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 September 30, 2000
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 November 10, 2000: 105,681,974 shares
of $0.01 par value Common Stock.
DOCUMENTS INCORPORATION BY REFERENCE: NONE
FORM 10-QSB
Financial Statements and Schedules
STANDARD ENERGY CORPORATION
For six months Ended September 30, 2000
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
Independent Accounts Review Report............................ 3
Item 1. Consolidated Balance Sheets -
September 30, 2000 and March 31, 2000.............. 4
Consolidated Statements of Operations -
For the six months
ended September 30, 2000........................... 6
For the three months
ended September 30, 2000........................... 7
Consolidated Statements of Cash Flows -
For the six months ended
ended September 30, 2000........................... 8
Notes to consolidated financial statements............ 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - General...... 10
Results of Operations................................. 10
Financial Condition................................... 12
Plan of Operation..................................... 14
Inflation............................................. 14
Recent Accounting Pronouncements...................... 14
Management's Conflicts of Interest.................... 14
Research and Development of the Biofuels Technology... 15
Forward Looking Statements............................ 19
PART II - OTHER INFORMATION
Item
Item 1. Legal Proceedings..................................... 20
Item 2. Changes in Securities................................. 20
Item 3. Defaults upon Senior Securities....................... 20
Item 4. Submission of Matters to a Vote of Security Holders... 20
Item 5. Other Information..................................... 20
Item 6. Exhibits.............................................. 20
Signature Page........................................ 20
INDEPENDENT ACCOUNTANTS REVIEW REPORT
Board of Directors
Standard Energy Corporation and Subsidiaries
Salt Lake City, Utah
We have reviewed the accompanying consolidated balance sheet of Standard
Energy Corporation and Subsidiaries as of September 30, 2000 and the
related consolidated statements of operations, stockholders equity and
cash flows for the three and six months ended September 30, 2000. These
consolidated financial statements are the responsibility of the Company s
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
consolidated financial information consists principally of applying
analytical procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is substantially less
in scope than an audit conducted in accordance with generally accepted
auditing standards, which will be performed for the full year with the
objective of expressing an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements referred to above
for them to be in conformity with accounting principles generally accepted
in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Standard
Energy Corporation and Subsidiaries as of March 31, 2000, and the related
consolidated statements of operations, stockholders equity, and cash flows
for the year then ended (not presented herein) and in our report dated June
5, 2000, we expressed an unqualified opinion on those consolidated
financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company is a development stage company with no
significant operating results to date, which raises substantial doubt aboe
as a going concern. Management s plans in regard to these matters are also
described in Note B. The financial statements do not include any
adjustments that might result for the outcome of the uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
October 25, 2000
PART I - ITEM 1
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 March 31
2000 2000
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 59,954 $ 3,861
TOTAL CURRENT ASSETS 59,954 3,861
INVESTMENT IN OIL AND GAS PRODUCING
PROPERTIES, net of depletion of $92,970
PROPERTY AND EQUIPMENT, net 12,500 14,500
OIL AND GAS LEASEHOLD INTERESTS HELD
OTHER ASSETS
Oil and gas leases held for resale 71,653 71,653
Pledged drilling bonds 25,000 25,000
TOTAL OTHER ASSETS 96,653 96,653
TOTAL ASSETS $ 169,107 $ 115,014
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 March 31
2000 2000
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving Line of Credit $ 88,006 $ 94,242
Notes payable 50,000 30,000
Notes payable to related parties 366,500 161,000
Accounts payable and accrued expenses 53,234 36,043
TOTAL CURRENT LIABILITIES 557,740 321,285
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share:
Authorized 200,000,000 shares; issued
and outstanding 105,681,974 shares at
September 30, 2000 1,056,819 1,052,619
Preferred Stock, par value $.01 per share;
Authorized 10,000,000 shares 0 0
Additional paid-in capital 7,455,273 7,412,973
Retained earnings (deficit) (8,817,472) (8,588,610)
Treasury stock, at cost (83,253) (83,253)
TOTAL STOCKHOLDERS EQUITY (388,633) (206,271)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 169,107 $ 115,014
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months Ended September 30
2000 1999
REVENUES
Oil and gas information services $ 3,300 $ 2,400
Sales of oil and gas leasehold interests 0 0
Oil production 15,459 12,178
Other income 2,402 720
21,161 15,298
COSTS AND EXPENSES
Oil and gas information services 11,668 5,494
Oil and gas leasehold interests (5,491) (2,354)
Oil production 0 0
Depreciation, depletion and amortization 2,000 2,000
Interest 24,659 4,014
Project Cost 181,959 122,291
General and administrative 35,228 48,077
TOTAL COSTS AND EXPENSES 250,023 179,522
NET INCOME (LOSS) $ (228,862) $ (164,224)
NET INCOME (LOSS) $ (.00) $ (.00)
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Ended September 30
2000 1999
REVENUES
Oil and gas information services $ 1,950 $ 1,050
Sales of oil and gas leasehold interests 0 0
Oil production 9,827 4,928
Other income 2,059 364
13,836 6,342
COSTS AND EXPENSES
Oil and gas information services 8,961 3,424
Oil and gas leasehold interests 156 3,294
Oil production 0 0
Depreciation, depletion and amortization 1,000 1,000
Interest 21,145 2,257
Project Cost 42,958 82,891
General and administrative 14,981 17,689
TOTAL COSTS AND EXPENSES 89,201 110,555
NET INCOME (LOSS) $ (75,365) $ (104,213)
NET INCOME (LOSS) $ (.00) $ (.00)
See notes to consolidated financial statements
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months Ended September 30
2000 1999
Cash Flows From Operating Activities
Net income (loss) $ (228,862) $ (164,224)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and depletion 2,000 2,000
Changes in:
Accounts receivable 0 0
Accounts payable 17,191 16,627
Net cash provided by (used in)
operating activities (209,671) (145,597)
Cash Flow From Industry Activities
(Increase) decrease to long-term investments $ 0 $ 0
(Increase) decrease oil & gas leasehold
interests 0 0
Net cash provided by (used in)
investing activities $ 0 $ 0
Cash Flows From Financing Activities
Increase (decrease) in notes payable $ 219,264 $ 128,793
Proceeds from sale of common stock 46,500 8,000
Net cash provided by (used in)
Financing activities $ 265,764 $ 136,793
Net Increase (Decrease) in Cash $ 56,093 $ (8,804)
Cash at Beginning of Period 3,861 9,604
Cash at End of Period $ 59,954 $ 800
See notes to consolidated financial statements.
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
reviewed in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for
the entire fiscal year ending March 31, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
March 31, 2000.
NOTE B - 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.
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 materially changed during the period ended September 30,
2000, due to little change of activity in the domestic oil and gas
exploration industry. In light of this little changed 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 ("R&D") its biofuels technologies (the "Biofuels
Technology") for the recycle of ordinary municipal solid waste, garbage,
trash, paper and plastic material streams ("Municipal Waste") into recycled
products and feedstock for the production of ethanol fuel. (See "Research
and Development of the Biofuels Technology" below)
Working with its engineering and management contractor, W.J. Scales &
Company of Boerne, Texas (the "Scales Group"), the Company believes it has
developed a commercial application for the Biofuels Technology at several
potential biofuels plant project sites in the Northeast United States (the
"Project") where Municipal Waste landfills and transfer stations charge the
highest dump rates ("Tip Fee") in the U.S. for the disposal of Municipal
Waste.
If operations commence, it is anticipated that the Project would
utilize the Biofuels Technology in a facility that combines a Municipal
Waste recycle plant, an ethanol fuel production plant and a power plant.
The facility would separate Municipal Waste into separate inorganic and
organic recovery streams. The inorganic stream products would be sold into
the existing commercial salvage ("Salvage") market and the organic stream
products would be converted into specialty products such as ethanol fuel
and electricity.
There can be no assurance that the required capital will be available
to develop the Project, and even if adequate capital is available, 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 actually construct the Project.
Expenses incurred for the Project are being accounted for under line item
Project Cost.
Results of Operations
The Company realized revenues of approximately $21,000 for the six-
month period ended September 30, 2000, compared with approximately $15,000
for the corresponding period ended September 30, 1999. Cash requirements
during the period were obtained from a combination of internally generated
cash flow from operations, loans, asset sales, and the sale of Rule 144
investment stock to private individuals.
There were no revenues from oil and gas leasehold sales for the six-
month period ended September 30, 2000, and none for the corresponding
period ended September 30, 1999. Leasehold sales were zero, due to the
Company's exploration inactivity. Revenues from the sale of the Company's
geologic information services were approximately $3,300 for the six-month
period ended September 30, 2000, compared with approximately $2,400 for the
corresponding period ended September 30, 1999. Revenues from the Company's
geologic information services have declined steadily from the 1986, 1993
and 1998 collapse of world crude oil prices. Recent world crude oil and
natural gas price increases may stimulate domestic drilling activity which
would, once again, create a need for the Company's geologic information
services. Revenue from oil production was approximately $15,000 for the
six-month period ended September 30, 2000, compared to approximately
$12,000 for the corresponding period ended September 30, 1999. Oil
production revenues are up as a result of increased world crude oil and
natural gas prices.
The Company incurred expenses related to its oil and gas leasehold
sales of approximately $(5,000) for the six-month period ended September
30, 2000, compared to approximately $(2,000) for the comparable period
ended September 30, 1999. Expenses associated with the Company's geologic
information services were approximately $12,000 for the six-month period
ended September 30, 2000, compared to approximately $5,000 for the
comparable period ended September 30, 1999. Expenses associated with the
Company's oil production and exploration activities were zero for the six-
month period ended September 30, 2000, due to the abandonment in fiscal
1998 of the Company's last operated well. There were no costs for the
comparable period ended September 30, 1999, due to the Company's
exploration inactivity. General and administrative expense for the six-
month period ended September 30, 2000 were approximately $35,000, compared
to approximately $48,000 for the comparable period ended September 30,
1999. This decline reflects the Company's basic inactivity in its oil and
gas sector.
During the previous three year period all of the Company's R&D costs
were expensed under line item General and Administrative expense. During
the 2000 fiscal period, the Company created a line item for R&D costs to
better distinguish expenses between general and administrative expenses and
the expenses related to its various biofuels plant Projects. These costs
are being accounted for under line item Project Cost and were approximately
$182,000 for the six-month period ended September 30, 2000, compared to
approximately $122,000 for the comparable period ended September 30, 1999.
The Company's net loss for the six-month period ended September 30,
2000 was approximately $229,000, compared to approximately $164,000 for
comparable 1999 fiscal period and it expects to operate at a loss for the
remainder of the 2001 fiscal period, due to continued R&D costs incurred
for the Project, and costs related to its oil and gas business. Project
costs are accounted for under line item Project Cost. (See "Consolidated
Financial Statements")
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 fiscal 2001, nor does it
expect significant leasehold sales in the foreseeable future, as the
domestic oil industry activity continues unchanged despite current high
world crude oil and natural gas prices.
The Company has available at March 31, 2000, unused tax operating loss
carry forward of approximately $4,240,000 that may be applied against
future taxable income through 2020. No tax benefit has been reported in the
financial statements, because the Company believes there is a 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.
Financial Condition
Management continues to explore additional financing alternatives 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 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 the 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 prices and the corresponding reduced oil and gas brokerage activity of
the Company. Because of the reduced activity in its oil and gas business
and a 1992 loss of approximately $4,100,000 in Biomass International, Inc.
("Biomass"), a former partially owned biomass material R&D subsidiary, the
Company is currently experiencing cash flow difficulties.
The Company's most significant assets are (1) its oil and gas
production income, (2) its oil and gas leaseholds held for resale,
approximating 35,000 net acres at September 30, 2000, including leaseholds
acquired under its unrelated third-party agreements, and (3) its plan for
the full development of the Project. Other assets are; (4) the $4,240,000
tax loss carry forward, and (5) 5,252,556 shares of Biomass. Effective
March 29, 2000, Biomass changed its name to Austin Farms, Inc. ("Austin
Farms") to pursue the pig farming business and exit the biomass material
R&D business.
Due to the proposed issuance of additional shares of Biomass to Austin
Farm shareholders, the Company does not expect to hold in excess of 5% of
the common stock of Austin Farms upon completion of the transaction and
expects to recover little, if any, of its approximate $4,100,000 investment
in Biomass represented by 5,252,556 shares of Biomass common stock. At
November 10, 2000, the Biomass shares had little value at a bid price of
$0.01 and asked $0.05 on the electronic OTC Pink Sheet market system. With
little or no volume on a daily basis, sales of the Biomass shares appear
impractical in the foreseeable future.
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.
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 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.
For the period ended September 30, 2000, Dean W. Rowell, the President
of the Company, continues to secure and guarantee loans for the Company:
(1) He has guaranteed two credit cards up to $100,000 with an outstanding
balance of approximately $88,000 at the end of the period, and (2) he
continues to loan the Company funds through his 100% owned privately-held
Utah corporation, Trachyte Oil Company ("Trachyte") with an outstanding
loan balance of approximately $366,500, plus interest of $32,245 for a
total of $398,745 at the period ended September 30, 2000. Expenses incurred
under the use of the credit cards are being accounted for under line item
"Revolving Line of Credit" and expenses incurred under the loan agreement
are being accounted for under line item "Notes payable to related parties".
These amounts largely offset the Company's cash flow difficulties and its
quarterly operating deficit of approximately $169,000. (See "Consolidated
Financial Statements" above).
Since fiscal 1991, Trachyte has materially supported the Company
financially largely due to Mr. Rowell's efforts to secure loans from
Trachyte for the Company. The several transactions with Trachyte have
provided the financial means for the Company to pursue its R&D of the
Biofuels Technology and the commercialization of the Project, otherwise the
Company would have been unable to pursue these goals. Final plans and final
financial arrangements had not been completed for the Project at November
10, 2000.
On September 11, 2000, due to the Company's continued cash flow
difficulties, the Company issued 100,000 newly issued shares of the
Company's common stock investment shares at $0.135 per share to one
unrelated third party in exchange for $13,500 in cash. Also, on September
11, 2000, the Company issued 20,000 newly issued shares of the Company's
common stock investment shares at $0.15 per share to one unrelated third
party in exchange for $3,000 in cash.
Plan of Operation
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 financing for the Project
with its underwriter, Triad Capital Associates ("Triad"),
and other current financial contacts.
2. Continue R&D, testing Municipal Waste processing equipment
and testing existing and newly developed cellulose enzymes.
3. Continue design and development of the Project.
4. Aggressively pursue oil and gas lease acquisition with
third party investors.
5. Engage an investor relations representative to disseminate
information about the Company, its technologies, and the
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.
Management's Conflicts of Interest
Material conflicts of interest exist and will continue to exist
between the Company, Trachyte, and Mr. 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. At November 10, 2000, Mr. Rowell
beneficially owned approximately 53% 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.
Research and Development of the Biofuels Technology
The Company has two principal businesses. They are its traditional oil
and gas exploration and production business that has, during the past 18-
years, provided in excess of $12,000,000 to conduct the R&D effort to
commercialize its second business, the Biofuels Technology, designed to
economically solve the critical problem of disposing of Municipal Waste
through the 100% recycle into useful products saleable at a profit. The R&D
efforts have produced non-patented, trade secret know-how protected, highly
competitive, and marketable technologies from its long experience and work
conducted at its former Research Center in Utah.
The Project will be the first business to economically produce ethanol
fuel from low-cost organic cellulosic materials ("Celmat") consisting of
mostly paper products easily harvested from Municipal Waste through new
generation enviro-friendly manufacturing plants fed by Municipal Waste.
These plants would combine recycling and ethanol fuel production at several
regional biofuels plant Project sites.
The Company's innovative Biofuels Technology would create a profit
generating solution for two major contemporary domestic issues. First, it
would provide an opportunity to significantly reduce the volume of
Municipal Waste that currently must be landfilled or incinerated. Second,
it offers a low-cost method of producing ethanol fuel, the only known
commercially viable and publicly accepted renewable low-polluting
transportation fuel that the Company believes someday will compete in price
at the pump with gasoline. The reason for such optimism is the high
landfill and incineration Tip Fee costs to dispose of Municipal Waste. The
high Tip Fee received by the Company would subsidize the Celmat feedstock
cost which lowers ethanol fuel production costs by approximately 75%
compared to the conventional corn-based method of ethanol fuel production.
The Company's Biofuels Technology is comprised of four basic
elements:
1. Receiving and separating inorganic Salvage products including
aluminum, copper, steel, iron, glass, plastics, sand, gravel, dirt, etc.
from the organic products in Municipal Waste and selling those items into
existing commercial Salvage markets.
2. Harvesting the organic Celmat products, consisting of paper
products, yard and wood wastes, etc. from the inorganic Salvage, which
organic Celmat is about 60% of the total volume of Municipal Waste.
3. Reducing Celmat into inverted sugars and "Lignin". Lignin is the
polymeric substance and cementing material that forms the woody cell walls
of all plant life. Celmat inverted sugars, which are inside the woody cell
walls of all plant life, are converted into fermentable sugars,
principally, glucose using the Biofuels Technology.
4. Generating a clean burning boiler fuel from Lignin. Lignin and
Salvage plastics recovered, together with the addition of natural gas for
burner tip control efficiency, would produce enough steam to power a 35
megawatt power plant for all the electrical needs of the Project buildings
and equipment.
The Biofuels Technology would recycle 100% of Municipal Waste into a
stream of inorganic Salvage materials, representing approximately 40% of
the volume, and a stream of organic Celmat materials, representing
approximately 60% of the volume of "as received" Municipal Waste delivered
to the Project site by private haulers. At full capacity of the 12-Module
design, the Salvage would be harvested and sold into local and world
salvage markets while the Celmat would be harvested as feedstock for the
ethanol fuel production plant for processing into enviro-friendly renewable
Lignin and ethanol fuel at a total net cost of about $0.30 per gallon
compared to the corn-based method net cost of approximately $1.25 per
gallon.
Ethanol fuel is used primarily as an octane additive to boost the
octane rating of premium grade gasolines. Lignin would be used as a boiler
fuel, and after further research, may have a higher value as a specialty
chemical in the petro-chemical industry to produce a non-toxic plastics
resin replacement useable for such things as vehicle outer panels and
bumpers.
At full capacity design, the Project consists of the construction of a
Municipal Waste fed recycle plant (the "Recycle Plant"), a Celmat fed
ethanol fuel production plant (the "Ethanol Plant"), and an Salvage
plastic/Lignin fired power plant (the "Power Plant"). The design capacity
of the Recycle Plant would process approximately 6,000 tons per day of
Municipal Waste, or 2,000,000 tons per year within a 12-Module design using
off-the-shelf equipment. It would convert that 2,000,000 tons per year of
Municipal Waste into approximately 1,200,000 tons per year of Celmat (3,700
tons per day) which, in turn, would produce approximately 80,000,000
gallons per year of ethanol fuel (240,000 gallons per day). Operations
would start in 4-Module sequences until the full 12-Module design is
operational. The total construction cost of the 12-Module design would be
approximately $250,000,000 and would require approximately 500 new
employees and some 200 construction employees over a 30-month construction
period.
It is the Tip Fee and ethanol fuel production derived from the
Company's enviro-friendly proprietary Biofuels Technology that, together,
provide a municipality with the economic recycle and disposal of 100% of
the items in Municipal Waste, eliminating the need for future Municipal
Waste landfills and incineration plants. The Company's former Research
Center provided the Company with sufficient data to design and construct
the 12-Module design Project for the 100% recycle solution.
Municipal Waste and sewer sludge are plentiful feedstock materials
that can negatively impact health. Their safe and economic disposal is one
of largest expenditures made by most municipalities. While daily volume of
waste produced by households and businesses is increasing, so is the
opposition to proposed locations for new incinerator plants and landfills.
The Company believes that its 100% Municipal Waste recycle plan and ethanol
production Project would provide a socially beneficial, environmentally
safe and technologically sound alternative to the problem of waste
disposal. At the same time, it would produce an enviro-friendly fuel
alternative to gasoline -- ethanol, that is currently used as a gasoline
octane enhancer. Any municipality or combination of municipalities that
generate 6000 tons of Municipal Waste per day could support a full
12-Module Project that would produce 80 million gallons of ethanol fuel
annually.
Project debt repayment is anticipated from profits generated by the
combination of Tip Fees paid by municipalities for the disposal of
Municipal Waste and the revenues from the sale of ethanol fuel produced
from Celmat feedstock obtained from Municipal Waste. The same Tip Fees that
municipalities currently pay for waste disposal will provide negative cost
feedstock compared to costs of nearly $100 per ton for the same glucose
equivalent paid by ethanol producers that use corn feedstock.
The Company's Municipal Waste recycle and process system simply
introduces new techniques for separating the various items in ordinary
Municipal Waste. The recycle process is otherwise the same process used in
many present-day commercial Municipal Waste operations. Ordinary Municipal
Waste would be partially hand picked at many Municipal Waste transfer
stations located on rail lines in all municipalities. Large items such as
engine blocks, washers, dryers, refrigerators, mattresses, etc. would be
removed by hand from the stream and salvaged for resale, sold into the
Salvage market, or simply shredded and added to the waste stream. The
entire remaining materials would be front-end loaded into special water
tight rail containers for shipment to the Company's Project for processing
into ethanol fuel and electricity. Upon arrival at the Project plant site,
the rail container would be off-loaded by special large front end loader
machines without further handling by human hands.
The loaders are designed to lift the rail container from the rail car,
turn 180 degrees and dump the container into the Company's primary shredder
system. Once in the primary system the Municipal Waste would be shredded
into minus 3" pieces, then fed into water based hydroclone pulpers where
the Salvage aluminum, copper, steel, iron, glass, plastics, sand, gravel,
and dirt, etc., would be removed at the bottom of the hydroclones. At the
same time, the Celmat (plastics, yard waste, paper, paper products, etc.)
would be harvested at the top of the hydroclones, both streams operating in
a continuous flow.
The Company expects gross margins of 25% or better on its operations
and an annual growth rate of 25% or better for at least 10-years, possible
only because the Company believes that each metropolitan area in the
Eastern U.S. would eventually desire to use the Company's 100% recycle
Biofuels Technology to dispose of their Municipal Waste. In turn, the
Municipal Waste derived Celmat would reduce the direct cost of producing
ethanol fuel from about $1.25 per gallon in real terms to about $0.30 per
gallon in real terms by substituting low-cost Municipal Waste derived
Celmat in place of high-cost corn. The Company expects its business to be
profitable above industry averages due to the Tip Fee incentive to recycle
rather than landfill and incinerate Municipal Waste, technological advances
invented by the Company, and the availability of raw materials in both good
and bad times.
In 1993, the Company initiated a search for a way to commercially
exploit the Biofuels Technology. Idled plants and plants operating
uneconomically, were initially considered the most appropriate and viable
alternative, resulting in the development of the South Bend Project, which
is based upon converting Municipal Waste incineration plants and operating
ethanol plants into biofuels plant Projects utilizing the Company's
Biofuels Technology. The Company is still considering this approach with
owners of currently operating ethanol plants and Municipal Waste
incineration plants and transfer stations.
The Company has previously announced that it was conducting
discussions with the City of Philadelphia and with Swatara Coal Company,
near Pottsville, Pennsylvania, regarding the possibility of constructing a
grassroots Municipal Waste fed ethanol plant Project in those locations.
The discussions are continuing, however, the high cost and time required to
obtain necessary permits make these options less attractive at this time.
Meanwhile, working with its advisors, the Company is pursuing options
to purchase several permitted Municipal Waste transfer stations located in
the Northeastern U.S. through Mayfair Energy Corporation ("Mayfair"), its
wholly-owned Pennsylvania corporation. The advantages of purchasing an
operating facility are many. An existing transfer station would have
permits for receiving Municipal Waste, thereby eliminating the "not in my
backyard" opposition that new construction elicits. New permits would be
required only for ethanol production and sale. Because the receiving,
sorting and recycling operations would already be operational, acquiring an
existing facility would require less time for build-out, and thus less time
for proof of concept. At November 10, 2000, the Company had not completed
agreements for the purchase of an existing facility, nor is there any
guarantee that such agreements will be concluded.
On December 7, 1999, Mayfair executed an initial underwriting
agreement with Triad, a New Jersey based private placement organization, to
obtain a $300,000,000 loan for Mayfair (the "Loan") for the construction or
retrofit of a Project plant at an appropriate site in the Northeast U.S.
Upon Loan closing, for which there is no assurance, and upon receipt of any
Loan draw amount from a lender obtained by Triad, the Company may own less
than 100% of Mayfair depending on a number of still unknown factors. At
November 10, 2000, the Company had paid Triad and its affiliates initial
underwriting fees of $145,000 and had not yet acquired an appropriate
Project site. The Company can give no assurance a site will be available,
or if a site is available, that the Company can obtain the permits
necessary to operate the Project at the site obtained.
At November 10, 2000, the Project, fundamentally, is only an
engineering concept where the Company is contemplating the construction of
an industrial plant complex utilizing the Company's Biofuels Technology to
manufacture ethanol and other saleable products derived and harvested from
the contents of Municipal Waste. The Company is pursuing the Loan and other
financing possibilities through two wholly-owned subsidiaries, Mayfair and
Biofuels, Inc., a Utah corporation. Final engineering plans and final
financial arrangements with unrelated third-parties for the Loan and
engineering contracts for the Project were not finalized or completed as of
November 10, 2000.
Forward Looking Statements
The foregoing 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 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-QSB report.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
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. None.
Item 6. Exhibits and Reports on Form 8-K, filed during the
quarter ended September 30, 2000. 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: /s/Dean W. Rowell
Dean W. Rowell, President and
Chief Financial Officer
Date: November 13, 2000
