-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NLedQTc45hiPztvRTmEW9DcAXDrFHb7w/JJlZZlj8ScHHAEVHyXgMRaTkU2ha3re cBN+l3F3NSCLhRwU4f+0dA== 0001157523-07-008564.txt : 20070820 0001157523-07-008564.hdr.sgml : 20070820 20070820163934 ACCESSION NUMBER: 0001157523-07-008564 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070820 DATE AS OF CHANGE: 20070820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Standard Drilling, Inc. CENTRAL INDEX KEY: 0001158694 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-51569 FILM NUMBER: 071068324 BUSINESS ADDRESS: STREET 1: 1667 K STREET, NW STREET 2: SUITE 1230 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 202-955-9490 MAIL ADDRESS: STREET 1: 1667 K STREET, NW STREET 2: SUITE 1230 CITY: WASHINGTON STATE: DC ZIP: 20006 FORMER COMPANY: FORMER CONFORMED NAME: ONLINE HOLDINGS INC DATE OF NAME CHANGE: 20010905 10QSB 1 a5475523.txt STANDARD DRILLING, INC. 10QSB UNITED STATES 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 quarterly period ended June 30, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-51569 STANDARD DRILLING, INC. (Exact name of registrant as specified in its charter) Nevada 84-1598154 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1667 K Street NW, Suite 1230 Washington, DC 20006 (Address of principal executive offices) (Zip Code) (202) 955-9490 (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X ----- ----- As of August 15, 2007, 45,006,380 shares of common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes No X ----- ----- STANDARD DRILLING, INC. TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements - Consolidated Balance Sheets as of June 30, 2007 (Unaudited) 2 and December 31, 2006 (Audited) - Consolidated Statements of Operations (Unaudited) for the Three and 4 Six Months Ended June 30, 2007 and for the Period from Inception (February 14, 2006) through June 30, 2007 - Consolidated Statements of Cash Flows (Unaudited) for the Three and Six 5 Months Ended June 30, 2007 and for the period from Inception (February 14, 2006) through June 30, 2007 - Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Controls and Procedures 14 PART II OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Exhibits 15 Signatures 16
1 Item 1. Financial Statements. STANDARD DRILLING, INC. Balance Sheet ASSETS ------ June 30, December 31, 2007 2006 --------------- ----------------- CURRENT ASSETS (Unaudited) Cash and cash equivalents $ 690,621 $ 52,313 Accounts receivable 197,892 486,610 Prepaid expenses 34,300 503,776 Short-term note receivable - 5,000 --------------- ----------------- Total Current Assets 922,813 1,047,699 --------------- ----------------- PROPERTY & EQUIPMENT Oil and gas properties 2,943,231 2,989,933 Drilling rigs and machinery 4,984,927 7,516,024 Office furniture and other equipment 1,002,197 1,281,572 Accumulated depreciation (474,765) (30,307) --------------- ----------------- Total Property & Equipment, Net 8,455,590 11,757,222 --------------- ----------------- OTHER ASSETS Deposits on rigs 8,254,551 8,974,689 Notes receivable - 13,750 Equity investment 59,146 59,146 --------------- ----------------- Total Other Assets 8,313,697 9,047,585 --------------- ----------------- TOTAL ASSETS $ 17,692,100 $ 21,852,506 =============== ================= The accompanying condensed notes are an integral part of these interim financial statements. 2 STANDARD DRILLING, INC. Balance Sheet (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) - ---------------------------------------------- June 30, December 31, 2007 2006 --------------- ---------------- CURRENT LIABILITIES (Unaudited) Accounts payable $ 3,953,401 $ 4,128,557 Accrued expenses 1,361,565 2,711,385 Note payable - related party 1,398,381 1,657,578 --------------- ---------------- Total Current Liabilities 6,713,347 8,497,520 --------------- ---------------- TOTAL LIABILITIES 6,713,347 8,497,520 STOCKHOLDERS' EQUITY (DEFICIT) Common stock; 100,000,000 shares authorized, at $0.001 par value, 45,073,000 shares issued and outstanding 45,073 45,073 Additional paid-in capital 17,284,237 18,026,709 Stock subscriptions receivable (52,400) (370,000) Prepaid stock awards - (722,755) Accumulated deficit (6,298,157) (3,624,041) --------------- ---------------- Total Stockholders' Equity (Deficit) 10,978,753 13,354,986 --------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 17,692,100 $ 21,852,506 =============== ================ The accompanying condensed notes are an integral part of these interim financial statements. 3
STANDARD DRILLING, INC. Statements of Operations (Unaudited) For the Period from For the Three For the Three For the Six February 14, Months Ended Months Ended Months Ended 2006 Through June 30, June 30, June 30, June 30, 2007 2006 2007 2006 ----------------- ----------------- ----------------- ----------------- REVENUES - Drilling $ - $ - $ - $ - COST OF SALES 37,197 - 586,545 - ----------------- ----------------- ----------------- ----------------- GROSS PROFIT (37,197) - (586,545) - ----------------- ----------------- ----------------- ----------------- OPERATING EXPENSES Salaries and wages 537,682 328,672 1,394,344 497,989 Depreciation, amortization, and depletion 189,149 3,227 444,458 4,816 Legal and professional 84,513 37,139 200,194 55,431 General and administrative 75,879 84,909 477,837 126,730 ----------------- ----------------- ----------------- ----------------- Total Operating Expenses 887,223 453,947 2,516,833 684,966 ----------------- ----------------- ----------------- ----------------- OPERATING LOSS (924,420) (453,947) (3,103,378) (684,966) ----------------- ----------------- ----------------- ----------------- OTHER INCOME (EXPENSE) Interest income 1,227 26,403 2,668 39,407 Interest expense (42,900) - (98,056) - Gain on sale of assets 6,414 - 531,054 - Loss on investment (6,404) - (6,404) - ----------------- ----------------- ----------------- ----------------- Total Other Income (Expense) (41,663) 26,403 429,262 39,407 ----------------- ----------------- ----------------- ----------------- NET LOSS $ (966,083) $ (427,544) $ (2,674,116) $ (645,559) ================= ================= ================= ================= BASIC AND DILUTED LOSS PER SHARE $ (0.02) $ (0.01) $ (0.06) $ (0.02) ================= ================= ================= ================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 45,536,800 43,814,667 45,536,800 42,449,923 ----------------- ----------------- ----------------- -----------------
The accompanying condensed notes are an integral part of these interim financial statements. 4
STANDARD DRILLING, INC. Statements of Cash Flows (Unaudited) From Inception From Inception of the of the Development Development Stage on Stage on For the Six February 14, 2006 February 14, 2006 Months Ended Through Through June 30, June 30, June 30, 2007 2006 2007 ---------------- ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (2,674,116) $ (645,559) $ (6,298,157) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation, depletion and amortization 444,458 17,939 476,710 Common stock issued for services - 575,242 575,242 Gain on equity investment 531,054 - 28,354 Changes in operating assets and liabilities Decrease (Increase) in accounts receivable 288,718 - (197,463) Decrease (Increase) in prepaid expenses 469,476 (29,691) (234,526) Decrease (Increase) in deposits - - 5,285 Increase (Decrase) in accounts payable (175,156) 197,144 6,026,096 Increase (Decrease) in accrued expenses (1,349,820) - 1,983,334 ---------------- ----------------- ----------------- Net Cash Used by Operating Activities (2,465,386) 115,075 2,364,875 ---------------- ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of oil and gas properties - (1,102,362) (5,417,440) Change in fixed assets 2,316,403 (95,830) (7,723,190) Change in deposits on fixed assets 720,138 (9,158,022) (8,303,458) Cash paid on notes receivable - (343,946) (18,750) Cash paid on equity investment - (87,500) (87,500) ---------------- ----------------- ----------------- Net Cash Used by Investing Activities 3,036,541 (10,787,660) (21,550,338) ---------------- ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES Cash received on note payable (250,447) - 2,602,457 Cash received on subscriptions receivable 317,600 - 317,600 Sale of common stock for cash - 15,310,564 16,956,027 ---------------- ----------------- ----------------- Net Cash Provided by Financing Activities 67,153 15,310,564 19,876,084 ---------------- ----------------- ----------------- NET DECREASE IN CASH 638,308 4,637,979 690,621 CASH AT BEGINNING OF PERIOD 52,313 - - ---------------- ----------------- ----------------- CASH AT END OF PERIOD $ 690,621 $ 4,637,979 $ 690,621 ================ ================= ================= SUPPLIMENTAL DISCLOSURES OF CASH FLOW INFORMATION CASH PAID FOR: Interest $ 11,324 $ - $ 11,324 Income Taxes $ - $ - $ -
The accompanying condensed notes are an integral part of these interim financial statements. 5 Notes to the Unaudited Consolidated Financial Statements Note 1. Basis of Presentation The accompanying unaudited interim financial statements of Standard Drilling, Inc. ("Standard Drilling", "the Company", or "Standard") have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited financial statements and notes thereto contained in Standard Drilling's Form 8-K filed with the SEC on September 6, 2006. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the period ended December 31, 2006 as reported in Form 10-KSB have been omitted. Note 2. Organization and Business Operations Standard Drilling, a Nevada Corporation, was organized to provide contract land drilling services to independent and major oil and gas exploration and production companies. As of June 30, 2007, the Company has one 1500 horsepower land drilling rig and certain key components and partial inventory for two 1500 horsepower rigs which are under construction. The Company has a contract with Romfor West Africa, Ltd. ("Romfor") to construct two additional 1500 horsepower land drilling rigs using currently owned key components together with newly purchased additional components. The Company does not anticipate completing Rigs 2 and 3 and is currently selling inventory associated with Rigs 2 and 3. The Company's drilling and rig construction operations are currently idle as Management and the Board of Directors are currently evaluating strategic options in light of changing market conditions and the Company's inability to secure additional financing. The Company anticipates to continue to sell existing inventory to generate cash to pay existing debt and trade payables. On April 16, 2007, the Company signed a Termination Agreement with Burnett, under which the Company terminated its participation in the DeCleva Project. Under the terms of the Termination Agreement, Burnett placed $1.2 million into escrow. These funds will be used to pay off existing liabilities incurred by Standard during the drilling of the DeCleva 1 well. On June 15, 2007, the Company received the net proceeds from the escrow account for the sale of our interest in the DeCleva Project of $350,225. With the closing of the sale of the DeCleva Project and due to Standard's current inability to access additional equity or debt financing, the Company does not anticipate further participation in the oil and gas exploration and production business in the Barnett and Fayetteville Shales. On June 5, 2007, Standard entered into a purchase and sale agreement to sell our sole completed 1500 horsepower land-drilling rig ("Rig 1") for a gross purchase price of $7,800,000. Rig 1 was sold to Romfor West Africa, a subsidiary of Romfor Supply Company, Inc. ("Romfor"). At the time of the signing of the purchase and sale agreement, Romfor Supply Company was Standard's largest individual creditor. Upon signing of the agreement, Romfor paid Standard an initial payment of $1,000,000. The balance will be paid on or before closing on August 31, 2007. Rig 1 represents substantially all of Standard Drilling's assets. The Company does not anticipate continuing to operate in the contract drilling business and will continue with the liquidation and sale of inventory until additional financing becomes available. The Company anticipates to continue to sell existing inventory to generate cash to pay existing debt and trade payables. 6 Note 3. Going Concern As shown in the accompanying financial statements, the Company has incurred operating losses since inception and expects to continue to incur losses through 2007. As of June 30, 2007, the Company has commitments for the purchase of equipment that exceed available funds; has no revenues; and has generated operating losses since inception and expects to continue to incur losses through 2007. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to achieve and maintain profitability and positive cash flow is dependent upon its ability to complete the refurbishment and modifications to drilling rigs economically, utilize the drilling equipment at profitable levels, and convert unproved oil and gas properties to producing properties at economic levels. However, there is no assurance that Standard Drilling will be able to utilize the drilling equipment at economic levels, convert properties to producing properties, or obtain additional financing from investors or private lenders and, if available, such financing may not be on commercial terms acceptable to Standard Drilling or its shareholders. Note 4. Summary of Significant Accounting Policies Oil and Gas Properties - ---------------------- The Company follows the full cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs and related asset retirement costs, are capitalized. All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects in progress are not amortized until proved reserves associated with the projects can be determined and are periodically assessed for impairment. If the results of an assessment indicate that the properties are impaired, such impairment is added to the costs being amortized and is subject to the ceiling test. Capitalized costs are subject to a "ceiling test," which limits such costs to the aggregate of the "estimated present value," discounted at a 10-percent interest rate of future net revenues from proved reserves, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income. Abandonments of properties are accounted for as adjustments of capitalized costs with no loss recognized. Oil and Gas Properties Not Subject to Amortization - -------------------------------------------------- The Company is currently participating, on a non-operated basis, in oil and gas exploration and development activities. At December 31, 2006, all oil reserves have been classified as unproved reserves. Consequently, all the property, development and exploratory costs have been excluded in computing amortization. Standard will begin to amortize these costs if and when these projects are evaluated. Drilling Rigs and Equipment - --------------------------- Drilling rigs and equipment, including renewals and betterments, are capitalized and stated at cost, while maintenance and repairs are expensed currently. Assets are depreciated on a straight-line basis. The depreciable lives of land drilling equipment approximate 15 years. The depreciable life for certain other equipment including drill pipe and camp quarters ranges from three to seven years. Depreciation is not commenced until acquired rigs and equipment are placed in service. Once placed in service, depreciation continues when rigs are being repaired, refurbished or between periods of deployment. As of November 1, 2006, the Company began recognizing depreciation expense associated with drilling rigs. The Company periodically evaluates long-lived assets to determine that their net carrying value is not in excess of their net realizable value. The Company considers a number of factors, such as estimated future cash flows and current market value analysis in determining the net realizable value. Assets are written down to fair value if the fair value is below the net carrying value. 7 Note 5. Oil and Gas Properties Not Subject to Amortization Standard Drilling is no longer participating in any oil and gas exploration and development activities on onshore properties in the Ft. Worth Basin and Arkoma Basin. At June 30, 2007, all oil and gas properties are classified as unproved. Accordingly, the capital costs have been excluded from the computation of amortization of the full cost pool. Standard Drilling will begin to amortize these costs as the properties are developed and reserve estimates are available. Standard Drilling estimates that the properties will be developed, evaluated and subject to amortization by 2008 year end. Note 6. Shareholders' Equity Preferred Stock - --------------- Standard Drilling is authorized to issue up to 10,000,000 of $.001 par value preferred stock, the rights and preferences of which are to be determined by the Board of Directors at or prior to the time of issuance. As of June 30, 2007, none of the preferred stock is outstanding. Common Stock - ------------ Standard Drilling is authorized to issue 100,000,000 shares of common stock, par value of $.001 per share. The founding shareholders were issued 23,000,000 shares of common stock for services rendered. On June 9, 2006, Standard Drilling completed a private offering of 9,111,500 units at a price of $2.00 per unit realizing net proceeds after offering costs of $15,868,290. Each unit consisted of two shares of common stock and a warrant to purchase one share of common stock at an exercise price of $1.75 per share for every two shares of common stock the investor purchases in the offering. There were 9,111,500 warrants granted in the offering and the warrants expire two years from purchase. These warrants are valued at $546,690. Standard Drilling recognized fees and expenses related to the offering of $1,734,710. Standard Drilling also granted 1,688,800 warrants at an exercise price of $1.00 per share with the same terms and conditions as those issued in the private offering to the placement agent. These warrants were valued at $101,328. Reverse Merger - -------------- In the Merger, Online Holdings exchanged 41,223,000 shares of its common stock for 41,223,000 shares of common stock of Standard Drilling Delaware and reserved for issuance (1) 10,800,300 shares of common stock pursuant to outstanding warrants to purchase common stock of Standard Drilling Delaware that were assumed by Online Holdings, and (2) 8,545,000 shares of common stock pursuant to outstanding options to purchase common stock of Standard Drilling Delaware pursuant to the Standard Drilling, Inc. 2006 Stock Incentive Plan that were assumed by Online Holdings. Standard Drilling Delaware paid Online Holdings $60,000 as a deposit pursuant to the Merger Agreement. A condition to the Merger was an agreement by the then principal stockholder of Online Holdings to cancel, immediately prior to the Merger, 20,000,000 outstanding shares of common stock of Online Holdings that had been issued to the principal shareholder. In consideration of such cancellation, Online Holdings paid the principal shareholder $60,000, and Standard Drilling recognized recapitalization expense of $60,000. The then principal shareholder of Online Holdings also assumed the net liabilities of Online Holdings. As a result of the Merger, Online Holdings changed its name to Standard Drilling, Inc. As of June 30, 2007, Standard Drilling had 45,073,000 shares of common stock issued and outstanding and an additional 19,345,300 shares of common stock reserved for issuance. Note 7. Related Party Transactions On November 27, 2006, Standard Drilling, Inc., as borrower, entered into an Interim Credit Agreement, effective as of November 20, 2006, with Prentis B. Tomlinson, Jr., the Chairman and Chief Executive Officer of the Company, as lender, in an initial aggregate principal amount of $1 million ("the Loan"), which may be increased at Mr. Tomlinson's sole discretion to a maximum aggregate principal amount of $5 million. The initial aggregate principal amount of the Loan is evidenced by a Promissory Note, effective as of November 20, 2006, made by the Company in favor of Mr. Tomlinson. Interest will accrue on the outstanding principal amount of the Loan at the rate of 10% per annum, compounded monthly. The outstanding principal amount of the Loan, together with all unpaid accrued interest thereon, is payable upon demand by Mr. Tomlinson no earlier than 90 days from November 20, 2006. The Company intends to use the proceeds of the Loan for general corporate and working capital purposes. 8 To secure the payment and performance of its obligations under the Interim Credit Agreement and the Promissory Note, the Company entered into a Security Agreement, effective as of November 20, 2006, in favor of Mr. Tomlinson, pursuant to which the Company granted to Mr. Tomlinson a lien and security interest in and to the Company's land drilling Rig #1. As of June 30, 2007 the outstanding balance on the Loan is $1,398,381 and the Loan is currently overdue. The Company currently has no access to additional capital and does not have the ability to repay the Loan unless we sell assets for cash. As of the date of this filing, the Company's Chairman and CEO, Mr. Prentis B. Tomlinson, Jr., owns a controlling stake in Calibre Energy, Inc., a publicly-traded oil and gas exploration company which trades on the Over-The-Counter-Bulletin-Board under the symbol CBRE, and serves as its Chairman and CEO. On March 24, 2006, the Company borrowed $350,000 from Calibre Energy, Inc. pursuant to a loan bearing interest at 4% per annum. On April 7, 2006, Standard paid $350,545 to Calibre Energy, Inc., the full amount of the loan with all interest due. Several of the Company's officers and directors, including its CEO and President are also employed as officers and/or directors of Calibre Energy, Inc., a company engaged in the business of oil and gas exploration and production. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto included elsewhere in this report. The terms "Standard Drilling," "Standard", "the Company", "we", "us" and "our" refer to Standard Drilling, Inc. Overview Cautionary Statement Regarding Forward-Looking Statements This report contains certain "forward-looking statements". Statements included in this report that are not historical facts, that address activities, events or developments that we expect or anticipate will or may occur in the future, including things such as plans for growth of the business, future capital expenditures, competitive strengths, goals, references to future goals or intentions or other such references are forward-looking statements. These statements can be identified by the use of forward-looking terminology, including "may," "believe," "expect," "anticipate," "estimate," "continue," or similar words. These statements are made by us based on our past experience and our perception of historical trends, current conditions and expected future developments as well as other considerations we believe are appropriate under the circumstances. Whether actual results and developments in the future will conform to our expectation is subject to numerous risks and uncertainties, many of which are beyond our control. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors, including, but not limited to: o a decline in or substantial volatility of crude oil and natural gas commodity prices; o the incurrence of significant costs and liabilities in the future resulting from our failure to comply with new or existing environmental regulations or an accidental release of hazardous substances into the environment; and o other financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings. All forward-looking statements included in this report and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made, other than as required by law, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Standard Drilling, Inc. Standard Drilling, a Nevada Corporation, was organized to provide contract land drilling services to independent and major oil and gas exploration and production companies. As of June 30, 2007, the Company has one 1500 horsepower land drilling rig and certain key components and partial inventory for two 1500 horsepower rigs which are under construction. The Company has a contract with Romfor West Africa, Ltd. ("Romfor") to construct two additional 1500 horsepower land drilling rigs using currently owned key components together with newly purchased additional components. The Company does not anticipate completing Rigs 2 and 3 and is currently selling inventory associated with Rigs 2 and 3. The Company's drilling and rig construction operations are currently idle as Management and the Board of Directors are currently evaluating strategic options in light of changing market conditions and the Company's inability to secure additional financing. The Company anticipates to continue to sell existing inventory to generate cash to pay existing debt and trade payables. On April 16, 2007, the Company signed a Termination Agreement with Burnett, under which the Company terminated its participation in the DeCleva Project. Under the terms of the Termination Agreement, Burnett placed $1.2 million into escrow. These funds were used to pay off existing liabilities incurred by Standard during the drilling of the DeCleva 1 well. On June 15, 2007, the Company received the net proceeds from the escrow account for the sale of our interest in the DeCleva Project of $350,225. 10 With the closing of the sale of the DeCleva Project and due to Standard's current inability to access additional equity or debt financing, the Company does not anticipate further participation in the oil and gas exploration and production business in the Barnett and Fayetteville Shales. On June 5, 2007, Standard entered into a purchase and sale agreement to sell our sole completed 1500 horsepower land-drilling rig ("Rig 1") for a gross purchase price of $7,800,000. Rig 1 was sold to Romfor West Africa, a subsidiary of Romfor Supply Company, Inc. ("Romfor"). At the time of the signing of the purchase and sale agreement, Romfor Supply Company was Standard's largest individual creditor. Upon signing of the agreement, Romfor paid Standard an initial payment of $1,000,000. The balance will be paid on or before closing on August 31, 2007. Rig 1 represents substantially all of Standard Drilling's assets. The Company does not anticipate continuing to operate in the contract drilling business and will continue with the liquidation and sale of inventory until additional financing becomes available. The Company anticipates to continue to sell existing inventory to generate cash to pay existing debt and trade payables. Our Strategy The Company's drilling rig construction and oil and gas exploration and development operations are currently idle as Management and our Board of Directors are currently evaluating our strategic options in light of changing market conditions and our inability to secure additional financing. Results of Operations for the Three Months Ended June 30, 2007 We commenced the construction of the rigs in February 2006. Prior to that time, we did not have any significant activities or assets. Consequently, we are not able to compare results of operations for the period from inception (February 14, 2006) with results from any earlier period. Net Sales For the three months ended June 30, 2007, we had no revenues. Due to the Company's inability to obtain additional financing, we do not anticipate continuing to operate in the contract drilling business and will continue with the liquidation and sale of inventory until additional financing becomes available. General and Administrative Expenses For the three months ended June 30, 2007, our operating expenses totaled $887,223. Of this amount, a total of $75,879 was for costs associated with our general and administrative expenses, $84,513 was for professional fees principally associated with capital raising activities, $537,682 for compensation expense, and $189,149 was depreciation expense. Net Loss For the three months ended June 30, 2007, we had a net loss of $966,083. The net loss is primarily attributable to our lack of operating revenues to support general and administrative costs and capital expenditures. Results of Operations for the Six Months Ended June 30, 2007 We commenced the construction of the rigs in February 2006. Prior to that time, we did not have any significant activities or assets. Consequently, we are not able to compare results of operations for the period from inception (February 14, 2006) with results from any earlier period. Net Sales For the six months ended June 30, 2007, we had no revenues. Due to the Company's inability to obtain additional financing, we do not anticipate continuing to operate in the contract drilling business and will continue with the liquidation and sale of inventory until additional financing becomes available. 11 General and Administrative Expenses For the six months ended June 30, 2007, our operating expenses totaled $2,516,833. Of this amount, a total of $477,837 was for costs associated with our general and administrative expenses, $200,194 was for professional fees principally associated with capital raising activities, $1,394,344 for compensation expense, and $444,458 was depreciation expense. Net Loss For the six months ended June 30, 2007, we had a net loss of $2,674,116. The net loss is primarily attributable to our lack of operating revenues to support general and administrative costs and capital expenditures. Liquidity and Capital Resources As of June 30, 2007, we had cash of $690,621 and a working capital deficit of $5,790,534. We expect to have monthly overhead costs of approximately $250,000 per month for the next 12 months. Since our inception, our primary sources of liquidity have been generated by the sale of equity securities (including the issuance of securities in exchange for goods and services to third parties and to pay costs of employees) and advances under the Interim Credit Agreement. To date, the net proceeds from the sales of securities have been used to fund the construction of our drilling rigs and our general and administrative costs. Standard currently has highly limited access to additional sources of capital. Our future liquidity and our liquidity in the next 12 months depends on our ability to obtain additional sources of capital and to generate cash from existing inventory. Cash flow from operating activities For the period ending June 30, 2007, net cash used in operating activities was $2,465,386 primarily attributed to a net loss of $2,674,116 in the period, partially offset by a decrease in accounts receivable and prepaid expenses of $288,718 and $469,476, respectively. Cash flow from investing activities For the period ending June 30, 2007, net cash used in investing activities was $3,036,541, driven primarily by a decrease in fixed assets of $2,316,403 and a decrease in deposits on rigs in the amount of $720,138. Cash flow from financing activities For the period ending June 30, 2007, net cash provided by financing activities was $67,153, which was primarily attributed to our receipt of cash on subscriptions receivable and debt instruments. Future capital expenditures and commitments Expenditures for exploration and development of oil and natural gas properties and land costs related to the acquisition of non-producing leaseholds and the construction of our drilling rigs has been the primary use of our capital resources. At June 30, 2007, we have no plans to make additional acquisitions of natural gas properties or drilling rigs. The Company is currently seeking to ease its working capital deficit by selling certain rigs, related machinery, and oil and gas leases. Income Taxes Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109, Accounting for Income Taxes. As changes in tax laws or rate are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is established when necessary to reduce the deferred tax asset to the amount expected to be realized. 12 Change of Accountants Effective April 30, 2007, the Board of Directors of Standard Drilling, Inc., determined to change the Company's independent accountants and dismissed Malone & Bailey as the Company's independent registered public accounting firm. During the most recent fiscal year ending December 31, 2006, there have been no reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K. The Board of Directors of the Company approved the decision to change independent auditors. During the Company's most recent fiscal year, ending December 31, 2006, (i) there were no disagreements between the Company and Malone & Bailey on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Malone & Bailey would have caused Malone & Bailey to make reference to the matter in its reports on the Company's financial statements, and (ii) Malone & Bailey's report on the Company's financial statements did not contain any adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles with the exception of a "going concern" qualification. Our Board of Directors appointed Moore & Associates as our Independent Registered Public Accountant effective April 30, 2007. Off-Balance Sheet Arrangements As of June 30, 2007, we had no off-balance sheet arrangements. Related Party Transactions On November 27, 2006, Standard Drilling, Inc., as borrower, entered into an Interim Credit Agreement, effective as of November 20, 2006, with Prentis B. Tomlinson, Jr., the Chairman and Chief Executive Officer of the Company, as lender, in an initial aggregate principal amount of $1 million ("the Loan"), which may be increased at Mr. Tomlinson's sole discretion to a maximum aggregate principal amount of $5 million. The initial aggregate principal amount of the Loan is evidenced by a Promissory Note, effective as of November 20, 2006, made by the Company in favor of Mr. Tomlinson. Interest will accrue on the outstanding principal amount of the Loan at the rate of 10% per annum, compounded monthly. The outstanding principal amount of the Loan, together with all unpaid accrued interest thereon, is payable upon demand by Mr. Tomlinson no earlier than 90 days from November 20, 2006. The Company intends to use the proceeds of the Loan for general corporate and working capital purposes. To secure the payment and performance of its obligations under the Interim Credit Agreement and the Promissory Note, the Company entered into a Security Agreement, effective as of November 20, 2006, in favor of Mr. Tomlinson, pursuant to which the Company granted to Mr. Tomlinson a lien and security interest in and to the Company's land drilling Rig #1. As of June 30, 2007, the outstanding balance on the Loan is $1,398,381and the Loan is currently overdue. The Company currently has no access to additional capital and does not have the ability to repay the Loan unless we sell assets for cash. As of the date of this filing, the Company's Chairman and CEO, Mr. Prentis B. Tomlinson, Jr., owns a controlling stake in Calibre Energy, Inc., a publicly-traded oil and gas exploration company which trades on the Over-The-Counter-Bulletin-Board under the symbol CBRE, and serves as its Chairman and CEO. On March 24, 2006, the Company borrowed $350,000 from Calibre Energy, Inc. pursuant to a loan bearing interest at 4% per annum. On April 7, 2006, Standard paid $350,545 to Calibre Energy, Inc., the full amount of the loan with all interest due. Several of the Company's officers and directors, including its CEO and President are also employed as officers and/or directors of Calibre Energy, Inc., a company engaged in the business of oil and gas exploration and production. As a result, each of these officers devotes some of their business time to the management of Calibre. The amount of time devoted to the management of our business and the management of Calibre's business by each of these officers fluctuates from day to day and week to week. An officer may devote his time exclusively to the management of Calibre for a period of time. Each of the officers has significant discretion as to whether to devote time to management of the Company's business or to management of Calibre's business. 13 The dual obligations also create a risk of a conflict of interest for those officers. We intend to appoint two or more new directors who will be independent directors. To the extent conflicts of interest do arise, we intend to have future conflicts of interest reviewed and resolved by the conflicts committee of the Board of Directors which is made up of independent directors. We share facilities and some overhead costs with Calibre in Washington D.C. and have a service agreement pursuant to which we will pay Calibre for office space and supplies, secretarial services and any other services Calibre provides to us in sharing the Washington D.C. office space. The average payment by us to Calibre Energy, Inc. under the services agreement is expected to be $70,000 per quarter for 2007. The services agreement may be terminated by either party on 30 days notice. We believe all of the transactions with related parties have been on terms no less favorable to us than those terms which may have been obtained from unrelated third parties. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our most significant judgments and estimates used in preparation of our consolidated financial statements. Reverse Acquisition We treated the merger of Standard Drilling, Inc. into a subsidiary of Online Holdings, Inc. as a reverse acquisition. Pursuant to the guidance in Appendix B of SEC Accounting Disclosure Rules and Practices Official Text, the "merger of a private operating company into a non-operating public shell corporation with nominal net assets typically results in the owners and management of the private company having actual or effective operating control of the combined company after the transaction, with the shareholders of the former public shell continuing only as passive investors. These transactions are considered by the staff to be capital transactions in substance, rather than business combinations. That is, the transaction is equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation, accompanied by a recapitalization." Accordingly, the reverse acquisition has been accounted for as a recapitalization. For accounting purposes, the original Standard Drilling, Inc. is considered the acquirer in the reverse acquisition. The historical financial statements are those of the original Standard Drilling, Inc. Earnings per share for periods prior to the merger are restated to reflect the number of equivalent shares received by the acquiring company. Item 3. Controls and Procedures. Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of June 30, 2007. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of June 30, 2007, our disclosure controls and procedures were effective. Subsequent to the date of their evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings. Our management is not aware of any significant litigation, pending or threatened, that would have a significant adverse effect on our financial position or results of operations. Item 2. Exhibits. 2.1 Agreement and Plan of Merger dated July 27, 2006 by and among Online Holdings, Inc., a Nevada corporation, Standard Drilling Acquisition Corp., a Delaware corporation, and Standard Drilling, Inc., a Delaware corporation, (incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on July 27, 2006.) 3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 3.2 Bylaws of the Company (incorporated by reference from Exhibit 3.2 to Form SB-2 filed by the Company on December 19, 2001) 10.1 Registration Rights Agreement dated June 9, 2006 by and among Standard Drilling, Inc. and the stockholders named therein (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.2 Contract with Romfor West Africa Ltd., effective May 15, 2006 (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.3 Standard Drilling, Inc. 2006 Stock Incentive Plan (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.4 Form of Incentive Stock Option Agreement (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.5 Form of Non-Statutory Stock Option Agreement A (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.6 Form of Non-Statutory Stock Option Agreement B (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.7 Employment Agreement dated July 27, 2006 between Standard Drilling, Inc. and Prentis B. Tomlinson, Jr. (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.8 Employment Agreement dated July 27, 2006 between Standard Drilling, Inc. and Edward L. Moses, Jr. (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.9 Employment Agreement dated July 27, 2006 between Standard Drilling, Inc. and Robert T. Moffett (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.10 Employment Agreement dated July 27, 2006 between Standard Drilling, Inc. and Michael J. Walker (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 10.11 Employment Agreement dated July 27, 2006 between Standard Drilling, Inc. and O. Oliver Pennington, III (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 6, 2006) 31.1* Chief Executive Officer Certification Pursuant to Section 13a-14(a) of the Securities Exchange Act 32.1* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15 *Filed herewith SIGNATURES 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 DRILLING, INC. Registrant Dated: August 20, 2007 By: /S/ Prentis B. Tomlinson, Jr. - --------------------------------- Prentis B. Tomlinson, Jr. Chairman, Chief Executive Officer, and Interim Chief Financial Officer 16 EX-31 2 a5475523ex31.txt EXHIBIT 31 Exhibit 31 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Prentis B. Tomlinson, Jr., certify that: 1) I have reviewed this report on Form 10-QSB of Standard Drilling, Inc.; 2) Based on my knowledge, this 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 report; 3) Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4) The registrant's other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. 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 the end of the period covered by this report based on such evaluation; and d. 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 (the registrant's fourth fiscal quarter in the case of an annual report) 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 officer 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 the registrant's board of directors (or persons performing the equivalent functions): 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. By: /s/ Prentis B. Tomlinson, Jr. ----------------------------- Prentis B. Tomlinson, Jr. Chairman, Chief Executive Officer, and Interim Chief Financial Officer Date: August 20, 2007 EX-32 3 a5475523ex32.txt EXHIBIT 32 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 Drilling, Inc. (the "Company") on FORM 10-QSB for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Prentis B. Tomlinson, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of this Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Prentis B. Tomlinson, Jr. ----------------------------- Prentis B. Tomlinson, Jr. Chairman, Chief Executive Officer, and Interim Chief Financial Officer Date: August 20, 2007 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company or the certifying officer for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to Standard Drilling, Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----