____________________________________________________________________________



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


FORM 10-QSB


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

    For the quarterly period ended October 31, 1996

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

    For the transition period from ____________ to _____________

    Commission File No. 0-24394

Penn Octane Corporation
(Exact name of registrant as specified in charter)

                                  Delaware                            
52-1790357
    (State or other jurisdiction      (I.R.S. Employer Identification No.)
 of incorporation or organization)     

5847 San Felipe, Suite 3420, Houston, TX         77057
(Address of principal executive offices)      (Zip Code)
                                               
(713) 952-5703
(Registrant's telephone number, including area code)




    

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____

As of October 31, 1996, 5,205,000 shares of the Registrant's
common stock were outstanding.


<PAGE>

Penn Octane Corporation


INDEX


PART I.  FINANCIAL INFORMATION:

    Item 1.   Financial Statements

    Balance Sheet as of October 31, 1996                                  3

    Statements of Operations for the three months ended
    October 31, 1996 and 1995                                             4

    Statements of Cash Flows for the three months ended
    October 31, 1996 and 1995                                             5

    Notes to Financial Statements                                     6-9

Item 2.  Management's Discussion and Analysis or Plan
    of Operation                                                       10-12


PART II. OTHER INFORMATION:

 Item 1.   Legal Proceedings                                       13

    Item 2.   Changes in Securities                                      13

    Item 3.   Defaults Upon Senior Securities                            13

Item 4.    Submission of Matters to a Vote of Security Holders     13

Item 5.    Other Information                                       13

Item 6.    Exhibits and Reports on Form 8-K                        13


<PAGE>


Penn Octane Corporation
PART I - ITEM 1
                          BALANCE SHEET
                           (Unaudited)

              ASSETS                                        October 31, 1996

Restricted cash                                              $500,000
Trade accounts receivable                                            344,064
Inventories                                                         362,742
Prepaid expenses                                                     43,270
Other current assets                                                 22,250
                                                            _________
    Total current assets                                               1,272,326

Property, plant and equipment
 (net of accumulated depreciation of $925,418)                  3,290,779
Lease rights
 (net of accumulated amortization of $346,212)                      807,828
Other noncurrent assets                                            40,147
                                                            _________
    Total assets                                               $     5,411,080
                                                            =========
                       
              LIABILITIES & STOCKHOLDERS' EQUITY

Short-term borrowing                                                 772,552
Current maturities of long-term debt                              1,118,252
Construction accounts payable                                        550,707
Trade accounts payable                                             755,407
Accrued liabilities                                                   635,467
                                                            _________
    Total current liabilities                                        3,832,385
                                                           

Long-term debt                                                       346,194

Stockholders' equity
Preferred stock-$.01 par value,
 5,000,000 shares authorized;
    270,000 convertible shares issued
 and outstanding at     October 31, 1996                            2,700
Common stock-$.01 par value,
 25,000,000 shares authorized;
    5,205,000 shares issued and outstanding
 at October 31, 1996                                                 52,050
Additional paid-in capital                                      5,954,566
Accumulated deficit                                           ( 4,776,815)
                                                          ____________
         Total stockholders' equity                                       1,232,
501

         Total liabilities and stockholders' equity                  $    5,411,
080
                                                          ===========


See Notes to Financial Statements

<PAGE>

Penn Octane Corporation

                        STATEMENTS OF OPERATIONS
                              (Unaudited)


                                                      Three Months Ended        
                                                      October 31,     October
31, 
                                                     1996            1995

Revenues                                              $    2,546,493      $    
5,55
6,792    

Cost of goods sold                                         2,752,965           
5,29
4,401
                                             _________        _________
Gross profit                                               ( 206,472)           
  262,391

Selling, general and
 administrative expenses                                          427,189      
    
   297,126
                                             _________        _________
    Operating loss                                          ( 633,661)        
(  34,735)

Other expense
    Interest expense                            (  53,627)       (  54,361)
                                             _________        _________
         Net loss                                        $( 687,288)      $( 
89,096)
                                             =========        =========

     Loss per common share                          $   (0.13)        $   (.02)
                                             =========        =========
    Weighted average common
    shares outstanding                                           5,205,000     
    5,085,000 
                                             =========        =========




See Notes to Financial Statements

<PAGE>

Penn Octane Corporation

                          STATEMENTS OF CASH FLOWS
                               (Unaudited)

                                                      Three Months Ended  
                                                   October 31,       October 31,
                                                      1996                1995

INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net loss                                         $(   687,288)            $(   
89,
096)
Adjustments to reconcile
 net loss to net cash
    provided by (used in)
 operating activities:

    Depreciation and Amortization                           143,869            
1
68,521

Changes in current assets
 and liabilities:
 Restricted cash                           ( 500,000)                -
    Trade accounts receivable                         (    314,601)            
(   20
,206)
    Interest receivable                                    26,233              
    
139
    Note receivable                                                   -        
    
    100,000
    NPEG note                                                   -              
    190,
843
    Inventories                                                 82,309         
         -
    Prepaids and other current assets                 (  17,710)               
51,33
8
    Construction and accounts payable                      412,951         (
130,587)
    Advances from and to related party (net)                         -         
    (  39,135)
    Accrued liabilities                                    74,556            ( 
 1,364)
                                           _________         _________
    Net cash provided by (used in)
    operating activities                              ( 779,681)               
230,4
53

Cash flows from investing activities:
    Capital expenditures                                   (    5,375)         
  ( 71,080)
    Other                                                                 -    
          (   1,500)
    Net cash provided by (used in)             ________          ________
    investing activities                                       (  5,375)       
 ( 72,580)

Cash flows from financing activities:
    Short-term borrowing                                    100,000            
(
160,000)
    Long-term debt borrowing                               325,000             
(   1
,517)
 Reduction in long-term debt                 ( 4,469)                -
    Issuance of common stock                                    -              
         -
    Increase (decrease) in bank overdraft                       -              
(
19,977)
                                             _______          ________
    Net cash provided by financing activities              420,531             
(
181,494)

         Net increase (decrease) in cash                  (364,525)        ( 
23,621)

Cash at beginning of period                           364,525                  
56,78
6
                                             _______           _______
Cash at end of period                            $          -             $
33,165
                                             =======           =======     



See Notes to Financial Statements


<PAGE>

Penn Octane Corporation

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)


1.  Basis of Presentation

 The balance sheet as of October 31, 1996, the statements of
 operations, and statements of cash flows for the three months
 ended October 31, 1996 and 1995 have been prepared by Penn Octane
 Corporation (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 financial position as of October 31, 1996 and
 the results of operations and cash flows for the three months
 ended October 31, 1996 and 1995.

 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 Form 10-KSB
 for the year ended July 31, 1996.

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


2.  Loss per Common Share

 Loss per share of common stock is computed based on
 the weighted average number of shares outstanding.  Warrants and
 shares issuable upon conversion of preferred stock have not been
 included in the calculation as their effect would be anti-dilutive.


3.  Commitments and Contingencies

 During 1994, the Company entered into discussions with International
 Bank of Commerce-Brownsville, a Texas state banking association (IBC),
 for a proposed letter of credit, term loan, and working capital
 financing.  In anticipation of receiving funding, the Company
 executed various documents including a Security Agreement dated
 July 1, 1994, assigning and granting to IBC a security interest in
 significantly all of the Company's business and assets, including
 its pipeline lease agreement, its leased land at the Port of Brownsville,
 its terminal facilities and related equipment, inventories and all
 contracts and accounts receivable.

 Beginning July 1, 1994, IBC advanced the Company directly or made
 payments directly to certain of the Company's creditors a total of
 $1,507,552 against the collateral.  On August 5, 1994, IBC notified
 the Company that it would not honor certain of the Company's checks
 but would continue to honor its irrevocable letters of credit issued
 on behalf of the Company.

 On August 24, 1994 the Company filed an Original Petition and
 Application for Injunctive Relief against IBC seeking: (1) either
 enforcement of a credit facility between the Company and IBC or a
 release of the Company's collateral consisting of significantly all
 of the Company's business and

<PAGE>

 assets; (2) declaratory relief with respect to the credit facility;
 and (3) an award for damages and attorney's fees.  

 In response to the Company's request for injunctive relief, IBC
 filed a motion on August 29, 1994 to compel arbitration and to stay
 the proceedings.  On September 12, 1994, a State District Court in
 Cameron County, Texas, signed an order compelling the Company and
 IBC to resolve all of the Company's claims against IBC in final
 arbitration.  The arbitration was conducted through the American
 Arbitration Association, Commercial Arbitration No. B 70 148 0133 94 A.  

 On November 3, 1994, IBC filed a Responsive Pleading in Arbitration
 alleging that there was no loan agreement between the Company and IBC.
 In addition, IBC requested that the arbitrators declare that IBC was
 not liable to the Company as alleged, and that IBC was entitled to
 an award of $25,000,000 for Business Disparagement/Defamation and
 $100,000,000 in Punitive Damages plus reasonable attorney's fees.

 On November 7, 1994, the Company and IBC agreed to a partial release
 of certain collateral (accounts receivable) after the Company made
 cumulative payments through that date to IBC totaling $800,000.
 The remaining unpaid balance to IBC at that date totaled $672,552,
 excluding interest ($30,448) and fees ($39,853).

 On May 5, 1995, IBC filed a First Amended Responsive Pleading in
 Arbitration again alleging there was no loan agreement between the
 Company and IBC and requesting damages in excess of $750,000 plus
 $3,500,000 for Business Disparagement/Defamation plus an amount of
 Punitive Damages to be determined by the trier of fact.

 The arbitration hearing, held before a panel of three neutral
 arbitrators, commenced on July 19, 1995, and concluded on
 August 2, 1995.  On October 10, 1995, the Company received
 notification of the Award of Arbitrators (Award) which called for
 IBC to pay to the Company the sum of (a) $3,246,754 for Breach of
 Contract and (b) attorneys' fees of $568,000.  In addition, the
 Award stated that IBC was entitled to an offset of (a) the sum of
 $804,016 and (b) attorneys' fees of $200,000 on IBC's counterclaim
 against the Company for Breach of Contract.  Both parties' awards
 accrue post-award interest at 9.75% compounded annually.

 On February 28, 1996, after hearing and denying IBC-Brownsville's
 motion to vacate the arbitration award, the following judgment
 was ordered:

   International Energy Development Corporation n/k/a Penn Octane
   Corporation shall have a judgment against International Bank
   of Commerce-Brownsville in the sum of $2,810,737, plus
   post-award interest at a rate of 9.75% compounded annually
   to begin running 10 days after the date this award was
   signed by the requisite number of arbitrators
   (September 21, 1995) to the entry of this Judgment and
   thereafter at the statutory rate (10%).

   Upon the entry of this Judgment International Bank of
   Commerce-Brownsville shall release all collateral transferred
   to it by International Energy Development Corporation n/k/a
   Penn Octane Corporation.

   The Court further orders that International Energy Development
   Corporation n/k/a Penn Octane Corporation shall have and
   recover from International Bank of Commerce-

<PAGE>

   Brownsville attorneys' fees in the sum of $100,000 for services
   rendered in pursuing the entry of Judgment in this case, together
   with interest at the statutory rate from date of entry of this
   Judgment until paid and conditionally $7,500 for any appeal
   to the Court of Appeals and $5,000 for any appeal to the
   Texas Supreme Court and $2,500 in the event Writ is granted by
   the Supreme Court. 

 On June 3, 1996, IBC-Brownsville filed an appeal, but the
 Company continues to believe that the judgment is final,
 binding, collectible and will resolve the litigation with
 IBC-Brownsville.  The financial statements do not include
 any adjustments reflecting the gain contingency (the Award),
 net of attorneys' fees, or the offset (principal and interest).
 Short-term borrowing of $672,552 reflects the principal amount
 of the offset.  The Award will be accounted for when it is
 actually realized and the offset will be accounted for at such
 time as IBC-Brownsville has exhausted all appeals. 

 On April 18, 1996, the Company reached agreement to accept
 $400,000 to settle a lawsuit it filed in October 1995 against a
 bank related to IBC-Brownsville (related Bank).  As part of the
 settlement agreement, the parties executed mutual releases from
 future claims related to the IBC-Brownsville litigation.
 Additionally, the defendant provided an indemnity agreement to the
 Company against future claims from IBC-Brownsville.  The amount is
 recorded in the statement of operations for the year ended July 31, 1996.

 On June 26, 1996, IBC-Brownsville filed suit against the Company,
 Case No. 96-06-3502 in the 357th Judicial District Court of
 Cameron County alleging that the Company, in filing the judgment
 against IBC-Brownsville in order to clear title to its assets,
 slandered the name of IBC-Brownsville.  IBC-Brownsville contends
 that the Company's judgment against them prevented them from
 selling certain property.  IBC-Brownsville has claimed actual
 damages of $600,000 and requested punitive damages of $2,400,000.
 On September 23, 1996, the court which entered the judgment on behalf
 of the Company indicated in a preliminary ruling the the Company
 was privileged in filing the judgment to clear title to its assets.
 The Company believes the case to be frivolous and is a breach of
 the settlement agreement entered into with the related Bank.
 Further, the Company believes this cause of action is covered by
 an indemnity agreement from that related Bank.

 In connection with the IBC-Brownsville suit, the Plaintiffs were
 required to file a brief with the court by November 18, 1996.
 The Company's counsel has informed the Company that IBC-Brownsville
 failed to file its brief by November 18, 1996, and has been granted
 a final extension until January 17, 1997 file its brief.


4.  Purchase Commitment

 On September 26, 1996, the Company entered into a Term Sale Agreement
 with its main propane supplier.  The agreement is for a one year
 period beginning on October 1, 1996.  The terms of this agreement,
 such as pricing and volumes, mirror the terms of the Company's sales
 agreement with its major customer.


<PAGE>

5.  Letters of Credit

 In January of 1996, the Company obtained a standby letter of credit
 in favor of a propane supplier.  The standby letter of credit was
 for $40,000 and expired December 1, 1996.  In August of 1996, the
 Company obtained a $40,000 standby letter of credit for another
 supplier.  The letter of credit expired on September 30, 1996.

 In accordance with the purchase commitment discussed above, in
 September of 1996 the Company obtained a $625,000 letter of credit
 in favor of its main propane supplier.  As part of the terms and
 conditions of this letter of credit, which expires September 30, 1997,
 the Company executed a $625,000 demand promissory note to the
 issuing bank.  The note is collateralized by a $500,000 deposit,
 accrues interest at the prime rate (8.25% as of October 31, 1996) plus 3%
 and is guaranteed by the Company's president. 

 On November 5, 1996, the Company's main propane supplier presented
 for payment $495,315.10 against the letter of credit, representing
 a partial drawing.  As a result of the this draw down, the remaining
 balance available under the letter of credit is $129,684.90.

 In December 1995, the Company obtained a revolving line of credit for
 $140,000 which expired on December 10, 1996.  Interest was calculated
 on this credit line at the prime rate (8.25% in October 1996) plus 3%.
 At October 31, 1996, the outstanding balance was $100,000, which is
 reflected in short-term borrowings. 


6.  Long-term debt

 During October, 1996, the Company issued 6.5 units in a private
 placement totaling $325,000 (the "Units").  Each Unit consists
 of (i) a Promissory Note and (ii) Fifty Thousand Redeemable Common
 Stock Purchase Warrants (the "Warrants") to purchase Fifty Thousand
 (50,000) Shares of Common Stock (the "Common Stock") of the Company
 at an exercise price of $3.00 per share. 

 The Promissory Notes accrue interest at 10% annually and are
 payable on November 7, 1997 (the "Payment Date").  In the event
 the Company receives in excess of two hundred fifty thousand
 ($250,000) dollars in connection with any offering of its securities
 prior to the Payment Date, the Company shall utilize up to one-half
 of the proceeds from such sale to satisfy the Promissory Note.
 In the event such payment does not fully satisfy the Promissory
 Note, the Company shall pay the balance due on the Payment Date.

<PAGE>



PART I - ITEM 2

Management's Discussion and Analysis or Plan of Operation

Result of Operations

 Revenue for the three months ended October 31, 1996 was $2,546,493
 as compared to $5,556,792 for the three months ended
 October 31, 1995, a decrease of 54%.  The decrease for the quarter
 ended October 31, 1996, was due to the expiration of the Company's
 sales arrangement with a major customer on July 31, 1996.  After
 two months of negotiations, on October 10, 1996, an agreement for
 a one year period commencing on October 1, 1996 was reached.
 Under the terms of this agreement, the Company has committed
 to supply and the customer has committed to purchase a minimum
 monthly volume of LPG with seasonal variability.  The minimum
 volume to be sold under this agreement exceeds the minimum volume
 sold under the previous arrangement.

 Cost of goods sold for the three months ended October 31, 1996
 was $2,752,965 as compared to $5,294,401 in the same quarter
 during the prior year, a decrease of 48%.  This decrease is
 primarily attributable to the expiration of the Company's sales
 arrangement with a major customer as described above.  

 Gross profit for the three months ended October 31, 1996 was
 ($206,472) as compared to $262,391 for the three months ended
 October 31, 1995.  The decline was due primarily to the lower
 volume of LPG gas sold during the three months ended
 October 31, 1996, as a result of the expiration of the Company's
 sales arrangement with a major customer, described above, and in
 addition, the continuation of certain fixed costs, despite the
 significant reduction in volumes sold.  

 Selling, general and administrative (SG&A) expenses for the three
 months ended October 31, 1996, were $427,189 as compared to
 $297,126 for the same quarter in the prior year, an increase of 44%.
 This increase was due primarily to increases in administrative costs.       

 Interest expense was $53,627 and $54,361 for the three months ended
 October 31, 1996, and October 31, 1995, respectively.  The minor
 decrease was due primarily to lower average loan balances during
 the three months ended October 31, 1996 as a result of payments
 of contractor loan obligations partially offset by increases
 in long term debt.

 Due to the net losses for the three months ended October 31, 1996
 and 1995, no income tax expense was provided.

 In July 1995, due to uncertainties related to the timing of the
 financing of National Power Exchange Group, Inc.'s (NPEG)
 power project, the Company made a provision to reduce the amount
 due under the settlement agreement.  During the three months ended,
 the Company received approximately $200,000 in connection with
 the settlement agreement.  For additional information, please refer
 to note M of the Company's form 10-KSB for the year ended July 31, 1996.

<PAGE> 


Liquidity and Capital Resources

 At July 31, 1996, the Company's arrangement with its major
 customer expired.  After two months of negotiation, an agreement
 was reached.  The term of the new agreement is for a one year period
 commencing October 1, 1996.  Under terms of this agreement, the
 Company has committed to supply and the customer has committed to
 purchase a minimum volume of LPG each month with seasonal variability.
 The total committed annual volume exceed the volume sold to the
 customer during the year ended July 31, 1996.

 Under this agreement, the Company is again responsible for the direct
 purchase of LPG.  As a result, the Company has negotiated an agreement
 with a major supplier which mirrors the terms and conditions of
 the Company's sales agreement with its primary customer.  The
 agreements provide the Company with a fixed margin over the
 cost of gas.  The Company has made arrangements with its bank
 for a standby letter of credit for the benefit of a major supplier for
 the one year period of the agreements.  This letter of credit will
 enable the Company to purchase LPG on an ongoing basis.  As part
 of the terms and conditions of this letter of credit, the
 Company executed a demand promissory note, which
 accrues interest at the prime rate plus 3%, is collateralized by a
 bank deposit and is guaranteed by the president.

 Since the Company agreed to finance the purchase of LPG, the
 customer agreed to prepay for approximately 75% of the gallons
 committed to be purchased in October 1996, and to make payments
 within ten days of invoicing thereafter.  Under the terms of the
 agreement, invoicing will occur weekly and should reduce the
 Company's working capital requirements substantially.

 Beginning November 1996, the Company has made arrangements with its
 major customer to guarantee credit with the Company's main supplier.

 Because the Company had complied with all terms of the settlement
 agreement entered into on June 21, 1995 with the two contractors,
 Lauren and Janik, who were owed money from the construction of the
 Company's terminal, and because the Company had reduced the amount
 owed the contractors from $1,308,000 to $437,834 as of July 1996,
 on October 10, 1996, the Company reached an agreement with Lauren
 and Janik to extend the repayment schedule to
 April 14, 1997, under substantially similar terms and conditions.
 Based on the minimum volumes committed to by the Company's primary
 customer under the agreement which commenced on October 1, 1996,
 the Company anticipates being able to make repayment in full from
 cash flow generated by operations.

 While the Company has not made commitments for additional capital
 expenditures during the next twelve months, it continues to evaluate
 the cost of and opportunities created by (i) installing a cooling unit
 and upgrading and extending a pipeline to the loading dock on the
 Brownsville Navigation Channel in order to commence unloading
 from and loading onto ocean-going LPG vessels and (ii) the
 construction and operation of an additional LPG terminal with
 storage facilities within Mexico and/or closer to U.S.-Mexico
 border crossings and an extension of the pipeline to this terminal,
 which is subject to regulatory approval.  If determined to be
 advantageous to the Company's operations, the projects would enable
 the Company to receive LPG for its major customer for
 storage and redelivery, export LPG to Caribbean and other Latin
 American markets and allow for additional sales volumes of
 LPG into Mexico at substantially higher margins.  The total cost
 of these projects are expected to cost less than $5,000,000.

<PAGE>

 In connection with the Company's plan to implement a compressed
 natural gas refueling station business, on November 13, 1996,
 the Company entered into a letter of commitment to acquire a
 majority of the assets of Wilson Technologies Inc., one of the
 leaders in the design, installation, service and maintenance of
 compressed natural gas refueling stations and related products,
 with installations world-wide.  The acquisition is subject to board
 approval by both parties and the negotiation and execution of
 definitive documents.  Under the terms of the letter of commitment, the
 Company will receive assets, primarily comprised of inventory,
 accounts receivables and trademarks in exchange for a note payable
 and certain royalty payments to be paid to Seller based on the value
 of the assets acquired and future sales of compressed natural
 gas refueling stations.  The Company is also pursuing other transactions
 in connection with implementing the compressed natural gas refueling
 station business.

 During October 1996, the Company completed a private placement of
 Promissory Notes due November 1997.  Total proceeds raised from
 the private placement was $325,000 of which the Company used the
 net proceeds for working capital requirements.

 Although IBC-Brownsville has appealed the judgment, the court which
 entered the judgment issued an order on September 23, 1996, which
 provides that the Company has the right to enter the judgment and
 free its assets from encumbrance.  Management of the Company
 believes that receipt of the proceeds from the judgment against
 IBC-Brownsville would enable the Company to substantially eliminate
 all of its outstanding obligations including all debt and legal
 fees plus provide additional working capital.  At October 31, 1996,
 the judgment including accrued interest and legal fees approximate
 $3,226,324, less contingent legal fees.

 Effective October 24, 1996, Thomas P. Muse, Chairman,
 Mark D. Casaday, President, and Thomas A. Serleth, Executive Vice
 President, Secretary, Treasurer, and Chief Financial Officer
 resigned as members of the Board of Directors and Officers of the
 Company.  Mr. Casaday continued as President until the expiration
 of his employment contract on October 31, 1996.

 Effective October 29, 1996, Jerome B. Richter was elected to the
 positions of Chairman of the board of Directors, President and
 Chief Executive Officer, Ian T. Bothwell was elected Vice President,
 Treasurer, Assistant Secretary and Chief Financial Officer, and
 Jorge Bracamontes was elected Executive Vice President and Secretary.

 The Company does not expect any significant change in the number
 of employees over the next twelve months.

 Through a combination of the agreements with its major customer
 to purchase a minimum monthly volume of LPG and its primary
 LPG supplier to provide increased volumes of LPG, and a full
 year of sales to U.S. Rio Grande Valley propane distributors,
 the Company believes it will have cash flow adequate to meet
 its obligations for the next twelve month period.  In addition,
 the Company anticipates raising additional debt and/or equity,
 expects collection of the IBC-Brownsville judgment, and intends
 to expand sales to its major customer, including related
 products and/or additional services.

<PAGE>

Part II  Other Information

Item 1.  Legal Proceedings

See Note 3 to the 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 and Reports on Form 8-K.

The following Exhibits and Form 8-K are incorporated herein by reference:

a.  Exhibits



The following documents are included herewith:

10.19  Promissory Note between Jerry Williams and Registrant
       dated October 7, 1996.

10.20  Promissory Note between Richard Serbin and Registrant
       dated October 9, 1996.

10.21  Promissory Note between James Mulholland and Registrant
       dated October 29, 1996.

10.22  Promissory Note between Frederick Kassner and Registrant
       dated October 29, 1996.

27.0   Financial Data Schedule

b.     Reports on Form 8-K

       None.



<PAGE>


SIGNATURES


    Pursuant to the requirements of the Securities 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




December 13, 1996            By:  /s/ Ian T. Bothwell 
                                       Ian T. Bothwell
                                       Vice President and
                                      Chief Financial Officer