UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



                                    FORM 10-Q


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

     For  the  quarterly  period  ended  April  30,  1998

                                       OR

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

     For  the  transition  period from __________________ to ___________________


                       Commission file number:  000-24394

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

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

900  VETERANS  BOULEVARD,  SUITE  240,  REDWOOD  CITY,  CALIFORNIA     94063
     (Address of Principal Executive Offices)                         (Zip Code)

Registrant's  Telephone  Number,  Including  Area  Code:    (650)  368-1501

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

     The number of shares of Common Stock, par value $.01 per share, outstanding
on  June  12,  1998  was  9,967,673.

<PAGE>
<TABLE>
<CAPTION>

                                  PENN OCTANE CORPORATION
                                     TABLE OF CONTENTS


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

             Consolidated Balance Sheets as of April 30, 1998 (unaudited)
             and July 31, 1997                                                          3-4

             Consolidated Statements of Operations for the three and nine months
             ended April 30, 1998 and 1997 (unaudited)                                    5

             Consolidated Statements of Cash Flows for the nine months ended
             April 30, 1998 and 1997 (unaudited)                                          6

             Notes to Consolidated Financial Statements (unaudited)                    7-18

         2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                                19-25

Part II  1.  Legal Proceedings                                                           26

         2.  Changes in Securities                                                       26

         3.  Defaults Upon Senior Securities                                             26

         4.  Submission of Matters to a Vote of Security Holders                         26

         5.  Other Information                                                           26

         6.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K         26-28
</TABLE>

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

                             PENN OCTANE CORPORATION AND SUBSIDIARIES

                                   CONSOLIDATED BALANCE SHEETS

                                              ASSETS


                                                                          April 30,     July 31,
                                                                             1998         1997
                                                                         ------------  ----------
<S>                                                                      <C>           <C>
                                                                          (Unaudited)
Current Assets
 Cash (note G). . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    268,663  $   31,142
 Trade accounts receivable, less allowance for doubtful accounts of
 $53,406 (notes D and G). . . . . . . . . . . . . . . . . . . . . . . .     2,731,135     281,500
 Related party receivables. . . . . . . . . . . . . . . . . . . . . . .       147,009     171,601
 Costs and estimated earnings in excess of billings on uncompleted
 contracts (note D) . . . . . . . . . . . . . . . . . . . . . . . . . .        63,580     196,888
 Inventories (note D) . . . . . . . . . . . . . . . . . . . . . . . . .       759,270     795,797
 Deferred registration costs. . . . . . . . . . . . . . . . . . . . . .       479,870           -
 Prepaid expenses and other current assets. . . . . . . . . . . . . . .       129,850      83,082
                                                                         ------------  ----------
   Total current assets . . . . . . . . . . . . . . . . . . . . . . . .     4,579,377   1,560,010
Property, plant and equipment - net (note C). . . . . . . . . . . . . .     4,124,545   3,185,148
Lease rights (net of accumulated amortization of $467,111 and $432,765)
(note C). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       686,928     721,274
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . .        72,946      29,935
                                                                         ------------  ----------
   Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  9,463,796  $5,496,367
                                                                         ============  ==========
</TABLE>


        The accompanying notes are an integral part of these statements.
<PAGE>

<TABLE>
<CAPTION>

                                 PENN OCTANE CORPORATION AND SUBSIDIARIES

                                  CONSOLIDATED BALANCE SHEETS - CONTINUED

                                   LIABILITIES AND STOCKHOLDERS' EQUITY


                                                                              April 30,        July 31,
                                                                                 1998            1997
                                                                            --------------  --------------
Current Liabilities                                                          (Unaudited)
<S>                                                                         <C>             <C>
 Current maturities of long-term debt, less unamortized discount of
 $18,750 and $0 at April 30, 1998 and July 31, 1997 (note E) . . . . . . .  $   1,625,447   $   1,152,391 
 Revolving line of credit (notes E and G). . . . . . . . . . . . . . . . .        526,328         140,000 
 Construction accounts payable . . . . . . . . . . . . . . . . . . . . . .              -         121,801 
 Trade accounts payable (note G) . . . . . . . . . . . . . . . . . . . . .      2,284,312         481,348 
 Billings in excess of costs and estimated earnings in excess of billings
 on uncompleted contracts (note D) . . . . . . . . . . . . . . . . . . . .              -           7,596 
 Borrowings from IBC-Brownsville (note G). . . . . . . . . . . . . . . . .        672,552         672,552 
                                                                                1,176,995       1,055,237 
                                                                            --------------  --------------
 Accrued liabilities
   Total current liabilities . . . . . . . . . . . . . . . . . . . . . . .      6,285,634       3,630,925 
Long-term debt, less current maturities (note E) . . . . . . . . . . . . .         80,000       1,112,833 
Commitments and contingencies (notes D and G). . . . . . . . . . . . . . .              -               - 
Stockholders' Equity (note F)
 Senior Preferred stock-$.01 par value, 5,000,000 shares authorized; 0
 shares issued and outstanding at April 30, 1998 and July 31, 1997 . . . .              -               - 
 Preferred stock-$.01 par value, 5,000,000 shares authorized; 0 and
 270,000 convertible shares issued and outstanding at April 30, 1998 and
 July 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              -           2,700 
 Common stock-$.01 par value, 25,000,000 shares authorized; 9,952,673
 and 8,169,286 shares issued and outstanding at April 30, 1998 and
 July 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         99,527          81,693 
 Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . .     13,152,034      10,515,266 
 Notes receivable including accrued interest receivable from the
 president of the Company and a related party for exercise of warrants . .   (  3,007,377)   (  2,834,865)
 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . .   (  7,146,022)   (  7,012,185)
                                                                            --------------  --------------
   Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . .      3,098,162         752,609 
                                                                            --------------  --------------
     Total liabilities and stockholders' equity. . . . . . . . . . . . . .  $   9,463,796   $   5,496,367 
                                                                            ==============  ==============
</TABLE>

        The accompanying notes are an integral part of these statements.

<PAGE>
<TABLE>
<CAPTION>

                               PENN OCTANE CORPORATION AND SUBSIDIARIES

                                CONSOLIDATED STATEMENTS OF OPERATIONS

                                             (UNAUDITED)


                                                   Three Months Ended          Nine Months Ended
                                                -------------------------  -------------------------
                                                 April 30,     April 30,    April 30,     April 30,
                                                    1998         1997          1998          1997
                                                ------------  -----------  ------------  ------------
<S>                                             <C>           <C>          <C>           <C>
Revenues . . . . . . . . . . . . . . . . . . .  $ 7,867,571   $8,021,182   $26,162,629   $24,080,126 
Cost of goods sold . . . . . . . . . . . . . .    7,263,748    7,634,879    24,119,208    23,116,092 
                                                ------------  -----------  ------------  ------------
 Gross profit. . . . . . . . . . . . . . . . .      603,823      386,303     2,043,421       964,034 
                                                ------------  -----------  ------------  ------------
Selling, general and administrative expenses
 Legal and professional fees . . . . . . . . .      154,329      201,576       486,182       581,471 
 Salaries and payroll related expenses . . . .      238,441       74,899       725,163       321,670 
 Travel. . . . . . . . . . . . . . . . . . . .       43,208       63,165       155,752       156,298 
 Other . . . . . . . . . . . . . . . . . . . .      160,469       97,234       485,303       270,635 
                                                ------------  -----------  ------------  ------------
                                                    596,447      436,874     1,852,400     1,330,074 
                                                ------------  -----------  ------------  ------------
 Operating income (loss) . . . . . . . . . . .        7,376    (  50,571)      191,021    (  366,040)
Other income (expense)
 Interest expense. . . . . . . . . . . . . . .   (  109,916)   (  48,840)   (  276,196)   (  172,346)
 Interest income . . . . . . . . . . . . . . .       59,476           53       176,340           766 
                                                ------------  -----------  ------------  ------------
   Net income (loss) before taxes. . . . . . .    (  43,064)   (  99,358)       91,165    (  537,620)
Provision for income taxes . . . . . . . . . .            -            -             -             - 
                                                ------------  -----------  ------------  ------------
   Net income (loss) . . . . . . . . . . . . .  $ (  43,064)  $(  99,358)  $    91,165   $(  537,620)
                                                ------------  -----------  ------------  ------------
(Loss) per common share and (loss) per common
share assuming dilution (note B) . . . . . . .  $   (  0.00)  $  (  0.02)  $   (  0.01)  $   (  0.10)
                                                ============  ===========  ============  ============
Weighted average common shares outstanding . .    9,764,127    5,936,108     8,993,546   $ 5,443,346 
                                                ============  ===========  ============  ============
</TABLE>


        The accompanying notes are an integral part of these statements.

<PAGE>
<TABLE>
<CAPTION>
                             PENN OCTANE CORPORATION AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH FLOWS

                                            (UNAUDITED)

                                                                           Nine Months Ended
                                                                     --------------  -------------
                                                                       April 30,       April 30,
                                                                          1998           1997
                                                                     --------------  -------------
<S>                                                                  <C>             <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .  $      91,165   $ (  537,620)
Adjustments to reconcile net loss to net cash used in operating
Activities:
 Depreciation and amortization. . . . . . . . . . . . . . . . . . .        204,948        326,232 
 Amortization of lease rights . . . . . . . . . . . . . . . . . . .         34,346         97,826 
 Amortization of loan discount. . . . . . . . . . . . . . . . . . .         56,250              - 
 Interest income from related party notes receivables . . . . . . .     (  172,512)             - 
Changes in current assets and liabilities:
 Trade accounts receivable. . . . . . . . . . . . . . . . . . . . .   (  2,449,635)    (  303,489)
 Related party receivable . . . . . . . . . . . . . . . . . . . . .         24,592              - 
 Interest receivable. . . . . . . . . . . . . . . . . . . . . . . .              -         26,233 
 Costs and estimated earnings in excess of billings on uncompleted
    contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .        133,308              - 
 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . .         36,528     (  149,301)
 Prepaid and other current assets . . . . . . . . . . . . . . . . .      (  28,768)    (  284,561)
 Deferred registration costs. . . . . . . . . . . . . . . . . . . .     (  479,870)             - 
 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . .              -        451,703 
 Construction and accounts payable. . . . . . . . . . . . . . . . .      1,674,565     (  300,929)
 Billings in excess of costs and estimated earnings in excess
      of billings on uncompleted contracts. . . . . . . . . . . . .       (  7,596)             - 
 Other assets and liabilities, net. . . . . . . . . . . . . . . . .      (  61,010)         2,163 
 Note receivable. . . . . . . . . . . . . . . . . . . . . . . . . .              -    (    37,500)
 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . .        274,009     (    7,747)
                                                                     --------------  -------------
   Net cash used in operating activities. . . . . . . . . . . . . .     (  669,680)    (  716,990)

Cash flows from investing activities:
 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . .   (  1,171,526)    (  100,914)
                                                                     --------------  -------------
   Net cash used in investing activities. . . . . . . . . . . . . .   (  1,171,526)    (  100,914)

Cash flows from financing activities:
 Revolving credit facilities. . . . . . . . . . . . . . . . . . . .        386,327              - 
 Issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . .      1,500,000        325,000 
 Issuance of Common Stock . . . . . . . . . . . . . . . . . . . . .      1,131,250        931,260 
 Reduction in debt. . . . . . . . . . . . . . . . . . . . . . . . .     (  938,850)    (  379,938)
                                                                     --------------  -------------
   Net cash provided by financing activities. . . . . . . . . . . .      2,078,727        876,322 
                                                                     --------------  -------------

     Net increase in cash . . . . . . . . . . . . . . . . . . . . .        237,521         58,418 
Cash at beginning of period . . . . . . . . . . . . . . . . . . . .         31,142        364,525 
                                                                     --------------  -------------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . .  $     268,663   $    422,943 
                                                                     ==============  =============

Supplemental disclosures of cash flow information:
 Cash paid during the period for:
   Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     244,495   $    106,753 
                                                                     ==============  =============
Supplemental disclosures of noncash transactions:
 Common stock and warrants issued (notes F and G) . . . . . . . . .  $   1,520,651   $  3,086,971 
                                                                     ==============  =============
</TABLE>

        The accompanying notes are an integral part of these statements.

<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  A  -  ORGANIZATION

Penn  Octane  Corporation,  which  was formerly International Energy Development
Corporation  (IEDC)  and  The Russian Fund, is a Delaware corporation, which was
incorporated on August 27, 1992.  On October 21, 1993, IEDC acquired Penn Octane
Corporation, a Texas corporation, whose primary asset was a liquid petroleum gas
(LPG)  pipeline  lease  agreement  (Pipeline  Lease)  with  Seadrift  Pipeline
Corporation  (Seadrift),  a  subsidiary  of  Union  Carbide  Corporation  (Union
Carbide).  On  January  6,  1995,  the Board of Directors approved the change of
IEDC's  name  to  Penn  Octane  Corporation (Company or Parent).  The Company is
engaged  primarily  in  the business of purchasing, transporting and selling LPG
and  providing  services  and  equipment  to  the  compressed  natural gas (CNG)
industry.  Substantially all of the LPG sales volume since inception has been to
PMI  Trading  Limited  (PMI),  a  subsidiary of Petroleos Mexicanos (PEMEX), the
Mexican  state  owned  oil  company.

The Company commenced operations during the fiscal year ended July 31, 1995 upon
construction  of  its  terminal  facility  in  Brownsville,  Texas  (Brownsville
Terminal  Facility).  Prior  to  such  time, the Company was in the "development
stage"  until  the  business  was  established  and planned principal operations
commenced  during  the  year  ended  July  31,  1995.

In  February 1997, the Company formed Wilson Acquisition Corporation, a Delaware
corporation  and  a  wholly-owned subsidiary, for the purpose of engaging in the
business  of designing, constructing, installing and servicing equipment for CNG
fueling stations and related products for use in the CNG industry throughout the
world.  The  subsidiary's  name was changed to PennWilson CNG, Inc. (PennWilson)
in  August  1997.

In  October  1997,  the  Company  formed  Penn  CNG Holdings, Inc. (Holdings), a
Delaware  corporation and a wholly-owned subsidiary, to act as a holding company
for  the Company's future Mexico CNG-related operations, including the ownership
and  operation  of CNG fueling stations, sales of CNG-powered vehicles and other
CNG-related  business.  In  February  1998, the Company formed PennWill, S.A. de
C.V.,  Camiones  Ecologicos,  S.A.  de C.V., Grupo Ecologico Industrial, S.A. de
C.V., Estacion Ambiental, S.A. de C.V., Estacion Ambiental II, S.A. de C.V., and
Serinc,  S.A. de C.V. (collectively Estacion), all Mexican corporations, for the
Company's  future  Mexico  CNG-related  operations.

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

The  accompanying financial statements include the Company and its subsidiaries.
All  significant  intercompany  accounts  and  transactions  are  eliminated.

The  unaudited consolidated balance sheet, the unaudited consolidated statements
of operations, and the unaudited consolidated statements of cash flows contained
herein  have  been  prepared  by  the  Company without audit.  In the opinion of
management, the financial statements include all adjustments (which include only
normal  recurring  adjustments)  necessary  to  present  fairly  the  unaudited
consolidated  financial  position  of  the  Company  as  of  April 30, 1998, the
unaudited consolidated results of operations for the three and nine months ended
April  30, 1998 and 1997 and the unaudited consolidated statements of cash flows
for  the  nine  months  ended  April  30,  1998  and  1997.

Certain  information  and  footnote  disclosures  normally included in financial
statements  prepared in accordance with generally accepted accounting principles
have  been  omitted.  These  financial  statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended July 31, 1997 and the Company's Quarterly
Reports  on  Form  10-Q  for  the  quarterly  periods ended October 31, 1997 and
January  31,  1998.

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

<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 incurred
losses,  giving  effect to common stock equivalents is not presented as it would
be  antidilutive.

The  FASB issued Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings  Per  Share", which supersedes Accounting Principles Board Opinion No.
15 (APB 15), "Earnings Per Share".  The statement became effective for financial
statements  issued for periods ending after December 15, 1997, including interim
periods.  Early  adoption  was  not  permitted.


THE  FOLLOWING  TABLE  PRESENTS  RECONCILIATIONS FROM (LOSS) PER COMMON SHARE TO
(LOSS)  PER  COMMON  SHARE  ASSUMING  DILUTION:

<TABLE>
<CAPTION>

                                      For the three months ended April 30, 1998    For the nine months ended April 30, 1998
                                      ------------------------------------------  ------------------------------------------
                                      Income (loss)      Shares       Per-Share   Income (loss)      Shares       Per-Share
                                       (Numerator)    (Denominator)    Amount      (Numerator)    (Denominator)    Amount
                                      --------------  -------------  -----------  --------------  -------------  -----------
<S>                                   <C>             <C>            <C>          <C>             <C>            <C>
Net income (loss). . . . . . . . . .  $   (  43,064)                              $      91,165 
Less:  Dividends on preferred stock.              -                                  (  225,000)
BASIC EPS
Net (loss) available to common
  stockholders . . . . . . . . . . .      (  43,064)      9,764,127  $  (  0.00)     (  133,835)      8,993,546  $  (  0.01)
                                                                     ===========                                 ===========
EFFECT OF DILUTIVE SECURITIES
  Warrants . . . . . . . . . . . . .              -               -                           -               -
Convertible Preferred Stock. . . . .              -               -                           -               -
DILUTED EPS
Net (loss) available to common
  stockholders . . . . . . . . . . .  $   (  43,064)      9,764,127  $  (  0.00)  $  (  133,835)      8,993,546  $  (  0.01)
                                      ==============  =============  ===========  ==============  =============  ===========
</TABLE>

<TABLE>
<CAPTION>

     For  the  three  months  ended  April  30,  1997          For  the  nine  months  ended  April  30,  1997
     ------------------------------------------------          -----------------------------------------------

                                      Income (loss)      Shares       Per-Share   Income (loss)      Shares       Per-Share
                                       (Numerator)    (Denominator)    Amount      (Numerator)    (Denominator)    Amount
                                      --------------  -------------  -----------  --------------  -------------  -----------
<S>                                   <C>             <C>            <C>          <C>             <C>            <C>
Net (loss) . . . . . . . . . . . . .  $   (  99,358)                              $  (  537,620)
Less:  Dividends on preferred stock.              -                                           - 
BASIC EPS
Net (loss) available to common
 stockholders. . . . . . . . . . . .      (  99,358)      5,936,108  $  (  0.02)     (  537,620)      5,443,346  $  (  0.10)
                                                                     ===========                                 ===========
EFFECT OF DILUTIVE SECURITIES
 Warrants. . . . . . . . . . . . . .              -               -                           -               -
Convertible Preferred Stock. . . . .              -               -                           -               -
DILUTED EPS
Net (loss) available to common
 stockholders. . . . . . . . . . . .  $   (  99,358)      5,936,108  $  (  0.02)  $  (  537,620)      5,443,346  $  (  0.10)
                                      ==============  =============  ===========  ==============  =============  ===========
</TABLE>

<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  C  -  PROPERTY,  PLANT  AND  EQUIPMENT

     Property,  plant  and  equipment  consists  of  the  following:

<TABLE>
<CAPTION>
                                      April 30,       July 31,
                                        1998            1997
                                    -------------  --------------
<S>                                 <C>            <C>
LPG:
Building . . . . . . . . . . . . .  $    173,500   $     173,500 
LPG terminal . . . . . . . . . . .     3,426,440       3,426,440 
Automobiles and equipment. . . . .       390,538         378,039 
Office equipment . . . . . . . . .        29,914          22,202 
Leasehold improvements . . . . . .       373,824         237,899 

CNG:
Furniture, fixtures and equipment.       191,589         162,161 
Automobiles. . . . . . . . . . . .           500          40,023 
Capital construction in progress .       998,297               - 
Leasehold improvements . . . . . .         8,575           8,575 
                                    -------------  --------------
                                       5,593,177       4,448,839 
Less: accumulated depreciation and
 amortization. . . . . . . . . . .   ( 1,468,632)   (  1,263,691)
                                    -------------  --------------
                                    $  4,124,545   $   3,185,148 
                                    =============  ==============
</TABLE>

During  May  1997,  the Company amended (the Amendment) the Pipeline Lease with
Seadrift  to  extend the term of the Pipeline Lease through March 31, 2013.  The
Amendment  became effective on April 1, 1998.  As a result of the Amendment, the
Company  changed  the  useful  life  of  its  LPG  terminal  assets,  leasehold
improvements and lease rights through the extension of the amended lease period.
The  effect  of the change in estimate for the three and nine months ended April
30,  1998  was  to increase the Company's net income by $71,017 and $213,051 and
increase  the  Company's  income per common share by $.01 and $.02 respectively.

<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  D  -  INVENTORIES

Inventories  consist  of  the  following:

<TABLE>
<CAPTION>
                            April 30,    July 31,
                               1998        1997
                            ----------  -----------
<S>                         <C>         <C>
LPG. . . . . . . . . . . .  $  574,117  $   492,551
CNG
 Raw material and supplies     185,153      199,519
 Work in progress. . . . .           -      103,727
                            ----------  -----------

                            $  759,270  $   795,797
                            ==========  ===========
</TABLE>

Costs  and estimated earnings on uncompleted contracts consist of the following:

<TABLE>
<CAPTION>
                                                                          April 30,      July 31,
                                                                             1998          1997
                                                                          ----------  --------------
Uncompleted contracts consist of:
<S>                                                                       <C>         <C>
    Costs incurred on uncompleted contracts. . . . . . . . . . . . . . .  $2,130,588  $     488,560 
 Estimated earnings. . . . . . . . . . . . . . . . . . . . . . . . . . .     168,024        101,294 
                                                                          ----------  --------------
                                                                           2,298,612        589,854 
 Less: billings to date. . . . . . . . . . . . . . . . . . . . . . . . .   2,235,032        400,562 
                                                                          ----------  --------------
                                                                          $   63,580        189,292
                                                                          ==========  ==============

Included in the accompanying balance sheet under the following captions:

 Costs and estimated earnings in excess of
   billings on uncompleted contracts
 Billings in excess of costs and estimated . . . . . . . . . . . . . . .  $   63,580  $     196,888 
   earnings on uncompleted contracts
                                                                                   -       (  7,596)
                                                                          ----------  --------------
                                                                          $   63,580  $     189,292 
                                                                          ==========  ==============
</TABLE>

As  of  April 30, 1998, the above amounts include approximately $821,994 related
to change-orders for additional work performed by the Company in connection with
the  construction  of  equipment for a CNG fueling station for the New York City
Department  of Transportation (NYDOT), which have been submitted to the customer
for  approval.  During  March  1998,  the  Company  was  requested  to  furnish
additional  documentation  with respect to the submitted change-orders which was
subsequently  provided on May 15, 1998.  On April 30, 1998, the Company received
notification  from A.E. Schmidt Environment ("AES") that it was in default under
the  agreement  between  AES  and  the Company relating to the NYDOT CNG fueling
station.  The  Company  has  responded  to AES indicating that AES is in default
with  the  terms  of the agreement and that the Company is awaiting satisfactory
resolution  of  these matters prior to completion of the remaining work outlined
under  the  agreement.  The  Company  is  currently  exploring  legal  remedies
available.

<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  E  -  LONG-TERM  DEBT

<TABLE>
<CAPTION>
                                                                                        April 30,    July 31,
                                                                                           1998        1997
                                                                                        ----------  ----------
<S>                                                                                     <C>         <C>
Contract for Bill of Sale; due in semi-annual payments of $22,469, including
interest at 11.8%; due in October 1998; collateralized by a building . . . . . . . . .  $   91,197  $  113,191
Subordinated note with warrants to purchase 50,000 shares of common stock at
2.50 per share expiring February 28, 2001; principal due August 31, 1997, or upon
earlier receipt of proceeds from a primary equity offering in the minimum amount of
5,000,000; interest at 10% due annually on the anniversary date of the note;
collateralized by all tanks, pumps, equipment and other terminal property, and
proceeds from a judgment or settlement of litigation (paid in September 1997). . . . .           -     400,000
Subordinated note with warrants to purchase 50,000 shares of common stock at
2.50 per share expiring April 11, 2001; principal due October 11, 1997, or upon
earlier receipt of proceeds from a primary equity offering in the minimum amount of
5,000,000; interest at 10% due annually on the anniversary date of the note;
collateralized by all tanks, pumps, equipment and other terminal property and
proceeds from the judgment or settlement of litigation (paid in October 1997). . . . .           -     500,000
Unsecured note with warrants to purchase 75,000 shares of common stock at $3.00
per share expiring October 10, 1997; principal due November 7, 1997, or upon
receipt of proceeds from offering of securities prior to payment date in excess of
250,000; Company shall utilize one half of proceeds from such sale to satisfy this
note; interest at 10% due annually on the anniversary date of the note  (paid in
August 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           -      75,000
Unsecured note with principal due in equal annual installments of $20,000
beginning June 5, 1998, plus interest at the prime rate; due June 5, 2002. . . . . . .     100,000     100,000
Unsecured promissory note due May 29, 1998 . . . . . . . . . . . . . . . . . . . . . .      33,000      33,000
Secured promissory note with warrants to purchase 500,000 shares of common
stock at $2.50 per share expiring June 15, 2002; principal due June 15, 1999, or
upon earlier receipt of proceeds from a primary debt or equity offering in the
minimum amount of $5,000,000; interest at 10.5% due semi-annually on December
15 and June 15; collateralized by certain specified assets of the Company
(extinguished in April 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           -   1,000,000
1,500,000 in promissory notes, less unamortized discount of $18,750, with
warrants to purchase 250,000 shares of common stock at $6.00 per share expiring
October 21, 2000; principal due June 30, 1998, or upon earlier receipt of proceeds
from any public offering of debt or equity of the Company resulting in net proceeds
to the Company in excess of $5,000,000; interest at 10.0% on the principal amount
of the promissory notes is due quarterly on March 31, June 30, September 30 and
December 31.  The effective interest rate after consideration of the discount, is
18.0% per annum. Purchasers of the promissory notes were granted one demand
registration right with respect to the shares issuable upon exercise of the warrants .   1,481,250           -
Capitalized lease obligations payable in monthly installments totaling $3,138; due
on various dates through January 1999. . . . . . . . . . . . . . . . . . . . . . . . .           -      44,033
                                                                                        ----------  ----------
                                                                                         1,705,447   2,265,224
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1,625,447   1,152,391
                                                                                        ----------  ----------
                                                                                        $   80,000  $1,112,833
                                                                                        ==========  ==========
</TABLE>

In December 1995, the Company obtained a revolving line of credit for $140,000.
The  credit  line  was renewed in December 1996 for the period through September
30, 1997.  Interest is calculated on this credit line at the prime rate plus 3%.
During  October 1997, the outstanding balance under the revolving line of credit
was  repaid.

NOTE  F  -  STOCKHOLDERS'  EQUITY

PREFERRED  STOCK
----------------

On September 18, 1993, in a private placement, the Company issued 150,000 shares
of its $.01 par value, 11% convertible, cumulative non-voting preferred stock at
a  purchase  price of $10.00 per share.  On June 10, 1994 the Company declared a
2-for-1  stock split.  The preferred stock was convertible into voting shares of
common  stock  of  the  Company  at a conversion ratio of one share of preferred
stock  for  3.333  shares  of  common stock. On September 10, 1997, the Board of
Directors  of  the Company approved the issuance of an additional 100,000 shares
of  common  stock as an inducement for the preferred stockholders to convert the
shares  of  preferred stock and release all rights with respect to the preferred
stock. In January 1998, all 270,000 shares of the preferred stock were converted
into  an  aggregate  of  999,910  shares  of  common  stock of the Company.  The
issuance  of  the  additional  100,000  shares  was  recorded  as a common stock
dividend  in  the  amount  of  $225,000  at  January  30,  1998.

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

In  August  1997,  warrants  to  purchase  75,000  shares of common stock of the
Company  were  exercised in exchange for cancellation of a $75,000 note payable,
plus  accrued  interest  thereon,  and a cash payment to the Company of $56,250.

During  August  1997, warrants to purchase 430,000 shares of common stock of the
Company  were  exercised  by a director of the Company (130,000) and other third
parties  (300,000)  at  an exercise price of $2.50 per share resulting in a cash
payment  received by the Company of $1,075,000.  In connection with the exercise
of  100,000  of  these  warrants (the Exercised Securities), the Company entered
into  a  Registration  Rights  Agreement,  agreeing  to  register  the Exercised
Securities  on  or  before  February 1, 1998.  In the event the Company fails to
register  the Exercised Securities by February 1, 1998, for each month beginning
March  1,  1998 and ending on September 1, 1998, the Company will be required to
issue  to  the  holder  of  the Exercised Securities warrants to purchase 10,000
shares  of  common stock of the Company at an exercise price of $2.50 per share,
exercisable  within one year from the date of issuance.  As of June 1, 1998, the
Company had failed to register any of the warrants and as such has issued to the
holder  of the Exercised Securities 40,000 warrants to purchase 40,000 shares of
common stock of the Company at an exercise price of $2.50 per share, exercisable
within  one  year  from  their  respective  dates  of  issuance.

Effective  April  7,  1998,  the  Company  sold  to  the  holder  of the Secured
Promissory  Note  258,163  shares of newly issued shares of the Company at $4.00
per share in payment of all principal and interest balances owing on the Secured
Promissory  Note  as  of  April  7,  1998  of  $1,032,652.

In  connection  with  the issuance of $1,500,000 of promissory notes, holders of
the  promissory  notes  received  warrants  to purchase 250,000 shares of common
stock  of the Company at an exercise price of $6.00 per share, exercisable on or
before  October  21,  2000  (the  Promissory  Warrants).  In connection with the
issuance  of  the  Promissory  Warrants, the Company entered into a Registration
Rights  Agreement.

<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

STOCK  AWARD  PLAN

On  October  21,  1997,  the  Company  adopted the 1997 Stock Award Plan (Plan).
Under the terms of the Plan, the Company reserved for issuance 150,000 shares of
common  stock.  The  purpose  of  the Plan is to compensate consultants who have
rendered  significant  services to the Company.  The Plan is administered by the
compensation  committee  of  the  Company which shall have complete authority to
select  participants, determine the awards of common stock to be granted and the
times  such  awards will be granted.  In October 1997, the Company issued 20,314
shares  of  common stock of the Company from the Plan to a Mexican consultant in
payment  for  services  rendered  to  the  Company  valued  at  $113,000.

NOTE  G  -  COMMITMENTS  AND  CONTINGENCIES

LITIGATION

     On  August 24, 1994, the Company filed an Original Petition and Application
for  Injunctive  Relief  against  the International Bank of Commerce-Brownsville
("IBC-Brownsville"),  a  Texas  state  banking  association,  seeking (i) either
enforcement  of  a  credit facility between the Company and IBC-Brownsville or a
release of the Company's property granted as collateral thereunder consisting of
significantly  all of the Company's business and assets; (ii) declaratory relief
with  respect  to  the  credit  facility;  and  (iii)  an  award for damages and
attorneys' fees.  After completion of an arbitration proceeding, on February 28,
1996, the 197th District Court in and for Cameron County, Texas entered judgment
(the  "Judgment") confirming the arbitral award for $3,246,754 to the Company by
IBC-Brownsville.  On  June  3,  1996,  IBC-Brownsville  filed  an  appeal.

     On  April  18,  1996, the Company reached an agreement (the "IBC Settlement
Agreement")  to  accept  $400,000  to  settle a lawsuit it filed in October 1995
against  International  Bank  of  Commerce-San  Antonio,  a  bank  related  to
IBC-Brownsville  ("IBC-San  Antonio").  As part of the settlement agreement, the
parties, including IBC-Brownsville and IBC-San Antonio, executed mutual releases
from  future  claims  related  to the IBC-Brownsville litigation.  Additionally,
IBC-San  Antonio  agreed  to  indemnify  the Company for any such claims made or
asserted.

     In  connection  with  the lawsuit, IBC-Brownsville filed an appeal with the
Texas  Court  of Appeals on January 21, 1997.  The Company responded on February
14,  1997.  On  September  18,  1997, the appeal was heard by the Texas Court of
Appeals.  A  decision  is  expected  sometime  in 1998. The Company continues to
believe  that  the  Judgment  is  final,  binding  and  collectible.

     The financial statements do not include any adjustments reflecting the gain
contingency  of  the  Judgment, net of attorneys' fees, or the offset (principal
and  interest).  Short-term  borrowing  of  $672,552  and  accrued  interest  of
$235,208 reflect the amount of the offsets at April 30, 1998.  The Judgment will
be  accounted  for when it is actually realized and the offset will be accounted
for  at  the  time  IBC  has  exhausted  all  appeals.

     A  former  officer of the Company is entitled to a payment of 5% of the net
proceeds  (after  expenses  and legal fees) received by the Company arising from
the  above-mentioned  litigation.

<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

     On  July  30,  1996, the Company filed suit in the District Court of Harris
County,  Texas  against  Jorge  V.  Duran,  former  Chairman of the Board of the
Company,  regarding alleged conversion and fraud by Mr. Duran during his time as
an  employee of the Company.  The Company has not yet quantified its damages and
is  seeking  a  declaration  that the termination of employment of Mr. Duran was
lawful  and  within  the rights of the Company based on Mr. Duran's status as an
at-will  employee  of  the  Company.  On  December  12,  1996, Mr. Duran filed a
counterclaim  in  the  District  Court  of  Harris  County,  Texas asserting the
following  claims:  Breach  of  contract  against  the  Company and Mr. Richter;
wrongful  discharge against the Company, Mr. Richter, and Mark Casaday, a former
officer  and  director  of  the  Company;  defamation  against  the Company, Mr.
Richter,  Mark  Casaday,  and  Jorge Bracamontes; and interference with contract
against  Jorge  Bracamontes.  On  February  27,  1997,  the  two  actions  were
consolidated  into Case No. 96-37447, Penn Octane Corporation v. Jorge V. Duran,
in  the  164th District Court of Harris County, Texas.  Mr. Duran is seeking (i)
judgment  against  the  Company and Messrs. Richter, Casaday and Bracamontes for
unspecified  money  damages,  punitive  damages  in  the  amount of $10,500,000,
prejudgment  interest  as provided for by law, and attorneys' fees; (ii) 400,000
shares  of  Common  Stock from the Company, (iii) 100,000 shares of common stock
from  Mr.  Richter;  and  (iv)  such  further  relief  to which he may be justly
entitled.  The  Company  intends  to  vigorously  defend  against  Mr.  Duran's
counterclaim.

     On  February  13,  1998,  County  Sanitation  Districts  of  Orange County,
California  (Orange County) filed a suit (Case No. 790409) in the Superior Court
of the State of California asserting the following claims: Specific performance,
possession  of  personal property and damages and breach of contract against the
Company  and  PennWilson,  CNG,  Inc.;  fraud/misrepresentation,  negligent
misrepresentation  and  interference  with  contract  against  the  Company,
PennWilson,  CNG, Inc., Penn CNG Holdings, Inc., Michael Jadeski, an employee of
the  Company  and John Weber and James Antione, former employees of the Company.
Orange  County was seeking judgment against the Company and PennWilson CNG, Inc.
for  delivery  of  the  equipment  under  the  contract or the contract value of
$251,494, consequential damages, costs of suit, interest, incidental damages and
other  relief.  Orange  County  was  also  seeking  from all defendants general,
special,  exemplary  and punitive damages and costs of suit and other relief. On
April  23, 1998, the suit was settled whereby the Company agreed to repay Orange
County  $202,812  plus  interest  thereon  (10%  per  annum),  to  be  paid in 4
installments on April 23, 1998, May 23, 1998, June 23, 1998 and July 23, 1998 in
the amounts of $50,703, $51,953, $51,564 and $51,119, respectively.  The Company
has  made  the April 23, 1998 and May 23, 1998 payments.  In connection with the
settlement,  the  Company  agreed to provide Orange County with a Stipulation of
Judgement  and  both  Orange  County  and  the  Company  signed mutual releases.

     The  Company and its subsidiaries are also involved with other proceedings,
lawsuits  and  claims.  The  Company  is of the opinion that the liabilities, if
any,  ultimately resulting from such proceedings, lawsuits and claims should not
materially  affect  its  consolidated  financial  position.

CREDIT  FACILITY  AND  LETTERS  OF  CREDIT

On  October  22,  1997,  the Company entered into a $6.0 million credit facility
with  RZB  Finance  L.L.C.  (RZB) for demand loans and standby letters of credit
(RZB  Credit  Facility)  to  finance the Company's purchase of LPG and propylene
(PPL).  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)  1.5%  of  the  maximum face amount of such letter of credit, or (iii) such
higher  amount  as  may  be  agreed  between  the  Company and RZB.  Any amounts
outstanding  under the RZB Credit Facility shall accrue interest at a rate equal
to  the  rate announced by the Chase Manhattan Bank as its prime rate plus 2.5%.
Pursuant  to  the  RZB  Credit Facility, RZB has sole and absolute discretion to
terminate  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 mortgage, security interest
and  assignment  in  any  and  all  of  the  Company's 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 lien, security interest,
mortgage,  charge or other encumbrance of any nature on any of its properties or
assets,  except  in  favor  of  RZB,  without the consent of RZB.  The Company's
President, Chairman and Chief Executive Officer has personally guaranteed all of
the  Company's payment obligations with respect to the RZB Credit Facility. Upon
establishment  of  the  RZB  Credit  Facility,  beginning November 11, 1997, the
Company  began  invoicing  PMI  on  a  weekly  basis.

Effective  April  22,  1998, the aggregate amount available under the RZB Credit
Facility  was  increased  to  $7,000,000.

As  of  April  30,  1998,  letters  of  credit  established under the RZB Credit
Facility  in  favor  of  Exxon  for  purchases  of  LPG  was $5,200,000 of which
$1,405,642  was being used to secure unpaid purchases from Exxon as of April 30,
1998.  In addition, as of April 30, 1998, the Company had approximately $526,328
of  loans  outstanding  under the RZB Credit Facility.  In connection with these
purchases,  as  of  April 30, 1998, the Company had unpaid invoices due from PMI
totaling  $1,618,791  and  cash  balances  maintained in the RZB Credit Facility
collateral  account  of  $60,112.

During  February  1998,  a letter of credit was established under the RZB Credit
Facility  in  favor of PMI for purchases of PPL totaling $367,400. The letter of
credit  expired  on  April  30,  1998.

During  June  1998,  a  letter  of  credit  was established under the RZB Credit
Facility  in  favor  of  PG&E  NGL Marketing, L.P. for purchases of LPG totaling
$360,000.

During  March  1997,  the  Company  obtained a letter of credit in the amount of
approximately  $251,000  in  connection  with  the  obligation  of PennWilson to
complete  certain  work  under a contract.  During September 1997, the letter of
credit  was  extended  to  November  26,  1997.  The letter of credit expired on
November  26,  1997.

OTHER

During  June  1997,  PennWilson entered into a performance and payment bond (the
Bonds)  in  connection  with  a  contract  to  design, construct and install CNG
equipment  totaling  approximately  $1,487,000.  The  Bonds remained outstanding
until  the  equipment  was  delivered  to  the customer, as prescribed under the
contract,  in December 1997. As of April 30, 1998, PennWilson had failed to make
certain  payments  to  vendors  and as such several of PennWilson's vendors have
made  clams  against  the  Bonds.

NOTE  H  -  REALIZATION  OF  ASSETS

The  accompanying unaudited consolidated financial statements have been prepared
in  conformity  with generally accepted accounting principles, which contemplate
continuation  of  the  Company  as  a  going  concern.  The  Company  has had an
accumulated  deficit  since  inception,  has  used  cash in operations and has a
deficit in working capital.  In addition, the Company is involved in litigation,
the  outcome of which cannot be determined at the present time.  As discussed in
Note  A, the Company has historically depended heavily on sales to one customer.
In  addition,  there  is  no  significant operating history on which to base the
results  of  the  additional  business generated through PennWilson, Holdings or
contracts  to  purchase  and  sell  PPL.

<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

In view of the matters described in the preceding paragraph, recoverability of a
major  portion  of  the  recorded  asset  amounts  as  shown in the accompanying
unaudited  consolidated  balance  sheet at April 30, 1998, is dependent upon the
collection of the Judgment, the Company's ability to obtain additional financing
and  to raise additional equity capital, and the success of the Company's future
operations.  The  unaudited consolidated financial statements do not include any
adjustments  related  to the recoverability and classification of recorded asset
amounts  or  amounts  and  classification of liabilities that might be necessary
should  the  Company  be  unable  to  continue  in  existence.

To  provide  the  Company  with the ability it believes necessary to continue in
existence,  management  is  taking steps to 1) collect the Judgment, 2) increase
sales  to  its  current  customers, 3) increase its customer base, 4) expand its
product  lines  and  5)  raise  additional  debt  and/or  equity  capital.

At  July  31, 1997, the Company had net operating loss carryforwards for federal
income  tax  purposes  of approximately $5,348,000.  The ability to utilize such
net operating loss carryforwards may be significantly limited by the application
of  the  "change  of  ownership" rules under Section 382 of the Internal Revenue
Code.

NOTE  I  -  CONTRACTS

LPG  BUSINESS

The  Company  has entered into a sales agreement with PMI (PMI Sales Agreement),
to  provide  a  minimum monthly volume of LPG to PMI through September 30, 1998.
During  August 1, 1997 through November 10, 1997, the Company was purchasing LPG
on  a  month-to-month  basis  from  Exxon  Company,  U.S.A.  (Exxon),  its major
supplier,  to  meet  the monthly volumes required under the PMI Sales Agreement.
Effective  November  11,  1997,  the Company entered into a supply contract with
Exxon  to  purchase  minimum monthly volumes of LPG through September 1998 under
payment  terms  similar  to  those  required  in  the  PMI  Sales  Agreement.

PPL  BUSINESS

In  September 1997, the Company sold limited quantities of PPL that it purchased
from  PMI  in  Mexico  to  customers  in  the United States.  During January and
February  1998,  the  Company entered into contracts expiring March 1998 for the
supply of PPL purchased from PMI and sold to Chevron Chemical Company (Chevron).
The  supply  price from PMI is below the sales price provided for in the Chevron
sales  agreement.  As  of  April  30,  1998 the Company has not entered into any
additional  contracts  for  the  supply  and  sale  of  PPL.

In  July  1997,  the Company entered into a one-year contract with Union Carbide
pursuant  to  which  Union  Carbide  agreed  to  purchase from the Company up to
9,000,000  pounds  of high-grade PPL per month, or as otherwise mutually agreed,
at  a variable posted price through July 31, 1998.  During December 1997, due to
the  Company's  inability  to obtain high grade PPL, the contract was cancelled.

CNG  BUSINESS

Prior  to  April 30, 1998, the Company was awarded two contracts for the design,
construction  and  installation of equipment for CNG fueling stations for AES in
connection  with  CNG  fueling  stations  being constructed for the NYDOT (total
contract amount of approximately $1,487,000) and the County Sanitation Districts
of  Orange  County,  California  (Orange  County)  (total  contract  amount  of
approximately  $251,000).  As  of  April 30, 1998, the Company has substantially
completed  the  NYDOT  contract.  On  May  15,  1998,  AES  provided  notice  to
PennWilson  that  it  was  terminating  its contract with the Company due to the
Company's failure to cure a default condition.  The Company believes that AES is
in  default  with  the  terms  as prescribed under the contract.  The Company is
currently  exploring  legal  remedies available (see Note D). In connection with
the  Orange  County  contract,  on  February  13, 1998, Orange County filed suit
against  the  Company.  On April 23, 1998, Orange County and the Company entered
into  a  settlement.  (see  Note  G).

The Company has not entered into any CNG contracts subsequent to April 30, 1998.

In connection with the Company's plans to develop its CNG business strategy, the
Company  is  currently  planning  to  design, construct, install and operate CNG
refueling  stations  in  Mexico,  through  Estacion.

NOTE  J  -  BOARD  OF  DIRECTORS

Effective  February  17,  1998, Mr. John H. Robinson resigned as Director of the
Company.  A  replacement  for Mr. Robinson has not yet been elected to the Board
of  Directors.

NOTE  K  -  SEGMENT  INFORMATION

The  FASB  issued  Statement of Financial Accounting Standards No. 131 (SFAS No.
131),  "Disclosure  about  Segments  of  an Enterprise and Related Information",
effective  for years beginning after December 15, 1997, with earlier application
encouraged.  The  Company  adopted  SFAS  131  in  1997.

The Company has the following reportable segments: LPG and CNG.  The LPG segment
is  a  distributor  of fuel and the CNG segment designs, constructs and installs
equipment  for  CNG  fueling  stations.

The  accounting policies used to develop segment information correspond to those
described  in the summary of significant accounting policies.  Segment profit or
loss  is  based  on  profit  or  loss  from operations before income taxes.  The
reportable segments are distinct business units operating in similar industries.
They  are  separately managed, with separate marketing and distribution systems.
The following information about the segments is as of April 30, 1998 and for the
nine  months  ended  April  30,  1998.

<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                     LPG            CNG           Totals
                                                --------------  ------------  --------------
<S>                                             <C>             <C>           <C>
Revenues from external customers . . . . . . .  $  24,197,199   $ 1,965,430   $  26,162,629 
Interest expense . . . . . . . . . . . . . . .        260,143        16,053         276,196 
Depreciation and amortization. . . . . . . . .        209,452        29,842         239,294 
Segment income (loss). . . . . . . . . . . . .        313,537    (  222,372)         91,165 
Segment assets . . . . . . . . . . . . . . . .      8,123,113     1,340,683       9,463,796 
Segment liabilities. . . . . . . . . . . . . .   (  5,442,928)   (  922,706)   (  6,365,634)
Expenditure for segment assets . . . . . . . .      1,154,435        17,091       1,171,526 

RECONCILIATION TO CONSOLIDATED AMOUNTS
----------------------------------------------


Revenues
 Total revenues for reportable segments                         $26,162,629 
 Other revenues                                                           - 
 Elimination of intersegment revenues                                     - 
                                                                ------------
   Total consolidated revenues                                  $26,162,629 
                                                                ============

Profit or Loss
 Total profit or loss for reportable segments                   $    91,165 
 Other profit or loss                                                     - 
 Elimination of intersegment profits                                      - 
 Unallocated amounts
   Corporate headquarters expense                                         - 
   Other expenses                                                         - 
                                                                ------------
     Consolidated income before income taxes                    $    91,165 
                                                                ============
Assets
 Total assets for reportable segments                           $ 9,463,796 
 Other assets                                                             - 
 Corporate headquarters                                                   - 
 Other unallocated amounts                                                - 
                                                                ------------
   Total consolidated assets                                    $ 9,463,796 
                                                                ============

Geographic Information . . . . . . . . . . . .  Revenues        Assets
----------------------------------------------  --------------  ------------
United States. . . . . . . . . . . . . . . . .  $  26,102,199   $ 9,463,796 
                                                --------------              
Canada . . . . . . . . . . . . . . . . . . . .         60,430             - 
                                                --------------  ------------
                                                $  26,162,629   $ 9,463,796 
                                                ==============  ============
</TABLE>

<PAGE>

ITEM  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

     The  following  discussion  of  the  Company's  results  of  operations and
liquidity and capital resources should be read in conjunction with the unaudited
Consolidated  Financial  Statements  of  the  Company  and related Notes thereto
appearing  elsewhere  herein.  References to specific years preceded by "fiscal"
(e.g.  fiscal  1997)  refer  to  the  Company's  fiscal year ended July 31.  The
results  of operations of PennWilson, which began operations in March 1997, have
been  included  in  the  Company's  results of operations for the three and nine
months  ended  April  30,  1998  discussed  below.  To  date,  there has been no
significant  activity  associated  with  the operations of Holdings or Estacion.

OVERVIEW

     The Company is principally engaged in the purchase, transportation and sale
of  LPG  and the provision of equipment and services to the CNG industry.  Since
July  1994,  the Company has bought and sold LPG for distribution into northeast
Mexico  and the U.S. Rio Grande Valley.  In March 1997, the Company expanded its
operations  to include the design, construction, installation and maintenance of
turnkey  CNG fueling stations.  In September 1997, the Company commenced limited
sales  of  PPL, purchased from PMI in Mexico, to consumers in the United States.

     Historically,  the  Company  has  derived substantially all of its revenues
from  sales  to PMI, its primary customer, of LPG purchased from Exxon.  For the
three  and  nine  months ended April 30, 1998, the Company derived approximately
97.3%  and  90.7%  of  its  revenues  from  sales  of LPG, of which sales to PMI
accounted  for  100%  and  99.8%  of  total  LPG  sales  respectively.

     As  part  of  its  business  strategy,  in  March 1997 the Company acquired
certain  assets  and  hired  certain  former  employees from Wilson Technologies
Incorporated,  a  company engaged in the engineering, design and construction of
equipment  for  turnkey  CNG  fueling  stations.  In  connection  with  this
acquisition,  the  Company  paid  $394,000  and  is  committed to pay up to $2.0
million  in royalty payments based on future sales, if any.  The acquisition was
accounted  for as a purchase and is reflected as such in the Company's financial
statements  as  of  April  30,  1998.

     The  Company  provides  products  and  services  through  a  combination of
fixed-margin  and  fixed-priced  contracts.  Under the Company's agreements with
its  customers  and  suppliers, the buying and selling prices of LPG and PPL are
based  on  variable  posted prices that provide the Company with a fixed margin.
Costs  included  in costs of goods sold other than the purchase price of LPG and
PPL  may  affect  actual  profits  from  sales,  including  costs  relating  to
transportation,  storage,  leases,  maintenance  and  financing.  The  Company
generally  attempts  to  purchase  in volumes commensurate with projected sales.
However,  mismatches  in volumes and prices of LPG purchased from Exxon and sold
to  PMI  or  PPL  purchased  from  PMI  and  sold  to  Chevron  could  result in
unanticipated  costs.

     The  Company's  CNG revenues are principally derived from contracts awarded
on  a  fixed-price, as-completed basis.  In competing for contracts to construct
equipment  for  CNG  fueling stations, the Company normally must submit bids for
specific  projects.  The  Company's  ability  to  achieve  a profit margin for a
specific  project  is  dependent  on the accuracy of its assessment of the costs
associated  with  that  project.

<PAGE>
LPG  SALES

     The  following table shows the Company's volume sold in gallons and average
sales  price of LPG for the three and nine months ended April 30, 1998 and 1997.

<TABLE>
<CAPTION>
                              Three Months Ended      Nine Months Ended
                            ----------------------  ----------------------
                            April 30,   April 30,   April 30,   April 30,
                               1998        1997        1998        1997
                            ----------  ----------  ----------  ----------
<S>                         <C>         <C>         <C>         <C>
Volume Sold

 LPG (millions of gallons)        23.6        19.1        64.8        46.5

Average sales price

 LPG (per gallon). . . . .  $      .32  $      .41  $      .37  $      .51
</TABLE>

RESULTS  OF  OPERATIONS

     THREE  MONTHS  ENDED  APRIL  30,  1998 COMPARED WITH THE THREE MONTHS ENDED
APRIL  30,  1997

     Revenues.  Revenues  for  the  three  months ended April 30, 1998 were $7.9
million  compared with $8.0 million for the three months ended April 30, 1997, a
decrease of $153,611 or 2%.  Of this decrease, (i) $1.6 million was attributable
to  decreased  average  sales prices for LPG during the three months ended April
30,  1998  and  (ii)  $167,643  was attributable to lower revenues from sales of
equipment for CNG fueling stations, partially offset by (i) increased volumes of
LPG  sold  during the three months ended April 30, 1998 of $1.5 million and (ii)
increased  volumes  of  PPL sold during the three months ended April 30, 1998 of
$168,489.

     Cost  of sales.  Cost of sales during the three months ended April 30, 1998
was  $7.3 million compared with $7.6 million during the three months ended April
30, 1997, a decrease of $371,131 or 4.9%.  Of this decrease (i) $1.6 million was
attributable  to  decreased  average  purchase  prices  for LPG during the three
months  ended  April  30,  1998 and (ii) $92,379 was attributable to lower costs
associated with sales of equipment for CNG fueling stations, partially offset by
(i)  increased  volumes of LPG sold during the three months ended April 30, 1998
of  $1.2  million and (ii) increased volumes of PPL sold during the three months
ended  April  30,  1998  of  $142,547.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses  were  $596,447 during the three months ended April 30,
1998  compared  with  $436,874  during the three months ended April 30, 1997, an
increase  of $159,573 or 36.5%.  This increase was primarily attributable to (i)
PennWilson expenses of $8,515, associated with the commencement of the Company's
CNG  related  operations  and  (ii)  higher  corporate  selling,  general  and
administrative  expenses  associated  with  the  Company's  LPG  and CNG related
operations.

     Other  income  and expense, net.  Other income (expense), net was ($50,440)
during  the three months ended April 30, 1998 compared with ($48,787) during the
three months ended April 30, 1997.  The decrease of other income (expense), net,
is  due to the accrual of interest income on notes receivable from the President
of  the Company and a related party partially offset by increased interest costs
associated  with the RZB Credit Facility and additional indebtedness incurred by
the  Company.

     Income  tax.  At  July  31,  1997,  the  Company  had  net  operating  loss
carryforwards  for  federal  income  tax purposes of approximately $5.3 million.
The  ability  to  utilize such net operating loss carryforwards, which expire in
the  years  2009 to 2012, may be significantly limited by the application of the
"change of ownership" rules under Section 382 of the Internal Revenue Code.  Due
to the net loss during the three months ended April 30, 1998 and April 30, 1997,
there  was  no  income  tax  expense.

<PAGE>

NINE  MONTHS  ENDED APRIL 30, 1998 COMPARED WITH THE NINE MONTHS ENDED APRIL 30,
1997

     Revenues.  Revenues  for  the  nine  months ended April 30, 1998 were $26.2
million compared with $24.1 million for the nine months ended April 30, 1997, an
increase  of  $2.1  million  or  8.7%.  Of  this  increase  (i) $6.7 million was
attributable to increased volumes of LPG sold during the nine months ended April
30, 1998, (ii) 197,676 was attributable to increased volumes of PPL sales, (iii)
176,434 was attributable to other income, and (iv) $1.8 million was attributable
to  revenues  from sales of equipment for CNG fueling stations, partially offset
by decreased average sales prices for LPG during the nine months ended April 30,
1998 of $6.8 million. The increase in volume of LPG sales during the nine months
ended  April  30,  1998  resulted primarily from the lack of sales to PMI during
August  and September 1996 due to the expiration of the Company's previous sales
arrangement  with  PMI  on  July 31, 1996.  Subsequent thereto, a one-year sales
agreement  was  entered  into  with  PMI  effective  October  1,  1996.

     Cost  of  sales.  Cost of sales during the nine months ended April 30, 1998
was $24.1 million compared with $23.1 million during the nine months ended April
30,  1997,  an  increase  of  $1.0  million  or 4.3%.  Of this increase (i) $5.9
million was attributable to increased volumes of LPG sold during the nine months
ended April 30, 1998, (ii) $173,779 was attributable to increased volumes of PPL
sold,  and (iii) $1.7 million was attributable to costs associated with sales of
equipment  for  CNG  fueling stations, partially offset by (i) decreased average
purchase  prices  for  LPG  during  the nine months ended April 30, 1998 of $6.6
million  and  (ii)  reduced  LPG  terminal  costs as a result of efficiencies of
$159,637.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative expenses were $1.9 million during the nine months ended April 30,
1998  compared with $1.3 million during the nine months ended April 30, 1997, an
increase  of $522,326 or 39.3%.  This increase was primarily attributable to (i)
$45,000  of  costs  associated  with  the  exercise of warrants, (ii) PennWilson
expenses  of  $323,724,  associated  with  the commencement of the Company's CNG
related  operations  and  (iii)  higher  corporate  selling,  general  and
administrative  expenses  associated  with  the  Company's  LPG  and CNG related
operations.

     Other  income  and expense, net.  Other income (expense), net was ($99,856)
during  the nine months ended April 30, 1998 compared with ($171,580) during the
nine  months ended April 30, 1997.  The decrease of other income (expense), net,
is  due to the accrual of interest income on notes receivable from the President
of  the Company and a related party partially offset by increased interest costs
associated  with the RZB Credit Facility and additional indebtedness incurred by
the  Company.

     Income  tax.  At  July  31,  1997,  the  Company  had  net  operating  loss
carryforwards  for  federal  income  tax purposes of approximately $5.3 million.
The  ability  to  utilize such net operating loss carryforwards, which expire in
the  years  2009 to 2012, may be significantly limited by the application of the
"change of ownership" rules under Section 382 of the Internal Revenue Code.  Due
to  the  availability of net operating loss carryforwards, net income during the
nine  months ended April 30, 1998 did not result in any income tax expense.  Due
to  the  net  loss for the nine months ended April 30, 1997, there was no income
tax  expense.

     Historically,  the  Company  has  received the majority of its total annual
revenues  during  the  months  of  October  through  March.  Such  pattern  is
attributable  to the seasonal demand for LPG, which is typically greatest during
the winter months of the second and third quarters of the Company's fiscal year.
The Company's quarterly earnings may vary considerably due to the impact of such
seasonality.  Upon  expiration  of the Company's sales arrangement with PMI, its
primary  customer,  sales  of  LPG  to  PMI  were  interrupted during August and
September  1996  pending  the  negotiation  of  a new sales contract that became
effective  in  October  1996.

LIQUIDITY  AND  CAPITAL  RESOURCES

     General.  The Company has had an accumulated deficit since its inception in
1992,  has  used  cash  in  operations and has a deficit in working capital.  In
addition,  the Company is involved in litigation, the outcome of which cannot be
determined  at  the  present  time.  The Company depends heavily on sales to one
major customer.  In addition, there is no significant operating history on which
to  base  the  results  of the additional business generated through PennWilson,
Holdings  or  contracts  to  purchase  and  sell  PPL.  The Company's sources of
liquidity  and capital resources historically have been provided by sales of LPG
and  CNG-related  equipment,  proceeds  from  the  issuance  of  short-term  and
long-term  debt,  revolving  credit  facilities and credit arrangements, sale or
issuance  of  preferred  and  common  stock of the Company and proceeds from the
exercise  of  warrants  to  purchase  shares  of  the  Company's  common  stock.

     The  following  table summarizes cash flows for the nine months ended April
30,  1998  and  1997.

<TABLE>
<CAPTION>
                                                Nine months Ended
                                           ----------------------------
                                             April 30,      April 30,
                                                1998           1997
                                           --------------  ------------
<S>                                        <C>             <C>
Net cash used in operating activities . .  $  (  669,680)  $(  716,990)
Net cash used in investing
activities. . . . . . . . . . . . . . . .   (  1,171,526)   (  100,914)
Net cash provided by financing activities      2,078,727       876,322 
                                           --------------  ------------
Net increase in cash. . . . . . . . . . .  $     237,521   $    58,418 
                                           ==============  ============
</TABLE>

     The  PMI  Sales  Agreement is effective for the period from October 1, 1997
through  September  30,  1998  and  provides  for the purchase by PMI of minimum
monthly  volumes  of  LPG  aggregating  a  minimum annual volume of 69.0 million
gallons,  representing a 15% increase over minimum volume requirements under the
previous  sales  agreement  with PMI effective during the period from October 1,
1996  to  September  30, 1997.  In November 1997, the Company entered into a new
supply agreement with Exxon pursuant to which Exxon has agreed to supply minimum
volumes  of  LPG  to  the  Company.  The  Company  believes  it has access to an
adequate  supply  of  LPG as a result of its agreement with Exxon to satisfy the
requirements  of PMI under the PMI Sales Agreement.  Under the current agreement
with  Exxon,  the  Company's  current  sole source of supply of LPG, the Company
anticipates  greater  gross  margins  on  its LPG sales as a result of lower LPG
costs.  In addition, the Company anticipates increased gross margins as a result
of  the elimination of the Company's responsibility for certain costs associated
with  transportation  and  the  mixing  and testing of LPG purchased from Exxon.

     Prior  to  April  30,  1998,  the Company was awarded two contracts for the
design,  construction and installation of equipment for CNG fueling stations for
A.E.  Schmidt  Environmental  in  connection  with  CNG  fueling  stations being
constructed  for  the  New York City Department of Transportation (NYDOT) (total
contract  amount  of  approximately  $1.5  million)  and  the  County Sanitation
Districts of Orange County, California (Orange County) (total contract amount of
approximately  $251,000).  As  of  April 30, 1998, the Company has substantially
completed  the  NYDOT  contract.  In connection with the Orange County contract,
Orange  County  had  filed suit against the Company and the parties subsequently
reached  a  settlement  agreement  (see  Notes  D,  G  and  I  to  the Company's
consolidated  financial  statements).

     The  Company has not entered into any CNG contracts subsequent to April 30,
1998.

     As  of  April  30,  1998,  the Parent has loaned PennWilson a total of $1.7
million and intends to continue to make periodic loans to PennWilson for working
capital  requirements.  Effective  January 31, 1998, the Parent agreed to cancel
$1.0  million of such indebtedness in exchange for certain assets of PennWilson.

     In  connection  with  the  Company's  plans  to  develop  its  CNG business
strategy,  the  Company  is currently planning to design, construct, install and
operate  CNG  refueling  stations  in  Mexico,  through  Estacion.

     On  October 21, 1997, the Company announced that it is contemplating filing
a  registration  statement with the SEC for the sale to the public of additional
shares  of its Common Stock.  No assurance can be given as to the timing of such
offering  or  that the Company will be successful in raising additional capital.
In  connection  therewith,  the Company has incurred professional fees and other
costs totaling $479,870, which have been recorded as deferred registration costs
at  April  30,  1998.

     Pipeline  Lease.  In  May 1997, the Company entered into the Pipeline Lease
Amendment with Seadrift which, once effective, will extend the term of the lease
through  2013.  Under the Pipeline Lease Amendment, the Company will be required
to  make  minimum monthly lease payments of $75,000, subject to abatement during
the  first two years of the extended term, an increase of $21,000 per month over
the  Company's  current  Pipeline Lease Agreement.  The Pipeline Lease Amendment
became  effective April 1, 1998.  As of April 30, 1998, Seadrift had yet to make
certain  improvements  as  prescribed  under  the  Pipeline  Lease  Amendment.
Accordingly,  the Company will continue to make payments as prescribed under the
Pipeline  Lease  Agreement.

     Credit Arrangements.  In connection with the PMI Sales Agreement, invoicing
is  to  occur weekly.  In November 1996, the Company and PMI made an arrangement
under  which  PMI guaranteed the Company's credit with Exxon, the Company's main
supplier,  and  invoicing  occurred  on  a  monthly, rather than a weekly basis.

     On  October  22,  1997,  the  Company  entered  into  a $6.0 million credit
facility  with  RZB Finance L.L.C. (RZB) for demand loans and standby letters of
credit  (RZB  Credit  Facility)  to  finance  the  Company's purchase of LPG and
propylene  (PPL).  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)  1.5%  of  the maximum face amount of such letter of credit, or
(iii)  such  higher  amount  as  may be agreed between the Company and RZB.  Any
amounts  outstanding  under  the  RZB Credit Facility shall accrue interest at a
rate  equal  to the rate announced by the Chase Manhattan Bank as its prime rate
plus  2.5%.  Pursuant  to  the  RZB  Credit  Facility, RZB has sole and absolute
discretion  to  terminate  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 mortgage,
security  interest and assignment in any and all of the Company's 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 lien, security
interest,  mortgage,  charge  or  other  encumbrance of any nature on any of its
properties  or  assets,  except in favor of RZB, without the consent of RZB. The
Company's  President,  Chairman  and  Chief  Executive  Officer  has  personally
guaranteed  all  of  the  Company's  payment obligations with respect to the RZB
Credit  Facility.  Upon  establishment  of  the  RZB  Credit Facility, beginning
November  11,  1997,  the  Company  began  invoicing  PMI  on  a  weekly  basis.

               Effective  April  22,  1998, the aggregate amount available under
the  RZB  Credit  Facility  was  increased  to  $7,000,000.

               As of April 30, 1998, letters of credit established under the RZB
Credit  Facility  in  favor  of Exxon for purchases of LPG totaled $5,200,000 of
which  $1,405,642  was  being  used  to secure unpaid purchases from Exxon as of
April  30,  1998.  In  addition,  as  of  April  30,  1998,  the  Company  had
approximately  $526,328  of loans outstanding under the RZB Credit Facility.  In
connection  with  these  purchases, as of April 30, 1998, the Company had unpaid
invoices  due  from  PMI totaling $1,618,791 and cash balances maintained in the
RZB  Credit  Facility  collateral  account  of  $60,112.

          During February 1998, a letter of credit was established under the RZB
Credit  Facility  in  favor  of PMI for purchases of PPL totaling $367,400.  The
letter  of  credit  expired  as  April  30,  1998.

     During March 1997, the Company obtained a letter of credit in the amount of
approximately  $251,000  in  connection  with  the  obligation  of PennWilson to
complete  certain  work  under a contract.  During September 1997, the letter of
credit  was  extended  to  November  26,  1997.  The letter of credit expired on
November  26,  1997.

     During  June  1998, a letter of credit was established under the RZB Credit
Facility  in  favor  of  PG&E  NGL Marketing, L.P. for purchases of LPG totaling
$360,000.

     Private  Placements  and  Other  Transactions.  During  August 1997, 75,000
warrants  to purchase 75,000 shares of the Common Stock of the Company issued in
connection  with  the  private  placement  were  exercised  at  prices below the
original  stated exercise price in exchange for a cash payment of $56,000, which
the  Company  used  for  working  capital,  and  cancellation  of  $75,000  of
indebtedness  from  the  private  placement,  plus  accrued  interest  thereon.

     During  August  1997,  warrants  to  purchase  a total of 430,000 shares of
Common  Stock  were exercised, resulting in cash proceeds to the Company of $1.1
million.  The  proceeds  of  such  exercises  were  used for working capital and
repayment  of  Company  debt.

     On August 29, 1997, in connection with the exercise of warrants to purchase
100,000  shares  of Common Stock of the Company by an unrelated third party, the
Company  entered  into  a Registration Rights Agreement agreeing to register the
Common  Stock  issued upon exercise on or before February 1, 1998.  In the event
the  Company  fails  to  register the Common Stock by February 1, 1998, for each
month  thereafter until September 1, 1997, during which the shares have not been
not  registered,  the  Company will be required to issue the holder Common Stock
warrants to purchase 10,000 shares of Common Stock at an exercise price of $2.50
per  share,  exercisable  within a year from the date of issuance. As of June 1,
1998,  the  Company  had  failed to register any of the warrants and as such has
issued  to  the  holder  of the Exercised Securities 40,000 warrants to purchase
40,000  shares  of common stock of the Company at an exercise price of $2.50 per
share,  exercisable  within  one  year  from  the  date  of  issuance.

     On  October 21, 1997, the Company completed a private placement pursuant to
which  it  issued  promissory  notes  in  the aggregate principal amount of $1.5
million  and  warrants  to  purchase  250,000 shares of Common Stock exercisable
until  October  21, 2000 at an exercise price of $6.00 per share.  The notes are
unsecured.  Proceeds  raised  from  the  private placement totaled $1.5 million,
which  the  Company  used  for working capital requirements. Interest at 10% per
annum  is  due  quarterly  on  March  31, June 30, September 30 and December 31.
Payment  of  the principal and any accrued and unpaid interest on the promissory
notes  is  due  on the earlier to occur of June 30, 1998, and the closing of any
public  offering  of  debt  or equity securities of the Company resulting in net
proceeds  to  the  Company  in  excess  of  $5.0 million.  The purchasers in the
private placement were granted one demand registration right with respect to the
shares  issuable  upon  exercise  of  the  warrants.

     Pursuant  to the 1997 Stock Award Plan, in October 1997, the Company issued
20,314  shares  of  Common Stock to a Mexican consultant in payment for services
rendered  to  the  Company  valued  at  $113,000.

     Effective  April  7,  1998,  the  Company sold to the holder of the Secured
Promissory  Note  258,163  shares of newly issued shares of the Company at $4.00
per share in payment of all principal and interest balances owing on the Secured
Promissory  Note  as  of  April  7,  1998  of  $1,032,652.

     Judgment  in  favor of the Company.  Judgment has been rendered in favor of
the  Company  in  connection  with its litigation against IBC-Brownsville in the
amount  of  approximately $3.7 million including accrued interest and legal fees
and  expenses,  which  Judgment is being appealed by the defendant.  Although no
assurance  can  be  made,  management  believes that the Company will ultimately
prevail  on  appeal  and  will  receive  the  proceeds  from  such  Judgment.  A
significant  portion  of  the Judgment, upon realization by the Company, will be
used  to  pay  attorneys'  fees  incurred in connection with the IBC-Brownsville
litigation.  In  addition,  a former officer of the Company is entitled to 5% of
the  net  proceeds (after expenses and legal fees).  See Note G to the unaudited
Consolidated  Financial  Statements.

     Realization  of  Assets.  Recoverability of a major portion of the recorded
asset amounts on the Company's balance sheet is dependent upon the collection of
the  Judgment, the Company's ability to obtain additional financing and to raise
additional  equity  capital, and the success of the Company's future operations.
See  Note  H  to  the  unaudited  Consolidated  Financial  Statements.

     To  provide  the Company with the ability it believes necessary to continue
in  existence,  management  is  taking  steps  to (i) collect the Judgment, (ii)
increase  sales to its current customers, (iii) increase its customer base, (iv)
expand  its  product  lines and (v) raise additional debt and/or equity capital.

FINANCIAL  ACCOUNTING  STANDARDS

     In February 1997, the Financial Accounting Standards Board issued Statement
of  Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share.  SFAS
128  supersedes  APB  Opinion  No.  15 (Opinion No. 15), Earnings per Share, and
requires the calculation and dual presentation of basic and diluted earnings per
share (EPS), replacing the measures of primary and fully-diluted EPS as reported
under Opinion No. 15.  SFAS 128 became effective for financial statements issued
for  periods  ending  after  December  15,  1997;  earlier  application  was not
permitted.  Accordingly,  EPS  for  the  periods  presented  in the accompanying
unaudited  consolidated  statements  of  operations  are  calculated  under  the
guidance  of  SFAS  128.

     Had  the  Company  applied  the  provisions of SFAS 128 in periods prior to
December  15,  1997,  income  (loss)  per  share  would not have been materially
different from the amounts presented in the Company's Consolidated Statements of
Operations.

               In  June  1997,  the  Financial Accounting Standards Board issued
Statement  of  Financial  Accounting  Standards  No.  130  (SFAS 130), Reporting
Comprehensive  Income  and  Statement  of Financial Accounting Standards No. 131
(SFAS  131), Disclosure about Segments of an Enterprise and Related Information.
Both  are  effective for periods beginning after December 15, 1997, with earlier
application  encouraged  for  SFAS  131.  The company adopted SFAS 131 in fiscal
1997.  The  Company  will  adopt  SFAS  130  in  fiscal  1998.

<PAGE>
Operator:  Please  take  care  in  this section, Item 14 - There are a number of
"Color:  White"  codes.  PART  II


ITEM  1.     LEGAL  PROCEEDINGS

     See  Note  G  to  the  unaudited  Consolidated  Financial  Statements.

ITEM  2.     CHANGES  IN  SECURITIES

     None.

ITEM  3.     DEFAULTS  UPON  SENIOR  SECURITIES

     None.

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

     None.

ITEM  5.     OTHER  INFORMATION

     None.

ITEM  6.     EXHIBITS,  FINANCIAL  STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

The  following  Exhibits  are  incorporated  herein  by  reference:

<TABLE>
<CAPTION>

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

<C>    <S>

10.01  Amendment to Irrevocable Standby Letter of Credit No. 310 dated September 15, 1997. (Incorporated by reference to the
       Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.02  Release of Lien dated August 1997 by Lauren Constructors, Inc. (Incorporated by reference to the Company's Annual Report
       on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.03  LPG Purchase Agreement dated August 28, 1997 between PMI Trading Company Ltd. and the Company. (Incorporated by
       reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.04  Continuing Agreement for Private Letters of Credit dated October 14, 1997 between RZB Finance LLC and the Company.
       (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
       November 13, 1997, SEC File No. 000-24394)

10.05  Promissory Note dated October 14, 1997 between RZB Finance LLC and the Company. (Incorporated by reference to the
       Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.06  General Security Agreement dated October 14, 1997 between RZB Finance LLC and the Company. (Incorporated by reference
       to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.07  Guaranty and Agreement dated October 14, 1997 between RZB Finance LLC and Jerome Richter. (Incorporated by reference
       to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.08  Purchase Agreement dated October 21, 1997 among Castle Energy Corporation, Clint Norton, Southwest Concept, Inc., James
       F. Meara, Jr., Donaldson Luftkin Jenrette Securities Corporation Custodian SEP FBO James F. Meara IRA, Lincoln Trust
       Company FBO Perry D. Snavely IRA and the Company. (Incorporated by reference to the Company's Annual Report on Form
       10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.09  Registration Rights Agreement dated October 21, 1997 among  Castle Energy Corporation, Clint Norton, Southwest Concept,
       Inc., James F. Meara, Jr., Donaldson Luftkin Jenrette Securities Corporation Custodian SEP FBO James F. Meara IRA,
       Lincoln Trust Company FBO Perry D. Snavely IRA and the Company. (Incorporated by reference to the Company's Annual
       Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.10  Promissory Note dated October 21, 1997 between Castle Energy Corporation and the Company. (Incorporated by reference to
       the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.11  Common Stock Purchase Warrant dated October 21, 1997 issued to Castle Energy Corporation by the Company. (Incorporated
       by reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.12  Promissory Note dated October 21, 1997 between Clint Norton and the Company. (Incorporated by reference to the
       Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.13  Common Stock Purchase Warrant dated October 21, 1997 issued to Clint Norton by the Company. (Incorporated by reference
       to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.14  Promissory Note dated October 21, 1997 between Southwest Concept, Inc. and the Company. (Incorporated by reference to the
       Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.15  Common Stock Purchase Warrant dated October 21, 1997 issued to Southwest Concept, Inc. by the Company.  (Incorporated
       by reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.16  Promissory Noted dated October 21, 1997 between James F. Meara, Jr. and the Company. (Incorporated by reference to the
       Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.17  Common Stock Purchase Warrant dated October 21, 1997 issued to James F. Meara, Jr. by the Company. (Incorporated by
       reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.18  Promissory Note dated October 21, 1997 between Donaldson Luftkin Jenrette Securities Corporation Custodian SEP FBO
       James F. Meara IRA and the Company. (Incorporated by reference to the Company's Annual Report on Form 10-K for the
       year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

<PAGE>

10.19  Common Stock Purchase Warrant dated October 21, 1997 issued to Donaldson Luftkin Jenrette Securities Corporation
       Custodian SEP FBO James F. Meara IRA and the Company. (Incorporated by reference to the Company's Annual Report on
       Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.20  Promissory Note dated October 21, 1997 between Lincoln Trust Company FBO Perry D. Snavely IRA and the Company.
       (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
       November 13, 1997, SEC File No. 000-24394)

10.21  Common Stock Purchase Warrant dated October 21, 1997 issued to Lincoln Trust Company FBO Perry D. Snavely IRA by the
       Company. (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
       November 13, 1997, SEC File No. 000-24394)

10.22  Agreement dated November 7, 1997 between Ernesto Rubio del Cueto and the Company. (Incorporated by reference to the
       Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.23  LPG Sales Agreement dated November 12, 1997 between Exxon and the Company.   (Incorporated by reference to the
       Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
       SEC File No. 000-24394)

10.24  Purchase order dated November 7, 1996 between County Sanitation Districts of Orange County and Wilson Technologies, Inc.
       (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended October 31, 1997
       filed on December 15, 1997, SEC File No. 000-24394)

The following exhibits are filed as part of the report.

10.25  Amendment letter dated April 22, 1998 between RZB Finance LLC and the Company.

10.26  Lease dated May 8, 1998 between Nine-C Corporation and J.B. Richter, Capital Resources and J.B. Richter and J.B.
       Richter, an individual, with respect to the Company's executive offices.

10.27  Employment Agreement dated October 20, 1997 between the Company and Vicente Soriano.

10.28  Employment Agreement dated November 17, 1997 between the Company and Jerry L. Lockett.

27.01  Financial Data Schedule (Filed herewith).

b.     Reports  on  Form  8-K.

</TABLE>

The  following  Report  on  Form  8-K  is  incorporated  herein  by  reference:

Company's  Current  Report  on  Form 8-K filed on October 28, 1997 regarding the
Company's  (i)  completion  of  a  $1.5  million private placement consisting of
promissory  notes  and  warrants and (ii) contemplation of filing a registration
statement with the Securities and Exchange Commission for the sale of its Common
Stock.

<PAGE>
                                   SIGNATURES

Pursuant  to  the  requirements  of the Securities and Exchange Act of 1934, the
registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  thereunto  duly  authorized.


                             PENN  OCTANE  CORPORATION


June  12,  1998              By: /s/ Ian  T.  Bothwell
                                 --------------------------
                                 Ian  T.  Bothwell
                                 Vice President, Treasurer, Assistant Secretary,
                                    Chief Financial Officer

<PAGE>