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
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-9336
STANDARD ENERGY CORPORATION
(Name of Small Business Issuer as specified in its charter)
Utah 87-0338149
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
363 Bearcat Drive
Salt Lake City, Utah 84115-2517
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (801) 364-9000
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$.01 Par Value Common Stock
Check whether the Issuer (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 .
Common Stock outstanding at February 12, 1998: 104,082,972 shares
of $0.01 par value Common Stock.
DOCUMENTS INCORPORATION BY REFERENCE: NONE
FORM 10-QSB
Financial Statements and Schedules
STANDARD ENERGY CORPORATION
For Three and Nine Months Ended December 31, 1997
The following table of contents of financial statements and other
information of the registrant and its consolidated subsidiaries are
submitted herewith:
PART I - FINANCIAL INFORMATION
Item Page
Item 1. Condensed Consolidated Balance Sheets -
December 31, 1997 and March 31, 1997............... 3
Consolidated Statements of Operations -
For the nine months and three months
ended December 31, 1997............................ 5
Consolidated Statements of Cash Flows -
For the nine months ended
December 31, 1997 and December 31, 1996............ 7
Notes to Consolidated Financial Statements............ 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................... 15
Item 2. Changes in Securities................................. 16
Item 3. Defaults upon Senior Securities....................... 16
Item 4. Submission of Matters to a Vote of Security Holders... 16
Item 5. Other Information..................................... 16
Item 6. Exhibits.............................................. 16
PART I - ITEM 1
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31 March 31
1997 1997
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 1,636 $ 2,533
Accounts receivable 1,536 2,296
TOTAL CURRENT ASSETS 3,172 4,829
INVESTMENT IN OIL AND GAS PRODUCING
PROPERTIES, net of depletion of $92,970
PROPERTY AND EQUIPMENT, net 23,500 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 0 19,650
TOTAL OTHER ASSETS 130,464 150,114
TOTAL ASSETS $ 157,136 $ 181,443
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 March 31
1997 1997
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 18,036 $ 13,454
Notes payable to related parties 37,200 0
Accounts payable and accrued expenses 39,997 41,051
TOTAL CURRENT LIABILITIES 95,233 54,505
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share:
Authorized 200,000,000 shares; issued
and outstanding 104,082,972 shares at
December 31, 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) (8,140,179) (8,075,144)
TOTAL STOCKHOLDERS EQUITY 61,903 126,938
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 157,136 $ 181,443
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended December 31
1997 1996
REVENUES
Oil and gas information services $ 8,924 $ 10,051
Sales of oil and gas leasehold interests 0 0
Oil production 13,034 15,926
Other income 1,336 980
23,294 26,957
COSTS AND EXPENSES
Oil and gas information services 7,926 8,520
Oil and gas leasehold interests 15,352 15,918
Oil production 0 0
Depreciation, depletion and amortization 3,000 3,000
Interest 2,151 1,222
General and administrative 59,900 114,214
TOTAL COSTS AND EXPENSES 88,329 142,874
NET INCOME (LOSS) $ (65,035) $ (115,917)
NET INCOME (LOSS) $ (.00) $ (.00)
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31
1997 1996
REVENUES
Oil and gas information services $ 2,215 $ 3,591
Sales of oil and gas leasehold interests 0 0
Oil production 4,925 5,394
Other income 410 318
7,550 9,303
COSTS AND EXPENSES
Oil and gas information services 2,616 2,170
Oil and gas leasehold interests 8,281 2,521
Oil production 0 0
Depreciation, depletion and amortization 1,000 1,000
Interest 746 433
General and administrative 16,987 44,457
TOTAL COSTS AND EXPENSES 29,630 50,581
NET INCOME (LOSS) $ (22,080) $ (41,278)
NET INCOME (LOSS) $ (.00) $ (.00)
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended December 31
1997 1996
Cash Flows From Operating Activities
Net income (loss) $ (65,035) $ (115,917)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and depletion 3,000 3,000
Changes in:
Accounts receivable 760 286
Accounts payable (1,054) 790
Net cash provided by (used in)
operating activities (62,329) (111,841)
Cash Flow From Industry Activities
(Increase) Decrease to Long-term investments $ 19,650 $ 83,200
(Increase) Decrease oil & gas leasehold
interests 0 0
Net cash provided by (used in)
investing activities $ 19,650 $ 83,200
Cash Flows From Financing Activities
Increase (decrease) in notes payable $ 41,782 $ 7,690
Proceeds from sale of common stock 0 17,800
Net cash provided by (used in)
Financing activities $ 41,782 $ 25,490
Net Increase (Decrease) in Cash $ (897) $ (3,151)
Cash at Beginning of Period 2,533 9,104
Cash at End of Period $ 1,636 $ 5,953
See notes to consolidated financial statements.
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
NOTE A - Basis of Presentation
The accompanying unaudited condensed 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 nine
month period ended December 31, 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 condensed consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1997.
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's primary oil and gas business, the brokerage of
leasehold interests, has not increased during the first nine
months of the 1998 fiscal period, ended December 31, 1997, due to
decreased activity in the domestic oil and gas exploration
industry. In light of this decreased activity, and the Company's
lack of capital, it has been looking for other ways of generating
revenues.
During the current fiscal period, the Company continues to
research and develop its technologies for the recycle of
municipal solid waste ("MSW") into (a) valuable recycled metals,
glass, plastics, etc., products that are saleable in the existing
commercial salvage markets and (b) the conversion of MSW derived
cellulosic material ("Celmat") into fuel-grade ethanol and lignin
("Lignin"), a coal-like aromatic substance believed to be a
usable boiler fuel and/or a specialty chemical useable in the
petro-chemical industry (collectively the "Biofuels Technology").
The Company's research and development efforts on the Biofuels
Technology have led Management to conclude that the Company has
developed what appears to be a commercial application of the
Biofuels Technology for its future South Bend Project (the "South
Bend Project") as described in the Company's South Bend Project
Business Plan prepared by W.J. Scales & Company/Limbach Company
constructors, both engineering firms based in Denver, Colorado
and Richmond, Virginia, respectively ("Scales"), based on Scales
present technical engineering designs and experience in the
development of large new commercial projects. The Company's
Business Plan includes a plan to finance and develop the South
Bend Project utilizing the Biofuels Technology.
The Company, Scales, and others are presently attempting to
obtain additional capital to finance and develop the South Bend
Project utilizing the Biofuels Technology. There can be no
assurance that the required capital will ever be available and
there can be no assurance that the technology will perform on a
commercial basis. The Company's future operating results will
depend on its ability to obtain adequate financing to construct
the South Bend Project.
Results of Operations
The Company realized revenues of approximately $23,000 during the
first nine months of the 1998 fiscal period, ended December 31,
1997, compared with approximately $27,000 for the corresponding
1997 fiscal period and approximately $18,000 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 the sale of
investment Common Stock to private individuals.
There were no oil and gas leasehold sales during the first nine
months of the 1998 fiscal period, ended December 31, 1997,
December 31, 1996, and December 31, 1995, respectively.
Revenues from the sale of the Company's geologic information
services were approximately $9,000 for the first nine months of
the 1998 fiscal period, ended December 31, 1997, compared with
approximately $10,000 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. Revenues from oil production were approximately 13,000
for the first nine months of the 1998 fiscal period, ended
December 31, 1997, compared to approximately $16,000 for the
corresponding 1997 fiscal period and approximately $11,000 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.
The Company incurred expenses related to the Company's oil and
gas leasehold sales were approximately $15,000 for the first nine
months of the 1998 fiscal period, ended December 31, 1997,
compared to approximately $16,000 for the comparable fiscal 1997
period and approximately $15,000 for the corresponding 1996
fiscal period. Expenses associated with the Company's geologic
information services were approximately $8,000 for the first nine
months of the 1998 fiscal period, ended December 31, 1997,
compared to approximately $8,000 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 nine months of the 1998 fiscal period, ended December
31, 1997, December 31, 1996, and December 31, 1995, respectively.
General and administrative expenses for the first nine months of
the 1998 fiscal period, ended December 31, 1997, were
approximately $60,000, compared to approximately $114,000 for the
comparable 1997 fiscal period and approximately $126,000 for the
corresponding 1996 fiscal period.
The Company's net loss for the nine months, ended December 31,
1997 was approximately $65,000, compared to approximately
$116,000 for comparable 1997 fiscal period. The Company
anticipates that it will continue to operate at a loss for the
1998 fiscal period, ended March 31, 1998, due to continued
research and development costs and costs related to its oil and
gas business. Research and development costs are currently
accounted for under general and administrative expense.
The Company does not expect to realize significant cash flows
from the sale of leasehold interests, geologic information
services, nor oil production and exploration activities during
the remainder of fiscal 1998, nor does it expect significant
leasehold sales in the foreseeable future, 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 any oil and gas exploration and
production in the U.S.
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 carry forwards. 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 carry forwards 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" in Part I Item 1 above)
Liquidity and Capital Resources
Management is aggressively exploring additional financing for
ongoing and future operations of the Company and has entered into
an agreement with Scales for the engineering, management, and
construction of the South Bend Project. There is no assurance
that the efforts of Management or Scales to locate and secure
additional financing will be successful, and the failure to
secure project financing would substantially alter Management's
assumptions as presented in this Form 10-QSB report.
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") without any
intervening revenues, have resulted in the Company incurring
losses in its Biomass investment aggregating approximately
$4,100,000 from fiscal 1981 through fiscal 1993 ended March 31,
1992. 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 Statements" in Part I Item 1 above)
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. 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 nine months of the 1998 fiscal period, ended December 31,
1997, the Company had no additional research and development
expense in Biomass, nor does it expect to make any further
investments in Biomass in the future, nor does it expect to
recover its investment in Biomass. On December 19, 1997,
Mr. Rowell resigned as an officer and director of Biomass to more
fully pursue the Company's business.
Plan of Operation
The Company's plan of operation during the next twelve (12)
months include the following:
1. Aggressively pursue financing for the South Bend Project
with Scales and other current financial contacts.
2. Continue research and development, testing MSW processing
equipment and testing existing and new cellulose enzymes.
3. Continue design and development of the South Bend Project.
4. Engage a public relations firm to prepare an analyst report
on the Company, its technologies, and the South Bend
Project.
The Company's most significant assets are (1) its oil and gas
production income, (2) its oil and gas leaseholds held for
resale, approximating 80,000 net acres at February 12, 1998,
including leaseholds acquired under its unrelated third-party
agreements, and (3) its plan for the full development of the
South Bend Project.
Other assets are 5,252,556 shares of Biomass common stock.
At February 12, 1998, the Biomass shares had little value being
bid $0.02 and asked $0.05 on the electronic OTC Bulletin Board.
With little to no volume on a daily basis for the past 3-years,
Rule 144 sales of its Biomass shares appear impractical for the
Company in the foreseeable future.
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, 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.
South Bend Project
In 1995, the Company initiated a search for a way to commercially
exploit the Biofuels Technology. New plant construction was ruled
out due to the prohibitive high-costs, together with the 5 to
8 years time period required to locate a suitable site and
construct a grassroots manufacturing facility. Idled plants, or
plants operating uneconomically, were considered a more
appropriate and viable alternative, resulting in the development
by the Company of the South Bend Project.
At February 12, 1998, the South Bend Project, fundamentally, is
only an engineering concept where the Company is contemplating
the purchase of two separate but presently operating industrial
plants, for the purpose of retrofitting each plant with the
Company's Biofuels Technology, while present operations continue
uninterrupted at each plant site.
Assuming financing can be obtained for its South Bend Project,
for which there is no assurance, the Company expects to purchase
and retrofit (1) an operating ethanol production facility (the
"Midwest Plant") located in Indiana and (2) an operating MSW
waste-to-energy incinerator plant (the "River Plant") located in
Pennsylvania. The Company lacks the financial resources to
purchase, lease, or otherwise acquire any economic interest in
either plant or plant site, but is seeking project financing
through Scales and others. Although the Company believes the two
plants are available for purchase, the Company currently has no
economic interest in either plant or plant site.
Forward Looking Statements
The forgoing discussion in "Management's Discussion and Analysis
of Financial Condition and Results of Operation" contain
forward-looking statements, within the meaning of Section 27a of
the Act
and Section 21e of the Securities Act of 1934, which reflect
Managements current views with respect to the future events and
financial performance. Such forward-looking statements may be
deemed to include, among other things, statements relating to
anticipated growth and increased profitability, as well as to
statements relating to the Company's strategic plan, including
plans to develop factored receivables, loan origination's, and to
selectively acquire other companies. These forward-looking
statements are subject to certain risks and uncertainties,
including, but not limited to future financial performance and
future events, competitive pricing for services, costs of
obtaining capital as well as national, regional and local
economic conditions. Actual results could differ materially from
those addressed in the forward-looking statements. Due to such
uncertainties and risks, readers are cautioned not to place undue
reliance on such forward-looking statements, which speak only as
of the date of this Form 10-QSB report.
Management's Conflicts of Interest
Material conflicts of interest exist and will continue to exist
between the Company and Trachyte Oil Company ("Trachyte"), and
Dean W. Rowell. 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.
As of February 12, 1998, Mr. Rowell owns beneficially
approximately 55% of the common stock of the Company and 100% of
the common stock of Trachyte.
Mr. Rowell owes a duty of due care and fair dealing to both the
Company and Trachyte 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 and Trachyte requiring a determination may have to be
settled in favor of the Company to the detriment of Trachyte, as
well as to the detriment of the current and future shareholders
of Trachyte.
On December 19, 1997, Mr. Rowell resigned as an officer and
director of Biomass, partially, resolving any future conflict of
interest between the Company, Mr. Rowell, and Biomass. Although
Mr. Rowell is no longer affiliated with Biomass, the Company
holds in excess of 10% of the common stock of Biomass making the
Company a controlled person of Biomass under the Act. Certain
conflicts of interest may arise between the Company, Biomass, and
Mr. Rowell, depending on future development of the biomass
technology by Biomass and the future results from the development
of the Company's Biofuels Technology, to the extent both
companies may be involved in the ethanol production business.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. The Company, together with its
President and principal shareholder, Dean W. Rowell, is
party to a lawsuit filed in July 1997 (received
September 1997) in the United States District Court for
the Souther District of New York. The complaint alleges
that Mr. Rowell violated Section 16(b) of the Act in
connection with several transactions involving shares
of the Company's common stock, principally a
transaction in October 1996 between Mr. and Mrs.
Rowell, where Mrs. Rowell agreed to transfer 5,000,000
shares of her common stock holdings to Mr. Rowell in
payment to Mrs. Rowell of $200,000. The complaint seeks
damages from Mr. Rowell in excess of $600,000. Because
this is an action for an alleged Section 16(b)
violation of the Act, the damages are sought on behalf
of the Company, and as such, the interests of the
Company and Mr. Rowell are adverse.
Mr. Rowell has advised the Company, after consultation
with his counsel, that (1) he does not believe the
transfer of shares from Mrs. Rowell to him is violative
of Section 16(b) of the Act, and (2) he does believe
the transfer was exempt under Rule 16a-12 and the case
is controlled by precedent, holding the transaction not
violative of Section 16(b). Mr. Rowell has further
advised the Company that he intends to vigorously
defend against the allegations of the complaint.
Item 2. Changes in Securities. None.
Item 3. Defaults On Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On July 15, 1996, the Company formed Biofuels, Inc.
("Biofuels"), a wholly-owned subsidiary, for the
purpose of investing in and developing the Biofuels
Technology. This effort was centered on management's
belief that a Celmat to ethanol technology could be
commercialized, based on the Company's extensive
experience at its former research center from 1982
through 1992, and its experience in developing the
South Bend Project with Scales.
Item 6. Exhibits and Reports on Form 8-K, filed during the
quarter ended December 31, 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: February 12, 1998.
