____________________________________________________________________________
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
PROMISSORY NOTE
$100,000 New York, New York October 7, 1996
FOR VALUE RECEIVED, PENN OCTANE CORPORATION, a Delaware
Corporation ("Maker"), promises to pay to JERRY WILLIAMS
("Holder") at such place as Holder may designate in writing,
the entire principal sum of One Hundred Thousand Dollars
($100,000), together with interest at the rate of ten percent
(10%) per annum, on November 7, 1997 (the "Payment Date"), at
which time all principal and interest shall be due and owing.
In the event the Company receives in excess of two hundred fifty
thousand ($250,000) dollars in connection with an offering of Maker's
securities prior to the Payment Date, the Company shall utilize
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, Maker shall pay the balance on the Payment Date.
All payments of principal and interest hereunder shall be payable
in lawful money of the United States.
Maker shall be in default hereunder, at the option of Holder,
upon the occurrence of any of the following events: (i) the
failure by Maker to make any payment of principal or interest
when due hereunder, and such failure shall have continued for a
period of more than ten (10) days; (ii) the entering into of a
decree or order by a court of competent jurisdiction adjudicating
Maker a bankrupt or the appointing of a receiver or trustee of Maker
upon the application of any creditor in an insolvency or bankruptcy
proceeding or other creditor's suit; (iii) a court of competent
jurisdiction approving as properly filed, a petition for reorganization
or arrangement filed against Maker under the Federal bankruptcy laws
and such decree or order not being vacated within thirty (30) days;
(iv) the pendency of any bankruptcy proceeding or other creditors'
suit against Maker; (v) a petition or answer seeking reorganization
or arrangement under the Federal bankruptcy laws with respect to
Maker; (vi) an assignment for the benefit of creditors by Maker;
(vii) Maker consents to the appointment of a receiver or trustee in an
insolvency or bankruptcy proceeding or other creditors' suit; (viii)
the existence of any uncured event of default under the terms of
any instrument in writing evidencing a debt to someone other than
Holder, provided, the Maker is not contesting in good faith by
appropriate proceedings such uncured event of default; (ix) the
existence of any judgment against, or any attachment of property
of Maker; or (x) any other condition which, in the good faith
determination of Holder, would materially impair the timely repayment
of this Note.
Upon the occurrence of any event or condition of default hereunder,
or at any time thereafter, Holder at his option may accelerate the
maturity of this Note and declare all of the indebtedness or any
portions thereof to be immediately due and payable, together with
accrued interest thereon, and payment thereof may be enforced by
suit or other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of collection
and such costs shall include without limitation all costs, attorneys'
fees and expenses incurred by Holder hereof in connection with any
insolvency, bankruptcy, reorganization, arrangement or similar
proceedings involving Holder, or involving any endorser or guarantor
hereof, which in any way affects the exercise by Holder hereof of its
rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent
holders and assigns.
Regardless of the place of execution or performance, this letter
and the Note shall be governed by, and construed in accordance with,
the laws of the State of New York without giving effect to such state's
conflicts of laws provisions. Each of the parties hereto irrevocably
consents to the jurisdiction and venue of the federal and state courts
located in the State of New York, County of New York.
PENN OCTANE CORPORATION
By: /s/ J.B. Richter
Chairman
PROMISSORY NOTE
$150,000 New York, New York October 9, 1996
FOR VALUE RECEIVED, PENN OCTANE CORPORATION, a Delaware Corporation
("Maker"), promises to pay to RICHARD SERBIN ("Holder") at such place
as Holder may designate in writing, the entire principal sum of
One Hundred Fifty Thousand Dollars ($150,000), together with
interest at the rate of ten percent (10%) per annum, on
November 7, 1997 (the "Payment Date"), at which time all principal
and interest shall be due and owing. In the event the Company
receives in excess of two hundred fifty thousand ($250,000) dollars in
connection with an offering of Maker's securities prior to the
Payment Date, the Company shall utilize 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, Maker shall pay
the balance on the Payment Date.
All payments of principal and interest hereunder shall be payable
in lawful money of the United States.
Maker shall be in default hereunder, at the option of Holder,
upon the occurrence of any of the following events: (i) the failure
by Maker to make any payment of principal or interest when due
hereunder, and such failure shall have continued for a period
of more than ten (10) days; (ii) the entering into of a decree
or order by a court of competent jurisdiction adjudicating Maker
a bankrupt or the appointing of a receiver or trustee of Maker upon
the application of any creditor in an insolvency or bankruptcy
proceeding or other creditor's suit; (iii) a court of competent
jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the
Federal bankruptcy laws and such decree or order not being
vacated within thirty (30) days; (iv) the pendency of any
bankruptcy proceeding or other creditors' suit against Maker;
(v) a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws with respect to Maker;
(vi) an assignment for the benefit of creditors by Maker;
(vii) Maker consents to the appointment of a receiver or trustee in an
insolvency or bankruptcy proceeding or other creditors' suit;
(viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a debt to someone
other than Holder, provided, that Maker is not contesting in good
faith by appropriate proceedings such uncured event of default;
(ix) the existence of any judgment against, or any attachment of
property of Maker; or (x) any other condition which, in the good
faith determination of Holder, would materially impair the timely
repayment of this Note.
Upon the occurrence of any event or condition of default hereunder,
or at any time thereafter, Holder at his option may accelerate the
maturity of this Note and declare all of the indebtedness or any
portions thereof to be immediately due and payable, together with
accrued interest thereon, and payment thereof may be enforced by
suit or other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of
collection and such costs shall include without limitation all
costs, attorneys' fees and expenses incurred by Holder hereof
in connection with any insolvency, bankruptcy, reorganization,
arrangement or similar proceedings involving Holder, or involving
any endorser or guarantor hereof, which in any way affects the
exercise by Holder hereof of its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent
holders and assigns.
Regardless of the place of execution or performance, this letter
and the Note shall be governed by, and construed in accordance with,
the laws of the State of New York without giving effect to such
state's conflicts of laws provisions. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of the federal
and state courts located in the State of New York, County of New York.
PENN OCTANE CORPORATION
By: /s/ J.B. Richter
President
PROMISSORY NOTE
$50,000 New York, New York October 29, 1996
FOR VALUE RECEIVED, PENN OCTANE CORPORATION, a Delaware Corporation
("Maker"), promises to pay to JAMES MULHOLLAND ("Holder") at such place
as Holder may designate in writing, the entire principal sum of
Fifty Thousand Dollars ($50,000), together with interest at the rate
of ten percent (10%) per annum, on November 7, 1997
(the "Payment Date"), at which time all principal and interest shall
be due and owing. In the event the Company receives in excess of
two hundred fifty thousand ($250,000) dollars in connection with an
offering of Maker's securities prior to the Payment Date, the Company
shall utilize 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, Maker shall pay the balance on the Payment Date.
All payments of principal and interest hereunder shall be payable in
lawful money of the United States.
Maker shall be in default hereunder, at the option of Holder,
upon the occurrence of any of the following events: (i) the failure
by Maker to make any payment of principal or interest when due
hereunder, and such failure shall have continued for a period of
more than ten (10) days; (ii) the entering into of a decree or order
by a court of competent jurisdiction adjudicating Maker a bankrupt or
the appointing of a receiver or trustee of Maker upon the application
of any creditor in an insolvency or bankruptcy proceeding or other
creditor's suit; (iii) a court of competent jurisdiction approving
as properly filed, a petition for reorganization or arrangement
filed against Maker under the Federal bankruptcy laws and such decree
or order not being vacated within thirty (30) days; (iv) the
pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws with respect to Maker;
(vi) an assignment for the benefit of creditors by Maker;
(vii) Maker consents to the appointment of a receiver or trustee in an
insolvency or bankruptcy proceeding or other creditors' suit;
(viii) the existence of any uncured event of default under the terms
of any instrument in writing evidencing a debt to someone other than
Holder, provided, that Maker is not contesting in good faith by
appropriate proceedings such uncured event of default;
(ix) the existence of any judgment against, or any attachment of
property of Maker; or (x) any other condition which, in the good
faith determination of Holder, would materially impair the timely
repayment of this Note.
Upon the occurence of any event or condition of default hereunder,
or at any time thereafter, Holder at his option may accelerate the
maturity of this Note and declare all of the indebtedness or any
portions thereof to be immediately due and payable, together with
accrued interest thereon, and payment thereof may be enforced by
suit or other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of collection
and such costs shall include without limitation all costs, attorneys'
fees and expenses incurred by Holder hereof in connection with any
insolvency, bankruptcy, reorganization, arrangement or similar
proceedings involving Holder, or involving any endorser or guarantor
hereof, which in any way affects the exercise by Holder hereof of its
rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include
their respective heirs, personal representatives, successors,
subsequent holders and assigns.
Regardless of the place of execution or performance, this letter and
the Note shall be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to such state's
conflicts of laws provisions. Each of the parties hereto irrevocably
consents to the jurisdiction and venue of the federal and state courts
located in the State of New York, County of New York.
PENN OCTANE CORPORATION
By: /s/ J.B. Richter
Chairman
PROMISSORY NOTE
$25,000 New York, New York October 29, 1996
FOR VALUE RECEIVED, PENN OCTANE CORPORATION, a Delaware Corporation
("Maker"), promises to pay to FREDERICK KASSNER ("Holder") at such
place as Holder may designate in writing, the entire principal sum
of Twenty Five Thousand Dollars ($25,000), together with interest
at the rate of ten percent (10%) per annum, on November 7, 1997
(the "Payment Date"), at which time all principal and interest shall
be due and owing. In the event the Company receives in excess of
two hundred fifty thousand ($250,000) dollars in connection with an
offering of Maker's securities prior to the Payment Date, the
Company shall utilize 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, Maker shall pay the balance on
the Payment Date.
All payments of principal and interest hereunder shall be payable
in lawful money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon
the occurrence of any of the following events: (i) the failure by
Maker to make any payment of principal or interest when due
hereunder, and such failure shall have continued for a period of
more than ten (10) days; (ii) the entering into of a decree or
order by a court of competent jurisdiction adjudicating Maker a
bankrupt or the appointing of a receiver or trustee of Maker upon
the application of any creditor in an insolvency or bankruptcy
proceeding or other creditor's suit; (iii) a court of competent
jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the Federal
bankruptcy laws and such decree or order not being vacated
within thirty (30) days; (iv) the pendency of
any bankruptcy proceeding or other creditors' suit against Maker;
(v) a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws with respect to Maker;
(vi) an assignment for the benefit of creditors by Maker;
(vii) Maker consents to the appointment of a receiver or trustee
in an insolvency or bankruptcy proceeding or other creditors' suit;
(viii) the existence of any uncured event of default under the
terms of any instrument in writing evidencing a
debt to someone other than Holder, provided, the Maker is not
contesting in good faith by appropriate proceedings such uncured
event of default; (ix) the existence of any judgment against, or
any attachment of property of Maker; or (x) any other condition
which, in the good faith determination of Holder, would materially
impair the timely repayment of this Note.
Upon the occurrence of any event or condition of default hereunder,
or at any time thereafter, Holder at his option may accelerate the
maturity of this Note and declare all of the indebtedness or any
portions thereof to be immediately due and payable, together with
accrued interest thereon, and payment thereof may be enforced by
suit or other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of collection
and such costs shall include without limitation all costs, attorneys'
fees and expenses incurred by Holder hereof in connection with any
insolvency, bankruptcy, reorganization, arrangement or similar
proceedings involving Holder, or involving any endorser or guarantor
hereof, which in any way affects the exercise by Holder hereof of its
rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent
holders and assigns.
Regardless of the place of execution or performance, this letter and
the Note shall be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to such state's
conflicts of laws provisions. Each of the parties hereto irrevocably
consents to the jurisdiction and venue of the federal and state
courts located in the State of New York, County of New York.
PENN OCTANE CORPORATION
By: /s/ J.B. Richter
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 496,762
<SECURITIES> 0
<RECEIVABLES> 344,064
<ALLOWANCES> 0
<INVENTORY> 362,742
<CURRENT-ASSETS> 1,295,088
<PP&E> 4,216,197
<DEPRECIATION> 925,418
<TOTAL-ASSETS> 5,406,842
<CURRENT-LIABILITIES> 3,828,147
<BONDS> 346,194
0
2,700
<COMMON> 52,050
<OTHER-SE> 1,177,751
<TOTAL-LIABILITY-AND-EQUITY> 5,406,842
<SALES> 2,546,493
<TOTAL-REVENUES> 2,546,493
<CGS> 2,752,965
<TOTAL-COSTS> 2,752,965
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,627
<INCOME-PRETAX> (687,288)
<INCOME-TAX> 0
<INCOME-CONTINUING> (687,288)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (687,288)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
