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 June 30, 2008
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.)
447 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 August 12, 2008: 188,309,554 shares
of $0.01 par value Common Stock.
DOCUMENTS INCORPORATION BY REFERENCE:
None
1
FORM 10-QSB
Financial Statements and Schedules
STANDARD ENERGY CORPORATION
For three months Ended June 30, 2008
The following table of contents of financial statements and other
information of the registrant and its consolidated subsidiaries are
submitted herewith:
PART I - FINANCIAL INFORMATION
Item Page
Item 1. Consolidated Balance Sheets -
June 30, 2008 and March 31, 2008.............,..... 3
Consolidated Statements of Operations -
For the three months
ended June 30, 2008 and 2007....................... 5
Notes to consolidated financial statements............ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - ............. 9
Oil and Gas Operations................................ 9
Cellulose Ethanol Technology.......................... 9
Results of Operations................................. 10
Financial Condition................................... 11
Plan of Operation..................................... 14
Inflation............................................. 14
Recent Accounting Pronouncements...................... 14
Government Regulations................................ 15
Off-Balance Sheet Arrangements..........................15
Management's Conflicts of Interest.................... 15
Transactions with Management and Others............... 15
Research and Development of the Biofuels Technology... 16
Forward Looking Statements............................ 18
Item 3. Controls and Procedures............................... 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
Exhibit 31 - Certification of CEO & CFO Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002............... 21
Exhibit 32 - Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.......................... 22
2
PART I - ITEM 1
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 March 31
2008 2008
(Unaudited)
CURRENT ASSETS
Cash and Cash Equivalents $ 5,096 $ 2,588
Accounts Receivable 18,767 6,475
Marketable Securities 1,214 1,555
Total Current Assets 25,077 10,618
PROPERTY AND EQUIPMENT, net 117,957 122,008
OTHER ASSETS
Cash surrender value - life insurance 2,631 6,332
Oil and gas leases 108,039 108,039
Pledged drilling bonds 25,000 25,000
Total Other Assets 135,670 139,371
TOTAL ASSETS $ 278,704 $ 271,997
The accompanying notes are an integral part of these consolidated financial
statements.
3
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30 March 31
2008 2008
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 60,225 $ 56,427
Revolving lines of credit 112,879 109,459
Note payable 12,200 12,180
Notes payable - related party 13,200 16,700
Total Current Liabilities 198,504 194,766
LONG TERM DEBT
Note payable 51,685 52,016
Total Long Term Debt 51,685 52,016
Total Liabilities 250,189 246,782
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per
share: 10,000,000 shares authorized,
no shares issued and outstanding 0 0
Common Stock, par value $.01 per share:
200,000,000 shares authorized,
189,346,974 and 187,846,974 shares
issued and outstanding respectively 1,893,469 1,893,469
Additional paid-in capital 8,081,091 8,068,591
Treasury stock (83,253) (83,253)
Accumulated other comprehensive income (51) 290
Accumulated deficit (9,862,741) (9,853,882)
Total Stockholders' Equity 28,515 25,215
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 278,704 $ 271,997
The accompanying notes are an integral part of these consolidated financial
statements.
4
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the For the
Three Months Three Months
Ended Ended
June 30, June 30,
2008 2007
REVENUES
Oil and gas services $ 600 $ 600
Oil production 28,639 10,789
Total Revenues 29,239 11,389
EXPENSES
Oil and gas activities (8,525) 12,722
Depreciation, depletion and amortization 4,051 3,644
Biofuels project costs 18,500 37,809
General and administrative 18,613 64,975
Total Expenses 32,639 119,150
OPERATING LOSS (3,400) (107,761)
OTHER INCOME (EXPENSE)
Interest and other income 144 1,073
Gain on sale of marketable securities 0 47,088
Interest expense (5,603) (6,213)
Total Other Income (Expense) (5,459) 41,948
NET INCOME (LOSS) (8,859) (65,813)
Change in unrealized gain/loss on marketable
securities (341) (27,069)
Total Comprehensive Loss $ (9,200) $ (92,882)
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK $ (0.00) $ 0.00
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 188,309,554 187,846,974
The accompanying notes are an integral part of these consolidated financial
statements.
5
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three For the Three
Months Ended Months Ended
June 30, June 30,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (8,859) $ (65,813)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation, depletion and amortization 4,051 3,644
Contributed capital for services
rendered by an officer 12,500 12,500
Realized gain on sale of marketable
securities 0 (47,088)
Changes in assets and liabilities:
Increase in accounts receivable (12,292) (36,841)
Increase in accounts
payable and accrued expenses 3,798 847
Net Cash Used by
Operating Activities (802) (132,751)
CASH FLOWS FROM INVESTING ACTIVITIES
Change in cash value-life insurance 3,701 0
Proceeds from sale of marketable
securities 0 367,938
Payments for purchase of marketable
securities 0 0
Payments for purchase of fixed assets 0 0
Net cash provided by Investing Activities 3,701 367,938
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable & lines of credit (3,811) (170,916)
Proceeds from notes payable & lines of
credit 3,420 0
Net Cash Provided by (used by)
Financing activities (391) (170,916)
NET INCREASE IN CASH 2,508 64,271
CASH AT BEGINNING OF PERIOD 2,588 27,503
CASH AT END OF PERIOD $ 5,096 $ 91,774
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 2,182 $ 3,189
Income Taxes $ 0 $ 0
NON CASH INVESTING AND FINANCING ACTIVITIES:
Contributed capital for services rendered
by an officer $ 12,500 $ 12,500
The accompanying notes are an integral part of these consolidated financial
statements. 6
STANDARD ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE A - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted in accordance with such
rules and regulations. The information furnished in the interim condensed
financial statements include normal recurring adjustments and reflects all
adjustments, which, in the opinion of management, are necessary for a fair
presentation of such financial statements. Although management believes
the disclosures and information presented are adequate to make the
information not misleading, it is suggested that these interim condensed
financial statements be read in conjunction with the Company's most recent
audited financial statements and notes thereto included in its March 31,
2008 Annual Report on Form 10-KSB. Operating results for the three months
ended June 30, 2008 are not necessarily indicative of the results that may
be expected for the year ending March 31, 2009.
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 changing
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 recoverably and classification of
liabilities, income or expenses that might be necessary should the Company
be unable to continue as a going concern.
7
NOTE C - CAR AND USE OF COMPANY CREDIT CARD
The Company continues to provide Rowell with credit cards and two
automobiles at a cost of approximately $18,145 per year, this cost will
increase as needed by Mr. Rowell.
On April 1, 2007, the Company agreed to allow Mr. Rowell's daughter,
Karen Rowell to rent on a month to month basis the 2007 Saturn Sky if she
would make the payment to the company of $380.15 per month. As of March
31, 2008, Ms. Rowell has paid $4,406.12 to the Company towards the rental
of the car. The rental period ended on June 30, 2008 at which time Ms.
Rowell agreed to return the car to the Company.
NOTE D - LEGAL PROCEEDINGS
On August 30, 2007 a Complaint of Civil Action was filed in the Third
Judicial District Court, State of Utah in and for the County of Salt Lake.
Salt Lake Department, against Standard Energy Corporation (the "Company"),
and Dean W. Rowell, individually ("its affiliates"). The Complaint alleges
that the Company and its affiliates failed to make payments as required by
said Contract with Wells Fargo Bank. The Complaint asserts a claim for an
the sum of $105,243.55, plus interest thereafter at the Contract rate of
19.80% per annum, until paid in full and a claim for court-ordered
attorneys costs. The Company and its affiliates believe the Complaint to
be highly inflated and will vigorously defend its position. The Company
and its affiliates have discussed this case with its attorneys and believe
that the amount accrued on the balance sheet is more than enough to cover
the claim. The Company and its affiliates have engaged the law firm of
Cohne, Rappaport & Segal to represent their interest in this matter. At
the request of our counsel and due to the Plaintiff not doing anything,
Judge Quinn dismissed the case without prejudice on June 23, 2008.
NOTE E - RELATED PARTY TRANSACTIONS
On November 12, 2007, Trachyte Oil Company ("Trachyte"), an affiliate
of the Company, sold oil and gas lease ML-50405 to the Company for $57,600.
The lease is part of the Company's Greentown field development plans. Due
to the Company cash flow situation, Trachyte agreed to accept cash payment
for the lease over a 6-month period and upon final payment by the Company
to Trachyte, Trachyte will make record title assignment to Standard. On
July 3, 2008 Trachyte extended for 1-yr the time to pay the balance owed to
them by the Company on lease ML-50405.
NOTE F - INCOME TAXES
The Company or one of its subsidiaries files income tax returns in the
U.S. federal jurisdiction, and various states and foreign jurisdictions.
With few exceptions, the Company is no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for
years before 2004.
8
The Company adopted the provisions of FASB Interpretation No. 48
Accounting for Uncertainty in Income Taxes, on April 1, 2008. As a result
of the implementation of Interpretation 48, the Company recognized
approximately $0 increase in the liability for unrecognized tax benefits
which was accounted for as a reduction to the April 1, 2008, balance of
retained earnings.
Included in the balance at June 30, 2008, are $0 of tax positions for
which the ultimate deductibility if highly certain but for which there is
uncertainty about the timing of such deductibility. Because of the impact
of deferred tax accounting, other than interest and penalties, the
disallowance of the shorter deductibility period would not affect the
annual effective tax rate but would accelerate the payment of cash to the
taxing authority to an earlier period.
The Company recognizes interest accrued related to unrecognized tax
benefits in interest expense and penalties in operating expenses. During
the years ended March 31, 2008, 2007 and 2008, the Company recognized
approximately $0, $0, and $0 in interest and penalties. The Company had
approximately $0 and $0 for the payment of interest and penalties accrued
at March 31, 2008, and 2007, respectively.
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Oil and Gas Operations
The Company's principal business is the acquisition of unproven oil
and gas leaseholds with the intent of developing such leaseholds into
producing lease and royalty properties. The Company acquires primarily
federal oil and gas leaseholds through the Bureau of Land Management
("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.
Cellulose Ethanol Technology
The Company's second business is to promote the construction and
development of several regional cellulose ethanol production plants (the
"Biofuel Projects"). The Company believes if equipped with Company owned
cellulose ethanol technologies (the "Biofuel Technologies"), Company
owned cellulose ethanol plants could process domestically produced organic
agriculture plant growth wastes, farmed poplar trees and Celmat into
cellulose ethanol biofuels and other saleable products. (See page 16,
"Research and Development of the Biofuels Technologies")
9
Results of Operations
During the 2009 fiscal period the Company realized revenues of $29,239
for the three-month period ended June 30, 2008, compared with $11,389 for
the corresponding period ended June 30, 2007. 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.
Revenues from the Company's oil and gas lease services were $600 for
the three-month period ended June 30, 2008, compared with $600 for the
corresponding period ended June 30, 2007. 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 $28,639 for the three-month
period ended June 30, 2008, compared to $10,789 for the corresponding
period ended June 30, 2007.
The Company incurred expenses related to its oil and gas activities
were $(8,525) for the three-month period ended June 30, 2008, compared to
$12,722 for the comparable period ended June 30, 2007. General and
administrative expenses for the period ended June 30, 2008 were $18,613
compared to $64,975 for the comparable period ended June 30, 2007. These
low figures reflect the Company's basic inactivity in its oil and gas
sector.
During the 2005 fiscal period, the Company created a line item for
Research and Development ("R&D") costs to better distinguish expenses
between general and administrative expenses and the expenses related to its
various biofuels plant projects, accounted for under line item Biofuel
Project Costs and were $18,500 for the three-month period ended June 30,
2008, compared to $37,809 for the comparable period ended June 30, 2007.
The Company's net loss for the three-month period ended June 30, 2008
was $(8,859), compared to a net loss of $(65,813) for the comparable three-
month period ended June 30, 2007, and the Company expects to operate at a
loss for the remaining 2009 fiscal period, due to continued R&D costs
incurred for a Biofuels Project and costs related to its oil and gas
business.
The Company does not expect to realize significant cash flows from its
oil and gas activities during fiscal 2009, nor does it expect significant
leasehold sales in the foreseeable future, as the domestic oil industry
activity continues to change due to uncertain world crude oil and natural
gas price fluctuations.
10
The Company has available at March 31, 2008, unused tax operating loss
carry forward of approximately $2,320,000 that may be applied against
future taxable income through 2028. 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
On January 11, 2007, Delta Petroleum Corp's (Delta) website
deltapetro.com/PressRelease reported the following:
"The GreenTown State 32-42 has been completed in 8 of 12 pay
intervals, and production tested at a combined rate of 2.0 million cubic
feet of gas per day (Mmcfg/d) and 500 barrels of condensate per day
(Bc/d)." And said further . . .
"The GreenTown State 36-11 has been completed in 2 of 12 pay
intervals, and production tested at a combined rate of 4.5 Mmcfg/d and 125
Bc/d" and that "the wells are located 7.5 miles apart yet appear very
analogous, with 1,077 and 906 feet of potential productive clastics,
respectively, over the 12 separate intervals".
Delta also said "it is projecting that future wells will be drilled to
an average depth of 9,800' for expected costs of $3.0 to $3.5 million each.
Initial expectations are that wells will be drilled on 80-acre spacing.
Numerous well locations are being permitted and drilling activity should
resume within the next 60 days."
On February 8, 2008, deltapetro.com reported the following:
Tricinda Corp., the investment arm of billionaire Kirk Kerkorian, has
completed the due diligence process and will proceed with its $684 million
investment in Delta Petroleum Corp., Delta said Friday.
On December 31, Deltapetro.com reported Tricinda agreed to buy 36
million shares of the independent energy exploration and development
company for $19 a piece. The deal represented a premium of 23 percent over
Delta Petroleum's closing stock price before the announcement.
"With the completion of Tricinda's due diligence, we look forward to
welcoming Tricinda as a shareholder and strategic partner in Delta," said
Delta Petroleum Chairman and Chief Executive Roger Parker. "I am very
confident that this transaction will allow Delta to significantly increase
proved reserves, production and cash flow on a per share basis, thereby
creating value for all of our shareholders."
11
On July 16, 2008, deltapetro.com reported the following:
"Delta Petroleum Corporation Provides Greentown Field Area Update.
Greentown Project Pipeline Update -- The Company completed the initial
phase of the Greentown pipeline on schedule, and gas sales commenced on
June 30, 2008. Greentown Project Well Results -- The Company has been
producing the Greentown Federal 28-11 vertical well (70% WI) consistently
for the past six weeks. This is a vertical well producing from the 'O'
clastic interval. Over a 30-day period between the end of May 2008 and
the end of June 2008, the well produced 7,980 barrels of oil (Bo) and
flared 50.13 million cubic feet (Mmcf) of natural gas. The well is
currently producing into the Greentown Pipeline at a rate of 17 million
cubic feet of gas per day (Mmcf/d) and 248 barrels of oil per day (Bo/d).
The increase in production since the last operations update is due to a
salt dissolution treatment on the well that was performed in mid-May.
Although the Company is pleased with the results and current production of
the 28-11 well, it expects to continue to develop the Greentown Project
through horizontal drilling. The Company is in the final stages of
completing its initial horizontal well in the 'O' clastic interval. The
Greentown Federal 26-43D (83% WI) was drilled to a total vertical depth of
10,587' with a lateral of 269'. Initial production rates should be
available soon. The Company is currently drilling two additional horizontal
wells, the Greentown State 36-24H (75% WI) and the Greentown Federal 31-36
(83% WI) in the 'O' clastic interval and expects to report results from
these wells in the near future."
The Company and its affiliate, Trachyte, own 100% interest in
approximately 5,000 adjacent to Delta's federal, state and fee lands. The
Company Leases intermingle with Delta's approximate 40,000 acres of
Greentown leases and several oil and gas discovery wells where Delta began
serious drilling in 2007 and discovered Greentown Field at the section 36-
11 blow-out well in January 2007, the follow-up 32-42 well in February 2007
and the just reported December 17, 2007 Greentown Field 28-11 well that
flow tested 1,379 barrels of 60 gravity crude oil condensate (very light
oil) together with 7.5-million cubic feet of gas/day during an initial test
of the Paradox Formation "O" zone (clastic zone #15) and most important
because the well confirms a very large aerial extent to the Greentown Field
over an approximate 1,200' net vertical feet of potential producing column,
both of which are the good news not everyone was expecting. (See
deltapetro.com)
Management continues to explore additional financing alternatives for
ongoing and future operations of the Company. There is no assurance that
the efforts of management to locate and secure additional financing will be
successful, and the failure to secure a Biofuels Project financing would
substantially alter management's assumptions as herein presented.
Revenue increased in the Company's overall oil and gas lease royalties
which are related to effects of the worldwide fluctuation of oil and gas
prices. The fluctuation of oil and gas prices could also cause a
fluctuation of the amount of oil/gas produced by various well operators.
12
The Company had limited participation in the Leasing Programs for the
three-month period ended June 30, 2008, except through its participation
agreements with certain unrelated third parties on a limited basis, due to
limited availability of funds and presently has limited funds available to
participate in the Leasing Programs. The Company's limited ability to
participate in the BLM's leasing program and to obtain oil and gas
leaseholds for resale could continue to effect its future operations.
The Company's most significant assets are its oil and gas production
income, its oil and gas leaseholds held for development and resale
approximating 15,000 net acres at June 30, 2008 including leaseholds
acquired under its unrelated third-party agreements and its plan for the
full development of a Biofuel Projects.
There can be no assurance that the required capital will be available
to construct a Biofuels Project and there can be no assurance that the
biofuels technologies will perform on a commercial basis. The Company's
future operating results will depend on its ability to obtain adequate
financing to construct a Biofuels Project. Expenses incurred for a Biofuels
Project would be accounted for under line item "Biofuel Project Costs".
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 a Biofuels 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.
13
For the three-month period ended June 30, 2008, Dean W. Rowell, the
President of the Company, continues to secure and guarantee loans for the
Company. 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 and contribute the value of an assumed salary of
$50,000 per year to additional paid in capital. The several transactions
with Trachyte have provided the financial means for the Company to pursue
its R&D of the biofuels technologies and the commercialization of a
Biofuels Project. Without such additional contributions by Mr. Rowell the
Company would have been unable to pursue these goals. Final plans and final
financial arrangements had not been completed for a Biofuels Project at
August 12, 2008.
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. Pursue financing for a Biofuels Project.
2. Continue R&D, testing Municipal Waste processing
equipment and testing existing and newly developed
cellulose enzymes.
3. Continue the design and development of a Biofuels
Project into three businesses -- Municipal Waste recycle,
ethanol biofuel production and lignin biofuel electric
power generation and investigating the possibility of
entering into the wholesale electric power generation
business at one or more of its Biofuel Projects.
4. Pursue oil and gas lease acquisition and production drilling at
the Company's Monument Upwarp Anticline Big Flat and Greentown
oil fields with third party investors.
5. Continue to receive increased royalty income through development
drilling on Company owned overriding royalty interests.
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.
14
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 the federal government and/or state
governments or both would not impose additional regulations upon the
Company's activities which might adversely affect the Company's business.
Off-Balance Sheet Arrangements
There are currently no off-balance sheet arrangements.
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 August 12, 2008, Mr. Rowell
beneficially owned approximately 64% 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.
Transactions with Management and Others
Geologic and other information which Petroleum Investment Company
("PIC") has or develops is available to 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 Rowell, without cost, in connection with Rowell's participation in the
Leasing Programs.
15
Since fiscal 1991, Trachyte has helped financially support the Company
largely due to 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 commercialization of its businesses, otherwise the
Company would have been unable to pursue the goals it has pursued. Final
plans and final financial arrangements had not been completed for a
Biofuels Project as of August 12, 2008.
On July 15, 1996, the Company formed Biofuels, Inc. ("Biofuels"), a
wholly-owned subsidiary, for the purpose of investing in and developing the
Biofuel Technologies for a Biofuels Project. This on-going effort has been
centered on management's belief that low-cost organic cellulosic materials
("Celmat") to BioFuel Technologies could be commercialized, based on the
Company's extensive experience at its former research center operated from
1982 through 1992, and its continued research experience in developing a
Biofuels Project.
On November 12, 2007, Trachyte sold oil and gas lease ML-50405 to the
Company for $57,600. The lease is part of the Company's Greentown field
development plans. Due to the Company cash flow situation, Trachyte agreed
to accept cash payment for the lease over a 6-month period and upon final
payment by the Company to Trachyte, Trachyte will make record title
assignment to the Company. On July 3, 2008 Trachyte extended for 1-yr the
time to pay the balance owed to them by the Company on lease ML-50405.
Research and Development of the Biofuels Technologies
Essentially, the Company's oil and gas activities have supported its
Biofuel Projects for over 20-years, providing in excess of $15-million to
conduct the R&D efforts the Company believes was required to commercialize
the the Biofuel Technologies, designed to economically process domestically
produced organic agriculture plant growth, farmed poplar trees and Celmat
into, principally, ethanol and fermentation lignin biofuels, bottled carbon
dioxide gas ("CO2") and other minor salable products, processing incoming
cellulose streams into 100% salable product streams, including the Celmat
stream portion of Municipal Waste.
Corn fermentation anhydrous alcohol currently represents nearly 100%
of ethanol production in the USA. 15% regular gasoline is currently splash
blended into corn anhydrous alcohol batch tanks or tanker trucks to produce
high-demand FDA approved E85 gasolines, then distributed and sold at
ordinary gasoline filling stations throughout America.
In future cellulose ethanol production plants, the Company will
purchase regular gasoline to "ethanol plant blend" 15% gasoline into
the anhydrous alcohol stream to manufacture E85 gasolines, considered
by blending experts to be a better blending method than tank-blending
or gasoline tanker splash-blending.
16
As a result of its R&D efforts, Management believes that the Company
has developed what appears to be a commercial application of its Biofuel
Technologies for the future recovery of Celmat consisting of mostly paper
products easily harvested from Municipal Waste through new generation
enviro-friendly manufacturing plants fed by Municipal Waste, which Biofuel
Plants would combine waste cellulose materials and Celmat recycling,
electric power generation, ethanol fuel production and bottled CO2 recovery
at several regional Biofuel Plant sites.
During the 2009 fiscal period, the Company continues to promote the
construction and development of several regional cellulose ethanol
production plants and believes if a cellulose ethanol Biofuels plant were
to be built, equipped with Company owned cellulose ethanol Biofuel
Technologies, the Company could process domestically produced organic
agriculture plant growth, farmed poplar trees and Celmat into, principally,
30% fermentation anhydrous alcohol, 30% fermentation lignin, 30% CO2, 5%
anaerobic digester produced methane ("Biogas") and 5% dirt, sand and gravel
process wastes ("Process Aggregates") and the following profit centers
would immediately develop:
First, the anhydrous alcohol would be blended with 15% gasoline to
manufacture "cellulose ethanol blend E85 gasolines" and other highly
sought-after cellulose ethanol blend products to be distributed thoughout
the existing corn ethanol production distribution network.
Second, the fermentation lignin production would be blended with 30%
anhydrous alcohol to manufacture low-cost "B100 turbine biofuels",
initially at least, to offset high-cost natural gas fuel for heavy-duty gas
turbine users that generate large volumes of high-value peak-demand
electric power to national grids.
Third, fermentation carbon dioxide CO2 represents approximately 30% of
the total product stream and will be ethanol plant delivered into pipelines
for sequestering in deep underground geologic formation layers for oil
field secondary crude oil recovery purposes and bottled into beverage grade
CO2 for truck deliveries to nearby soft drink soda bottlers.
Fourth, Biogas production represents approximately 5% of the total
product stream and will be delivered into the ethanol plant's B100 biofuel
turbines to generate additional plant bioelectricity. The remaining 5% of
the total product stream is an inorganic product stream consisting mostly
of Process Aggregates that will be formed into concrete designer Jersey
Walls and patio blocks and represents approximately 5% of the original
incoming ethanol plant product stream.
The Company's Biofuel Technologies process 100% of the incoming raw
cellulose material process stream into 100% salable products at the end of
process stream, representing 100% of the incoming raw material process
stream, processed into 100% product sales, leaving no waste stream.
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Under current law, the Company believes all produced products of the
Company's Biofuel Technologies will be eligible for very large federal and
state government cellulose feedstock based biofuel manufacturing income tax
subsidies for the foreseeable future, representing 50% or more of future
cellulose ethanol plant profit streams.
Management of the Company believes its R&D efforts have produced trade
secret know-how cellulose plant and production based equipment and
technical designs which, in the future, should produce valuable patent
protection to the Company's Biofuel Technologies from the Company's long
experience and work conducted at its former "Research Center" and current
commercialization efforts.
There can be no assurance that the required capital will be available
to construct a Biofuels Project and there can be no assurance that the
Biofuels Technologies will perform on a commercial basis. The Company's
future Biofuels Technologies operating results will depend on its ability
to obtain adequate financing to construct a Biofuels Project.
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 a Biofuels 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.
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PART 1 - ITEM 3
CONTROL AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Pursuant to Item 307 of Regulation S-B, based on an evaluation under
the supervision and with the participation of Management, as of the period
ended June 30, 2008 of this Quarterly Report on Form 10-QSB, the Company's
principal executive officer and principal financial officer have concluded,
to the best of our knowledge that the Company disclosures controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Act of 1934, are effective to ensure the information required to be
disclosed in reports is accumulated and communicated to the Company
management including the principal executive and the principal financial
officer, to apply timely decisions regarding required disclosure under Rule
13a-15(e).
(b) Changes in Internal Controls
There were no changes in our internal controls or in other factors
that have materially affected, or are reasonably likely to materially
affect the Company's internal controls and procedures over financial
reporting, under Item 308(c) of Regulation S-B. There is a material
weakness dealing with timely reconciling of accounts, and therefore
corrective actions will be taken. However, the design of any system of
controls is based on part upon certain assumptions about the likelihood of
future events and there is no certainty that any design will succeed in
achieving its stated goal under all potential future considerations,
regardless of how remote.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On August 30, 2007 a Complaint of Civil Action was filed in the Third
Judicial District Court, State of Utah in and for the County of Salt Lake.
Salt Lake Department, against Standard Energy Corporation (the "Company"),
and Dean W. Rowell, individually ("its affiliates"). The Complaint alleges
that the Company and its affiliates failed to make payments as required by
said Contract with Wells Fargo Bank. The Complaint asserts a claim for an
the sum of $105,243.55, plus interest thereafter at the Contract rate of
19.80% per annum, until paid in full and a claim for court-ordered
attorneys costs. The Company and its affiliates believe the Complaint to
be highly inflated and will vigorously defend its position. The Company
and its affiliates have discussed this case with its attorneys and believe
that the amount accrued on the balance sheet is more than enough to cover
the claim. The Company and its affiliates have engaged the law firm of
Cohne, Rappaport & Segal to represent their interest in this matter. At
the request of our counsel and due to the Plaintiff not doing anything,
Judge Quinn dismissed the case without prejudice on June 23, 2008.
19
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 June 30, 2008.
August 1, 2008 Form 8-K/A, previously filed.
Exhibit "31" - Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit "32" - Certification of Chief Executive and Chief
Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
SIGNA TURE
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: August 12, 2008
20
Exhibit 31
CERTIFICATE OF CHIEF EXECUTIVE AND CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dean W. Rowell, certify that:
1. I have reviewed this quarterly report on Form 10QSB of Standard Energy
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of June 30,
2008 covered by this quarterly report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent functions):
21
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
/s/Dean W. Rowell
Dean W. Rowell
President, Chief Executive Officer (Chief Financial Officer)
and Director
Date: August 12, 2008
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Standard Energy (the "Company")
on Form 10-QSB for the period ending June 30, 2008 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Dean W. Rowell, Chief Executive Officer (Chief Financial Officer) of the
Company, certify, pursuant to 18 U.S.C. subsection 1350, as adopted
pursuant to subsection 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Company.
/s/Dean W. Rowell
Dean W. Rowell
President, Chief Executive Officer (Chief Financial Officer)
and Director
Date: August 12, 2008
22