SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM SB10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1997 Commission file number 0-9336
STANDARD ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0338149
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
363 Bearcat Drive
Salt Lake City, Utah 84115
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 364-9000
Not Applicable
Former name, former address and former
fiscal year, if changes since last report
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 1933, as amended (the "Act"), 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
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The registrant
has two classes of stock authorized. They are the $0.01 per share par value
common stock and the $0.01 per share par value preferred stock. As of
November 12, 1997 there were 104,082,972 shares of the $0.01 per share par
value common stock outstanding. As of November 12, 1997, there were no
preferred shares issued.
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 March 31
1997 1997
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 3,381 $ 2,533
Accounts receivable 1,687 2,296
TOTAL CURRENT ASSETS 5,068 4,829
INVESTMENT IN OIL AND GAS PRODUCING
PROPERTIES, net of depletion of $92,970
PROPERTY AND EQUIPMENT, net 24,500 26,500
OIL AND GAS LEASEHOLD INTERESTS HELD
OTHER ASSETS
Oil and gas leases held for resale 95,464 95,464
Pledged drilling bonds 35,000 35,000
Cash value of life insurance 1,132 19,650
TOTAL OTHER ASSETS 131,596 150,114
TOTAL ASSETS $ 161,164 $ 181,443
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 March 31
1997 1997
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 21,513 $ 13,454
Notes payable to related parties 15,700 0
Accounts payable and accrued expenses 39,968 41,051
TOTAL CURRENT LIABILITIES 77,181 54,505
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share:
Authorized 200,000,000 shares; issued
and outstanding 104,082,972 shares at
September 30, 1997 1,040,829 1,040,829
Preferred Stock, par value $.01 per share;
Authorized 10,000,000 shares 0 0
Additional paid-in capital 7,161,253 7,161,253
Retained earnings (deficit) (8,118,099) (8,075,144)
TOTAL STOCKHOLDERS EQUITY 83,983 126,938
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 161,164 $ 181,443
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30
1997 1996
REVENUES
Oil and gas information services $ 3,135 $ 3,135
Sales of oil and gas leasehold interests 0 0
Oil production 3,884 5,203
Other income 344 329
7,363 8,667
COSTS AND EXPENSES
Oil and gas information services 2,907 2,990
Oil and gas leasehold interests 0 3,260
Oil production 0 0
Depreciation, depletion and amortization 1,000 1,000
Interest 740 445
General and administrative 14,731 40,752
TOTAL COSTS AND EXPENSES 19,378 48,447
NET INCOME (LOSS) $ (12,015) $ (39,780)
NET INCOME (LOSS) $ (.00) $ (.00)
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended September 30
1997 1996
REVENUES
Oil and gas information services $ 6,709 $ 6,460
Sales of oil and gas leasehold interests 0 0
Oil production 8,109 10,532
Other income 926 662
15,744 17,654
COSTS AND EXPENSES
Oil and gas information services 5,310 6,350
Oil and gas leasehold interests 7,071 13,397
Oil production 0 0
Depreciation, depletion and amortization 2,000 2,000
Interest 1,405 789
General and administrative 42,913 69,757
TOTAL COSTS AND EXPENSES 58,699 92,293
NET INCOME (LOSS) $ (42,955) $ (74,639)
NET INCOME (LOSS) $ (.00) $ (.00)
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended September 30
1997 1996
Cash Flows From Operating Activities
Net income (loss) $ (42,955) $ (74,639)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and depletion 2,000 2,000
Changes in:
Accounts receivable 609 436
Accounts payable (1,083) 798
Deposits 0 (42,000)
Net cash provided by (used in)
operating activities (41,429) (113,405)
Cash Flow From Industry Activities
(Increase) Decrease to Long-term investments $ 18,518 $ 0
(Increase) Decrease oil & gas leasehold
interests 0 0
Net cash provided by (used in)
investing activities $ 18,518 $ 0
Cash Flows From Financing Activities
Increase (decrease) in notes payable $ 23,759 $ 110,502
Proceeds from sale of common stock 0 0
Net cash provided by (used in)
Financing activities $ 23,759 $ 110,502
Net Increase (Decrease) in Cash $ 848 $ (2,903)
Cash at Beginning of Period 2,533 9,104
Cash at End of Period $ 3,381 $ 6,201
See notes to consolidated financial statements.
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
NOTE A - Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six
month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the entire
fiscal year ending March 31, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1997.
STANDARD ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of the First Six-Months of Operations
Revenues
The Company realized revenues of approximately $16,000
during the first six months of the 1998 fiscal period, ended
September 30, 1997, compared with approximately $18,000 for the
corresponding 1997 fiscal period and approximately $20,000 for
the corresponding 1996 fiscal period. Cash requirements during
the fiscal 1998 period were obtained from a combination of
internally generated cash flow from operations, asset sales, and
private sales of Common Stock.
Revenue from the sale of oil and gas leasehold interests
during the first six months of the 1998 fiscal period, ended
September 30, 1997, were zero, also compared to zero for the
comparative 1997 fiscal period and zero for the corresponding
1996 fiscal period. Traditionally, the Company's largest revenue
source has been oil and gas leasehold sales, which have
positively affected the Company's operations for most of the past
15-year period. The lack of leasehold sales, and the limited
interest in future leasehold offerings, is a sign of the severe
downturn that the domestic oil and gas industry is currently
experiencing. These event, and prior reduced exploration
activities, have caused the Company to write-off or write-down
most of its prior leaseholds held for resale.
The Company does not expect to realize significant cash
flows from the sale of leaseholds during fiscal 1998, as the
domestic oil industry continues to shrink from low worldwide
crude oil prices, and what appears to be a domestic oil industry
in full flight to foreign exploration caused by negative U.S.
Government environmental policies toward oil and gas exploration
and production in the U.S.
The Bureau of Land Management ("BLM") leasing program
requires advance deposits covering the first year rental for
leases applied for, but the Company and its affiliates have only
limited funds to participate in the BLM leasing program. In order
to participate, the Company has entered into agreements with
unrelated third-parties in which third-party entities provide
capital to jointly participate in the BLM leasing program, while
the Company provides the raw data and services to identify
potential leaseholds.
New leasehold acquisitions, together with existing
leaseholds, have caused the Company's leasehold inventory to
remain flat at approximately 80,000 net acres into fiscal 1998,
including third-party acquisitions. Frontier area exploration
continues to be the focus of the Company's leasing activities.
The Company's financial statements do not reflect the
acquisition of newly acquired leaseholds, because the Company has
no financial basis in such new leaseholds. As third-party
leasehold sales take place, revenue is recorded under line item
"sales of oil and gas leasehold interests".
Revenues from the sale of the Company's geologic information
services were approximately $7,000 for the first six months of
the 1998 fiscal period, ended September 30, 1997, compared with
approximately $6,000 for the corresponding 1997 fiscal period and
approximately $7,000 for the corresponding 1996 fiscal period.
Revenues from the Company's geologic information services have
declined steadily from the 1986 collapse of world crude oil
prices, resulting in sever cash flow difficulties for the
Company.
Revenues from oil production were approximately $8,000 for
the first six months of the 1998 fiscal period, ended September
30, 1997, compared to approximately $11,000 for the corresponding
1997 fiscal period and approximately $10,000 for the
corresponding 1996 fiscal period. Oil production revenues reflect
the acquisition of an oil and gas royalty interest in fiscal
1992, bringing more certainty to production income.
Expenses
Expenses related to the Company's oil and gas leasehold
sales were approximately $7,000 for the first six months of the
1998 fiscal period, ended September 30, 1997, compared to
approximately $13,000 for the comparable fiscal 1997 period and
approximately $7,000 for the corresponding 1996 fiscal period.
Expenses associated with the Company's geologic information
services were approximately $5,000 for the first six months of
the 1998 fiscal period, ended September 30, 1997, compared to
approximately $6,000 for the comparable fiscal 1997 period and
approximately $6,000 for the corresponding 1996 fiscal period.
There were no oil production and exploration costs during the
first six months of the 1998 fiscal period, ended September 30,
1997, September 30, 1996, and September 30, 1995, respectively.
General and administrative expenses for the first six months
of the 1998 fiscal period, ended September 30, 1997, were
approximately $43,000, compared to approximately $70,000 for the
comparable 1997 fiscal period and approximately $76,000 for the
corresponding 1996 fiscal period.
The crude oil price collapse in 1986, tax law changes
effective in 1987, and another crude oil price collapse in 1993,
have resulted in a sharp decline in domestic oil and gas
exploration activities. Although its leasing activity was reduced
substantially during the past 10-year period, due to the sharp
decline in domestic exploration activity, the Company believes it
can continue its present lines of business, including the
purchase and resale of oil and gas leaseholds.
Net Operating Loss for Federal Income Tax Purposes
The Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" [FASB 109] during
the year ended March 31, 1994. FASB 109 requires the Company to
provided a net deferred tax asset or liability equal to the
expected future tax benefit or expense of temporary reporting
differences between book and tax accounting and any available
operating loss or tax credit carryforwards. At March 31, 1997 and
1996, the total of the deferred tax assets were $1,837,459 and
$1,800,064 the total of all deferred tax liabilities were $0 and
$(1,789). The amount of and ultimate realization of the benefits
from the deferred tax assets for income tax purposes is
dependent, in part, upon the tax laws in effect, the Company's
future earnings, and other future events, the effects of which
cannot be determined. Because of the uncertainty surrounding the
realization of the deferred tax assets, the Company has
established a valuation allowance of $1,837,459 and $1,800,064 as
of March 31, 1997 and 1996, which has been offset against the
deferred tax assets. The net change in the valuation allowance
during the year ended March 31, 1997 was $37,395. The cumulative
effect of the change in accounting for income taxes for prior
years was not material to the statement of income for the year
ended March 31, 1994. The financial statements for prior years
have not been restated.
The Company has available at March 31, 1997, unused tax
operating loss carryforwards of approximately $4,380,000, which
may be applied against future taxable income and expire in
various years beginning in 1996 through 2009. (See Consolidated
Financial Statements)
Liquidity and Capital Resources
The Company's primary oil and gas business, brokerage of
leasehold interests, has not increased during the first six
months of the 1998 fiscal period, ended September 30, 1997, due
to decreased activity in the domestic oil and gas exploration
industry.
Revenue reduction in the Company's overall oil and gas
business is related to effects of the 1986 and 1993 worldwide
collapse of crude oil price and the corresponding reduced oil and
gas brokerage activity of the Company. Due to this reduced
activity in its oil and gas business, along with the Company's
investment in Biomass International, Inc. ("Biomass") and the
Biomass technology ("Biomass Technology"), without any
intervening revenues, have resulted in the Company incurring
losses in its Biomass investment aggregating approximately
$4,100,000 from fiscal 1981 through March 31, 1997. Because of
these circumstances the Company is currently experiencing cash
flow difficulties. In order to continue in existence the Company
is in need of additional financing from outside sources or from
internal operations. (See Consolidated Financial Statement)
Management is seeking additional financing from equity or
debt financing(s), or from sales related to its oil and gas
business, or from the sale of its holdings in Biomass common
stock. However, management can give no assurances that it will be
successful in its endeavors to resolve its cash flow difficulties
or that it will be able to retain and ultimately recover its
costs in oil and gas leaseholds held for resale and from its
Biomass investment. The financial statements do not include any
adjustments relating to the amounts and classification of assets,
liabilities, income or expenses that might be necessary should
the Company be unable to successfully resolve these uncertainties
and continue in existence.
In the first six months of the 1998 fiscal period, ended
September 30, 1996, the Company had no additional research and
development expense in Biomass and the Biomass Technology for
converting cellulosic waste material into base sugars, then
fermenting the sugars into ethanol, and the Company expects to
make no further investments in Biomass in the foreseeable future.
The Company's most significant assets are (1) oil and gas
leaseholds held for resale, approximating 80,000 net acres at
March 31, 1997, including leaseholds acquired under its unrelated
third-party agreements, (2) 5,252,556 shares of Biomass common
stock (carried at zero value on the financial statements),
representing approximately 15% of Biomass common shares
outstanding at March 31, 1997, which shares were bid $0.02 and
asked $0.05 as of November 12, 1997, and four (4) exclusive
license rights to the Biomass Technology in the States of
Louisiana, Ohio, Indiana, and Pennsylvania. Sales of its
leasehold interests, together with the private sale of a portion
of the investment in Biomass common stock, have been the
Company's primary source of cash flow over the past three years.
The Biomass shares are being held for investment purposes but
can, as of March 2, 1992, be publicly sold and redistributed
under Rule 144 of the Act. The sale of a portion of its Biomass
shares may be made periodically by the Company to raise working
capital.
As of November 12, 1997, the Company had not submitted proxy
material to security holders of the Company for the annual
meeting of shareholders. The shareholders meeting is not now
expected to take place until October/November 1998 due to cost to
solicit proxies and the cost to hold a 1997 shareholders meeting.
The Company is presently authorized to issue two classes of
stock divided into 10,000,000 shares of $.01 par value preferred
shares, of which none are issued, and 200,000,000 shares of $.01
par value common shares of which 104,082,972 shares were issued
as of November 12, 1997.
The Company foresees a need for additional equity financing
in order to continue in existence, and may, in the future, seek
to raise additional funds through bank and/or other loans, debt
or equity offerings. Any such equity offerings may either be
private or public and may result in substantial dilution to the
then existing shareholders of the Company. Because of
uncertainties existing in the domestic oil and gas industry, and
with Biomass, the Company is not in a position to forecast future
earnings or cash flow. The Company's future is very fluid and
largely dependent on factors outside its control.
General
As the worldwide price of oil is set by changing political
realities, so is the search for oil in the United States, now set
by the reality of political environmentalism. In 1992, in the
name of environmental protection, the best oil prospects to drill
in the U.S., mostly in the Rocky Mountain frontier areas, and
off-shore waters of the U.S., were declared off limits to the
domestic oil industry by the U.S. Congress. This large area
set-aside was instituted despite the fact that by the year 2005
the U.S.may be importing fully 75% of its crude oil
requirements.
Management's Conflicts of Interest
Material conflicts of interest exist and will continue to
exist between the Company, Biomass, Trachyte Oil Company
("Trachyte"), and Dean W. Rowell. Dean W. Rowell is the President
and Chief Executive Officer and a director of the Company, is the
Vice President and Secretary Treasurer of Biomass, a publicly-
held Utah corporation, whose current major activities are to
support the commercial development of the Biomass Technology.The
Company holds an exclusive license from Biomass in the States of
Louisiana, Ohio, Indiana, and Pennsylvania to build, use, sell,
sublicense or otherwise develop for its own advantage and gain
the Biomass Technology totally free (including royalty free) from
Biomass. Mr. Rowell is also the President of Trachyte, a
privately-held Utah corporation, whose current major activities
are the exploration and production of oil and gas resources.
The Company's policy is to offer any new oil and gas
property purchase first to the Company and then to Trachyte if
the Company is unable to accept the financial obligation of any
transaction. In addition, Mr. Rowell owns beneficially
approximately 55% of the common stock of the Company as of
November 12, 1997.
Mr. Rowell owes a duty of due care and fair dealing to all
three companies, and the resolution of duties and conflicts in
favor of one company over the other may impair his duties to each
company. It is likely that any conflict of interest between the
Company, Biomass, and Trachyte requiring a determination may have
to be settled in favor of the Company to the detriment of both
Biomass and Trachyte, as well as to the detriment of the current
and future shareholders of Trachyte and Biomass.
Biomass - Liquidity and Capital Resources
Biomass, in which the Company has made a substantial
investment, had little working capital at its fiscal year end.
Biomass has expended all of the funds invested by the Company and
others on research and development relating to the Biomass
Technology and in general and administrative expenses. At March
31, 1996, Biomass had approximately $2 million of liabilities and
a deficiency in assets of approximately $1.9 million. As of
November 12, 1997, Biomass had cash on hand of approximately
$500.
PART II
Item 1. Legal Proceedings.
There have been no significant changes in litigation
matters previously disclosed.
Item 2. Changes in Securities.
There have been no changes in the Company's securities.
Item 3. Defaults On Senior Securities.
The Company has not defaulted on any senior
indebtedness.
Item 4. Submission of Matters to a Vote of Security Holders.
As of November 12, 1997, there were no matters brought
before the shareholders since the last shareholders
meeting on February 5, 1996.
Item 5. Other Information.
Biomass - Information Update
Since 1981, the Company has invested approximately
$4,100,000 in the Biomass Technology through several
reorganizations of Biomass. Effective April 14, 1987, Biomass was
reorganized as a publicly-held Utah corporation, and
simultaneously, Mr. Alan M. Neves was re-elected president and
Mr. Rowell was elected vice president and secretary-treasures,
and Biomass was reorganized into its present form. The Biomass
Technology acquired in the reorganization is considered Biomass'
principal asset.
The Biomass Technology
The Biomass Technology is a proprietary chemical process
which has been designed to convert the cellulosic (plant) portion
of forest, agricultural and MSW materials, principally, into
glucose and certain other base sugars, which have a wide range of
commercial applications, and lignin, a coal-like aromatic
substance which is a usable fuel. The Biomass Technology has been
designed to be a continuous, acid hydrolysis process based on a
proprietary combination of time, heat and catalytic agents.
The Biomass Technology separates the lignin and the
cellulose contained in plant material while converting the
cellulose in such material into base sugars. Such base sugars
have a wide range of commercial applications, including
fermentation into ethanol, the principal commercial product from
a Biomass Plant, which is used to raise octane ratings in
unleaded gasoline, and reportedly, can lower pollutants from
automobiles.Ethanol is also widely used in the pharmaceutical
and cosmetic industries.
The lignin, a coal-like substance (hydrocarbons), is the
other major product of the Biomass Technology and may be burned
as boiler fuel to generate steam and electricity sufficient to
power an entire integrated processing facility utilizing ordinary
grain, straw, hulls, sawdust, or MSW, as the feedstock material.
Lignin may also be utilized commercially for the production of
specialty chemicals for the petro-chemical industry.
Biomass Trade Secret and Patents
Management of the Company is of the opinion that the ability
of Biomass to maintain the proprietary nature of the Biomass
Technology is limited due to the present adverse financial
condition of Biomass. Biomass is the assignee from Alan M. Neves
("Neves") and others of two domestic and several corresponding
foreign patent applications covering methods and apparatus of the
Biomass Technology. Biomass owns certain patents and patent
applications for its proprietary technology. However, the Company
does not believe that such patents and patent applications, even
if allowed and letters of patent are issued, will afford Biomass
significant patent protection with respect to the Biomass
Technology. All Directors, officers and employees of Biomass have
entered into confidentiality agreements with Biomass, to protect
the trade secret nature of the Biomass Technology.
Historical Operations of Biomass
Neves commenced his research in 1974 following the 1973 Arab
oil embargo and the resulting increase in gasoline costs of that
year. In 1979, the Biomass Technology was demonstrated on a bench
scale. In 1980, Professor Joseph M. Glassett (deceased, 1989), an
independent engineer and associate Professor of chemical
engineering at Brigham Young University at Provo, Utah, undertook
a preliminary study to determine the technical and economic
viability of the Biomass Technology. Professor Glassett
subsequently opined that the Biomass Technology held sufficient
promise to warrant the construction of a pilot scale facility to
further test the commercial viability of the Biomass Technology.
In the second quarter of 1981, Biomass commenced the
construction of a non-commercial scale pilot plant and research
center ("Research Center") in Ogden, Utah. The Research Center
operated from 1982 through October 1987 when the center was
closed. The test results received from the Research Center during
its five year research and development period led management to
believe that the Biomass technology is commercially viable, based
partially, upon Professor Glassett's second opinion, rendered in
April 1984, as to the technical feasibility of the Biomass
Technology, where he concluded that Biomass' non-commercial scale
pilot plant had successfully demonstrated the technical
feasibility of the Biomass Technology by repeatedly producing
high yields of base sugars from sawdust feedstock material,
recommending that a preliminary design and cost estimate for a
commercial Biomass Refinery be prepared to determine the economic
viability of the Biomass Technology.
In March 1990, based upon its research and development
activities, Biomass began constructing a 1/10th scale commercial
demonstration module ("Demo Module") from the design of the
full-sized 500 ton per day input capacity of MSW material Weber
County Biomass Refinery to prove the commercial viability of the
Biomass Technology. Design of the commercial Demo Module is the
accumulation of eight years of experience gained by Biomass
scientists who developed the Biomass Technology at its former
Research Center facility, and is designed to process
approximately 56-tons of "as-received" MSW during an eight hour
period. The Demo Module was constructed at the Weber County, Utah
Landfill site in an existing County owned building. On June 24,
1992, the construction of the Demo Module was shut-down due to
lack of funds to continue operations.
The Company's Biomass Technology Licenses
The Company's management continues to believe its investment
in the Biomass Technology will ultimately result in future
revenues and earnings for the Company through its common stock
ownership in Biomass and its 30-year exclusive license to the
Biomass Technology in the States of Indiana, Ohio, Pennsylvania
and Louisiana. The time starts to run on the license beginning on
the date Biomass receives commercial certification of the Biomass
Technology from a major international engineer/construction firm
acceptable to the Biomass Board of Directors, and provided that
the Company construct and operate Biomass Refineries with a
combined annual ethanol production of 20,000,000 gallons. The
exclusive license means the unrestricted, totally free (including
royalty free) use of the Biomass Technology within the States of
Indiana, Ohio, Pennsylvania and Louisiana, to build, use, sell,
sublicense or otherwise develop for its own commercial advantage
and gain the right to distribute and/or sell the products or
by-products generated from the use of the Biomass Technology
anywhere that it may deem desirable.
The investment by the Company in Biomass to date has been
approximately $4,100,000 for which the Company received 8,100,000
shares of Biomass stock in a reorganization of Biomass on March
2, 1987. The Company has since sold 2,847,444 shares to finance
on-going operations of the Company and presently owns 5,252,556
shares representing approximately 15% of Biomass. (See
Management's Discussion and Analysis of Financial Condition and
Results of Operations)
Potential Dispute Involving Alan M. Neves
The Company is party to four Exclusive License Agreements
with Biomass, pursuant to which the Company has the right in the
States of Indiana, Ohio, Pennsylvania, and Louisiana to utilize
the Biomass Technology relating to the conversion of cellulosic
materials ("Celmat") into sugars and the conversion of such
sugars into ethanol and other alcohols and products (the
"Licensed Technology"). The Company intends to utilize the
Licensed Technology in connection with certain planned ethanol
production facilities (the "Midwest Plant"), and a shut-down MSW
processing plant (the "River Plant"). The Louisiana license is
dated March 2, 1987, and the Indiana, Ohio, and Pennsylvania
licenses are dated December 30, 1996,
In March 1997, Neves, who is the President and largest
beneficial shareholder of Biomass, informed the board of
directors of Biomass and the Company that he has developed a new
technology over the last several years, which he claims is
separate and apart from the Licensed Technology and which he
claims is necessary in order to make the Licensed Technology
commercially feasible. Neves has proposed the formation of a
partnership between Biomass and a company which he has formed for
the joint marketing of the Licensed Technology and his alleged
new technology.
The assertions made by Neves could potentially affect the
Company since Neves is claiming that Biomass is not the owner of
all the technology which the Company believes to be covered by
the Exclusive License Agreements. Nevertheless, it is the
position of the Company's management that none of the alleged new
technology claimed by Neves will be required in connection with
the Midwest Plant and River Plant facilities, since those plant
facilities have been designed around prior technology, which is
the property of Biomass, and other technology which is in the
public domain and/or the property of the Company (the "STDE
Technology"). Moreover, it is the position of the Company that
the new technology which has allegedly been developed by Neves,
if any, is really the property of Biomass, not Neves.
Therefore, based on the fact that none of the alleged new
technology claimed by Neves will be required in the MSW/Ethanol
Project, it is the opinion of management that none of the Neves
claims are material to the Company's present and future plans.
The Company's MSW/Ethanol Project
The Company is currently pursuing a project loan (the
"Loan") with unrelated parties and a lender (the "Lender") to
raise up to $250,000,000 to commercialize the Biomass and STDE
Technologies. This effort began when the Company learned that at
least five ethanol plant located in the midwest U.S. had
shut-down, and/or were available on good terms, due to high grain
prices and low ethanol prices. The Company is presently in
contact with two of the plant owners to negotiate a possible sale
to the Company of the Midwest Plant for approximately
$80,000,000. The Company is also in negotiations to purchase the
River Plant, located at Philadelphia, Pennsylvania, for
approximately $5,000,000.
The $250,000,000 Loan, if obtained, would be used to finance
the purchase, refit, and initial operations of both the Midwest
Plant and River Plant facilities as a single economic unit in two
locations (the "MSW/Ethanol Project"). It is the Company's belief
that combined, and operated as one economic unit, the two plants
have better overall economic strengths than each plant would have
if operated as separate integrated recycle/ethanol plants. The
principal reason for such conclusion is that no immediate new
building erection would be required at either plant site.
The Company, providing it is successful in receiving the
$250,000,000 Loan, for which there is no assurance, anticipates
refitting the River Plant to operate only as a MSW sorting plant
which could recycle approximately 2200 tons/day of MSW into,
principally, 900 tons/day of metals, glass and other inorganic
products, together with approximately 1300 tons/day of Celmat.
The inorganic's would be sold, or landfilled, in the
Philadelphia/New York area. The organic Celmat would be baled and
shipped to the Midwest Plant for processing into Celmat-glucose
and other sugar products. The glucose then would be fermented
into ethanol fuel. The MSW would be supplied to the River Plant
by present haulers of MSW located in the northeast U.S.
The Company, providing it is successful in receiving the
$250,000,000 Loan, would also refit the Midwest Plant to operate
only as a glucose and other sugar product extraction and ethanol
production plant, that would process the baled Celmat from the
River Plant through twelve module processing units to be
installed in an existing 40,000 square foot building located on
the Midwest Plant site. The glucose recovered from the Celmat
would then be used as normal glucose feedstock material for the
existing Midwest Plant, a fuel-grade ethanol plant.
The Company is pursuing the $250,000,000 Loan and other
financing ideas through its wholly-owned subsidiary Standard
EnviroSystems, Inc., a Utah corporation. Final plans and final
financial arrangements with unrelated third-parties and the
Lender on the MSW/Ethanol Project Loan had not been finalized or
completed as of November 12, 1997.
Item 6. Exhibits and Reports on Form 8-K, filed during the
quarter ended September 30, 1997.
None.
SIGNATURE
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.
STANDARD ENERGY CORPORATION
(Registrant)
By:
Dean W. Rowell, President and
Chief Financial Officer
Date: November 12, 1997.
