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  October  31,  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          (I.R.S.  Employer  Identification  No.)
 of 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:  (415)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  December  17,  1998  was  10,771,557.

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


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

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

               Consolidated Statements of Operations for the three months ended
               October 31, 1998 and 1997 (unaudited)                                    5

               Consolidated Statements of Cash Flows for the three months ended
               October 31, 1998 and 1997 (unaudited)                                    6

               Notes to Consolidated Financial Statements (unaudited)                7-19

         2.    Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                            20-25

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>

                                        2
<PAGE>
PART  I
ITEM  1.

<TABLE>
<CAPTION>
                                      PENN OCTANE CORPORATION AND SUBSIDIARIES

                                             CONSOLIDATED BALANCE SHEETS

                                                       ASSETS


                                                                                            October 31,    July 31,
                                                                                                1998         1998
                                                                                            ------------  ----------
                                                                                            (Unaudited)
<S>                                                                                         <C>           <C>
Current Assets
 Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     23,723  $  157,513
 Trade accounts receivable, less allowance for doubtful accounts of $418,796 and $418,796.     2,030,664   1,195,653
 Inventories (note D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       402,366     377,097
 Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .       128,267      95,775
                                                                                            ------------  ----------
   Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2,585,020   1,826,038
Property, plant and equipment - net (note C) . . . . . . . . . . . . . . . . . . . . . . .     4,084,056   4,119,437
Lease rights (net of accumulated amortization of $490,009 and $478,560). . . . . . . . . .       664,030     675,479
Other noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        72,883      77,026
                                                                                            ------------  ----------
   Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  7,405,989  $6,697,980
                                                                                            ============  ==========
</TABLE>


     The  accompanying  notes  are  an  integral  part  of  these  statements.

                                        3
<PAGE>
<TABLE>
<CAPTION>
                                 PENN OCTANE CORPORATION AND SUBSIDIARIES

                                  CONSOLIDATED BALANCE SHEETS - CONTINUED


                                   LIABILITIES AND STOCKHOLDERS' EQUITY


                                                                            October 31,
                                                                               1998           July 31,
                                                                            (Unaudited)         1998
                                                                          ---------------  ---------------
<S>                                                                       <C>              <C>
Current Liabilities
 Current maturities of long-term debt (note F) . . . . . . . . . . . . .  $    1,753,897   $    1,693,897 
 Revolving line of credit (note H) . . . . . . . . . . . . . . . . . . .       1,351,378          991,823 
 Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . . .       2,389,463        2,050,575 
 Borrowings from IBC-Brownsville . . . . . . . . . . . . . . . . . . . .         672,552          672,552 
 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .       1,706,098        1,555,261 
                                                                          ---------------  ---------------

   Total current liabilities . . . . . . . . . . . . . . . . . . . . . .       7,873,388        6,964,108 
Long-term debt, less current maturities (note F) . . . . . . . . . . . .               -           60,000 
Commitments and contingencies (note H) . . . . . . . . . . . . . . . . .               -                - 
Stockholders' Equity (note G)
 Senior Preferred stock-$.01 par value, 5,000,000 shares authorized; 0 .               -                - 
shares issued and outstanding at October 31, 1998 and July 31, 1998
 Preferred stock-$.01 par value, 5,000,000 shares authorized; 0. . . . .               -                - 
convertible shares issued and outstanding at October 31, 1998 and July
31, 1998
 Common stock-$.01 par value, 25,000,000 shares authorized;. . . . . . .          99,527           99,527 
9,952,673 shares issued and outstanding at October 31, 1998 and July
31, 1998
 Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . .      13,318,592       13,318,592 
 Notes receivable from the president of the Company and a related party.    (  2,763,006)    (  2,763,006)
for exercise of warrants, less reserve of $223,000 at October 31, 1998
and July 31, 1998
 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . .   (  11,122,512)   (  10,981,241)
                                                                          ---------------  ---------------
   Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . .      (  467,399)      (  326,128)
                                                                          ---------------  ---------------
     Total liabilities and stockholders' equity. . . . . . . . . . . . .  $    7,405,989   $    6,697,980 
                                                                          ===============  ===============


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

                                        4
<PAGE>
<TABLE>
<CAPTION>


                     PENN OCTANE CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF OPERATIONS

                                    (UNAUDITED)


                                   Three Months Ended
                                   ------------------


                                                       October 31,    October 31,
                                                          1998           1997
                                                      -------------  -------------
<S>                                                   <C>            <C>
Revenues . . . . . . . . . . . . . . . . . . . . . .  $  6,502,087   $  8,188,002 
Cost of goods sold . . . . . . . . . . . . . . . . .     5,884,469      7,758,459 
                                                      -------------  -------------
 Gross profit. . . . . . . . . . . . . . . . . . . .       617,618        429,543 
                                                      -------------  -------------
Selling, general and administrative expenses
 Legal and professional fees . . . . . . . . . . . .       203,082        152,784 
 Salaries and payroll related expenses . . . . . . .       301,007        207,034 
 Travel. . . . . . . . . . . . . . . . . . . . . . .        36,365         82,406 
 Other . . . . . . . . . . . . . . . . . . . . . . .       121,585        108,138 
                                                      -------------  -------------
                                                           662,039        550,362 
                                                      -------------  -------------
 Operating (loss). . . . . . . . . . . . . . . . . .     (  44,421)    (  120,819)
Other income (expense)
 Interest expense. . . . . . . . . . . . . . . . . .     (  97,268)     (  61,137)
 Interest income . . . . . . . . . . . . . . . . . .           418         57,508 
                                                      -------------  -------------
   Net (loss) before taxes . . . . . . . . . . . . .    (  141,271)    (  124,448)
Provision for income taxes . . . . . . . . . . . . .             -              - 
                                                      -------------  -------------
   Net (loss). . . . . . . . . . . . . . . . . . . .  $ (  141,271)  $ (  124,448)
                                                      -------------  -------------
(Loss) per common share and (loss) per common share.  $    (  0.01)  $    (  0.01)
                                                      =============  =============
assuming dilution (note B)
Weighted average common shares outstanding . . . . .     9,952,673      8,529,789 
                                                      =============  =============
</TABLE>


     The  accompanying  notes  are  an  integral  part  of  these  statements.

                                        5
<PAGE>
<TABLE>
<CAPTION>


                                   PENN OCTANE CORPORATION AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                  (UNAUDITED)
       Three  Months  Ended
     ----------------------


                                                                                   October 31,    October 31,
                                                                                      1998           1997
                                                                                  -------------  -------------
<S>                                                                               <C>            <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ (  141,271)  $ (  124,448)
Adjustments to reconcile net (loss) to net cash used in (provided by) operating
activities:
 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .        65,806         70,727 
 Amortization of lease rights. . . . . . . . . . . . . . . . . . . . . . . . . .        11,449         11,449 
 Interest income from related party notes receivables. . . . . . . . . . . . . .             -      (  57,504)
 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (  3,156)             - 
Changes in current assets and liabilities:
 Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .    (  835,012)    (  268,548)
 Related party receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . .             -         91,342 
 Costs and estimated earnings in excess on uncompleted contracts . . . . . . . .             -     (  551,322)
 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (  25,269)    (  232,537)
 Prepaids and other current assets . . . . . . . . . . . . . . . . . . . . . . .     (  28,347)    (  189,167)
 Deferred registration costs . . . . . . . . . . . . . . . . . . . . . . . . . .             -     (  370,000)
 Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . .       338,888        415,062 
 Billings in excess of costs and estimated earnings of billings on uncompleted .             -       (  7,596)
 contracts
 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       150,835        225,795 
                                                                                  -------------  -------------
   Net cash used in operating activities . . . . . . . . . . . . . . . . . . . .    (  466,077)    (  986,747)

Cash flows from investing activities:
 Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (  27,268)    (  211,054)
                                                                                  -------------  -------------

   Net cash used in  investing activities. . . . . . . . . . . . . . . . . . . .     (  27,268)    (  211,054)

Cash flows from financing activities:
 Revolving credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . .       359,555     (  140,000)
 Issuance of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             -      1,500,000 
 Issuance of Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .             -      1,131,250 
 Reduction in debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             -     (  923,395)
                                                                                  -------------  -------------
   Net cash provided by financing activities . . . . . . . . . . . . . . . . . .       359,555      1,567,855 
                                                                                  -------------  -------------

     Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . .    (  133,790)       370,054 
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . .       157,513         31,142 
                                                                                  -------------  -------------
Cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     23,723   $    401,196 
                                                                                  =============  =============
Supplemental disclosures of cash flow information:
 Cash paid during the period for:
   Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     31,750   $     47,329 
                                                                                  =============  =============
Supplemental disclosures of noncash transactions:
 Common stock and warrants issued. . . . . . . . . . . . . . . . . . . . . . . .  $          -   $    263,000 
                                                                                  =============  =============
</TABLE>


        The accompanying notes are an integral part of these statements.

                                        6
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



NOTE  A  -  ORGANIZATION

     Penn  Octane  Corporation,   formerly   International   Energy  Development
     Corporation  (IEDC)  and The  Russian  Fund,  a Delaware  corporation,  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.  The Company is engaged
     primarily in the business of purchasing,  transporting  and selling LPG and
     has provided  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.

     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.  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. To date there has not been significant
     operations for any of these entities.

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

     The  accompanying   financial   statements  include  the  Company  and  its
     subsidiaries,   PennWilson   and  Holdings   (Company).   All   significant
     intercompany accounts and transactions are eliminated.

     The  unaudited  consolidated  balance  sheet as of October  31,  1998,  the
     unaudited  consolidated   statements  of  operations,   and  the  unaudited
     consolidated  statements  of cash flows for the three months ended  October
     31, 1998 and 1997 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
     October 31, 1998 and the unaudited  consolidated  results of operations and
     unaudited  consolidated  cash flows for the three months ended  October 31,
     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, 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.

                                        7
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)





     NOTE B - (LOSS) PER COMMON SHARE

     (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 (see note G for the warrants
     and convertible preferred stock excluded because they are anti-dilutive):

<TABLE>
<CAPTION>
                                           For the three months ended October 31, 1998  For the three months ended October 31, 1997
                                           -------------------------------------------  -------------------------------------------
                                                 (Loss)        Shares       Per-Share      (Loss)        Shares       Per-Share
                                              (Numerator)   (Denominator)    Amount     (Numerator)   (Denominator)    Amount
                                              ------------  -------------  -----------  ------------  -------------  -----------
<S>                                           <C>           <C>            <C>          <C>           <C>            <C>
Net (loss) . . . . . . . . . . . . . . . . .  $(  141,271)              -           -   $(  124,448)              -           - 
Less:  Dividends on preferred stock. . . . .            -               -           -             -               -           - 
BASIC EPS. . . . . . . . . . . . . . . . . .   (  141,271)      9,952,673  $  (  0.01)   (  124,448)      8,529,789  $  (  0.01)
                                                                           ===========                               ===========
Net (loss) available to common stockholders
EFFECT OF DILUTIVE SECURITIES
Warrants . . . . . . . . . . . . . . . . . .            -               -           -             -               -           - 
Convertible Preferred Stock. . . . . . . . .            -               -           -             -               -           - 
DILUTED EPS. . . . . . . . . . . . . . . . .  $(  141,271)      9,952,673  $  (  0.01)  $(  124,448)      8,529,789  $  (  0.01)
                                              ============  =============  ===========  ============  =============  ===========
Net (loss) available to common stockholders
</TABLE>

                                        8
<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:


                                     October 31,       July 31,
                                         1998            1998
                                    --------------  --------------
LPG:
 Building. . . . . . . . . . . . .  $     173,500   $     173,500 
 LPG terminal. . . . . . . . . . .      3,426,440       3,426,440 
 Automobile and equipment. . . . .        388,837         391,138 
 Office equipment. . . . . . . . .         35,738          35,738 
 Capital construction in progress.        117,586          75,389 
 Leasehold improvements. . . . . .        291,409         291,409 

CNG:
 Furniture, fixtures and equipment        189,206         203,559 
 Automobiles . . . . . . . . . . .          3,500           3,500 
 Capital construction in progress.      1,043,158       1,041,434 
 Leasehold improvements. . . . . .          8,575           8,575 
                                    --------------  --------------
                                        5,677,949       5,650,682 
Less: accumulated depreciation and
 amortization. . . . . . . . . . .   (  1,593,893)   (  1,531,245)
                                    --------------  --------------
                                    $   4,084,056   $   4,119,437 
                                    ==============  ==============



NOTE  D  -  INVENTORIES


     Inventories  consist  of  the  following:


                                      October 31,      July 31,
                                         1998           1998
                                    --------------  --------------
LPG:
 Pipeline . .                       $    297,047    $      276,938
 LPG terminal                            105,319           100,159
                                    --------------  --------------

                                    $    402,366    $      377,097
                                    ==============  ==============

                                        9
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


     NOTE E - NYDOT CNG FUELING STATION

     During  the year ended  July 31,  1998,  the  Company  recorded  additional
     revenues of 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).  The  change-orders  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 the general contractor,  A.E.
     Schmidt  Environment  ("AES"),  that the Company  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.  As of July 31,  1998,  the  Company
     revised its estimate  related to the work preformed in connection  with the
     change-orders.  As a result of this revision the Company  reduced  revenues
     associated with the change-orders by $500,000 and recorded an allowance for
     doubtful  accounts of  $321,994.  In  connection  with this  contract,  the
     Company  does  not  anticipate  a  material  amount  of  additional   costs
     associated with either completion of the contract or subsequent  warranties
     provided for in the contract.

     For the three  months  ended  October 31,  1997,  the Company had  recorded
     additional  revenues of approximately  $600,000 related to change-orders in
     connection with the NYDOT CNG fueling station.

                                       10
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  F  -  LONG-TERM  DEBT

<TABLE>
<CAPTION>
     Long-term  debt  consists  of  the  following:


                                                                                          October 31,    July 31,
                                                                                              1998         1998
                                                                                          ------------  ----------
<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  $   91,197

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 (see note L). .      100,000     100,000

1,500,000 in promissory notes, with warrants to  purchase up  to  250,000  shares  of
common stock at an exercise price of $6.00 per  share  expiring  October 21, 2000 and
warrants  to  purchase  up  to 337,500 shares of common stock at an exercise price of
1.75  per  share  expiring  November  30,  2001; principal due June 30, 1999, or from
proceeds received by the Company from any  public  offering  of debt or equity of the
Company  in  excess  of $2,250,000.  Promissory notes are secured  by  an  assignment
of net proceeds  received by the Company in connection with  the  Judgment;  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 (see note L) . . . . . . . . . . . . . . . . . . . . . . .     1,500,000   1,500,000

Note  issued  in  connection  with settlement of vendor obligation.  Principal due in
monthly installments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        62,700      62,700
                                                                                          ------------  ----------

                                                                                             1,753,897   1,753,897

Current maturities.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,753,897   1,693,897
                                                                                          ------------  ----------

                                                                                          $          -  $   60,000
                                                                                          ============  ==========
</TABLE>

                                       11
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)




NOTE  G  -  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  common  shares  was  recorded  as a
     preferred stock dividend in the amount of $225,000 at January 30, 1998.

     STOCK  AWARD  PLAN
     ------------------

     Under the  Company's  1997 Stock Award Plan,  the Company has  reserved for
     issuance  150,000  shares of Common  Stock,  of which  129,686  shares were
     unissued  as of  October  31,  1998,  to  compensate  consultants  who have
     rendered  significant  services to the Company. The Plan is administered by
     the  Compensation  Committee of the Board of Directors of the Company which
     has complete  authority  to select  participants,  determine  the awards of
     Common  Stock to be granted  and the times  such  awards  will be  granted,
     interpret  and  construe  the 1997  Stock  Award Plan for  purposes  of its
     administration  and make  determinations  relating  to the 1997 Stock Award
     Plan,  subject to its  provisions,  which are in the best  interests of the
     Company  and  its   stockholders.   Only   consultants  who  have  rendered
     significant   advisory   services  to  the  Company  are   eligible  to  be
     participants under the Plan. Other eligibility  criteria may be established
     by the Compensation Committee as administrator of the 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 pursuant to the plan.

                                       12
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  H  -  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.

     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 and on June 18,  1998,  the Texas Court of Appeals  issued
     its  opinion  in the  case,  ruling  essentially  in favor of the  Company.
     IBC-Brownsville sought a rehearing of the case on August 3, 1998. The Court
     has not ruled on the IBC-Brownsville  request for rehearing.  A decision is
     expected by December  31, 1998.  As of October 31, 1998,  the net amount of
     the award is  approximately  $3.5  million,  which is  comprised of (i) the
     original  judgment,  including  attorneys' fees, (ii) post-award  interest,
     (iii)   cancellation   of  the  note  and  accrued   interest   payable  to
     IBC-Brownsville which is included in the Consolidated Financial Statements,
     less attorneys' fees.

     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.

     On June 26, 1996,  IBC-Brownsville  filed a 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  Judgment  against it
     prevented it 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 entered the Judgment on behalf of the Company
     indicated in a preliminary ruling that the Company was privileged in filing
     the Judgment to clear title to its assets.

     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 Mr.  Mark  Casaday,  a former  officer  and  director  of the
     Company; defamation against the Company, Mr. Richter, Mr. Mark Casaday, and
     Mr. Jorge  Bracamontes;  and  interference  with contract against Mr. 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 and on September 30, 1998, Mr. Duran
     filed a Fourth Amended  Original  Petition.  Mr. Duran is seeking  judgment
     against  the  Company and Messrs.  Richter,  Casaday  and  Bracamontes  for
     damages  in excess of $12.0  million,  including  prejudgment  interest  as
     provided

                                       13
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  H  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued

     for by law, and attorneys'  fees and such further relief to which he may be
     justly  entitled.  The Company  intends to  vigorously  defend  against Mr.
     Duran's counterclaim.

     On October 14,  1998,  a  complaint  was filed by Amwest  Surety  Insurance
     Company ("Amwest") naming as defendants,  among others,  PennWilson and the
     Company  seeking  reimbursement  for  payments  made  by  Amwest  from  the
     performance  and payment bonds in response to claims for services  provided
     by suppliers,  laborers and other  materials and work to complete the NYDOT
     contract.  The  Company is  currently  considering  its legal  options  and
     intends to file an answer to Amwest's complaint.

     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, LETTERS OF CREDIT AND OTHER

     In connection with the PMI Sales Agreement,  invoicing occurs weekly.  From
     November  1996  to  early  November  1997,  the  Company  and  PMI  made an
     arrangement  under which PMI  provided  financing on the  Company's  behalf
     under the terms of the Company's supply agreement with Exxon, the Company's
     main supplier.  As a result of this  arrangement,  invoicing  occurred on a
     monthly, rather than a weekly basis.

     On October 22, 1997, the Company entered into a $6,000,000  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 entered into leasehold deeds of
     trust,  security agreements,  financing statements and assignments of rent.
     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, PMI no longer provided any
     financing on behalf of the Company,  and 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.

     In connection  with the  Company's  purchases of LPG from Exxon and/or PG&E
     NGL  Marketing,  L.P.,  the Company  issues  letters of credit on a monthly
     basis based on anticipated purchases.

                                       14
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  H  -  COMMITMENTS  AND  CONTINGENCIES  -  Continued

     As of October 31, 1998,  letters of credit established under the RZB Credit
     Facility in favor of Exxon for purchases of LPG totaled $6,000,000 of which
     $1,204,502  was being  used to secure  unpaid  purchases  from  Exxon as of
     October 31,  1998.  In addition,  as of October 31,  1998,  the Company had
     $1,351,378  of  loans  outstanding  under  the  RZB  Credit  Facility.   In
     connection  with these  purchases,  as of October 31, 1998, the Company had
     unpaid  invoices  due  from  PMI  totaling  $1,828,631  and  cash  balances
     maintained in the RZB Credit Facility collateral account of $779.

     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. The letter of credit expired in August 1998.

     During  November  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 $176,000.

NOTE  I  -  REALIZATION  OF  ASSETS

     The accompanying 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  incurred  losses  since
     inception,  has used cash in operations,  has a deficit in working  capital
     and  stockholders'  equity and is  delinquent  under certain loan and lease
     agreements. 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  major
     customer.

     In view of the matters described in the preceding paragraph, recoverability
     of a  major  portion  of  the  recorded  asset  amounts  as  shown  in  the
     accompanying consolidated balance 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. The 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)
     extend the terms and  capacity of the  Pipeline  Lease and the  Brownsville
     Terminal Facility, 5) expand its product lines and 6) raise additional debt
     and/or equity capital.

     At July 31, 1998,  the Company had net  operating  loss  carryforwards  for
     federal  income tax purposes of  approximately  $8,826,000.  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.

                                       15
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  J  -  CONTRACTS

     LPG  BUSINESS

     The Company has entered into a sales agreement  (Agreement)  with its major
     customer,  PMI, to provide a minimum  monthly  volume of LPG to PMI through
     September 30, 1999.  During October 1998, the Company was purchasing LPG on
     a  month-to-month  basis  from Exxon  Company,  U.S.A.  (Exxon),  its major
     supplier,  to meet the minimum monthly  volumes  required in the Agreement.
     Effective November 1, 1998, the Company entered into a supply contract with
     Exxon to purchase  minimum  monthly  volumes of LPG through  September 1999
     under payment terms similar to those required in the Agreement.  The supply
     price is below the sales price provided for in the Agreement.

     CNG BUSINESS

     The Company has not entered into any CNG  contracts  subsequent to July 31,
     1998.

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 designed,  constructed
     and installed  fueling  stations  since its  inception  through early 1998.
     Subsequently,  the CNG segment focused  primarily on the  construction  and
     operation  of a CNG vehicle and fueling  station  infrastructure  in Mexico
     City, Mexico.

     The accounting policies used to develop segment  information  correspond to
     those described in the summary of significant accounting policies.  Segment
     profit (loss) is based on profit (loss) from operations  before income tax.
     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 for
     the three months ended October 31, 1998 and 1997.

                                       16
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



NOTE  K  -  SEGMENT  INFORMATION  -  Continued

<TABLE>
<CAPTION>
     THREE  MONTHS  ENDED  OCTOBER  31,  1998:

                                                   LPG           CNG           Totals
                                               ------------  ------------  --------------
<S>                                            <C>           <C>           <C>
Revenues from external customers. . . . . . .  $ 6,478,566   $    23,521   $   6,502,087 
Interest expense. . . . . . . . . . . . . . .       92,393         4,875          97,268 
Interest Income . . . . . . . . . . . . . . .          418             -             418 
Depreciation and amortization . . . . . . . .       56,896         8,910          65,806 
Segment profit (loss) . . . . . . . . . . . .    (  59,850)   (   81,421)     (  141,271)
Segment assets. . . . . . . . . . . . . . . .    6,877,866       528,123       7,405,989 
Segment liabilities . . . . . . . . . . . . .   (7,186,295)   (  687,093)   (  7,873,388)
Expenditure for segment assets. . . . . . . .       62,229     (  34,961)         27,268 

Reconciliation to Consolidated Amounts

Revenues
 Total revenues for reportable segments                      $ 6,502,087 
 Other revenues                                                        - 
 Elimination of intersegment revenues                                  - 
                                                             ------------                
   Total consolidated revenues                               $ 6,502,087 
                                                             ============                

Profit (Loss)
 Total profit (loss) for reportable segments                 $(  141,271)
 Other profit (loss)                                                   - 
 Elimination of intersegment profits                                   - 
 Unallocated amounts
   Corporate headquarters expense                                      - 
   Other expenses                                                      - 
                                                             ------------                
     Consolidated (loss) before income tax                   $(  141,271)
                                                             ============                

Assets
 Total assets for reportable segments                        $ 7,405,989 
 Other assets                                                          - 
 Corporate headquarters                                                - 
 Other unallocated amounts                                             - 
                                                             ------------                
   Total consolidated assets                                 $ 7,405,989 
                                                             ============                

Geographic Information. . . . . . . . . . . .  Revenues      Assets
---------------------------------------------  ------------  ------------                
United States . . . . . . . . . . . . . . . .  $ 6,502,087   $ 7,405,989 
Canada. . . . . . . . . . . . . . . . . . . .            -             - 
                                               ------------  ------------                
                                               $ 6,502,087   $ 7,405,989 
                                               ============  ============                
</TABLE>

                                       17
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE  K  -  SEGMENT  INFORMATION  -  Continued

<TABLE>
<CAPTION>

     THREE  MONTHS  ENDED  OCTOBER  31,  1997:


                                                     LPG             CNG            TOTALS
                                                --------------  --------------  --------------
<S>                                             <C>             <C>             <C>
Revenues from external customers . . . . . . .  $   6,542,481   $   1,645,521   $   8,188,002 
Interest expense . . . . . . . . . . . . . . .         59,099           2,038          61,137 
Depreciation and amortization. . . . . . . . .         55,871          11,856          67,727 
Segment (loss) . . . . . . . . . . . . . . . .      (  44,975)      (  79,473)     (  124,448)
Segment assets . . . . . . . . . . . . . . . .      5,714,416       1,801,118       7,515,534 
Segment liabilities. . . . . . . . . . . . . .   (  4,431,981)   (  1,118,645)   (  5,560,626)
Expenditure for segment assets . . . . . . . .         20,542         190,512         211,054 

Reconciliation to Consolidated Amounts
----------------------------------------------                                                


Revenues
 Total revenues for reportable segments                         $   8,188,002 
 Other revenues                                                             - 
 Elimination of intersegment revenues                                       - 
                                                                --------------                
   Total consolidated revenues                                  $   8,188,002 
                                                                ==============                

Profit or Loss
 Total profit or loss for reportable segments                   $  (  124,448)
 Other profit or loss                                                       - 
 Elimination of intersegment profits                                        - 
 Unallocated amounts
   Corporate headquarters expense                                           - 
   Other expenses                                                           - 
                                                                --------------                
     Consolidated income before income taxes                    $  (  124,448)
                                                                ==============                
Assets
 Total assets for reportable segments                           $   7,515,534 
 Other assets                                                               - 
 Corporate headquarters                                                     - 
 Other unallocated amounts                                                  - 
                                                                --------------                
   Total consolidated assets                                    $   7,515,534 
                                                                ==============                

Geographic Information . . . . . . . . . . . .  Revenues        Assets
----------------------------------------------  --------------  --------------                
United States. . . . . . . . . . . . . . . . .  $   8,153,149   $   7,515,534 
                                                --------------                                
Canada . . . . . . . . . . . . . . . . . . . .         34,853               - 
                                                --------------  --------------                
                                                $   8,188,002   $   7,515,534 
                                                ==============  ==============                
</TABLE>

                                       18
<PAGE>
                    PENN OCTANE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  L  -  SUBSEQUENT  EVENTS

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

     On November 13, 1998,  the Company issued 250,000 shares of common stock of
     the Company and warrants to purchase  75,000 shares of common stock with an
     exercise price of $1.25 per warrant and an expiration  date of November 12,
     2000 for an amount of $250,000.  Net  proceeds  from the sale were used for
     working capital purposes.

     On December 14, 1998,  the Company issued 500,000 shares of common stock of
     the Company and warrants to purchase 300,000 shares of common stock with an
     exercise price of $1.75 per warrant and an expiration  date of December 13,
     2003 for an amount of $500,000. Net proceeds from the sale will be used for
     working capital purposes.

     PROMISSORY  NOTE  AMENDMENT
     ---------------------------

     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
     were  unsecured.  Proceeds raised from the private  placement  totaled $1.5
     million, which the Company used for working capital requirements.  Interest
     at 10% per annum was due  quarterly on March 31, June 30,  September 30 and
     December  31.  Payment  of  the  principal  and  accrued  interest  on  the
     promissory notes was due on June 30, 1998. On December 1, 1998, the Company
     completed a rollover and assignment agreement effectively extending the due
     date  of  the   promissory   notes  until  June  30,  1999  (the  "Rollover
     Agreement").  In connection with the Rollover Agreement, the Company agreed
     to assign its rights to any net cash  collected  from the Judgment  towards
     any unpaid  principal  and  interest  owing on the  promissory  notes.  The
     Company  also agreed to use any net  proceeds  received by the Company from
     any  public  offering  of  debt or  equity  of the  Company  in  excess  of
     $2,250,000,   towards  the  repayment  of  any  balances  owing  under  the
     promissory  notes.  The  promissory  note holders also received  additional
     warrants to purchase  337,500  shares of common  stock,  exercisable  until
     November 30, 2001, at an exercise price of $1.75 per share.  The purchasers
     in the private  placement were granted one demand  registration  right with
     respect to the shares issuable upon exercise of the warrants.

     LPG  SUPPLY  CONTRACT
     ---------------------

     Effective November 1, 1998, the Company entered into a supply contract with
     a major  supplier  to  purchase  minimum  monthly  volumes  of LPG  through
     September  1999  under  payment  terms  similar  to those  required  in the
     Agreement  (Note J). The supply price is below the sales price provided for
     in the Agreement.

     SEADRIFT  PROMISSORY  NOTE
     --------------------------

     During  November 1998, the Company issued a promissory note to Seadrift for
     $261,206,  representing all outstanding rental obligations owed to Seadrift
     through  November 1998. The promissory note is payable in six  installments
     beginning  November 25, 1998 and ending  February 3, 1999.  Interest on the
     promissory note is 10% per annum.

     NOTE  CANCELLATION
     ------------------

     During  December  1998, the Company issued 53,884 shares of common stock of
     the  Company to  Zimmerman  Holdings  Inc.  (ZHI),  as payment for and full
     cancellation  of a note payable of $100,000 and related  interest and other
     obligations totaling $18,000 and the cancellation of any further obligation
     to pay any future  royalties  in  connection  with  Company's  purchase  of
     certain CNG assets from Wilson Technologies Inc., a wholly owned subsidiary
     of ZHI.

                                       19
<PAGE>
ITEM  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             RESULTS  OF  OPERATIONS

     The  following  discussion  of  the  Company's  results  of  operations and
liquidity  and  capital  resources  should  be  read  in  conjunction  with  the
Consolidated  Financial  Statements  of  the  Company  and related Notes thereto
appearing  elsewhere  herein.  References to specific years preceded by "fiscal"
(e.g.  fiscal  1999)  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 fiscal 1999 and 1998
discussed  below.  To  date,  there  has been no significant activity associated
with  the  operations  of  Holdings  or  Estacion.

OVERVIEW

     The  Company  has  been principally engaged in the purchase, transportation
and  sale of LPG and, since 1997, the provision of equipment and services to the
CNG  industry.  Beginning  July  1994,  the  Company has bought and sold LPG for
distribution  into  northeast  Mexico  and  the  U.S.  Rio  Grande  Valley.

     Historically,  the  Company  has  derived substantially all of its revenues
from sales to PMI, its primary customer, of LPG purchased from Exxon.  In fiscal
1998,  the  Company derived approximately 95% of its revenues from sales of LPG,
of  which  sales  to  PMI  accounted  for  nearly  100%  of  total  LPG  sales.

     As  part  of  its  business  strategy,  in  March 1997 the Company acquired
certain assets and hired certain former employees from WTI, 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
was  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 has been
reflected  as  such in the Company's consolidated financial statements beginning
in  fiscal  1997.

     The  Company's  CNG revenues were previously derived from contracts awarded
on  a  fixed-price,  as-completed  basis.  Currently,  the  Company is no longer
actively  pursuing  contracts  to  construct  CNG  equipment  for  sale to third
parties.  Due  to  the  current  financial  condition  of  the  Company  and the
additional  capital  required to pursue CNG operations in Mexico, the Company is
currently  reassessing  its  CNG  business  strategy  including  the  possible
disposition  of some or all of the Company's CNG assets.  As of the date of this
Report, the Board has not definitively determined whether to continue or dispose
of  the  Company's  CNG  business.

     The  Company  provides  products  and  services  through  a  combination of
fixed-margin and fixed-price contracts.  Under the Company's agreements with its
customers  and  suppliers,  the  buying  and  selling prices of LPG 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 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  resold  to  PMI  could  result  in
unanticipated  costs.

                                       20
<PAGE>
LPG  SALES

     The  following table shows the Company's volume sold in gallons and average
sales  price  of  LPG  for  the  three  months  ended October 31, 1998 and 1997.

<TABLE>
<CAPTION>
                               Three  Months  Ended
                            --------------------------
                            October 31,   October 31,
                                1998          1997
                            ------------  ------------
<S>                         <C>           <C>
Volume Sold

 LPG (millions of gallons)          22.4          15.1

Average sales price

 LPG (per gallon). . . . .  $       0.28  $       0.43
</TABLE>

RESULTS  OF  OPERATIONS

     THREE  MONTHS  ENDED  OCTOBER  31,  1998,  COMPARED  THE THREE MONTHS ENDED
OCTOBER  31,  1997

     Revenues.  Revenues  for  the three months ended October 31, 1998 were $6.5
million  compared with $8.2 million for the three months ended October 31, 1997,
a  decrease  of  $1.7  million  or 20.7%.  Of this decrease (i) $1.6 million was
attributable to revenues from sales of equipment for CNG fueling stations due to
the  Company's  decision  to  reassess its CNG business strategy resulting in $0
revenues  from  CNG  related contracts during the three months ended October 31,
1998  and  (ii) $124,282 related to the Company's LPG business; $2.2 million was
attributable  to  a  decrease  in  average  sales price for LPG during the three
months ended October 31, 1998, partially offset by increased volumes of LPG sold
during  the  three  months  ended  October 31, 1998, resulting in an increase in
sales  of  $2.1  million.

     Cost  of  sales.  Cost of sales for the three months ended October 31, 1998
was  $5.9  million compared with $7.8 million for the three months ended October
31,  1997,  a  decrease  of  $1.9  million  or 24.4%.  Of this decrease (i) $1.5
million  was  attributable  to  costs associated with sales of equipment for CNG
fueling  stations  as described above and (ii) $411,306 of costs associated with
the  Company's  LPG  business  ($2.2  million  was attributable to a decrease in
average  purchase  price for LPG purchased during the three months ended October
31,  1998,  offset by the increase in volume of LPG sold during the three months
ended  October  31, 1998, resulting in an increase in cost of goods sold of $1.8
million).

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses  were  $662,039  for the three months ended October 31,
1998  compared  with  $550,362  for  the three months ended October 31, 1997, an
increase  of  $111,677  or  20.3%.  This  increase was primarily attributable to
payroll  and  other related costs in connection with the Company's LPG business,
partially  offset  by  reductions in costs associated with the operations of the
CNG  business  for  the  three  months  ended  October  31,  1998.

     Other  income and expenses, net.  Other income (expense), net was ($96,850)
for the three months ended October 31, 1998 compared with ($3,629) for the three
months  ended  October  31,  1997.  The increase in other income (expense), net,
during  the  three  months  ended October 31, 1998 was due primarily to interest
income  on  a  note  from the president of the Company and a related party which
during  fiscal  1999,  will  be  recorded  only  when cash is actually received.

     Income  tax.  Due  to the net losses for the three months ended October 31,
1998  and  1997,  there was no income tax expense in either period.  At July 31,
1998,  the  Company  had net operating loss carryforwards for federal income tax
purposes  of  approximately  $8.8  million.  The  ability  to  utilize  such net
operating  loss  carryforwards,  which  expire in the years 2009 to 2013, may be
significantly  limited  by  the  application  of the "change of ownership" rules
under  Section  382  of  the  Internal  Revenue  Code.

     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

                                       21
<PAGE>
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.

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 and
stockholders'  equity.  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.  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  summary table reflects comparative cash flows for the three
months  ended  October  31,  1998  and  1997.  All  information is in thousands.

<TABLE>
<CAPTION>
                                                OCTOBER 31,         OCTOBER 31,
                                                    1998               1997
                                           ----------------------  -------------
<S>                                        <C>                     <C>
Net cash used in operating activities . .  $              (  467)  $     (  987)
Net cash provided by (used in) investing.                 (   27)        (  211)
 Activities
Net cash provided by financing activities                    360          1,568 
                                           ----------------------  -------------
Net increase (decrease) in cash . . . . .                  ( 134)  $        370 
                                           ======================  =============
</TABLE>

     The  PMI  Sales  Agreement is effective for the period from October 1, 1998
through  September  30,  1999  and  provides  for the purchase by PMI of minimum
monthly  volumes  of  LPG  aggregating  a  minimum annual volume of 69.0 million
gallons,  similar  to  minimum  volume  requirements  under  the  previous sales
agreement with PMI effective during the period from October 1, 1997 to September
30,  1998.  During  October  1998,  the  Company  entered  into a monthly supply
agreement with Exxon pursuant to which Exxon agreed to supply minimum volumes of
LPG  to  the  Company.  Effective  November  1, 1998, the Company entered into a
supply  agreement  with Exxon to purchase minimum monthly volumes of LPG through
September 1999.  The Company believes it has access to an adequate supply of LPG
from  Exxon and other suppliers to satisfy the requirements of PMI under the PMI
Sales  Agreement.  In  determining  whether  any  supplier will be utilized, the
Company  will  consider  the applicable prices charged as well as any additional
fees  that  may  be  required  to be paid under the Pipeline Lease.  The Company
anticipates  10%  -  15%  lower  gross  margins  on its LPG sales as a result of
increased  LPG  costs  beginning  October  1998  compared  with  the  previous
agreements.

                                       22
<PAGE>
     Pipeline  Lease.  The  Pipeline  Lease currently expires on March 31, 2013,
pursuant  to  an  amendment entered into between the Company and Seadrift on May
21,  1997,  effective  on  April  1, 1998 (the "Pipeline Lease Amendment").  The
Pipeline  Lease  Amendment  provides, among other things, for additional storage
access  and  inter-connection  with  another  pipeline  controlled  by Seadrift,
thereby  providing  greater  access  to  and from the Pipeline.  Pursuant to the
Pipeline Lease Amendment, the Company's fixed annual fee associated with the use
of  the  Pipeline  was  increased  by  $350,000. In addition, the Pipeline Lease
Amendment  also  provides for variable rental increases based on monthly volumes
purchased  and  flowing into the Pipeline.  As of October 31, 1998, Seadrift had
yet  to  make  certain improvements which the Company believes were the basis of
the  increase  in  rent  required  under  the  Pipeline  Lease Amendment ("Basic
Improvements").  Accordingly, Seadrift has continued to invoice the Company, and
the Company has continued to make lease payments to Seadrift as prescribed under
the  Pipeline Lease.  The Company further believes that the term of the Pipeline
Lease Amendment shall commence upon the completion of the Basic Improvements and
terminate  fifteen  years thereafter.  The Company believes the extension of the
Pipeline  Lease gives the Company increased flexibility in negotiating sales and
supply  agreements  with its customers and suppliers.  During November 1998, the
Company  issued  a  promissory  note  to Seadrift for $261,206, representing all
outstanding  rental  obligations  owed  to  Seadrift through November 1998.  The
promisorry  note  is payable in six installments beginning November 25, 1998 and
ending  February  3,  1999.  Interest  on  the promissory note is 10% per annum.

     Credit Arrangements.  In connection with the PMI Sales Agreement, invoicing
is  to occur weekly.  From November 1996 to early November 1997, the Company and
PMI  made  an  arrangement  under  which PMI provided financing on the Company's
behalf  under  the  terms  of  the  Company's  supply  agreement with Exxon, the
Company's main supplier.  As a result of this arrangement, 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.  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 to between the Company and RZB.  Any amounts outstanding under the
RZB  Credit Facility shall accrue interest at a rate equal to the rate announced
by  the  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, PMI no longer provided any financing on behalf of
the  Company,  and  the  Company  began  invoicing  PMI  on  a  weekly  basis.

                                       23
<PAGE>
     Effective  April  22,  1998,  the  aggregate amount available under the RZB
Credit  Facility was increased to $7.0 million.  The Company believes that based
on  current market prices of LPG and LPG volume requirements under the PMI Sales
Agreement,  the  RZB  Credit  Facility  is  adequate.

     In  connection  with  the Company's purchases of LPG from Exxon and/or PG&E
NGL  Marketing,  L.P.,  the  Company issues letters of credit on a monthly basis
based  on  anticipated  purchases.

               As  of  October 31, 1998, letters of credit established under the
RZB  Credit Facility in favor of Exxon for purchases of LPG totaled $6.0 million
of which $1.2 million was being used to secure unpaid purchases from Exxon as of
October  31,  1998.  In  addition,  as of October 31, 1998, the Company had $1.4
million  of loans outstanding under the RZB Credit Facility.  In connection with
these  purchases,  as  of  October 31, 1998, the Company had unpaid invoices due
from  PMI  totaling  $1.8 million and cash balances maintained in the RZB Credit
Facility  collateral  account  of  $779.

     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.  The  letter  of  credit  expired  during  August  1998.

     During  November  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  $176,000.

     Private  Placements  and  Other  Transactions.     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 were unsecured.  Proceeds raised from the
private  placement  totaled  $1.5  million,  which  the Company used for working
capital  requirements.  Interest at 10% per annum was due quarterly on March 31,
June  30,  September  30  and December 31.  Payment of the principal and accrued
interest on the promissory notes was due on June 30, 1998.  On December 1, 1998,
the  Company completed a rollover and assignment agreement effectively extending
the  due  date  of  the  promissory  notes  until  June  30, 1999 (the "Rollover
Agreement").  In  connection  with the Rollover Agreement, the Company agreed to
assign its rights to any net cash collected from the Judgment towards any unpaid
principal  and  interest owing on the promissory notes.  The Company also agreed
to use any net proceeds received by the Company from any public offering of debt
or  equity of the Company in excess of than $2,250,000, towards the repayment of
any balances owing under the promissory notes.  The promissory note holders also
received  additional  warrants  to  purchase  337,500  shares  of  common stock,
exercisable  until  November  30, 2001, at an exercise price of $1.75 per share.
The  purchasers  in  the  private placement were granted one demand registration
right  with  respect  to  the  shares  issuable  upon  exercise of the warrants.

     On  November 13, 1998, the Company issued 250,000 shares of common stock of
the  Company  and  warrants  to  purchase  75,000 shares of common stock with an
exercise  price of $1.25 per warrant and an expiration date of November 12, 2000
for  an  amount  of  $250,000.  Net proceeds from the sale were used for working
capital  purposes.

     On  December 14, 1998, the Company issued 500,000 shares of common stock of
the  Company  and  warrants  to  purchase 300,000 shares of common stock with an
exercise  price of $1.75 per warrant and an expiration date of December 13, 2003
for  an amount of $500,000.  Net proceeds from the sale will be used for working
capital  purposes.

     During  December  1998, the Company issued 53,884 shares of common stock of
the  Company  to  Zimmerman  Holdings  Inc.  (ZHI),  as  payment  for  and  full
cancellation  of  a  note  payable  of  $100,000  and related interest and other
obligations  totaling  $18,000 and the cancellation of any further obligation to
pay  any  future  royalties in connection with Company's purchase of certain CNG
assets  from  Wilson  Technologies  Inc.,  a  wholly  owned  subsidiary  of ZHI.

                                       24
<PAGE>
     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 $3.2 million.  As of October 31, 1998, the net amount of the award is
approximately  $3.5  million,  which is comprised of the sum of (i) the original
award,  including  attorney's  fees,  (ii)  post-award  interest,  and  (iii)
cancellation  of  the note and accrued interest payable which is included in the
Consolidated  Financial Statements, less attorneys' fees.  The 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)  and  amounts have been assigned to the promissory note holders.  See note
and  L  to  the  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.

     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)
extend the terms and capacity of the Pipeline Lease and the Brownsville Terminal
Facility,  (v)  expand  its  product lines and (vi) raise additional debt and/or
equity  capital.  See  note  I  to  the  Consolidated  Financial  Statements.

     Year 2000 Date Conversion.  Management has determined that the consequences
of  its  Year  2000  issues  will  not  have  a material effect on the Company's
business,  results  of  operations,  or  financial  condition.

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
consolidated  statements of operations are calculated under the guidance of SFAS
128.

     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.

                                       25
<PAGE>
PART  II

ITEM 1.   LEGAL PROCEEDINGS

          See Note H to the unaudited Consolidated Financial Statements and Note
          O to the Company's  Annual Report on Form 10-K for the year ended July
          31, 1998.

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:

EXHIBIT  NO.
------------


10.71     LPG  Mix  Purchase  Contract  dated  September 28, 1998 between P.M.I.
          Trading  Limited and the  Company.  (Incorporated  by reference to the
          Company's  Annual Report on Form 10-K for the year ended July 31, 1998
          filed on November 13, 1998, SEC File No. 000-24394)

The  following  material  contracts  are  filed  as  part  of  this  report:

10.72     LPG  Sales  Agreement  dated  November  16, 1998 between Exxon and the
          Company.

10.73     Rollover  and Assignment Agreement dated December 1, 1998 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.

10.74     Registration  Rights  Agreement  dated  December  1, 1998 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.

10.75     Collateral  Agreement  dated  December  1,  1998  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.

10.76     Assignment  of  Judgment Agreement dated December 1, 1998 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.

                                       26
<PAGE>
10.77     Amended  Promissory  Note dated December 1, 1998 between Castle Energy
          Corporation and the Company.

10.78     Common  Stock Purchase Warrant dated December 1, 1998 issued to Castle
          Energy Corporation by the Company.

10.79     Amended  Promissory  Note dated  December 1, 1998 between Clint Norton
          and the Company.

10.80     Common  Stock  Purchase Warrant dated December 1, 1998 issued to Clint
          Norton by the Company.

10.81     Amended  Promissory  Note dated  December  1, 1998  between  Southwest
          Concept, Inc. and the Company.

10.82     Common  Stock  Purchase  Warrant  dated  December  1,  1998  issued to
          Southwest Concept, Inc. by the Company.

10.83     Amended Promissory Note dated December 1, 1998 between James F. Meara,
          Jr. and the Company.

10.84     Common  Stock  Purchase Warrant dated December 1, 1998 issued to James
          F. Meara, Jr. by the Company.

10.85     Amended  Promissory  Note dated  December  1, 1998  between  Donaldson
          Luftkin  Jenrette  Securities  Corporation  Custodian SEP FBO James F.
          Meara IRA and the Company.

10.86     Common  Stock  Purchase  Warrant  dated  December  1,  1998  issued to
          Donaldson Luftkin Jenrette  Securities  Corporation  Custodian SEP FBO
          James F. Meara IRA and the Company.

10.87     Amended  Promissory  Note dated December 1, 1998 between Lincoln Trust
          Company FBO Perry D. Snavely IRA and the Company.

10.88     Common Stock Purchase Warrant dated December 1, 1998 issued to Lincoln
          Trust  Company  FBO  Perry  D.  Snavely  IRA  by  the  Company.

10.89     Purchase Agreement dated November 13, 1998 between Van Moer Santerre &
          Company  and  the  Company.

10.90     Registration  Rights  Agreement dated November 13, 1998 among Van Moer
          Santerre  &  Company  and  the  Company.

10.91     Common  Stock  Purchase  Warrant dated November 13, 1998 issued to Van
          Moer  Santerre  &  Company  by  the  Company.

10.92     Purchase  Agreement dated December 14, 1998 between KFP Grand LTD. and
          the  Company.

10.93     Registration  Rights Agreement dated December 14, 1998 among KFP Grand
          LTD.  and  the  Company.

10.94     Common  Stock  Purchase  Warrant dated December 14, 1998 issued to KFP
          Grand  LTD.  by  the  Company.

10.95     Second Amendment of the Interim Operating Agreement dated December 15,
          1998 among Wilson Technologies Inc., Zimmerman Holdings,  Inc. and the
          Company.

                                       27
<PAGE>
27.1      Financial  Data  Schedule.  (Filed  herewith.)

b. Reports  on  Form  8-K.
The  following  Reports  on  Form  8-K  are  incorporated  herein  by reference:

None.

                                       28
<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



December  18,  1998     By: /s/ Ian  T.  Bothwell
                                --------------------
                                Ian  T.  Bothwell
                                Vice President, Treasurer, Assistant  Secretary,
                                Chief  Financial  Officer

                                       29
<PAGE>