorney

99 Awareness letter of Burton McCumber & Cortez, LLP
</TABLE>

------------------------

* Filed herewith

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

II-2
<PAGE> 33

(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.

(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions
described in Item 15, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

(6) For the purpose of determining any liability under the
Securities Act of 1933, each post- effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

II-3
<PAGE> 34

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Palm Desert, State of California, on this 6th
day of October, 2000.

PENN OCTANE CORPORATION

By: /s/ Jerome B. Richter
---------------------------------------
Jerome B. Richter
Chairman of the Board, President
and Chief Executive Officer

By: /s/ Ian Bothwell
---------------------------------------
Ian Bothwell
Chief Financial Officer, Vice President,
Treasurer, Assistant Secretary, and
Principal Accounting Officer

II-4