10-K 1 filing.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (the "Act") Commission file number: 0-9336 STANDARD ENERGY CORPORATION (Name of Small Business Issuer as specified in its charter) Utah 87-0338149 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 363 Bearcat Drive Salt Lake City, Utah 84115-2517 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (801) 364-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: $.01 Par Value Common Stock Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Issuer's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-KSB, or any amendment to this Form 10- KSB . The Issuer's revenue for the fiscal year ended March 31, 2001 was approximately $54,000. As of June 27, 2001, 105,851,974 shares of the Issuer's common stock were issued and outstanding of which 52,133,093 shares were held by non-affiliates. As of June 27, 2001, the aggregate market value of shares held by non-affiliates, based upon the closing price reported by the Bulletin Board market reporting system, operated by Nasdaq of $0.125 bid, was approximately $6,516,637. ITEM 1. DESCRIPTION OF BUSINESS General Standard Energy Corporation's ("the Company") principal business is, and historically has been, the acquisition of unproven oil and gas leaseholds, primarily with the intent of reselling such leaseholds to third-parties. Historically, the Company has acquired primarily federal oil and gas leaseholds through the Bureau of Land Management's ("BLM") leasing program. The Company also obtains leases through purchases in competitive bidding programs offered by various state agencies, principally the States of Utah and Wyoming (the "Leasing Programs"). The Company evaluates the geologic potential of the leases, which it proposes to acquire, based primarily upon geologic information available through the Company's wholly-owned subsidiary, Petroleum Investment Company ("PIC"). The Company's President, Dean W. Rowell ("Rowell"), is materially involved in such evaluations which are based, among other factors, upon the results of prior exploratory and developmental activities on adjacent and contiguous properties, current lease sale trends and Rowell's 40-year experience in the domestic oil and gas business. The Company, which is known within the industry as a buyer and seller of leases, typically is approached by a potential buyer for one or more of its leasehold interests. Negotiations generally ensue and a dollar price and retained royalty interest is agreed upon and a sale concludes. Oil and Gas Leases The Company had limited participation in the Leasing Programs from 1986 through the year ended March 31, 2001, except through its participation agreements with certain unrelated third parties on a limited basis. The Company presently has limited funds available to participate in the Leasing Programs. The Company believes that the deposit feature of the Leasing Programs have made the Company's participation in such Leasing Programs very difficult as the deposit feature penalizes many of the less capitalized participants and provides a substantial advantage to Leasing Program participants which have greater financial resources than the Company. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations") The location and gross and net acreage of the Company's inventory of oil and gas leaseholds at March 31, 2001 were approximately as follows: Location Gross Acres Net Acres Utah 7,234 7,234 Wyoming 6,738 4,799 Montana 4,442 2,961 Total 18,414 14,994 A gross acre consists of 100% of the working interest. A net acre is calculated by gross acres multiplied by the percentage of working interest owned. The above chart does not include the Company's interest in unrelated third-party leasehold acquisitions and leasehold sales. Third-party leasehold inventory was approximately 30,000 gross acres at fiscal year ended March 31, 2001. Also during the fiscal period, the Company's ability to acquire additional leaseholds was adversely affected. Because the Company has no financial basis in such leaseholds, the Company's financial statements and the foregoing acreage charts do not reflect the acquisition of such newly acquired leaseholds. As third-party leasehold sales take place, revenue is recorded under line item "Sales of oil and gas leasehold interest. Management has adopted a policy of periodically evaluating each of the leaseholds held by the Company to determine whether the current market value of a leasehold justifies making additional rental payments with respect thereto. Based upon such evaluation, the Company abandons (writes off) those leaseholds for which it does not wish to continue making rental payments. The amount of acreage abandoned and sold by the Company in each of the last two fiscal years has caused the Company's balance of inventory to decline over the course of such period, primarily due to past downturns in the domestic oil industry. No independent appraisals are obtained by the Company on leases purchased, nor is there an independent committee of the Board of Directors which evaluates any of its leases. The Company's policy is to acquire and hold leaseholds in inventory for a period generally not longer than five years in order to maximize the gain to the Company on such leasehold costs. The Company does not advertise for the sale of leases owned by it, but rather believes that most of its leasehold purchasers become aware of the Company's leaseholds through an examination of BLM records or other means. During the Company's two fiscal years ended March 31, 2001 and 2000, revenues from oil and gas lease royalties during such period were approximately $42,000 and $25,000 respectively, reflecting the upturn in the domestic oil industry. (See "Consolidated Financial Statements") The Company's oil and gas leasehold inventory remains at approximately 45,000 net acres at the year ended March 31, 2001, including leaseholds acquired under third-party agreements. Although its leasing activity was reduced substantially due to the sharp decline in exploration activities during the last five fiscal years, the Company believes it can continue its present lines of business, including the purchase and sale of newly acquired oil and gas leaseholds, due to the increase in price of domestic oil and gas during the past two years. The Company retains a royalty interest, ranging from 1% to 6%, in substantially all of the leaseholds which it has resold. Since 1981, the Company has not received any substantial earnings from retained royalty interests in resold leaseholds. The majority of the leases acquired by the Company are leaseholds granted by the BLM subject to a 12-1/2% gross royalty interest in favor of the federal government's BLM. The majority of the Company's inventory of undeveloped leases are subject to the jurisdiction of the BLM, with the balance being leased from agencies of various Rocky Mountain states. As a result of the advance lease deposits required under the Leasing Programs, and the Company's current working capital difficulties, it may be expected that the percentage of leases acquired in the future from such states may increase. BLM leaseholds granted under the Leasing Program are leased by the BLM at an annual rental of $1.50 per acre, and $2.00 per acre for leases acquired and held for more than five years. The majority of the Company's BLM leasehold inventory at March 31, 2001 consists of BLM leaseholds granted after January 1, 1994, and generally have an initial term of ten years, which may be extended for an additional two years if during the initial term such leasehold is "improved" by the commencement of drilling activities thereupon. Aggregate rentals paid by the Company during the years ended March 31, 2001 and 2000 for all oil and gas properties leased by it were approximately $1,000 and $4,000, respectively. The Company retains the right to reacquire the lease if the purchaser fails to make rental payments due to the BLM on leases sold to unrelated third-parties by the Company. Leasing Programs The federal government's Leasing Program is administered by the BLM pursuant to the Minerals Leasing Act of 1920, as amended. Under such Act, properties are made available to the public by means of a competitive bidding system. Properties receiving no bid are assigned to the Leasing Program. In the Leasing Program, applicants filing for a given leasehold by a set date are deemed to have filed simultaneously with other applicants and thus are eligible to participate in the drawing. Under the Leasing Program, applicants are required to deposit the first year rental payments for each property applied for at the time of filing an application. Funds advanced to the BLM as deposits do not bear interest. During fiscal 2001, the BLM took approximately 50 days, from the date funds were required to be deposited, to process refunds of deposits with respect to unawarded leases, which permitted participants to "rollover" their refunds into payments of advance deposits in the subsequent Leasing Program drawing period. However, there can be no assurance as to how long the BLM will take to refund such deposits in the future. The BLM has on several previous occasions, since the Mineral Leasing Act of 1920, suspended and/or modified the BLM Leasing Program. No assurance can be given that current Leasing Programs will not be subsequently eliminated, modified or suspended, or that the Company will be able to actively participate in or derive profits from the Leasing Programs. Geological Information Services The Company, through its wholly-owned subsidiary, PIC, provides a variety of geologic lease evaluation services. PIC makes available to subscribers monthly reports containing information which evaluates leases offered in the Leasing Programs. Such information includes comprehensive geologic data, recommendations and reports with respect to leaseholds offered in the Leasing Programs, including PIC's evaluation of the production prospects of such leaseholds and, frequently, an estimated resale value for such leaseholds, the names of selected participants, results of auction sales and drawings, and other information. In addition to such monthly reports, PIC also sells information with respect to individual oil and gas properties throughout the Rocky Mountain area. The geologic and other information which PIC makes available through its reporting services is obtained from different sources, including PIC's internal files which contain well and land oil and gas exploration data on a historical basis in the nine-state area comprising the Rocky Mountain region. Such data is interpreted and summarized by PIC's part-time in-house geologists and landmen. PIC, through a wholly-owned subsidiary, also provides oil and gas mapping services with respect to properties located throughout the Rocky Mountain region. PIC prepares base survey and geologic maps on various scales, reflecting significant oil and gas well drilling activity in a particular area. During the Company's two fiscal years ended March 31, 2001 and 2000, revenues contributed to the Company's consolidated revenues by PIC were approximately $6,000 and $5,000, respectively. The decrease in revenue contributed by PIC for such fiscal periods, as compared to prior fiscal years, reflects the depth of the downturn in the domestic oil and gas industry. Low oil prices since the initial 1986 collapse of worldwide oil prices caused PIC to terminate the services of several employees, including its geologists. Should higher oil prices hold for several years it is possible that PIC could again produce higher revenues for the consolidated business of the Company. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations") Oil and Gas Exploration and Production The Company's oil and gas exploration and production operations are presently insignificant and no reserve information is available. Competition The Company experiences substantial competition in its business of buying and selling oil and gas leaseholds. The Company's competitors include oil companies, as well as numerous independent operators, many of whom have substantially greater resources than the Company and its affiliates. The Leasing Programs, and in particular, the feature which requires advance deposit of annual lease rentals at the time of applying for such leases, has the effect of favoring companies with financial resources greater than the Company's and its affiliates'. With respect to its geologic information services, the Company experiences competition from individual operators who advise as to the geologic potential of properties listed for lease under the Leasing Programs and other oil and gas properties, as well as from publishers of newsletters providing certain information similar to that which the Company makes available to its subscribers. The Company believes itself to be a factor in the geologic information services industry in the Rocky Mountain States, premised upon the quality and volume of its land records, the number of subscribers to its publications and the extremely limited number of competitors, comprised mostly of individuals, offering similar, but what management believes to be less complete services to the general public. The Company's competitors in oil and gas exploration, development and production include major oil companies, numerous independent oil and gas companies, individual proprietors and drilling programs. Many of such competitors possess greater financial resources than those available to the Company. Research and Development - Biofuels Technology The Company continues to research and develop ("R&D") its biofuels technologies for the recycle of ordinary municipal solid waste, garbage, trash, paper and plastic material streams ("Municipal Waste") into recycled products and feedstock for the production of electricity and ethanol transportation fuel (the "Biofuels Technology"). Working with its engineering and management contractor, W.J. Scales & Company of Boerne, Texas (the "Scales Group"), the Company believes it has developed a commercial application for the Biofuels Technology at several potential biofuels plant project sites in the Northeast United States (the "Mayfair Project") where Municipal Waste landfills and transfer stations charge some of the highest dump rates ("Tip Fee") in the U.S. for the disposal of Municipal Waste. If operations commence, it is anticipated that the Mayfair Project would utilize the Biofuels Technology in a facility that combines a Municipal Waste recycle plant, an ethanol fuel production plant and an electric generating power plant. The facility would separate Municipal Waste into separate inorganic and organic recovery streams. The inorganic stream products would be sold into the existing commercial salvage ("Salvage") market and the organic stream products would be converted into electricity and ethanol transportation fuel. There can be no assurance that the required capital would be available to develop the Mayfair Project, and even if adequate capital is available, there can be no assurance that the Biofuels Technology would perform on a commercial basis. The Company's future operating results will depend on its ability to obtain adequate financing to actually construct the Mayfair Project. Expenses incurred for the Mayfair Project development are being accounted for under line item "Research and Development Costs". Essentially, the Company has two principal businesses. They are its traditional oil and gas exploration and production business that has, during the past 20-years, provided in excess of $13,000,000 to conduct the R&D effort to commercialize its second business, the commercial development of its Biofuels Technology, designed to economically solve the critical problem of disposing of Municipal Waste through the 100% recycle of Municipal Waste into useful products saleable at a profit. The Company believes its R&D efforts have produced trade secret and know-how protection which, in the future, should produce valuable patent protection to the Company's technologies from the Company's long experience and work conducted at its former "Research Center" in Utah. Based on its R&D efforts, the Company believes the Mayfair Project would be the first business to economically produce ethanol transportation fuel from low-cost organic cellulosic materials ("Celmat") consisting of mostly paper products easily harvested from Municipal Waste through new generation enviro- friendly manufacturing plants fed by Municipal Waste. These plants would combine recycling, electric power and ethanol fuel production at several regional biofuels plant sites. The Company further believes that its innovative Biofuels Technology would create a profit generating solution for two major contemporary domestic issues. First, it would provide an opportunity to significantly reduce the volume of Municipal Waste that currently must be landfilled or incinerated. Second, it offers a low-cost method of producing ethanol fuel, the only known commercially viable and publicly accepted renewable low- polluting transportation fuel that the Company believes someday will compete in price at the pump with gasoline. The reason for such optimism is the high landfill and incineration Tip Fee costs to dispose of Municipal Waste. The high Tip Fee received by the Company would subsidize the Celmat feedstock cost thus lowering ethanol fuel production costs by approximately 75% compared to the conventional corn-based method of ethanol fuel production. The Company's Biofuels Technology is comprised of six basic elements: Recycling Municipal Waste: Receiving and separating inorganic "Salvage" products including aluminum, copper, steel, iron, glass, plastics, sand, gravel, dirt, etc. from the organic products in Municipal Waste and selling those inorganic items into local and world commercial Salvage markets. New separating techniques are introduced, otherwise, the recycle processes are the same process used in many present-day commercial Municipal Waste recycle operations. The inorganic portion is approximately 40% of the total volume of Municipal Waste. Harvesting Celmat: Harvesting the organic Celmat products, consisting of paper products, yard and wood wastes, etc. from the total Municipal Waste stream. The organic Celmat is approximately 60% of the total volume of the Municipal Waste stream. Reducing Celmat into inverted sugars and "Lignin": Lignin is the polymeric substance and cementing material that forms the woody cell walls of all plant life. Inverted sugars are inside the woody cell walls. Using the Biofuels Technology the inverted sugars are converted into C6 and C5 sugars. These rich carbohydrates are mostly glucose and xylose fermentable into 200 proof alcohol. Producing ethanol fuel: Ethanol fuel has an octane rating of 112, much higher than any gasoline. It is produced by blending 5% gasoline with 100% anhydrous alcohol (200 proof/113 octane). Anhydrous alcohol is a natural alcohol usually made from corn. Manufacturing alcohol from Celmat has never been economically successful due to the high cost to extract the fermentable sugars. The Biofuels Technology uses several unique processes to separate the Lignin from the fermentable sugars that reduce the manufacturing costs dramatically and, based upon current studies and information, make possible the manufacture of ethanol fuel for approximately $0.30 per gallon. Generating Electricity: The recovered Salvage plastics and Lignin would provide about 50% of the boiler fuel mix. Together with the addition of 50% natural gas for burner tip control efficiency, enough steam would be produced to power an entire Mayfair Project with total electrical self-sufficiency, plus a substantial amount of excess electricity for sale to the local or regional power grid systems. The sales value of the excess electricity has not been included in the Business Plan financial proforma. Producing Distilled Water: Approximately 90 gallons of 100% pure distilled water would be produced for each ton of Municipal Waste processed. Profitable uses include pharmaceutical and cosmetics products. Its use could also reduce maintenance of commercial laundries, boilers, heat exchanger tubes, etc. The bottle value of the distilled water has not been included in the Business Plan financial proforma. Ethanol fuel is currently used primarily as an additive to boost the octane rating of premium grade gasolines. Lignin would be used as a boiler fuel to produce electricity. After further research, Lignin may have a higher value as a specialty chemical in the petro-chemical industry to produce a non-toxic replacement base plastics resin useable to produce such things as vehicle side panels and bumpers. The Biofuels Technology would recycle 100% of Municipal Waste delivered to the Mayfair Project plant site by independent private carter/haulers into a stream of inorganic Salvage and organic Celmat. The Salvage would be harvested and sold into local and world salvage markets while the Celmat would be harvested as feedstock for the ethanol fuel production plant for processing into enviro-friendly renewable ethanol fuel at a total net cost of approximately $0.30 per gallon compared to the corn- based method net cost of approximately $1.25 per gallon. The renewable Lignin cost recovery is included in the cost to produce ethanol fuel. At the full 12-Module design and, based upon current studies and information, the Mayfair Project would consist of a Municipal Waste fed recycle plant (the "Recycle Plant"), a Celmat fed ethanol fuel production plant (the "Ethanol Plant") and a Salvage plastic/Lignin/natural gas fired power plant (the "Power Plant"). The design capacity of the Recycle Plant would process approximately 2,000,000 tons per year of Municipal Waste (6,000 tons per day) within a 12-Module design, converting the 2,000,000 tons per year of Municipal Waste into approximately 1,200,000 tons per year of Celmat (3,700 tons per day) which, in turn, would produce approximately 80,000,000 gallons per year of ethanol fuel (240,000 gallons per day). Operations would ramp-up in 4-Module sequences until the 12-Module design becomes fully operational. The total construction/refit cost of the 12-Module design would be approximately $250,000,000 and would require approximately 500 new employees and some 200 construction employees over a 30-month construction period. The Company's former Research Center provided the Company with sufficient data to design and construct the 12-Module design Mayfair Project for the 100% recycle solution to the disposal of Municipal Waste. The 12-Module proprietary design package data is available to entities expressing a written desire to invest funds in the Mayfair Project. Written materials include flow sheets, mass and energy balance, vendor equipment suppliers, construction design, operating plans, insurance guarantees and qualification of the selected construction contractors. All of the Company's R&D has been funded through private sources, which include the construction and operation of two former research pilot plants in Utah. In 1982, the first pilot plant was built at an old west side industrial site and successfully recovered research amounts of alcohol and lignin from Celmat. It consumed 5 tons per 8 hour shift. Almost every waste cellulosic material was tested including Municipal Waste. In 1990, a second pilot plant was scaled-up to process 150 tons per day of Municipal Waste and constructed on the Weber County, Utah landfill. Municipal Waste was chosen as the feedstock due to (1) the prospects of a $60 per ton Tip Fee disposal contract for the feedstock (a negative cost factor) and (2) the 60% by volume Celmat content of the Municipal Waste. The pilot plant successfully recovered a homogeneous Celmat from the Municipal Waste processed and produced commercial amounts of alcohol and lignin from the processed Celmat over an approximate 6-month operating period. In 1994, a third scale up commercial design was completed to produce 7 megawatts of electricity and 25,000 gallons of ethanol fuel from 500 tons per day of Municipal Waste. It was dubbed the commercial "Module" due to its modular design using off-the-shelf equipment and materials. During scale-up plant design, the Company began looking for a site to install the first commercial Module that had Municipal Waste infrastructure, existing Municipal Waste operating permits and Municipal Waste Tip Fee disposal contracts. Municipal Waste is a plentiful feedstock material that can negatively impact health. Its safe and economic disposal is one of the largest expenditures made by most municipalities. While daily volume of waste produced by households and businesses is increasing, so is the opposition to proposed locations for new incinerator plants and landfills. The Company believes that its 100% Municipal Waste recycle Biofuels Technology would provide a socially beneficial, environmentally safe and technologically sound alternative to the problem of Municipal Waste disposal. At the same time it would produce ethanol, an enviro-friendly renewable 112 octane ethanol fuel alternative to gasoline. Any municipality or combination of municipalities that generate 6000 tons of Municipal Waste per day could support a regional 12-Module Mayfair Project. The Mayfair Project debt repayment is anticipated from profits generated by the combination of Tip Fees paid by municipalities for the disposal of Municipal Waste and revenues received from the sale of ethanol fuel produced from the Celmat feedstock obtained from Municipal Waste. The same Tip Fees that municipalities currently pay for Municipal Waste disposal would provide negative cost feedstock for the Celmat fed Ethanol Plant. This would compare to costs of nearly $100 per ton for the same glucose equivalent paid by ethanol producers that use corn feedstock. It is the Tip Fee, electricity sales and ethanol fuel production, made possible by the Company's enviro-friendly proprietary Biofuels Technology that, together, could provide a municipality with the economic recycle and disposal of 100% of the items in Municipal Waste, eliminating the need for future Municipal Waste landfills and incineration plants. The Company expects a substantial interest to develop for its Biofuels Technology for at least 10-years, possible only because the Company believes that each metropolitan area in the Northeast USA would eventually desire to use the Company's 100% recycle Biofuels Technology to dispose of their Municipal Waste. In turn, the Municipal Waste derived Celmat would reduce the direct cost of producing ethanol fuel from about $1.25 per gallon in real terms to about $0.30 per gallon in real terms by substituting low-cost Municipal Waste derived Celmat in place of high-cost corn. The Company expects its business to be profitable above industry averages due to the Tip Fee incentive to recycle rather than landfill and incinerate Municipal Waste, technological advances invented by the Company, and the availability of Municipal Waste (raw materials) in both good and bad economic times (recession-resistance). The Company initiated a search for a way to commercially exploit the Biofuels Technology. Idled plants and plants operating uneconomically, were initially considered the most appropriate and viable alternative, resulting in the development of the South Bend Project, which is based upon refitting operating ethanol plants and operating Municipal Waste incineration plants into biofuels plants utilizing the Company's Biofuels Technology. The Company is still considering this approach with owners of currently operating ethanol plants, Municipal Waste incineration plants and Municipal Waste transfer stations. The Company has previously announced that it was conducting discussions with the City of Philadelphia and with Swatara Coal Company, near Pottsville, Pennsylvania, regarding the possibility of constructing a grassroots Municipal Waste fed ethanol plant complex in those locations. The discussions are continuing, however, the high cost and time required to obtain necessary permits make these options less attractive at this time. Working with its advisors, the Company is currently pursuing the purchase of several permitted Municipal Waste transfer stations located in the Northeast USA. The advantages of purchasing an operating facility are many. An existing transfer station already has permits for receiving Municipal Waste, thereby eliminating the "not in my backyard" opposition that new construction elicits. New permits would be required only for ethanol production and sale. Because the receiving, sorting and recycling operations would already be operational, acquiring an existing recycle facility would require less time for build-out, refit and to construct the Ethanol and Power Plant facilities. At June 27, 2001, the Company had not completed agreements for the purchase of an existing facility, nor is there any guarantee that such agreements would be concluded. On October 25, 2000, the Company executed a second underwriting agreement with Triad Capital Associates ("Triad"), a New Jersey based private placement organization, to obtain a $100,000,000 loan (the "Loan") for the construction and retrofit of an initial 4-Module design Mayfair Project plant at an appropriate site in the Northeast USA. Upon Loan closing, for which there is no assurance, and upon receipt of any Loan draw amount from a lender obtained by Triad, the Company may own less than 100% of a Mayfair Project depending on a number of still unknown factors. At June 27, 2001, the Company had paid Triad and its affiliates initial underwriting fees of $195,000 and had not yet acquired an appropriate plant site. The Company can give no assurance a site would be available, or that if a site is available, that the Company can obtain the permits necessary to operate a Mayfair Project at the site obtained. The Mayfair Project, fundamentally, is only an engineering concept where the Company is contemplating the construction retrofit of an existing industrial Municipal Waste plant complex utilizing the Company's Biofuels Technology to manufacture electricity, ethanol transportation fuel and other saleable products derived and harvested from the contents of Municipal Waste. The Company is pursuing the Loan and other financing ideas through two wholly-owned subsidiaries, Mayfair Energy Corporation, a Pennsylvania corporation, and Biofuels, Inc., a Utah corporation. Final engineering plans and final financial arrangements with unrelated third-parties for the Loan and engineering contracts on the Mayfair Project were not finalized or completed as of June 27, 2001. Government Regulations The Company's business is subject to extensive federal, state and local regulation. Management believes that the Company operations are in material compliance with applicable laws, but is unable to predict what additional government regulations, if any, affecting the Company's business, may be enacted in the future; how existing or future laws and regulations might be interpreted; or whether the Company will be able to comply with such laws and regulations either in the markets in which it presently conducts business or wishes to commence business. There can be no assurance that either the states or the federal government would not impose additional regulations upon the Company's activities which might adversely affect the Company's business. Insurance The Company does not currently have in force general liability insurance coverage but does have renters liability coverage on its headquarters office space. There can be no assurance the coverage limits of the Company's policy would be adequate, or that the Company can obtain liability insurance in the future on acceptable terms, or at all. Environmental Matters The Company is not aware of any pending or threatened claim, investigation, or enforcement action regarding environmental issues which if determined adversely to the Company, would have an adverse effect upon the capital expenditures, earnings, or competitive position of the Company. Employees As of June 27, 2001, the Company had three employees, including two executive officers and one part time employee. In addition, the Company's practice in connection with the Leasing Programs is to contract with geologists and landmen to assist the Company in the preparation of geologic information reports, etc. as needed. None of the Company's employees are represented by a union or subject to a collective bargaining agreement and the Company has never experienced a work stoppage. The Company believes its employee relations to be good. Item 2. PROPERTIES Headquarters The Company's executive offices are located in a 4,000 square foot building. The premises are leased from a non-affiliated party, at an annual rental of approximately $35,000 per year. Such space is shared with Trachyte Oil Company ("Trachyte"), an affiliate of the Company, who pays the Company approximately $11,000 per year for such shared space. Management is of the opinion that such cost is comparable to or below normal rates in the area and believes that such facilities are adequate for the Company needs in the proximate future. Oil and Gas Leaseholds The location and gross and net acreage of the Company's inventory of oil and gas leaseholds at March 31, 2001 was approximately as follows: Location Gross Acres Net Acres Utah 7,234 7,234 Wyoming 6,738 4,799 Montana 4,442 2,961 Total 18,414 14,994 A gross acre consists of 100% of the working interest. A net acre is calculated by gross acres multiplied by the percentage of working interest owned. Item 3. LEGAL PROCEEDINGS None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the Company's shareholders for a vote during the fiscal year ended March 31, 2001. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Price Range of Common Stock The Company's shares of Common Stock are traded on the over the counter Bulletin Board ("OTCBB") electronic quotation service, operated by The Bulletin Board, Inc., an affiliate of The Nasdaq Stock Market, Inc. The following table sets forth the high and low bid quotations of the Company's common stock for the periods indicated, as reported by the OTCBB. The quotations set forth below represent prices between dealers and do not include retail markups, markdowns or commissions and may not represent actual transactions. Bid Price High Low Fiscal Year 2000 First Quarter .......... $ 0.32 $ 0.11 Second Quarter .......... 0.20 0.12 Third Quarter .......... 0.20 0.09 Fourth Quarter .......... 0.21 0.12 Fiscal Year 2001 First Quarter .......... $ 0.24 $ 0.12 Second Quarter .......... 0.36 0.17 Third Quarter .......... 0.30 0.11 Fourth Quarter .......... 0.19 0.11 Fiscal Year 2002 First Quarter .......... $ 0.12 $ 0.25 (through June 27, 2001) Approximate Number of Equity Security Holders: Title of Class holders as of June 27, 2000 Common Stock, par value $0.01 per share: 2,200 Preferred Stock, par value $0.01 per share: None Issued As of June 27, 2001, there were 105,851,974 shares of common stock outstanding and approximately 2,200 stockholders of record. The number of stockholders of record does not include an indeterminate number of stockholders whose shares are held by brokers and fiduciary depositories in "street name". Management believes there are in excess of 3,000 beneficial stockholders of the Company's common stock, including fiduciary depository firms. Dividends The Company has neither declared nor paid any dividends on its Common Stock since the inception of the Company, and the Board of Directors does not contemplate the payment of dividends in the foreseeable future. Any decision as to the future payment of dividends will depend on the earnings and financial position of the Company and such other factors as the Board of Directors may deem relevant. It is the present intention of management to utilize all available funds for the development of the Company's business. Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company's primary oil and gas business, the brokerage of leasehold interests, has not materially changed during the fiscal period ended March 31, 2001 due to the lack of capital to pursue the purchase of new leases. In light of this lack of capital the Company has been exploring other ways of generating revenues due to the increase in crude oil, natural gas and electric power prices during the past year. If these worldwide price increases hold firm for another year, the Company plans to enter the wholesale electric power generation business with one of several energy developers on its Geyser Prospect in Emery County, Utah. During the 2002 fiscal period, the Company continues its R&D efforts to commercialize its Biofuels Technology for the recycle of Municipal Waste into saleable products and the recovery of Celmat, convertible into electricity and ethanol transportation fuel. As a result of these efforts, management believes that the Company has developed what appears to be a commercial application of the Biofuels Technology for its future Mayfair Project. The Mayfair Project details are described in the Mayfair Project Business Plan prepared by the Company and the Scales Group and further described above under the heading Research and Development - Biofuels Technology. There can be no assurance that the required capital will be available to construct the Mayfair Project and there can be no assurance that the Biofuels Technology will perform on a commercial basis. The Company's future operating results will depend on its ability to obtain adequate financing to construct the Mayfair Project. Expenses incurred for the Mayfair Project are currently being accounted for under line item "Research and Development Costs". Results of Operations The Company realized revenues of approximately $54,000 for the fiscal period ended March 31, 2001, compared with approximately $36,000 for the corresponding 2000 fiscal period. Cash requirements during the fiscal 2001 period were obtained from a combination of internally generated cash flow from operations, asset sales, and the sale of the Company's common stock to private individuals to be held for investment only. The Company realized revenues from oil and gas lease royalties of approximately $42,000 for the fiscal period ended March 31, 2001, compared with approximately $25,000 for the corresponding 2000 fiscal period. Oil production revenues continue to increase reflecting current high worldwide crude oil prices which should also create higher oil and gas leasehold sales in future years. Revenues from the sale of the Company's geologic information services were approximately $6,000 for fiscal period ended March 31, 2001, compared with approximately $6,000 for the corresponding 2000 fiscal period. The Company incurred expenses related to the Company's oil and gas leasehold sales of approximately $1,000 for the fiscal period ended March 31, 2001, compared to approximately $4,000 for the comparable fiscal 2000 period. Expenses associated with the Company's geologic information services were approximately $5,000 for the fiscal period ended March 31, 2001, compared to approximately $5,000 for the comparable fiscal 2000 period. General and administrative expense for the fiscal period ended March 31, 2001, were approximately $108,000, compared to approximately $116,000 for the comparable 2000 fiscal period. During the previous three year period all of the Company's R&D costs were expensed under line item general and administrative expense. During the 2001 fiscal period, the Company created a line item for R&D costs to better distinguish expenses between general and administrative expense and the expenses related to its various Biofuels Projects. R&D costs were approximately $246,000 for the fiscal period ended March 31, 2001, compared to approximately $243,000 in fiscal 2000. The Company's net loss for the fiscal period ended March 31, 2001 was approximately $311,000, compared to approximately $336,000 for comparable 2000 fiscal period. The Company anticipates that it will continue to operate at a loss for the 2002 fiscal year, ended March 31, 2002, due to continued R&D costs and costs related to its oil and gas business. The Company does not expect to realize significant cash flows from the sale of leasehold interests, geologic information services, or oil production and exploration activities during the remainder of fiscal 2002, nor does it expect significant leasehold sales in the foreseeable future, unless the domestic oil and gas industry improves with higher oil and gas prices for a sustained period. It will take more than only the past two years of improving prices before exploration companies are convinced that prices have stabilized from low worldwide crude oil prices over the past 15-years. The domestic oil and gas industry is not expected to boom in the short-term due to negative U.S. Government environmental policies toward oil and gas exploration and production in the U.S. The Company has available at March 31, 2001, unused tax operating loss carry forward of approximately $4,200,000 that may be applied against future taxable income through 2020. No tax benefit has been reported in the financial statements, because the Company believes there is 50% or greater chance the carry forwards will expire unused. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation account of the same amount. (See "Consolidated Financial Statements") Financial Condition Management is aggressively exploring additional financing alternatives for ongoing and future operations of the Company and expects to enter into an agreement with the Scales Group for the engineering, management, and construction of the Mayfair Project. There is no assurance that the efforts of management or the Scales Group to locate and secure additional financing will be successful, and the failure to secure the Mayfair Project financing would substantially alter management's assumptions as herein presented. Revenue reduction in the Company's overall oil and gas business is related to effects of the 1986, 1993 and 1998 worldwide collapse of crude oil prices and the corresponding reduced oil and gas brokerage activity of the Company. Because of the reduced activity in its oil and gas business and a 1992 loss of approximately $4,100,000 in Biomass International, Inc. ("Biomass"), a former partially owned biomass material research and development subsidiary, the Company is currently experiencing cash flow difficulties. The Company's most significant assets are (1) its oil and gas production income, (2) its oil and gas leaseholds held for resale, approximating 45,000 net acres at March 31, 2001, including leaseholds acquired under its unrelated third-party agreements, and (3) its plan for the full development of the Mayfair Project. Other assets are; (4) the approximate $4,200,000 tax loss carry forward, and (5) 5,252,556 shares of Biomass. Effective March, 17, 2000, Biomass changed its name to Austin Farms, Inc. ("Austin Farms") to pursue the pig farming business and exit the biomass material research and development business. Due to the proposed issuance of additional shares of Biomass to Austin Farm shareholders, the Company does not expect to hold in excess of 5% of the common stock of Austin Farms upon completion of the transaction and expects to recover little, if any, of its approximate $4,100,000 investment in Biomass represented by 5,252,556 shares of Biomass common stock. At June 27, 2001, the Biomass shares had little value at a bid price of $0.00 and asked $0.05 on the electronic OTC Pink Sheet market system. With little or no volume on a daily basis, sales of the Biomass shares appear impractical in the foreseeable future. In order to continue in existence the Company is in need of additional financing from outside sources or from internal operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management can give no assurances that it will be successful in its endeavors to resolve its cash flow difficulties or that it will be able to retain and ultimately recover its costs in oil and gas leaseholds held for resale. The financial statements do not include any adjustments relating to the amounts and classification of assets, liabilities, income or expenses that might be necessary should the Company be unable to successfully resolve these uncertainties and continue in existence. The Company foresees a need for additional equity financing in order to continue in existence, and may, in the future, seek to raise additional funds through asset sales, bank and/or other loans, debt, or equity offerings. Any such equity offerings, asset sales, or other financing may either be private or public and may result in substantial dilution to the then existing shareholders of the Company. Because of uncertainties existing in the domestic oil and gas industry and the Mayfair Project, the Company is not in a position to forecast future earnings or cash flow. The Company's future is very fluid and largely dependent on factors outside of its management's control. For the period ended March 31, 2001, Dean W. Rowell, the President of the Company, continues to secure and guarantee loans for the Company: (1) He has guaranteed two credit cards up to $110,000 with an outstanding balance of approximately $108,000 at the end of the period, and (2) he continues to loan the Company funds through his 100% owned privately-held Utah corporation, Trachyte with an outstanding loan balance of approximately $400,850, plus interest of $54,428 for a total of $455,278 at the period ended March 31, 2001. Expenses incurred under the use of the credit cards are being accounted for under line item "Revolving Line of Credit" and expenses incurred under the loan agreement are being accounted for under line item "Notes payable to related parties". These amounts largely offset the Company's cash flow difficulties and its annual operating deficit of approximately $352,000. (See "Consolidated Financial Statements"). Since fiscal 1991, Trachyte has materially supported the Company financially largely due to Rowell's efforts to secure loans from Trachyte for the Company. The several transactions with Trachyte have provided the financial means for the Company to pursue its R&D of the Biofuels Technology and the commercialization of the Project, otherwise the Company would have been unable to pursue these goals. Final plans and final financial arrangements had not been completed for the Project at June 27, 2001. Plan of Operation There have been no significant changes in capitalization or financial status during the past two years that are not reflected in the financial statements. The Company's plan of operation during the next twelve (12) months includes the following: 1. Aggressively pursue financing for the Mayfair Project with its underwriter, other current financial contacts and attorneys. 2. Continue R&D, testing Municipal Waste processing equipment and testing existing and newly developed cellulose enzymes. 3. Continue design and development of the Mayfair Project. 4. Aggressively pursue oil and gas lease acquisition with third party investors and investigate the possibility of entering into the wholesale electric power generation business. 5. Engage an investor relations representative to disseminate information about the Company, its technologies, the Mayfair Project and the wholesale electric power generation business. Inflation Inflation continues to apply moderate upward pressure on the cost of goods and services including those purchased by the Company. Management believes the net effect of inflation on operations has been minimal during the past two years. Recent Accounting Pronouncements There are no recent accounting pronouncements that will have a material impact on the Company's financial statements. Management's Conflicts of Interest Material conflicts of interest exist and will continue to exist between the Company and Trachyte, and 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 June 27, 2001, Rowell beneficially owned approximately 48% of the common stock of the Company and 100% of the common stock of Trachyte. 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. Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is submitted as a separate section at the rear of this Form 10-KSB report. Item 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT A. Identification of Directors and Executive Officers. The current directors and executive officers of the Company, who will serve until the next annual meeting of shareholders or until their successors are elected or appointed and qualified, are set forth below: Name Age Position Dean W. Rowell 63 CEO/President/Chairman Pamela K. Nelson 43 Vice President/Secretary Michael M. Cannon 53 Director Dean W. Rowell has been Chairman of the Board, President and Chief Executive Officer and Chief Financial Officer of the Company since its inception in April 1978 and was last elected by shareholders in 1996. Mr. Rowell has been involved in the oil and gas exploration and production industries for over 40 years. Prior to serving in his present capacities with the Company, he served as the president of a number of privately-held energy related companies. Mr. Rowell is also a director and President of the Company's wholly-owned subsidiaries, PIC, EnviroSystems, Biofuels, Trashfuel Inc., and Mayfair Energy Corporation. Mr. Rowell devotes approximately 80% of his time to the Company. Pamela K. Nelson was last elected in 1996 and has been a Director of the Company since September 1978 and became a Vice President of the Company in 1979 and Corporate Secretary in 1983. Ms. Nelson has been involved in landwork and leasing services to the oil and gas industry for the last 25 years. Ms. Nelson is also a director, Vice President, Corporate Secretary and Manager of land and lease operations for the Company's wholly-owned subsidiary, PIC. She is a director, Vice President, Corporate Secretary of EnviroSystems, Biofuels, Trashfuel Inc., and Mayfair Energy Corporation, all wholly-owned subsidiaries of the Company. She devotes all of her paid time to the Company. Michael M. Cannon, a cum laude graduate of the University of Utah, joined the Company in March 1982 and in September 1982 became a Vice President and Director, with responsibility for marketing and corporate communications. From January 1979 to March 1982, Mr. Cannon was President of an advertising and public relations agency, Cannon Communications, a substantial number of whose clients were members of the United States House of Representatives and the Senate. From November 1976 to January 1979, Mr. Cannon served as the press secretary for Gunn McKay, a United States Representative from the State of Utah. In 1985 Mr. Cannon served as a state director of the Independent Petroleum Association of Mountain States and was. Mr. Cannon is presently self-employed as a consultant in the Communications industry. Mr. Cannon resigned as an Officer of the Company, effective July 1, 1985, but remains as an outside Director being last elected in 1996, Mr. Cannon has been associated with the Company for over 15-years, and is a director of the Company's wholly-owned subsidiaries, PIC, and EnviroSystems. Each Director shall hold office until the next annual meeting of shareholders or until his successor shall have been duly elected and qualified. Officers are elected annually by, and serve at the pleasure of, the Board of Directors. B. Significant Employees. None. C. Family Relationships. There are no family relationships among the Company's officers and directors. D. Other Involvement in Certain Legal Proceedings. There have been no events under the bankruptcy act, no criminal proceedings and no judgements or injunctions material to the evaluation of the ability and integrity of any executive officer of the Company in last five years. E. Administrative Action. On January 10, 2001, the Securities and Exchange Commission (the "Commission") issued an Order pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") against Dean W. Rowell ("Rowell") requiring Rowell to cease and desist from committing or causing any violations or future violations of Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1, 13d-2, 16a-3 thereunder. Rowell, without admitting or denying the allegations in the Commission's Order, consented to the entry of the Order finding that: (1) he failed to timely file a Schedule 13D and thirty-one amendments thereto, resulting in delinquencies ranging from three weeks to nineteen years and nine months; and (2) he failed to timely file a Form 3, failed to timely file seventy-five Forms 4 (with delinquency period ranging from three weeks to seventeen years and ten month), and three Forms 5 (with delinquency period ranging from five years and ten months to seven years and eleven months. Simultaneously with the entry of the Commission's Order, the Commission filed a civil action against Rowell pursuant to Section 21(d)(3) of the Exchange Act alleging violations of the ownership reporting provisions and seeking from Rowell a civil penalty. Without admitting or denying the Commission's allegations, Rowell consented to entry of a final judgement imposing a penalty of $10,000 which penalty Rowell paid to the Commission on January 17, 2001. On January 10, 2001, the Commission issued an Order pursuant to Section 21C of the Securities Exchange Act of 1934 against Pamela K. Nelson ("Nelson") requiring Nelson to cease and desist from committing or causing any violations or future violations of Sections 13(g) and 16(a) of the Exchange Act and Rules 13d-1, 13d-2, 16a-3 thereunder. Nelson, without admitting or denying the allegations in the Commission's Order, consented to the entry of the Order finding that: (1) she failed to timely file a Schedule 13G and one amendment thereto, resulting in delinquencies of more than eleven years and three months, and ten years and seven months, respectively; and (2) failed to timely file a Form 3, failed to timely file twenty-four Forms 4 (with delinquency periods ranging from more than one month to more than twelve years and eleven months), and three Forms 5 (with delinquency periods ranging from more than five years and ten months to seven years and ten months). Nelson was not penalized in this action. F. Compliance With Section 16(a). Section 16 of the Securities Act of 1934 requires the filing of reports for sales of the Company's common stock made by officers, directors and 10% or greater shareholders. A Form 3 and Form 4 must be filed within ten days after the end of the calendar month in which a sale or purchase occurred. In the alternate, a Form 5 may be filed within 45 days after the end of the Company's fiscal year. Based upon the review of Form 4, Form 3, and/or Form 5 filed with the Company, the Company is not aware of any delinquent filings of such forms by any reporting person. Item 10. EXECUTIVE COMPENSATION The following table sets forth the aggregate compensation paid by the Company for services rendered during the last three years to the Company's Chief Executive Officer and to the Company's most highly compensated executive officers other than the CEO, whose annual salary and bonus exceeded $100,000: SUMMARY COMPENSATION TABLE Annual Compensation Other Annual Restrict Name and Principal Commissions Compensation Stock Options Position Year Salary And Bonuses (Auto) Awards SAR's Dean W. Rowell 2001 $ -0- -0- $4,000 -0- -0- President/CEO 2000 $ -0- -0- $4,000 -0- -0- 1999 $ -0- -0- $4,000 -0- -0- None of the Company's executive officers received aggregate cash and cash equivalent compensation exceeding $100,000 in any of the last three fiscal years. No options to purchase any of the Company's securities were granted to any reporting person during the fiscal year ended March 31, 2001. During the same period, Rowell elected to sell stock in the Company due to limited corporate cash flow to partially compensate Rowell in absence of a salary. Compensation Pursuant to Plans None of the executive officers of the Company are parties to an employment agreement with the Company. Dean W. Rowell, the Company's Chairman of the Board, President, Chief Executive and Chief Financial Officer will continue to serve the Company as determined by the Board of Directors without a salary or employment agreement. On April 1, 1997, the Company discontinued the practice of providing Rowell a credit card but continues to provide Rowell with an automobile at a cost of approximately $4,000 per year. The Company has no other "plans" (as such term is used in Item 402 of Regulation S-K) with respect to further executive compensation. Other Compensation Not applicable. Compensation of Directors Directors of the Company receive no compensation for services as such. Termination of Employment and Change of Control Arrangements Not applicable. Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number of shares beneficially owned, as of June 27, 2001, by each Director of the Company, by all officers and Directors as a group and by all persons known to the Company as owning or possessing voting control over five (5%) percent or more of the Company's outstanding shares of Common Stock: Number Percentage of Shares of Shares Name and Address Owned Outstanding Dean W. Rowell (1) 50,913,781 48.1% Pamela K. Nelson 2,792,100 2.6% Michael M. Cannon 13,000 .0% All Officers and Directors as a group 53,718,881 50.7% ___________ (1) This figure includes all of the shares owned by Trachyte. Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Management and Others Geologic and other information which 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 participa- tion in the Leasing Programs. During the nine year period 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 the Mayfair Project, otherwise the Company would have been unable to pursue this goal. Final plans and final financial arrangements had not been completed for the Mayfair Project as of June 27, 2001. During the fiscal period ended March 31, 2001, the Company continued to experience severe cash flow difficulties which have continued into the 2002 fiscal period. Since the Company has been unable to repay any of the loans from Trachyte during the past two fiscal periods, Trachyte has received a demand note from the Company, including interest at 12% per annum, with a principal and interest balance at March 31, 2001 of approximately $455,000. Neither Rowell nor Trachyte received any common stock in exchange for debt forgiveness during the fiscal period ended March 31, 2001. On July 15, 1996, the Company formed Biofuels, Inc. ("Biofuels"), a wholly-owned subsidiary, for the purpose of investing in and developing the Biofuels Technology for the Mayfair Project. This effort was centered on management's belief that a Celmat to ethanol technology could be commercialized, based on the Company's extensive experience at its former research center from 1982 through 1992, and its experience in developing the Mayfair Project with the Scales Group through June 27, 2001. Forward Looking Statements The forgoing discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operation" contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Act") and Section 21E of the Act, which reflect Managements current views with respect to the future events and financial performance. The Company cautions that words used in this document such as "experts", "anticipates", "believes" and "may" as well as similar words and expressions identify and refer to statements describing events that may or may not occur in the future, including among other things, statements relating to anticipated growth and increased profitability, as well as to statements relating to the Company's strategic plan, including plans to develop the Mayfair Project and to selectively acquire other companies. These forward-looking statements and the matters to which they refer to are subject to considerable risks and uncertainties that may cause actual results to be materially different from those described in this document, including, but not limited to future financial performance and future events, competitive pricing for services, costs of obtaining capital as well as national, regional and local economic conditions. Actual results could differ materially from those addressed in the forward- looking statements. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this Form 10-KSB report. Indebtedness of Management Reference is made to Section above entitled "Transactions with Management and Others". Parents of Company The only parents of the Company, as defined in 12b-2 of the Exchange Act, are the officers and directors of the Company. For information regarding the share holdings of the Company's officers and directors, see Item 11. PART IV Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. The Exhibits which are filed with this Report or which are incorporated by reference are set forth in the Exhibits Index below. B. The Company filed no Form 8-K during the fiscal year ended March 31, 2001. The financial statement information required by this portion of Item 13 is submitted as a separate section at the rear of this Report. Exhibits to Form 10-KSB NONE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. STANDARD ENERGY CORPORATION By: /s/ Dean W. Rowell Dean W. Rowell President June 27, 2001 Salt Lake City, Utah Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: Signature Capacity Date /s/ Dean W. Rowell President and Director June 27, 2001 Dean W. Rowell (Principal Executive, Financial and Accounting Officer) /s/ Pamela K. Nelson Vice President June 27, 2001 Pamela K. Nelson Corporate Secretary, Treasurer and Director /s/ Michael M. Cannon Director June 27, 2001 Michael M. Cannon STANDARD ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 C O N T E N T S Independent Auditors' Report...............................3 Consolidated Balance Sheet.................................4 Consolidated Statements of Operations......................6 Consolidated Statements of Stockholders' Equity (Deficit)..7 Consolidated Statements of Cash Flows......................8 Notes to the Consolidated Financial Statements.............9 INDEPENDENT AUDITORS' REPORT Board of Directors Standard Energy Corporation Salt Lake City, Utah We have audited the accompanying consolidated balance sheet of Standard Energy Corporation and Subsidiaries at March 31, 2001 and the related statements of operations, stockholders' equity and cash flows for the years ended March 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion of these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects, the consolidated financial position of Standard Energy Corporation and Subsidiaries as of March 31, 2001 and the consolidated results of their operations and their cash flows for the years ended March 31, 2001 and 2000, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has incurred significant losses, which have resulted in working capital and accumulated deficits, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 7. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. HJ& Associates Salt Lake City, Utah June 6, 2001 STANDARD ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, 2001 ASSETS CURRENT ASSETS Cash $ 10,106 Total Current Assets 10,106 PROPERTY AND EQUIPMENT, net (Note 2) 10,500 INVESTMENT IN OIL AND GAS PRODUCING PROPERTIES, net of depletion of $92,970 (Note 3) - OTHER ASSETS Cash surrender - life insurance 867 Oil and gas leases held for resale (Note 3) 71,653 Pledged drilling bonds (Note 3) 25,000 Total Other Assets 97,520 TOTAL ASSETS $ 118,126 The accompanying notes are an integral part of these consolidated financial statements STANDARD ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) March 31, 2001 CURRENT LIABILITIES Accounts payable and accrued expenses $ 96,117 Revolving line of credit 107,739 Note payable - related party (Note 5) 400,850 Total Current Liabilities 604,706 STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, par value $0.01 per share authorized 10,000,000 shares, no shares issued and outstanding - Common Stock; par value $.01 per share; 200,000,000 shares authorized; 105,851,974 shares issued and outstanding 1,058,519 Additional paid-in capital 7,479,073 Treasury stock (83,253) Accumulated deficit (8,940,919) Total Stockholders' Equity (Deficit) (486,580) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 118,126 The accompanying notes are an integral part of these consolidated financial statements STANDARD ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended March 31 2001 2000 REVENUES Oil and gas leasehold interest $ 5,888 $ 5,888 Oil and gas information services 6,000 5,160 Oil and gas lease royalties 41,735 24,950 Total Revenues 53,623 35,998 EXPENSES Oil and gas information services 5,343 5,042 Oil and gas leasehold interests 837 3,974 Depreciation, depletion and amortization 4,000 4,000 Research and development costs (Note 6) 246,315 242,672 General and administrative 107,758 116,317 Total Expenses 364,253 372,005 OPERATING LOSS $ (310,630) $ (336,007) Interest income and other 14,343 1,315 Interest expense (56,022) (18,049) Total Other Income (Expense) (41,679) (16,734) LOSS BEFORE EXTRAORDINARY GAIN (352,309) (352,741) EXTRAORDINARY GAIN Gain on forgiveness of debt (Note 10) - 44,882 Total Extraordinary Gain - 44,882 INCOME TAX EXPENSE - - NET LOSS $ (352,309) $(307,859) BASIC AND DILUTED LOSS PER SHARE $ (.00) $ (.00) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 104,738,582 104,689,415 The accompanying notes are an integral part of these consolidated financial statements STANDARD ENERGY CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity For the Years Ended March 31, 2001 and 2000 Additional Treasury Stock Common Stock Paid-in Accumulated Shares Amount Shares Amount Capital Deficit Balance, March 31, 1999 1,037,420 $ (83,253) 104,407,974 $ 1,044,079 $ 7,339,503 $(8,280,751) Common stock issued for cash at approximately $0.10 per share - - 854,000 8,540 73,470 - Net loss for the year ended March 31, 2000 - - - - - (307,859) Balance, March 31, 2001 1,037,420 (83,253) 105,261,974 1,052,619 7,412,973 (8,588,610) Common stock issued for cash at $0.10 to $0.15 per share - - 590,000 5,900 66,100 - Net loss for the year ended March 31, 2001 - - - - - (352,309) Balance, March 31, 2001 1,037,420 $ (83,253) 105,851,974 $ 1,058,519 $ 7,479,073 $(8,940,919) The accompanying notes are an integral part of these consolidated financial statements STANDARD ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended March 31 2001 2000 CASH FLOWS FROM OPERATING ACTIVITES Net loss $ (352,309) $ (307,859) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation, depletion and amortization 4,000 4,000 Gain on forgiveness of debt - (44,882) Changes in assets and liabilities: Decrease in accounts receivable and other assets - 10,000 Increase in accounts payable and accrued expenses 60,074 30,284 Net Cash Used by Operating Activities (288,235) (308,457) CASH FLOWS FROM INVESTING ACTIVITIES Cash value - life insurance (867) - Net Cash Used by Investment Activities (867) - CASH FLOWS FROM FINANCING ACTIVITIES Payments on notes payable - related parties (45,650) - Proceeds from notes payable - parties 285,500 128,273 Proceeds from notes payable - 30,000 Proceeds from lines of credit 13,497 62,431 Proceeds from issuance of common stock 42,000 82,010 Net Cash Provided by Financing Activites 295,347 302,714 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,245 (5,743) CASH AT BEGINNING OF YEAR 3,861 9,604 CASH AT END OF YEAR $ 10,106 $ 3,861 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION CASH PAID FOR: Interest $ 2,647 $ 3,425 Income taxes $ - $ - NON CASH FINANCING ACTIVITIES Common stock issued for debt $ 30,000 $ - The accompanying notes are an integral part of these consolidated financial statements STANDARD ENERGY CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements March 31, 2001 and 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Company was organized under the laws of the State of Utah on April 3, 1978. The Company's principal business activity is the acquisition and resale of unproven oil and gas leaseholds. The Company also provides a variety of geologic lease evaluation services and information. Further, the Company receives royalty income from leasehold interests held by the Company. Principles of Consolidation The consolidated financial statements include the accounts of Standard Energy Corporation and its wholly-owned subsidiaries, Standard EnviroSystems, Inc., Petroleum Investment Company, Petroleum Map Service Company and Mayfair Energy Corporation (formerly known as Mayfair Trashfuel Corporation) (the Company). Significant intercompany accounts and transactions have been eliminated in consolidation. Oil and Gas Leasehold Interest Held for Resale The Company's inventory of oil and gas leasehold interests held primarily for resale to other parties is valued at the lower of the costs to acquire the interests or market. Cost of sales is based on the cost of the specific leasehold interest sold. Oil and Gas Activities The Company follows the successful efforts method of accounting for its oil and gas exploration and production activities as prescribed by Statement No. 19 of the Financial Accounting Standards Board. Property and Equipment Property and equipment are valued at cost and, except for oil and gas properties, are depreciated or amortized principally by the straight-line method over their estimated useful lives. The useful lives of property and equipment for purposes of financial reporting range from five to seven years. Provisions for Taxes At March 31, 2001, the Company had net operating loss carryforwards of approximately $5,25,309 that may be offset against future taxable income through 2020. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation account of the same amount. STANDARD ENERGY CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements March 31, 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Provisions for Taxes (Continued) The income tax benefit differs from the amount computed at federal statutory rates of approximately 38% as follows: For the Years Ended March 31, 2001 2000 Income tax benefit at statutory rate $(133,877) $(116,986) Change in valuation allowance 133,877 116,986 $ - $ - Deferred tax assets (liabilities) are comprised of the following: For the Years Ended March 31, 2001 2000 Income tax benefit at statutory rate $(3,397,549) $(3,263,372) Change in valuation allowance 3,397,549 3,263,372 $ - $ - Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. Basis Loss Per Share The computation of basic loss per share of common stock is based on the weighted average number of shares of common stock outstanding during the periods presented. Common stock equivalents have not been included because they are antidilutive in nature. For Year Ended March 31, 2001 Loss Shares Per Share (Numerator) (Denominator) Amount $ (352,309) 104,738,582 $ (.00) For Year Ended March 31, 2000 Loss Shares Per Share (Numerator) (Denominator) Amount $ (307,859) 104,689,415 $ (.00) STANDARD ENERGY CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements March 31, 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash Flows Statement For purposes of statements of cash flows, the Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the 2000 financial statements to conform to the current year's presentation. NOTE 2 - PROPERTY AND EQUIPMENT The following is a summary of property and equipment - at cost, less accumulated depreciation as of March 31, 2001: Computers $ 7,711 Furniture and fixtures 51,393 Printing systems 35,648 Well and land files and maps 305,000 Total 399,752 Less: accumulated depreciation (389,252) Total $ 10,500 Depreciation expense for the years ended March 31, 2001 and 2000 was $4,000 and $4,000, respectively. NOTE 3 - OIL AND GAS PROPERTIES The Company's primary oil and gas businesses, brokerage of leasehold interests and sales related to its information services, have decreased significantly over the past few years. At March 31, 2001 the Company was holding approximately $95,000 of oil and gas leases for resale. In 1998, an allowance of $23,811 was set up for possible unsaleable leases in the Grand Staircase Escalante National Park. The Company has negotiated agreements with certain non affiliates to provide capital to jointly participate in a leasing program for oil and gas leases. Under these agreements, the Company provides raw data and services to identify potential leases. STANDARD ENERGY CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements March 31, 2001 NOTE 3 - OIL AND GAS PROPERTIES (Continued) The Company earns approximately 40% gross interest in each leasehold obtained. Because the Company has no cost in the leases, its share of the net proceeds is recognized as revenue when the leases are sold and are recorded as sales of oil and gas leasehold interests. In connection with its lease brokerage activities, the Company has included in other assets pledged certificates of deposit in the amount of $25,000 which are to secure a statewide oil and gas lease bond in the State of Utah and an individual lease bond in the State of Wyoming. NOTE 4 - COMMITMENTS AND CONTINGENCIES Office Lease The Company leases its office space on a month-to-month basis. NOTE 5 - RELATED PARTY TRANSACTIONS The Company signed a $50,000 note payable to Trachyte Oil Company on March 31,1998. The note bears interest at 12.00% and is due upon demand. The note is unsecured and has increased as funds have been advanced. The balance due at March 31, 2001 was $400,850. NOTE 6 - PROJECT COSTS During the year ended March 31, 2001, the Company spent $246,315 on project costs associates with the Mayfair Energy Project (the Project) near Bridgewater township Somerset County, New Jersey. The Company entered into a loan agreement on May 4, 2000, whereby the Company will borrow $75,000,000 for Phase I of the Project. Upon completion of Phase I, the lender will provide $100,000,000 of financing for Phase II, and upon completion of Phase II, they will provide $100,000,000 of financing for Phase III. The lender requires a 45% equity position in the ownership of the Project. The terms of the note include monthly interest only payments calculated using the six month Libor rate plus 3%, with a minimum to be not less than 9%, the rate being fixed for the term of loan at settlement. The term of the loan is a five year balloon with two (2) one year extensions. One hundred percent (100%) of net profits is to be applied to principal prior to any dividends payments to shareholders. The loan is to be secured by any and all property, including the equipment, furniture, and fixtures of the Project. NOTE 7 - GOING CONCERN These financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses in the past which have resulted in working capital and accumulated deficits. These deficits have been caused primarily from the Company's investment in Biomass International, Inc. (a development stage company) and significantly reduced revenues from sales of its oil and gas leasehold interests and information services. STANDARD ENERGY CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements March 31, 2001 NOTE 7 - GOING CONCERN (Continued) Because of the currently depressed conditions in the oil and gas industry, coupled with the Company's cash flow difficulties, the Company's ability to retain and ultimately recover its investments in oil and gas leaseholds held for resale and other assets of the Company, is uncertain at this time. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in this regard are to seek additional financing through loans or through the issuance of equity securities and to seek increased sales related to its oil and gas businesses. However, management can give no assurance that it will be successful in its endeavor to resolve its cash flow difficulties or that it will be able to retain and ultimately recover its cost in oil and gas leaseholds held for resale and the other assets of the Company. The financial statements do not include any adjustments relating to the recognizability and classification of liabilities, income or expenses that might be necessary should the Company be unable to continue as a going concern. NOTE 8 - CAPITAL STOCK Preferred Stock The Company has authorized 10,000,000 shares of preferred stock, $0.01 par value with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors. No shares are issued and outstanding at March 31, 2001. NOTE 9 - INDUSTRY SEGMENTS The Company operates in three principal industries: oil and gas information services, brokerage of oil and gas leasehold interests and oil and gas exploration and production. Information as to the Company's segments is summarized below as of March 31 for the years then ended: 2001 2000 Revenues Oil and gas information services $ 6,000 $ 5,160 Exploration and oil and gas leases 41,735 24,950 Corporation and investment 5,888 5,888 $ 53,623 $ 35,998 Operating Profit (Loss) Before Extraordinary Items Oil and gas information services $ (5,343) $ (5,042) Brokerage of leasehold interests (837) (3,974) Exploration and oil and gas leases 41,735 24,950 Corporation and investment (264,073) (359,161) $(228,518) $(336,007) STANDARD ENERGY CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements March 31, 2001 NOTE 9 - INDUSTRY SEGMENTS (Continued) 2001 2000 Identifiable Assets Oil and gas information services $ 8,500 $ 11,000 Brokerage of leasehold interests 71,563 71,653 Exploration and production 25,000 25,000 Corporation and investment 13,063 13,104 $118,126 $ 120,757 Depreciation, Depletion and Amortization Oil and gas information services $ 4,000 $ 4,000 The Company has no intersegment sales or sales to affiliated customers. Operating loss consists of total revenues less total expenses, except for interest expense which has not been allocated to any segment. Identifiable assets by segment represent those assets that are used in the Company's operations in each industry. Corporate assets which are not allocated to any segment are principally cash, short-term investments, marketable securities and a portion of property and equipment. Capital expenditures in fiscal 2001 and 2000 were insignificant. The Company's oil and gas exploration and production operations are presently insignificant and no reserve information is available. NOTE 10 - GAIN ON RELEASE OF DEBT During the year ended March 31, 2000, the Company recognized a gain on release of debt of $44,882 which related to potential payroll taxes recorded in 1992, 1993 and 1994. The Company obtained a legal opinion that the statute of limitations had expired.