U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (the "Act")
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 Act: None
Securities registered pursuant to Section 12(g) of the 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 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 .
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or
information statement incorporated by reference in Part III of this Form
10-KSB, or any amendment to this Form 10-KSB .
The Issuer's revenue for the fiscal year ended March 31, 1999 was $17,425.
As of June 25, 1999, 104,407,974 shares of the Issuer's common stock were
issued and outstanding of which 44,024,974 shares were held by
non-affiliates. As of June 25, 1999, the aggregate market value of shares
held by non-affiliates (based upon the closing price reported by the
Bulletin Board System of $0.15 bid) was approximately $6,600,000.
ITEM 1. DESCRIPTION OF BUSINESS
General
Standard Energy Corporation's ("the Company") principal business is,
and historically has been, the acquisition of unproven oil and gas
leaseholds, primarily with the intent of reselling such leaseholds to third
parties. Historically, the Company has acquired primarily federal oil and
gas leaseholds through the Bureau of Land Management's ("BLM") leasing
program. The Company also obtains leases through purchases in competitive
bidding programs offered by various state agencies, principally the States
of Utah and Wyoming (the "Leasing Programs").
The Company evaluates the geologic potential of the leases, which it
proposes to acquire, based primarily upon geologic information available
through the Company's wholly-owned subsidiary, Petroleum Investment Company
("PIC"). The Company's President, Dean W. Rowell, is materially involved in
such evaluations which are based, among other factors, upon the results of
prior exploratory and developmental activities on adjacent and contiguous
properties, current lease sale trends and Mr.Rowell's 35-year experience
in the domestic oil and gas business.
The Company, which is known within the industry as a buyer and seller
of leases, typically is approached by a potential buyer for one or more of
its leasehold interests. Negotiations generally ensue and a dollar price
and retained royalty interest is agreed upon and a sale concludes.
Oil and Gas Leases
The Company had limited participation in the Leasing Programs from
1986 through the year ended March 31, 1999, except through its
participation agreements with certain unrelated third parties on a limited
basis. The Company presently has limited funds available to participate in
the Leasing Programs.The Company believes that the deposit feature of the
Leasing Programs have made the Company's participation in such Leasing
Programs very difficult as the deposit feature penalizes many of the less
capitalized participants and provides a substantial advantage to Leasing
Program participants which have greater financial resources than the
Company. (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations")
The location and gross and net acreage of the Company's inventory of
oil and gas leaseholds at March 31, 1999 were approximately as follows:
Location Gross Acres Net Acres
Utah 7,918 7,918
Wyoming 6,738 4,799
Montana 4,442 2,961
Total 19,098 15,678
A gross acre consists of 100% of the working interest. A net acre is
calculated by gross acres multiplied by the percentage of working interest
owned.
The above chart does not include the Company's interest in unrelated
third-party leasehold acquisitions and leasehold sales. Third-party
leasehold inventory was approximately 60,000 net acres at fiscal year ended
March 31, 1999. Also during the fiscal period, the Company's ability to
acquire additional leaseholds was adversely affected. Because the Company
has no financial basis in such leaseholds, the Company's financial
statements and the foregoing acreage charts do not reflect the acquisition
of such newly acquired leaseholds. As third-party leasehold sales take
place, revenue is recorded under line item "Sales of oil and gas leasehold
interest". (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations")
Management has adopted a policy of periodically evaluating each of the
leaseholds held by the Company to determine whether the current market
value of a leasehold justifies making additional rental payments with
respect thereto.Based upon such evaluation, the Company abandons (writes
off) those leaseholds for which it does not wish to continue making rental
payments.The amount of acreage abandoned and sold by the Company in each
of the last two fiscal years has caused the Company's balance of inventory
to decline over the course of such period, primarily due to the downturn in
the domestic oil industry.No independent appraisals are obtained by the
Company on leases purchased, nor is there an independent committee of the
Board of Directors which evaluates any of such leases.
The Company's policy is to acquire and hold leaseholds in inventory
for a period generally not longer than five years in order to maximize the
gain to the Company on such leasehold costs. The Company does not advertise
for the sale of leases owned by it, but rather believes that most of its
leasehold purchasers become aware of the Company's leaseholds through an
examination of BLM records or other means.During the Company's two fiscal
years ended March 31, 1999 and 1998, revenues from the sale of oil and gas
leasehold interests, and the percentage of the Company's consolidated
revenues during such period represented by such revenues were zero for both
years, reflecting the depth of the downturn in the domestic oil industry.
(See "Consolidated Financial Statements")
The Company's oil and gas leasehold inventory remained at
approximately 60,000 net acres at the year ended March 31, 1999, including
leaseholds acquired under the third-party agreements.Although its leasing
activity was reduced substantially due to the sharp decline in exploration
activities during the last five fiscal years, the Company believes it can
continue its present lines of business, including the purchase and sale of
newly acquired oil and gas leaseholds.
The Company retains a royalty interest, ranging from 1% to 6%, in
substantially all of the leaseholds which it has resold.Since 1981, the
Company has not received any substantial earnings from retained royalty
interests in resold leaseholds.The majority of the leases acquired by the
Company are leaseholds granted by the BLM subject to a 12-1/2% gross
royalty interest in favor of the federal government's BLM.
The majority of the Company's inventory of undeveloped leases are
subject to the jurisdiction of the BLM, with the balance being leased from
agencies of various Rocky Mountain states.As a result of the advance lease
deposits required under the Leasing Programs, and the Company's current
working capital difficulties, it may be expected that the percentage of
leases acquired in the future from such states may increase.BLM leaseholds
granted under the old leasing program are leased by the BLM at an annual
rental of $1.00 per acre on all leases acquired prior to January 1, 1988,
$1.50 per acre on all leases acquired after such date, and $2.00 per acre
for leases acquired and held for more than five years.
The majority of the Company's BLM leasehold inventory at March 31,
1999 consists of BLM leaseholds granted after January 1, 1994, and
generally have an initial term of ten years, which may be extended for an
additional two years if during the initial term such leasehold is
"improved" by the commencement of drilling activities thereupon.Aggregate
rentals paid by the Company during the years ended March 31, 1999 and 1998
for all oil and gas properties leased by it were approximately $17,000 and
$16,000, respectively.The Company retains the right to reacquire the lease
if the purchaser fails to make rental payments due to the BLM on leases
sold to unrelated third-parties by the Company.
Leasing Programs
The federal government's Leasing Program is administered by the BLM
pursuant to the Minerals Leasing Act of 1920, as amended.Under such Act,
properties are made available to the public by means of a competitive
bidding system. Properties receiving no bid are assigned to the Leasing
Program.In the Leasing Program, applicants filing for a given leasehold by
a set date are deemed to have filed simultaneously with other applicants
and thus are eligible to participate in the drawing.Under the Leasing
Program, applicants are required to deposit the first year rental payments
for each property applied for at the time of filing an application.Funds
advanced to the BLM as deposits do not bear interest.
During fiscal 1999, the BLM took approximately 50 days, from the date
funds were required to be deposited, to process refunds of deposits with
respect to unawarded leases, which permitted participants to "rollover"
their refunds into payments of advance deposits in the subsequent Leasing
Program drawing period.However, there can be no assurance as to how long
the BLM will take to refund such deposits in the future.
The BLM has on several previous occasions since 1920 suspended and/or
modified the BLM Leasing Program.No assurance can be given that current
Leasing Programs will not be subsequently eliminated, modified or
suspended, or that the Company will be able to actively participate in or
derive profits from the Leasing Programs.
Geological Information Services
The Company, through its wholly-owned subsidiary, PIC, provides a
variety of geologic lease evaluation services.PIC makes available to
subscribers monthly reports containing information which evaluates leases
offered in the Leasing Programs.Such information includes comprehensive
geologic data, recommendations and reports with respect to leaseholds
offered in the Leasing Programs, including PIC's evaluation of the
production prospects of such leaseholds and, frequently, an estimated
resale value for such leaseholds, the names of selected participants,
results of auction sales and drawings, and other information.In addition
to such monthly reports, PIC also sells information with respect to
individual oil and gas properties throughout the Rocky Mountain area.
The geologic and other information which PIC makes available through
its reporting services is obtained from different sources, including PIC's
internal files which contain well and land oil and gas exploration data on
a historical basis in the nine-state area comprising the Rocky Mountain
region.Such data is interpreted and summarized by PIC's part-time in-house
geologists and landsmen.
PIC, through a wholly-owned subsidiary, also provides oil and gas
mapping services with respect to properties located throughout the Rocky
Mountain region.PIC prepares base survey and geologic maps on various
scales, reflecting significant oil and gas well drilling activity in a
particular area.
During the Company's two fiscal years ended March 31, 1999 and 1998,
revenues contributed to the Company's consolidated revenues by PIC were
approximately $6,000 and $10,000, respectively.The decrease in revenue
contributed by PIC for such fiscal periods, as compared to prior fiscal
years, was the result of the 1986 worldwide crude oil price collapse.As
the result of such price collapse, PIC terminated the services of several
employees, including its geologists. On June 19, 1998, oil prices collapsed
to a 12-year low, set in 1986. (See "Management's Discussion and Analysis
of Financial Condition and Results of Operations")
Oil and Gas Exploration and Production
The Company's oil and gas exploration and production operations are
presently insignificant and no reserve information is available.
Competition
The Company experiences substantial competition in its business of
buying and selling oil and gas leaseholds.The Company's competitors
include oil companies, as well as numerous independent operators, many of
whom have substantially greater resources than the Company and its
affiliates.The Leasing Programs, and in particular, the feature which
requires advance deposit of annual lease rentals at the time of applying
for such leases, has the effect of favoring companies with financial
resources greater than the Company's and its affiliates'.
With respect to its geologic information services, the Company
experiences competition from individual operators who advise as to the
geologic potential of properties listed for lease under the Leasing
Programs and other oil and gas properties, as well as from publishers of
newsletters providing certain information similar to that which the Company
makes available to its subscribers.The Company believes itself to be a
factor in the geologic information services industry in the Rocky Mountain
States, premised upon the quality and volume of its land records, the
number of subscribers to its publications and the extremely limited number
of competitors, comprised mostly of individuals, offering similar, but what
management believes to be less complete services to the general public.
The Company's competitors in oil and gas exploration, development and
production include major oil companies, numerous independent oil and gas
companies, individual proprietors and drilling programs.Many of such
competitors possess greater financial resources than those available to the
Company.
Research and Development
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
recovery of MSW derived cellulosic material ("Celmat") convertible 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").
Expenses incurred for the South Bend Project are currently being accounted
for under line item general and administrative expense.
As a result of the Company's research and development efforts,
management believes that the Company has developed what appears to be a
commercial application of the Biofuels Technology for its future project
(the "South Bend Project"). Project details are described in the Company's
confidential South Bend Project Business Plan prepared by engineering firms
W.J. Scales & Company of Denver, Colorado and Limbach Company of Richmond,
Virginia (collectively the "Scales Group"). The Business Plan is based on
the Scales Group present technical engineering designs and experience in
the development of large new commercial projects. The Business Plan
includes a plan to finance and develop the South Bend Project utilizing the
Biofuels Technology.
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 prohibitively high costs, together with the five to eight year 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.
To commercialize the Biofuels Technology, the Company requires a large
operating MSW incinerator plant and a large operating corn ethanol plant.
Waste to energy incineration plants (the "Recycle Plant") are available for
economic reasons, due to "flow control" that was ruled illegal by the U.S.
Supreme Court on November 10, 1997 for the second time. Dry mill corn
ethanol plants (the "Ethanol Plant") are available at reasonable prices,
due to thin operating margins. The estimated cost to purchase the Recycle
and Ethanol Plants is $95,000,000 and the cost to retrofit them with new
equipment is $155,000,000 for a total estimated cost of $250,000,000.
The Company, the Scales Group, and others are presently attempting to
obtain a project loan with unrelated third parties to raise up to
$250,000,000 (the "Loan"). The Loan, if obtained, would be used to finance
the purchase, refit, and initial operations of both the Ethanol Plant and
Recycle Plant facilities as a single economic unit in two locations. 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 MSW recycle/ethanol production
plants. The principal reason for such conclusion is that no immediate new
building erection would be required at either plant site. There can be no
assurance that the required Loan will be available and there can be no
assurance that the Biofuels 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.
The Company, providing it is successful in receiving the Loan, for
which there is no assurance, anticipates refitting the Recycle 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 Ethanol Plant
for processing into ethanol and other products. The MSW would be supplied
to the Recycle Plant by present haulers of MSW located in the
northeast U.S.
The Company, providing it is successful in receiving the Loan, would
also refit the Ethanol Plant to eventually operate only on Celmat and not
corn to produce ethanol. It would process the baled Celmat from the Recycle
Plant through twelve module processing units to be installed in or adjacent
to existing buildings located on the Ethanol Plant site. 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 the Scales Group 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.
At June 25, 1999, 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. The Company
is pursuing the Loan and other financing ideas through two wholly-owned
subsidiaries, Standard EnviroSystems, Inc. ("EnviroSystems") and Biofuels,
Inc. ("Biofuels"). Final plans and final financial arrangements with
unrelated third-parties for the Loan on the South Bend Project had not been
finalized or completed as of June 25, 1999.
Government Regulations
The Company's business is subject to extensive federal, state and
local regulation. Management believes that the Company operations are in
material compliance with applicable laws, but is unable to predict what
additional government regulations, if any, affecting the Company's
business, may be enacted in the future; how existing or future laws and
regulations might be interpreted or whether the Company will be able to
comply with such laws and regulations either in the markets in which it
presently conducts business or wishes to commence business. There can be no
assurance that either the states or the federal government will not impose
additional regulations upon the Company's activities which might adversely
affect the Company's business.
Insurance
The Company does not currently have in force general liability
insurance coverage but does have renters liability coverage on its
headquarters office space. There can be no assurance the coverage limits of
the Company's policy will be adequate, or that the Company can obtain
liability insurance in the future on acceptable terms, or at all.
Environmental Matters
The Company is not aware of any pending or threatened claim,
investigation, or enforcement action regarding environmental issues which
if determined adversely to the Company, would have an adverse effect upon
the capital expenditures, earnings, or competitive position of the Company.
Employees
As of June 25, 1999, the Company had three employees, including two
executive officers and one part time employee.In addition, the Company's
practice in connection with the Leasing Programs is to contract with
geologists and landsmen to assist the Company in the preparation of its
geologic information reports as needed.None of the Company's employees are
represented by a union or subject to a collective bargaining agreement and
the Company has never experienced a work stoppage. The Company believes its
employee relations to be good.
Item 2. PROPERTIES
Headquarters
The Company's executive offices are located in a 4,000 square foot
building. The premises are leased from a non-affiliated party, at an annual
rental of approximately $34,000, on a three (3) year lease. Such space is
shared with Trachyte Oil Company ("Trachyte"), an affiliate of the Company,
who pays the Company $24,000 per year for such shared space. Management is
of the opinion that such cost is comparable to or below normal rates in the
area and believes that such facilities are adequate for the Company needs
in the proximate future.
Oil and Gas Leaseholds
The location and gross and net acreage of the Company's inventory of
oil and gas leaseholds at March 31, 1999 was approximately as follows:
Location Gross Acres Net Acres
Utah 7,918 7,918
Wyoming 6,738 4,799
Montana 4,442 2,961
Total 19,098 15,678
A gross acre consists of 100% of the working interest. A net acre is
calculated by gross acres multiplied by the percentage of working interest
owned.
Item 3. LEGAL PROCEEDINGS
In July 1997, Mr. Rowell was named in a lawsuit filed in the United
States District Court for the Southern 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.
In September 1998, Mr. Rowell, without admitting liability, settled
the complaint to avoid further legal expense and paid the Company $37,500
in cash, forgave $29,247 of indebtedness owed by the Company to Trachyte,
and returned 1,037,420 shares of common stock to the Company, all pursuant
to the approval of the settlement by the Court on September 24, 1998. The
Company then paid the attorney representing the plaintiff its costs and
fees of $16,627. The settlement resulted in a contribution of capital to
the Company of $150,000.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders for a vote
during the fiscal year ended March 31, 1999.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Price Range of Common Stock
The Company's shares of Common Stock are traded on the over the
counter Bulletin Board ("OTCBB") electronic quotation service, operated by
The Bulletin Board, Inc., an affiliate of The Nasdaq Stock Market, Inc. The
following table sets forth the high and low bid quotations of the Company's
common stock for the periods indicated, as reported by the OTCBB. The
quotations set forth below represent prices between dealers and do not
include retail markups, markdowns or commissions and may not represent
actual transactions.
Bid Price
High Low
Fiscal Year 1998
First Quarter .......... $ 0.18 $ 0.13
Second Quarter .......... 0.25 0.13
Third Quarter .......... 0.25 0.16
Fourth Quarter .......... 0.25 0.15
Fiscal Year 1999
First Quarter .......... $ 0.19 $ 0.10
Second Quarter .......... 0.30 0.08
Third Quarter .......... 0.22 0.10
Fourth Quarter .......... 0.19 0.14
Fiscal Year 2000
First Quarter .......... $ 0.29 $ 0.12
(through June 25, 1999
Approximate Number of Equity Security Holders
Approximate number of record
Title of Class holders as of June 25, 1999
Common Stock, par value $0.01 per share 1,800
Preferred Stock, par value $0.01 per share None Issued
As of June 25, 1999, there were 104,407,974 shares of common stock
outstanding and approximately 1,800 stockholders of record. The number of
stockholders of record does not include an indeterminate number of
stockholders whose shares are held by brokers and fiduciary depositories in
"street name". Management believes there are in excess of 3,000 beneficial
stockholders of the Company's common stock.
Dividends
The Company has neither declared nor paid any dividends on its Common
Stock since the inception of the Company, and the Board of Directors does
not contemplate the payment of dividends in the foreseeable future.Any
decision as to the future payment of dividends will depend on the earnings
and financial position of the Company and such other factors as the Board
of Directors may deem relevant. It is the present intention of management
to utilize all available funds for the development of the Company's
business.
Item 6. 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 fiscal year ended March 31, 1999,
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 exploring other ways of generating revenues.
During the current fiscal period, the Company continues to research
and develop its technologies for the recycle of MSW into saleable products
and the recovery of Celmat, convertible into fuel-grade ethanol and lignin.
As a result of these efforts, management believes that the Company has
developed what appears to be a commercial application of the Biofuels
Technology for its future South Bend Project. The project details are
described in the South Bend Project Business Plan prepared by the Scales
Group. The Company, the Scales Group, 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 be available and there can be no assurance that the
Biofuels 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. Expenses incurred for the
South Bend Project are currently being accounted for under line item
general and administrative expense.
Results of Operations
The Company realized revenues of approximately $17,000 for the fiscal
period ended March 31, 1999, compared with approximately $26,000 for the
corresponding 1998 fiscal period. Cash requirements during the fiscal 1999
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 for the fiscal years ended
March 31, 1999 and March 31, 1998. Revenues from the sale of the Company's
geologic information services were approximately $6,000 for fiscal period
ended March 31, 1999, compared with approximately $10,000 for the
corresponding 1998 fiscal period. Revenues from the Company's geologic
information services have declined steadily from the 1986 collapse of world
crude oil prices. Revenue from oil production was approximately $11,000 for
the fiscal period ended March 31, 1999, compared to approximately $16,000
for the corresponding 1998 fiscal period. Oil production revenues continue
to decline reflecting current low world crude oil prices, and in June 1998,
oil prices collapsed to a 12-year low, set in 1986.
The Company incurred expenses related to the Company's oil and gas
leasehold sales of approximately $9,000 for the fiscal period ended March
31, 1999, compared to approximately $17,000 for the comparable fiscal 1998
period. Expenses associated with the Company's geologic information
services were approximately $11,000 for the fiscal period ended March 31,
1999, compared to approximately $9,000 for the comparable fiscal 1998
period. There were no oil production and exploration costs during the
fiscal periods ended March 31, 1999 and March 31, 1998. General and
administrative expense for the fiscal period ended March 31, 1999, were
approximately $110,000, compared to approximately $90,000 for the
comparable 1998 fiscal period.
The Company's net loss for the fiscal period ended March 31, 1999 was
approximately $107,000, compared to approximately $98,000 for comparable
1998 fiscal period. The Company anticipates that it will continue to
operate at a loss for the 1999 fiscal year, ended March 31, 1999, 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, or oil
production and exploration activities during the remainder of fiscal 1999,
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 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 provide 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, 1999
and 1998, 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, 1999 and 1998, which has been offset against
the deferred tax assets. The net change in the valuation allowance during
the year ended March 31, 1999 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, 1999. The financial
statements for prior years have not been restated.
The Company has available at March 31, 1999, unused tax operating loss
carry forward of approximately $4,477,000 that may be applied against
future taxable income through 2012. No tax benefit has been reported in the
financial statements, because the Company believes there is 50% or greater
chance the carry forwards will expire unused. Accordingly, the potential
tax benefits of the loss carry forwards are offset by a valuation account
of the same amount. (See "Consolidated Financial Statements")
Financial Condition
Management is aggressively exploring additional financing for ongoing
and future operations of the Company and has entered into an agreement with
the Scales Group for the engineering, management, and construction of the
South Bend Project. There is no assurance that the efforts of management or
the Scales Group to locate and secure additional financing will be
successful, and the failure to secure project financing would substantially
alter management's assumptions as herein presented.
Revenue reduction in the Company's overall oil and gas business is
related to effects of the 1986, 1993 and 1998 worldwide collapse of crude
oil price and the corresponding reduced oil and gas brokerage activity of
the Company. The 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 through fiscal
1993, ended March 31, 1992. (See Note 7 to "Consolidated Financial
Statements")
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. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. 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. (See Note 7 to "Consolidated Financial Statements")
For the fiscal period ended March 31, 1999, 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 oil and gas business and its South Bend Project development.
The Company's most significant assets are (1) its oil and gas
production income, (2) its oil and gas leaseholds held for resale,
approximating 60,000 net acres at March 31, 1999, 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; (4) the
$4,477,000 tax loss carry forward, and (5) the 5,252,556 shares of Biomass
common stock. At June 25, 1999, the Biomass shares had little value being
bid $0.01 and asked $0.05 on the electronic OTC Bulletin Board. With little
or no volume on a daily basis for the past three 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 asset sales, bank and/or other loans, debt, or equity
offerings. Any such equity offerings, asset sales, or other financing 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 the South Bend Project,
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
of its management's control.
There have been no significant changes in capitalization or financial
status during the past two years that are not reflected in the financial
statements. The Company's plan of operation during the next twelve (12)
months includes the following:
1. Aggressively pursue oil and gas lease acquisition with third
party investors.
2. Aggressively pursue financing for the South Bend Project with the
Scales Group and other current financial contacts.
3. Continue research and development, testing MSW processing
equipment and testing existing and new cellulose enzymes.
4. Continue design and development of the South Bend Project.
5. Engage an investor relations person to disseminate
information about the Company, its technologies, and the South Bend
Project.
Inflation
Inflation continues to apply moderate upward pressure on the cost of
goods and services including those purchased by the Company. Management
believes the net effect of inflation on operations has been minimal during
the past two years.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that will have a
material impact on the Company's financial statements.
Y2K Compliance
Due to the Company's small size, it maintains all accounting books,
records, and schedules in a manual system, and intends to continue such
manual system, until such time as additional funding effectively warrants
the cost to implement a computerized system for all of its records. Once
funding is received and a computerized system is installed the cost factors
and Y2K compliance will be addressed at that time. The Company does
maintain desktop personal computers, but they are solely used for word
processing. Any off the shelf program for under $100 could effectively
handle any current or future Y2K word processing problem. Management fills
that the Year-2000 problem will not materially affect the Company due to
its current manual system.
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, who 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 June 25, 1999, Mr. Rowell owns beneficially
approximately 50% 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 1993 Act. Certain conflicts of interest may arise between the Company,
Biomass, and Mr. Rowell, depending on future development of 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.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is submitted as a separate
section at the rear of this Form 10-KSB report.
Item 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
A. Identification of Directors and Executive Officers. The current
directors and executive officers of the Company, who will serve until the
next annual meeting of shareholders or until their successors are elected
or appointed and qualified, are setforth below:
Name Age Position
Dean W. Rowell 61 CEO/President/Chairman
Pamela K. Nelson 41 Vice President/Secretary
Michael M. Cannon 51 Director
Dean W. Rowell has been Chairman of the Board, President and Chief
Executive Officer and Chief Financial Officer of the Company since its
inception in April 1978 and was last elected by shareholders in 1996. Mr.
Rowell has been involved in the oil and gas exploration and production
industries for over 35 years. Prior to serving in his present capacities
with the Company, he served as the president of a number of privately-held
energy related companies. Mr. Rowell is also a director and President of
the Company's wholly-owned subsidiaries, PIC, EnviroSystems, and Biofuels.
Mr. Rowell devotes approximately 80% of his time to the Company.
Pamela K. Nelson was last elected in 1996 and has been a Director of
the Company since September 1978 and became a Vice President of the Company
in 1979 and Corporate Secretary in 1983. Ms. Nelson has been involved in
landwork and leasing services to the oil and gas industry for the last 21
years. Ms. Nelson is also a director, Vice President, Corporate Secretary
and Manager of land and lease operations for the Company's wholly-owned
subsidiary, PIC. She is a director, Vice President, Corporate Secretary of
EnviroSystems, and Biofuels also wholly-owned subsidiaries of the Company.
Ms. Nelson devotes approximately 80% of her time to the Company.
Michael M. Cannon, a cum laude graduate of the University of Utah,
joined the Company in March 1982 and in September 1982 became a Vice
President and Director, with responsibility for marketing and corporate
communications. From January 1979 to March 1982, Mr. Cannon was President
of an advertising and public relations agency, Cannon Communications, a
substantial number of whose clients were members of the United States House
of Representatives and the Senate. From November 1976 to January 1979, Mr.
Cannon served as the press secretary for Gunn McKay, a United States
Representative from the State of Utah. In 1985 Mr. Cannon served as a state
director of the Independent Petroleum Association of Mountain States and
was. Mr. Cannon is presently self-employed as a consultant in the
Communications industry. Mr. Cannon resigned as an Officer of the Company,
effective July 1, 1985, but remains as an outside Director being last
elected in 1996, Mr. Cannon has been associated with the Company for over
10-years, and is a director of the Company's wholly-owned subsidiaries,
PIC, EnviroSystems, and Biofuels.
Each Director shall hold office until the next annual meeting of
shareholders or until his successor shall have been duly elected and
qualified. Officers are elected annually by, and serve at the pleasure of,
the Board of Directors.
B. Significant Employees. None.
C. Family Relationships. There are no family relationships among the
Company's officers and directors.
D. Other Involvement in Certain Legal Proceedings. There have been no
events under the bankruptcy act, no criminal proceedings and no judgements
or injunctions material to the evaluation of the ability and integrity of
any executive officer of the Company in last five years.
E. Compliance With Section 16(a). Section 16 of the Securities Act of
1934 requires the filing of reports for sales of the Company's common stock
made by officers, directors and 10% or greater shareholders. A Form 3 and
Form 4 must be filed within ten days after the end of the calendar month in
which a sale or purchase occurred. In the alternate, a Form 5 may be filed
within 45 days after the end of the Company's fiscal year. Based upon the
review of Form 4, Form 3, and/or Form 5 filed with the Company, the Company
is not aware of any delinquent filings of such forms by any reporting
person.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the last three years to the Company's
Chief Executive Officer and to the Company's most highly compensated
executive officers other than the CEO, whose annual salary and bonus
exceeded $100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation
Other Annual Restrict
Name and Principal Commissions Compensation Stock Options
Position Year Salary And Bonuses (Auto) Awards SAR's
Dean W.Rowell 1999 $ -0- -0- $4,000 -0- -0-
President/CEO 1998 $ -0- -0- $4,000 -0- -0-
1997 $ -0- -0- $4,000 -0- -0-
None of the Company's executive officers received aggregate cash and
cash equivalent compensation exceeding $100,000 in any of the last three
fiscal years. No options to purchase any of the Company's securities were
granted to any reporting person during the fiscal year ended March 31,
1999. During the same period, Mr. Rowell elected to sell stock in the
Company due to limited corporate cash flow to pay Mr. Rowell a salary.
Compensation Pursuant to Plans
None of the executive officers of the Company are parties to an
employment agreement with the Company. Mr. Dean W. Rowell, the Company's
Chairman of the Board, President, Chief Executive and Chief Financial
Officer will continue to serve the Company as determined by the Board of
Directors without a salary or employment agreement. On April 1, 1997, the
Company discontinued the practice of providing Mr. Rowell a credit card but
continues to provide Mr. Rowell with an automobile at a cost of
approximately $4,000 per year.
The Company has no other "plans" (as such term is used in Item 402 of
Regulation S-K) with respect to further executive compensation.
Other Compensation
Not applicable.
Compensation of Directors
Directors of the Company receive no compensation for services as such.
Termination of Employment and Change of Control Arrangements
Not applicable.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares beneficially
owned, as of June 25, 1999, by each Director of the Company, by all
officers and Directors as a group and by all persons known to the Company
as owning or possessing voting control over five (5%) percent or more of
the Company's outstanding shares of Common Stock:
Number Percentage
of Shares of Shares
Name and Address Owned Outstanding
Dean W. Rowell (1) 56,945,700 54.6%
Pamela K. Nelson 3,394,300 3.2%
Michael M. Cannon 43,000 .0%
All Officers and Directors
as a group 60,383,000 57.8%
_____________
(1) Mr. Rowell is the beneficial owner of 40,000,000 shares held in the
name of Trachyte. Kathleen Hogan, the former wife of Mr. Rowell, was
granted 15,000,000 shares of Mr. Rowell's holdings in a Utah State Divorce
Court ruling effective May 8, 1995. Since then Ms. Hogan has sold shares in
private transactions. Ms. Hogan, in her statement to the Company, reported
that she owns approximately 3,000,000 shares of the Company's common stock
at June 25, 1999.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
Geologic and other information which PIC has or develops is available
to Mr. Rowell as an officer of the Company, and he may use such information
for the benefit of the Company in determining which leases to buy or sell.
Such information is also available to Mr. Rowell, without cost, in
connection with Mr. Rowell's participation in the Leasing Programs.
During the seven year period since fiscal 1991, Trachyte has helped
financially support the Company largely due to Mr. Rowell's efforts to
secure loans from Trachyte for the Company during periodic cash flow
difficulties. During such periods, the several transactions with Trachyte
have provided the financial means for the Company to pursue
commercial-ization of the South Bend Project, otherwise the Company would
have been
unable to pursue this goal. Final plans and final financial arrangements
had not been completed for the South Bend Project as of June 25, 1999.
During the fiscal period ended March 31, 1999, the Company continued
to experience severe cash flow difficulties which have continued into the
1999 fiscal period. Since the Company has been unable to repay any of the
loans from Trachyte during the past two fiscal periods, Trachyte has
received a demand note from the Company in the amount of $50,000 plus
interest at 12% per annum. At June 25, 1999 the Company owed Trachyte
approximately $32,000. Neither Mr. Rowell nor Trachyte received any common
stock in exchange for debt forgiveness during the fiscal period ended
March 31, 1999.
In July 1997, Mr. Rowell was named in a lawsuit filed in the United
States District Court for the Southern 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. (See Item 3"LEGAL PROCEEDINGS")
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 for the South Bend Project. 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 the Scales Group through June 25, 1999.
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 Securities Act of
1933, as amended (the "Act") and Section 21E of the Act, which reflect
Managements current views with respect to the future events and financial
performance. The Company cautions that words used in this document such as
"experts", "anticipates", "believes" and "may" as well as similar words and
expressions identify and refer to statements describing events that may or
may not occur in the future, including 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 the South Bend Project and to selectively acquire other companies.
These forward-looking statements and the matters to which they refer to are
subject to considerable risks and uncertainties that may cause actual
results to be materially different from those described in this document,
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-KSB report.
Indebtedness of Management
Reference is made to Section above entitled "Transactions with
Management and Others".
Parents of Company
The only parents of the Company, as defined in 12b-2 of the Exchange
Act, are the officers and directors of the Company. For information
regarding the share holdings of the Company's officers and directors, see
Item 11.
PART IV
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The Exhibits which are filed with this Report or which are
incorporated by reference are set forth in the Exhibits Index below.
B. The Company filed no Form 8-K during the fiscal year ended March
31, 1999. The financial statement information required by this portion of
Item 13 is submitted as a separate section at the rear of this Report.
Exhibits to Form 10-KSB
There is only one Exhibit to this Form 10-KSB filing entitled Exhibit A
"Consent of Independent Auditors".
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Dean W. Rowell
Dean W. Rowell
President
June 25, 1999
Salt Lake City, Utah
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
Signature Capacity Date
/s/ Dean W. Rowell President and Director June 25, 1999
Dean W. Rowell (Principal Executive,
Financial and Accounting
Officer)
/s/ Pamela K. Nelson Vice President June 25, 1999
Pamela K. Nelson Corporate Secretary,
Treasurer and Director
/s/ Michael M. Cannon Director June 25, 1999
Michael M. Cannon
EXHIBIT A
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of the consolidated
financial statements of Standard Energy Corporation included in the Annual
Report (Form 10-KSB) for the year ended March 31, 1999.
JONES, JENSEN & COMPANY
Salt Lake City, Utah
June 25, 1999
STANDARD ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
C O N T E N T S
Independent Auditors' Report...............................3
Consolidated Balance Sheet.................................4
Consolidated Statements of Operations......................6
Consolidated Statements of Stockholders' Equity............7
Consolidated Statements of Cash Flows......................8
Notes to the Consolidated Financial Statements.............9
INDEPENDENT AUDITORS' REPORT
Board of Directors
Standard Energy Corporation
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of Standard
Energy Corporation and Subsidiaries at March 31, 1999 and the related
statements of operations, stockholders' equity and cash flows for the years
ended March 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion of these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material aspects, the consolidated financial
position of Standard Energy Corporation and Subsidiaries as of March 31,
1999 and the consolidated results of their operations and their cash flows
for the years ended March 31, 1999 and 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has incurred significant losses, which
have resulted in working capital and accumulated deficits, which raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 7.
The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
Jones, Jensen & Company
Salt Lake City, Utah
June 4, 1999
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,
1999
ASSETS
CURRENT ASSETS
Cash $ 9,604
Total Current Assets 9,604
PROPERTY AND EQUIPMENT, net (Note 2) 18,500
INVESTMENT IN OIL AND GAS PRODUCING
PROPERTIES, net of depletion of $92,970 (Note 3) -
OTHER ASSETS
Oil and gas leases held for resale (Note 3) 71,653
Pledged drilling bonds (Note 3) 35,000
Cash value of life insurance 5,122
Total Other Assets 106,653
TOTAL ASSETS $ 134,757
The accompanying notes are an integral part of these consolidated financial
statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
1999
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 50,641
Revolving line of credit 31,811
Note payable - related party (Note 5) 32,727
Total Current Liabilities 115,179
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 per share
authorized 10,000,000 shares, no shares
issued and outstanding -
Common Stock; par value $.01 per share;
200,000,000 shares authorized; 104,082,974
shares issued and outstanding 1,044,079
Additional paid-in capital 7,339,503
Treasury stock (83,253)
Accumulated deficit (8,280,751)
Total Stockholders' Equity 19,578
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 134,757
The accompanying notes are an integral part of these consolidated financial
statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
March 31
1999 1998
REVENUES
Oil and gas information services $ 6,185 $ 10,346
Oil production 11,240 16,324
Total Revenues 17,425 26,670
EXPENSES
Oil and gas information services 11,646 9,418
Oil and gas leasehold interests 9,472 17,459
Depreciation, depletion and amortization 4,000 4,000
General and administrative 110,530 90,126
Total Expenses 135,648 121,003
OPERATING LOSS $ (118,223) $ (94,333)
Interest income and other 15,469 1,693
Interest expense (4,964) (5,249)
Total Other Income (Expense) 10,505 (3,556)
LOSS BEFORE INCOME TAXES (107,718) (97,889)
INCOME TAX EXPENSE - -
NET LOSS $ (107,718) $ (97,889)
NET LOSS PER SHARE $ (.00) $ (.00)
FULLY DILUTED LOSS PER SHARE $ (.00) $ (.00)
The accompanying notes are an integral part of these consolidated financial
statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 1999 and 1997
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital
Deficit
Balance, March 31, 1997 - - 104,082,974
1,040,829 $ 7,161,253 $(8,075,144)
Net loss for the year
ended March 31, 1998 - - - -
- - (97,889)
Balance of March 31, 1998 - - 104,082,974
1,040,829 7,161,253 (8,173,033)
Common stock issued for
cash $0.10 per share - - 325,000
3,250 28,250 -
Acquisition of treasury stock 1,037,420 (83,253) -
- - -
Contribution of capital by
shareholder - - -
- - 150,000 -
Net loss for the year ended
March 31, 1999 - - -
- - - (107,718)
Balance, March 31, 1999 1,037,420 (83,253) 104,407,079
$1,044,079) $ 7,339,503 $(8,280,751)
The accompanying notes are an integral part of these consolidated financial
statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
March 31
1999 1998
CASH FLOWS FROM OPERATING ACTIVITES
Net income (loss) $ (107,718) $ (97,889)
Adjustments to reconcile net loss to
net cash used bt operating activities:
Depreciation, depletion and amortization 4,000 4,000
Allowance for oil and gas leases - 23,811
Changes in assets and liabilities
(Increase) decrease accounts receivable
and other assets 6,645 15,299
Increase (decrease) accounts payable and
accrued expenses 22,729 5,220
Net Cash Provided (Used) by
Operating Activities (74,344) (49,559)
CASH FLOWS FROM INVESTING ACTIVITIES - -
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution of cash by shareholder 37,500 -
Payments on notes payable to related
parties 11,974 50,000
Proceeds from issurance of common stock 31,500 -
Net Cash Provided (Used) by
Financing Acitivites 80,974 50,000
NET INCREASE (DECREASE) IN CASH 6,630 441
CASH AT BEGINNING OF YEAR 2,974 2,533
CASH AT END OF YEAR $ 9,604 $ 2,974
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
CASH PAID FOR:
Interest $ - $ 1,616
Income taxes $ - $ -
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Contribution of capital by shareholder $ 112,500 $ -
The accompanying notes are an integral part of these consolidated financial
statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was organized under the laws of the State of Utah on April 3,
1978. The Company's principal business activity is the acquisition and
resale of unproven oil and gas leaseholds. The Company also provides a
variety of geologic lease evaluation services and information. Further,
the Company receives royalty income from leasehold interests held by the
Company.
Principles of Consolidation
The consolidated financial statements include the accounts of Standard
Energy Corporation and its wholly owned subsidiaries (the Company).
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Oil and Gas Leasehold Interest Held for Resale
The Company's inventory of oil and gas leasehold interests held primarily
for resale to other parties is valued at the lower of the initial costs to
acquire the interests or market. Cost of sales is based on the cost of the
specific leasehold interest sold.
Oil and Gas Activities
The Company follows the successful efforts method of accounting for its oil
and gas exploration and production activities as prescribed by Statement
No. 19 of the Financial Accounting Standards Board.
Property and Equipment
Property and equipment are valued at cost and, except for oil and gas
properties, are depreciated or amortized principally by the straight-line
method over their estimated useful lives. The useful lives of property
and equipment for purposes of financial reporting range from five to seven
years.
Income Taxes
At March 31, 1999, the Company had net operating loss carryforwards of
approximately $4,477,000 that may be offset against future taxable income
through 2013. No tax benefit has been reported in the financial
statements, because the Company believes there is a 50% or greater chance
the carryforwards will expire unused. Accordingly, the potential tax
benefits of the loss carryforwards are offset by a valuation account of
the same amount.
Basis Loss Per Share
The computation of loss per share of common stock is based on the weighted
average number of shares outstanding during the periods presented.
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Flows Statement
For purposes of statements of cash flows, the company considers all highly
liquid debt investments purchased with a maturity of three months or less
to be cash equivalents.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of March 31, 1999:
Computers $ 7,711
Furniture and fixtures 51,393
Printing systems 35,648
Well and land files and maps 305,000
Total 399,752
Less: accumulated depreciation (381,252)
Total $ 18,500
Depreciation expense for the years ended March 31, 1999 and 1998 was
$4,000 and $4,000, respectively.
NOTE 3 - OIL AND GAS PROPERTIES
The Company's primary oil and gas businesses, brokerage of leasehold
interests and sales related to its information services, have decreased
significantly over the past few years. At March 31, 1999 the Company was
holding approximately $95,000 of oil and gas leases for resale. In 1998,
an allowance of $23,811 was set up for possible unsaleable leases in the
Grand Staircase Escalante National Park.
The Company has negotiated agreements with certain non affiliates to
provide capital to jointly participate in a leasing program for oil and gas
leases. Under these agreements, the Company provides raw data and services
to identify potential leases. The Company earns approximately 40% gross
interest in each leasehold obtained. Because the Company has no cost in
the leases, its share of the net proceeds is recognized as revenue when the
leases are sold and are recorded as sales of oil and gas leasehold
interests.
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 3 - OIL AND GAS PROPERTIES (Continued)
In connection with its lease brokerage activities, the Company has included
in other assets pledged certificates of deposit in the amount of $35,000
which are to secure a statewide oil and gas lease bond in the State of Utah
and an individual lease bond in the State of Wyoming.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Office Lease
The Company leases its office space on a month-to-month basis.
Litigation
The Company, together with Dean W. Rowell, the Company's President and
principal shareholder, is party to a lawsuit filed in July 1997 in the
United States District Court for the Southern District of New York. The
complaint alleges that Mr. Rowell violated Section 16(b) of the Securities
Exchange Act of 1934 in connection with several transactions involving
shares of Company stock; principally, a transaction in October 1996 wherein
Mr. Rowell and his wife, Mrs. Rowell, agreed to a transfer of 5,000,000
shares to Mr. Rowell and the payment by Mr. Rowell to Mrs. Rowell of
$200,000. In that this is an action for an alleged Section 16(b)
violation, the damages are sought on behalf of the Company, and as such,
the interests of the Company and Mr. Rowell are adverse in this proceeding.
The lawsuit seeks damages in excess of $600,000. Mr. Rowell has made an
offer to settle for $150,000. IThis offer was accepted on September 28,
1998. As part of the settlement, Mr. Rowell contributed $37,500 in cash,
forgave $29,247 in debt owned to the Company and returned 1,037,420 shares
of commons tock to the Company's treasury valued at $83,253.
NOTE 5 - RELATED PARTY TRANSACTIONS
During June, 1992, the Company issued 40,000,000 shares of common stock to
Trachyte Oil Company (Trachyte), a related party for an overriding royalty
interest in a producing oil and gas property. The transaction was entered
into to reduce the Company's cash flow difficulties. The actual royalties
received varies according to the actual production and the current market
prices of oil. The transaction was recorded by increasing common stock by
$400,000 and reducing additional paid-in capital by the same amount which
results in no change in stockholders' equity. After the issuance, Trachyte
held approximately 65% of the Company's common stock outstanding.
Subsequently, the Company's president entered into a personal transaction
which resulted in his acquiring 100% ownership of Trachyte. The issuance
of the above shares resulted in the substantial dilution to existing
shareholders and personal benefit to the Company's President.
The Company signed a $50,000 note payable to Trachyte Oil Company on March
31,1998. The note bears interest at 12.00% and is due upon demand. The
note is unsecured.
During 1997 and 1996, the Company made various issuances of common stock to
Trachyte, an entity related to an officer, director and shareholder of the
Company, during 1997 and 1996 for cash to provide working capital. (See
Note 8)
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 6 - INVESTMENT IN BIOMASS INTERNATIONAL, INC.
At March 31, 1999, the Company held 5,252,556 shares (15% equity interest)
in Biomass International, Inc. (Biomass), a development stage company,
which owns the exclusive right to market, develop and exploit the Biomass
Process. The Biomass Process consists of the technology of producing
ethanol, a motor fuel extender and octane enhancer and other products from
common cellulose materials. Biomass has received technical certification
(an independent chemical engineer's opinion that the process has technical
feasibility) of the Biomass Process and is continuing in its efforts to
obtain commercial certification (an independent engineer's opinion that the
process has commercial feasibility) through the proposed construction of a
commercial scale plant.
The Company's contribution and investment in Biomass was approximately
$4,079,000 at March 31, 1999. Because the Biomass Process has not yet been
proven commercially feasible, all of the Company's contributions have been
considered to be research and development costs and were accounted for as
operating expenses in prior years. Consequently, the investment in Biomass
common stock is not reflected in the Company's accompanying consolidated
balance sheets and management of Biomass can give no assurance that
Biomass' attempts to obtain commercial certification will be successful or
that Biomass can achieve profitable operations through commercialization of
the Biomass Process.
The Company has a 30 year exclusive territorial license to the Biomass
Technology in the States of Indiana, Ohio, Pennsylvania and Louisiana. The
30 year life begins on the date Biomass receives commercial certification,
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 Company has the unrestricted use of the Biomass
Technology to build, use, sell, sublicense or otherwise develop for
commercial advantage and gain. Also, the Company has 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.
NOTE 7 - GOING CONCERN
These financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has incurred significant
losses in the past which have resulted in working capital and accumulated
deficits. These deficits have been caused primarily from the Company's
investment in Biomass International, Inc. (a development stage company) and
significantly reduced revenues from sales of its oil and gas leasehold
interests and information services. Because of the currently depressed
conditions in the oil and gas industry, coupled with the Company's cash
flow difficulties, the Company's ability to retain and ultimately recover
its investments in oil and gas leaseholds held for resale and other assets
of the Company, is uncertain at this time. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in this regard are to seek additional
financing through loans or through the issuance of equity securities and to
seek increased sales related to its oil and gas businesses. However,
management can give no assurance that it will be successful in its endeavor
to resolve its cash flow difficulties or that it will be able to retain and
ultimately recover its cost in oil and gas leaseholds held for resale and
the other assets of the Company. The financial statements do not include
any adjustments relating to the recoverability and classification of
liabilities, income or expenses that might be necessary should the Company
be unable to continue as a going concern.
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 8 - CAPITAL STOCK
Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock, $0.01 par
value with such rights, preferences and designations and to be issued in
such series as determined by the Board of Directors. No shares are issued
and outstanding at March 31, 1999 and 1998.
In December 1996 and March 31, 1997, the Company issued 890,000 and 700,000
shares of common stock to a related party for cash at $0.02 per share.
NOTE 9 - INDUSTRY SEGMENTS
The Company operates in three principal industries: oil and gas information
services, brokerage of oil and gas leasehold interests and oil and gas
exploration and production. Information as to the Company's segments is
summarized below as of March 31 for the years then ended:
1999 1998
Revenues
Oil and gas information services $ 6,185 10,346
Exploration and production 11,240 16,324
Corporation and investment 15,469 1,693
$32,894 $28,363
Operating Profit (Loss) Before
Extraordinary Items
Oil and gas information services $ (5,46l) $ 928
Brokerage of leasehold interests (9,472) (17,459)
Exploration and production 11,240 16,324
Corporation and investment (114,530) (94,126)
$(118,223) $ (94,333)
Identifiable Assets
Oil and gas information services $ 15,000 $ 19,000
Brokerage of leasehold interests 71,653 71,653
Exploration and production 35,000 35,000
Corporation and investment 13,104 13,119
$134,757 $ 138,772
Depreciation, Depletion and
Amortization
Oil and gas information services $4,000 $4,000
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 9 - INDUSTRY SEGMENTS (Continued)
The Company has no intersegment sales or sales to affiliated customers.
Operating loss consists of total revenues less total expenses, except for
interest expense which has not been allocated to any segment. Identifiable
assets by segment represent those assets that are used in the Company's
operations in each industry. Corporate assets which are not allocated to
any segment are principally cash, short-term investments, marketable
securities and a portion of property and equipment. Capital expenditures
in fiscal 1999 and 1998 were insignificant. The Company's oil and gas
exploration and production operations are presently insignificant and no
reserve information is available.
