ITEM 1. DESCRIPTION OF BUSINESS.
Following the September 2007 transactions with Romfor West Africa and PBT Capital Partners, LLC, both of which are described later in this section under “Our History,” we do not have any business or operations and are considered a "shell" company under Federal securities laws. We are actively seeking to acquire assets or shares of an entity actively engaged in business which generates revenues, in exchange for our securities. Our purpose is to seek, investigate and, if such investigation warrants, acquire an interest in business opportunities presented to us by persons or firms who or which desire to seek the perceived advantages our company may offer. We will not restrict our search to any specific business, industry, or geographical location and we may participate in a business venture of virtually any kind or nature. This discussion of the proposed business is purposefully general and is not meant to be restrictive of our virtually unlimited discretion to search for and enter into potential business opportunities. Management anticipates that it may be able to participate in only one potential business venture because we have nominal assets and limited financial resources. This lack of diversification should be considered a substantial risk to our stockholders because it will not permit us to offset potential losses from one venture against gains from another.
We may seek a business opportunity with entities which have recently commenced operations, or which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. We may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries. We anticipate that the selection of a business opportunity in which to participate will be complex and extremely risky. Due to general economic conditions, rapid technological advances being made in some industries and shortages of available capital, management believes that there are numerous firms seeking the perceived benefits of a publicly registered corporation. These perceived benefits may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes), for all stockholders and other factors. Potentially, available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.
The analysis of new business opportunities will be undertaken by, or under the supervision of, Mr. David S. Rector, our Chief Executive Officer, who may not be considered a professional business analyst. Mr. Rector will be the key person in the search, review and negotiation with potential acquisition or merger candidates. We intend to concentrate on identifying preliminary prospective business opportunities which may be brought to our attention through present associations of Mr. Rector and legal counsel or by our stockholders. In analyzing prospective business opportunities, we will consider such matters as:
•
the available technical, financial and managerial resources;
•
working capital and other financial requirements;
•
history of operations, if any;
•
prospects for the future;
•
nature of present and expected competition;
•
the quality and experience of management services which may be available and the depth of that management;
•
the potential for further research, development, or exploration;
•
specific risk factors not now foreseeable but which then may be anticipated to impact our proposed activities;
•
the potential for growth or expansion;
•
the potential for profit;
•
the perceived public recognition of acceptance of products, services, or trades; name identification; and
•
other relevant factors.
We will not acquire or merge with any company for which audited financial statements cannot be obtained within the time period prescribed by applicable rules of the United States Securities and Exchange Commission which is presently four business days from the closing date of the transaction. This requirement for readily available audited financial statement may require us to preclude a transaction with a potential candidate which might otherwise be beneficial to our stockholders.
We will not restrict our search for any specific kind of company, but may acquire a venture which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its corporate life. It is impossible to predict at this time the status of any business in which we may become engaged, in that such business may need to seek additional capital, may desire to have its shares publicly traded, or may seek other perceived advantages which we may offer. However, we do not intend to obtain funds in one or more private placements to finance the operation of any acquired business opportunity until such time as we have successfully consummated such a merger or acquisition.
In implementing a structure for a particular business acquisition, we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. We may also acquire stock or assets of an existing business. On the consummation of a transaction, it is probable that our present management and stockholders will no longer be in control of our company. In addition, our sole director may, as part of the terms of the acquisition transaction, resign and be replaced by new directors without a vote of our stockholders.
We anticipate that any securities issued in any such reorganization would be issued in reliance upon exemption from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of a transaction, we may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter. If such registration occurs, of which there can be no assurance, it will be undertaken by the surviving entity after we have successfully consummated a merger or acquisition and we are no longer considered a "shell" company. Until such time as this occurs, we will not attempt to register any additional securities. The issuance of substantial additional securities and their potential sale into any trading market which may develop in our securities may have a depressive effect on the value of our securities in the future, if such a market develops, of which there is no assurance.
Employees
We do not have any employees. Mr. Rector, our Chief Executive Officer, provides services to us under the terms of a compensation arrangement with a company that he controls. Mr. Rector is involved in other business activities and devotes his time and attention to our business on a part-time basis as needed.
Our History
We were originally formed as a Nevada corporation on July 27, 2001, under the name Online Holdings, Inc. Subsequently on September 1, 2006, pursuant to an Agreement and Plan of Merger dated July 24, 2006 by and among our company, Standard Drilling Acquisition Co., a Delaware corporation (“Standard Drilling Acquisition”), and Standard Drilling, Inc., a Delaware corporation (“Standard Drilling Delaware”), Standard Drilling Acquisition was merged with and into Standard Drilling Delaware, and Standard Drilling Delaware became our wholly-owned subsidiary. As a result of the merger, our company, which previously had no material operations, acquired the business of Standard Drilling Delaware. In conjunction with the merger, we changed our name to Standard Drilling, Inc.
Upon the consummation of the merger each outstanding share of common stock of Standard Drilling Delaware was converted into one share of our common stock. All outstanding options and warrants to purchase common stock of Standard Drilling Delaware were assumed by us and converted into options and warrants to purchase an equal number of shares of our common stock on the same terms and conditions. The merger resulted in a change of control of our company, with the former security holders of Standard Drilling Delaware owning approximately 91.4% of the our outstanding common stock, or approximately 94% assuming the exercise of all outstanding options and warrants, following the closing of the merger.
In the merger, we exchanged 41,223,000 shares of our common stock for 41,223,000 shares of common stock of Standard Drilling Delaware and reserved for issuance:
•
10,800,300 shares of common stock pursuant to outstanding warrants to purchase common stock of Standard Drilling Delaware that were assumed by us, and
•
8,520,000 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 us.
In connection with the merger, Standard Drilling Delaware paid us $60,000 as a deposit pursuant to the Merger Agreement. A condition to the merger was an agreement by our then principal stockholder to cancel, immediately prior to the merger, 20,000,000 outstanding shares of our common stock that had been issued to the principal stockholder. In consideration of such cancellation, we paid the principal stockholder $60,000, and Standard Drilling Delaware recognized recapitalization expense of $60,000. Our then principal stockholder also assumed our net liabilities.
Following this transaction, we were organized to provide contract land drilling services to independent and major oil and gas exploration and production companies. We constructed, owned and operated land drilling rigs.
On June 5, 2007, we entered into a purchase and sale agreement with Romfor West Africa, a subsidiary of Romfor Supply Company, Inc. ("Romfor") to sell our sole, completed 1,500 horsepower land-drilling rig ("Rig 1") for a gross purchase price of $7,800,000. At the time of the signing of the purchase and sale agreement, Romfor was our largest individual creditor and Rig 1 represented substantially all of our assets. The purchase and sale agreement for Rig 1 closed on September 24, 2007.
On September 24, 2007, we also entered into an Asset Purchase Agreement with PBT Capital Partners, LLC (“PBT”), a private company whose sole shareholder is Prentis B. Tomlinson, Jr., who was our Chairman and Chief Executive Officer at the time we entered into the agreement. Under the terms of the Asset Purchase Agreement, PBT assumed substantially all of our assets and associated and contingent liabilities in return for leaving not less than $839,068 in cash in our company and providing us a note payable in the amount of $600,000 which was due on or before December 31, 2007 and guaranteed by Mr. Tomlinson. In connection with the Asset Purchase Agreement, $833,389 of the amount owed by us under an interim credit agreement was forgiven and we transferred all of the shares of our former wholly-owned subsidiary, Standard E& P, Inc., to PBT. Additionally, in connection with the Asset Purchase Agreement, PBT assumed our obligations under our office space lease, our employment agreements with our various officers and directors and certain severance agreements we entered into with our former officers and directors.
We retained all of the liabilities relating to certain obligations, including:
• the Advisory Consulting Agreement between us and International Capital Advisory, Inc. Under the terms of this 36 month agreement entered into in June 2006, International Capital Advisory, Inc. was retained to provide certain business advisory services for a monthly fee of $10,000 plus reimbursement of reasonable expenses;
• the Support Services Agreement between us and Petroleum Financial Inc. which represented a liability of $35,000. In January 2008 this agreement was mutually terminated upon our payment to Petroleum Financial Inc. of $23,500, and
• the obligation to continue to provide healthcare benefits to David Wilson, our former Manager of Operations under the terms of his severance agreement until February 2009. To satisfy this obligation we retained coverage for Mr. Wilson as part of the insurance coverage provided to us under a commercial policy.
In connection with the Asset Purchase Agreement with PBT, in September 2007 and October 2007, we entered into mutual releases with various of our former officers, directors and parties who we had previously entered into agreements with, including:
• Romfor West Africa, Ltd.
• Prentis B. Tomlinson, Jr., our former Chairman and Chief Executive Officer,
• O. Oliver Pennington, III, our former Vice President and Chief Financial Officer,
• E.L. Moses, Jr., our former President, Chief Operating Officer and director,
• W. Richard Andersen, our former director,
• Peter F. Frey, Treasurer, and
• Daniel A. Drum, our former Vice President of Finance.
Pursuant to these mutual releases these individuals and entities agreed to release us from any and all known and unknown claims, we agreed to release such parties from any and all known or known claims, and such individuals and entities agreed to cancel an aggregate of 11,000,000 shares of our common stock and options to purchase 5,650,000 shares of our common stock.
In connection with the Asset Purchase Agreement with PBT, Mr. Tomlinson resigned as our Chairman and Chief Executive Officer, and the Board appointed Mr. Edward L. Moses as Interim Chairman. Subsequently on November 28, 2007, the Board appointed Mr. David S. Rector as our Chairman and principal executive officer. Also on or around November 28, 2007, Messrs. W. Richard Anderson and Edward L. Moses resigned as directors, leaving Mr. Rector as our sole director.
In October 2008 we entered into a letter agreement with PBT and Mr. Tomlinson pursuant to which PBT was to place $233,425 in escrow on or before December 31, 2008. These funds were to be applied to the payment of any failure to drill penalties which were accrued by us as of the date of the Asset Purchase Agreement in September 2007 under a lease which was included in the assets acquired by PBT if and to the extent any claim was made against us within 18 months from the date of the letter agreement. In the event a valid claim was made against us, Mr. Tomlinson agreed to also immediately pay approximately $223,000 on our behalf. The October 2008 letter agreement also contained representations and warranties from PBT that all failure to drill penalties resulting from another lease which was part of the assets acquired by PBT has been extinguished or released and that all liabilities under various employment agreements have also been extinguished or released together with an affirmative undertaking by PBT to provide us with written evidence of these releases. Finally, the letter agreement contained an obligation of PBT to pay various property taxes totaling approximately $186,000 on our behalf related to assets acquired by it, as well as paying approximately $4,300 to a third party for other services rendered prior to the closing of the Asset Purchase Agreement and an affirmative undertaking by PBT to provide us with written evidence of these payments. In consideration of these actions we agreed to cancel the $600,000 promissory note due us by PBT which was then in default. PBT has not deposited the funds in escrow as required nor have they provided us with any of the releases or evidences of payment as required by the October 2008 letter agreement. Accordingly, PBT is currently in default under the terms of this letter agreement. During 2008, we wrote-off the $600,000 note payable to us by PBT as the collection of the amount was deemed unlikely. The accounting treatment for the debt does not impact any legal rights we have against PBT and Mr. Tomlinson. On July 26, 2010, we initiated suit against Mr. Tomlinson and PBT as described in Item 3 of this report, and we are relying upon legal counsel to advise us as to the effect and enforceability of certain of the above-referenced documents and transactions in light of the conduct alleged in the suit.
ITEM 1A.
ITEM 1A. RISK FACTORS.
Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.
Our auditors have raised substantial doubts as to our ability to continue as a going concern.
Our consolidated financial statements have been prepared assuming we will continue as a going concern. Since inception we have experienced recurring losses from operations, which losses have caused an accumulated deficit of approximately $18.7 million as of December 31, 2010. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We do not have any operations and are considered as “shell” company under Federal securities laws. Our operating expenses associated with maintaining our status as a public company and undertaking efforts to identify a business combination or merger partner are estimated at $200,000 annually. We also expect to incur additional costs associated with pursuing the litigation described elsewhere in this report, and as such might be required to pursue such litigation under a contingency fee arrangement. We do not presently have sufficient working capital to fund these expenses and anticipate that we will continue to incur losses in future periods until we are successful in completing a business combination with an operating entity. If for some reason we are not able to consummate a business combination within a reasonable period of time, we may not have sufficient resources to continue meeting our reporting obligations with the Securities and Exchange Commission or other obligations which arise from our minimal operations. If we were to fail to continue to meet our SEC reporting obligations the attractiveness of our vehicle to an operating company would be severely diminished and our ability to consummate a business combination would be in jeopardy.
We currently do not have an operating business, but also do not intend to pursue a course of complete liquidation and dissolution, and accordingly, the value of your shares may decrease.
We currently do not have any operating business. We continue to incur operating expenses while we consider alternative operating plans, however, as set forth above, we do not presently have sufficient capital to fund these expenses for the next 12 months. These plans may include business combinations with or investments in other operating companies, or entering into a completely new line of business. We have not yet identified any such opportunities, and thus, you will not be able to evaluate the impact of such a business strategy on the value of your stock. In addition, we cannot assure you that we will be able to identify any appropriate business opportunities. Even if we are able to identify business opportunities that our Board deems appropriate, we cannot assure you that such a strategy will provide you with a positive return on your investment, and it may in fact result in a substantial decrease in the value of your stock. These factors will substantially increase the uncertainty, and thus the risk, of investing in our shares.
We have a significant amount of debt.
At December 31, 2010 our balance sheet includes approximately $248,465 of contingent liabilities, including $202,874 in property taxes owed to the state of Texas, relating to the 2007 fiscal year, a related judgment payable in the amount of $8,325 dated June 30, 2009, and related accrued interest. If one or more of these creditors should attempt to collect the amounts due, it is unlikely that we would be able to continue our operations as they are presently conducted and our ability to consummate a business combination or merger will be adversely impacted. In that event, it is likely that you would lose your entire investment in our company.
Our sole officer and director does not devote all of his time and attention to our business.
Mr. Rector, who serves as our sole officer and director, devotes only approximately 40% of his time to the business and affairs of our company. Because Mr. Rector is primarily responsible for the identification and consummation of an acquisition of an operating company for us, we are materially dependent upon his efforts on our part. It is possible that because he does not spend his full time and efforts on our behalf that it may take longer to identify and close an acquisition of an operating company than if he was employed by us on a full-time basis.
We may not be able to identify or fully capitalize on any appropriate business opportunities.
We have not yet identified any appropriate business opportunities, and, due to a variety of factors outside of our control, we may not be able to identify or fully capitalize on any such opportunities. These factors include:
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competition from other potential acquirors and partners of and investors in potential acquisitions, many of whom may have greater financial resources than we do;
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in specific cases, failure to agree on the terms of a potential acquisition, such as the amount or price of our acquired interest, or incompatibility between us and management of the company we wish to acquire; and
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the possibility that we may lack sufficient capital and/or expertise to develop promising opportunities.
Even if we are able to identify business opportunities that our Board deems appropriate, we cannot assure you that such a strategy will provide you with a positive return on your investment, and may in fact result in a substantial decrease in the value of your stock. In addition, if we enter into a combination with a business that has operating income, we cannot assure you that we will be able to utilize all or even a portion of our existing net operating loss carryover for federal or state tax purposes following such a business combination. If we are unable to make use of our existing net operating loss carryover, the tax advantages of such a combination may be limited, which could negatively impact the price of our stock and the value of your investment. These factors will substantially increase the uncertainty, and thus the risk, of investing in our shares.
You may find it extremely difficult or impossible to resell our shares. Even if an active public market is established, we cannot guarantee you that there will ever be any liquidity in our common stock.
While our common stock is quoted on the OTCQB Market Tier of the OTC Markets Group (formerly the Pink Sheets), there is not an active market for our common stock and there can be no assurance that an active public market for our common stock will ever be established. Purchasers of our shares of common stock will face significant obstacles if they wish to resell the shares. Absent an active public market for our common stock, an investment in our shares should be considered illiquid. Even if an active public market is established, it is unlikely a liquid market will develop. Because of our relatively small size and limited revenues, the investment community may show little or no interest in our securities and investors may not be readily able to liquidate their investment, if at all. Investors seeking liquidity in a security should not purchase our shares of common stock.
The tradability of our common stock is limited under the penny stock regulations which may cause the holders of our common stock difficulty should they wish to sell the shares.
Because the quoted price of our common stock is less than $5.00 per share, our common stock is considered a "penny stock," and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934 ("Exchange Act"). Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction.
SEC regulations also require additional disclosure in connection with any trades involving a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities and this limited liquidity will make it more difficult for an investor to sell his shares of our common stock in the secondary market should the investor wish to liquidate the investment. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable to a smaller reporting company.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY.
Our principal executive office currently occupies approximately 240 square feet of office space, at 1640 Terrace Way, Walnut Creek, California 94597, which we are provided at the home of Mr. David S. Rector, our sole officer and director, free of charge as well as all related office equipment and communication lines. Mr. Rector does not have any current plans to cease providing such office space free of charge, nor do we have any current plans to seek an alternative office space arrangement.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
On July 26, 2010, we filed a lawsuit against Mr. Tomlinson and PBT in the 151st Judicial District Court of Harris County, Texas, Case No. 2010-46137, seeking damages for breach of contract, negligent misrepresentation, fraud, unjust enrichment, fiduciary misconduct, exemplary damages, and declaratory judgment with respect to certain agreements entered into between Mr. Tomlinson, PBT and the Company related to the transactions described earlier in this report. We are currently involved in discovery and a trial has been scheduled for July 2011. While we are vigorously prosecuting these claims, we are unable to predict at this time the outcome of any pending legal proceedings.
ITEM 4.
ITEM 4. (REMOVED AND RESERVED).
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Market Price of and Dividends on Common Equity and Related Stockholder Matters
Since December 2007 our common stock has been quoted in the over-the-counter market on the OTCQB Market Tier of the OTC Markets Group (formerly the Pink Sheets) under the symbol STDR and trading in our common stock is extremely limited. The reported high and low bid prices for the common stock as reported on the OTCQB Market Tier are shown below for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.
High
Low
First quarter ended March 31, 2009
$0.0008
$0.0008
Second quarter ended June 30, 2009
$0.008
$0.0008
Third quarter ended September 30, 2009
$0.0008
$0.0008
Fourth quarter ended December 31, 2009
$0.000
$0.0008
First quarter ended March 31, 2010
$0.0011
$0.0011
Second quarter ended June 30, 2010
$0.0011
$0.0012
Third quarter ended September 30, 2010
$0.0011
$0.0012
Fourth quarter ended December 31, 2010
$0.0011
$0.0012
The closing bid price of our common stock as reported on the OTCQB Market Tier of the OTC Markets Group was $0.009 on March 31, 2011. No shares of our common stock have traded since that date. As of March 31, 2011, there were approximately 208 record owners of our common stock.
Dividend Policy
Under Nevada law, a company is prohibited from paying dividends if the company, as a result of paying such dividends, would not be able to pay its debts as they become due, or if the company’s total liabilities and preferences to preferred stockholders exceed total assets. We have never paid cash dividends on our common stock and we do not anticipate that any cash dividends will be paid in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent on the our financial condition, results of operations, current and anticipated cash requirements, plans for expansion, as well as other factors the Board of Directors deems relevant.
Recent Sales of Unregistered Securities
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable to a smaller reporting company.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operation for 2010 and 2009 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A. Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Plan of Operations
Our current business objective for the next 12 months is to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. Our principal business objective for the next 12 months and beyond will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. We will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.
We may consider a business which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets, is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties and is in need of additional capital. In the alternative, a business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding, among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering.
Any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth, including entities without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.
Our management anticipates that it will likely be able to effect only one business combination, in part due to the dilution of interest for present and prospective stockholders which is likely to occur as a result of our management's plan to offer a controlling interest to a target business in order to achieve a tax free reorganization. This lack of diversification should be considered a substantial risk in investing in us because it will not permit us to offset potential losses from one venture against gains from another.
We anticipate that the selection of a business combination will be complex and extremely risky. Because of general economic conditions, rapid technological advances being made in some industries and shortages of available capital, our management believes that there are numerous firms seeking even the limited additional capital which we will have and/or the perceived benefits of becoming a publicly traded corporation. Such perceived benefits include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, providing liquidity for the principals of and investors in a business, creating a means for providing incentive stock options or similar benefits to key employees, and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of stock. Potentially available business combinations may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.
Results of Operations for 2010 as compared to 2009
General and Administrative Expenses
The bulk of our general and administrative expenses for 2010 and 2009 were legal, accounting and consulting fees incurred to keep our filing status current and to search for new business opportunities. General and administrative expenses decreased approximately 37% in 2010 from 2009. This decline is primarily attributable to an overall reduction in the activity of the Company as working capital has decreased.
Total Other Income (Expenses)
In 2010 interest income declined by approximately 82% from 2009 as a result of lower cash balances during the 2010 period. In 2010 our interest expense, which relates to contingent liabilities associated with a State of Texas tax liability described earlier in this report, increased approximately 16% from 2009. This increase represents the accrual of this liability for an entire calendar year.
Net Loss
For 2010, we had a net loss of$182,154. The net loss is primarily attributable to the operating expensesof $170,336 and interest expense in the amount of $12,423, partially offset by interest income of $605. During 2009, we had a total net loss of $272,855, which included $263,538of operating expenses and $12,672 in interest expense, partially offset by interest income of $3,355.
Liquidity and Capital Resources
As of December 31, 2010, we had cash of $62,818 and a working capital deficit of $189,855 as compared to cash of $267,760 and a working capital deficit of $7,701 at December 31, 2009. Our operating expenses associated with maintaining our status as a public company and undertaking efforts to identify a business combination or merger partner are estimated at $200,000 annually, exclusive of costs associated with pursuing the litigation against Mr. Tomlinson and PBT described elsewhere in this report. The amount of legal fees and costs will vary depending upon the course of the litigation, and we may be required to pursue such litigation under a contingency fee arrangement. In addition, as described earlier in this report, PBT is in default under the terms of the October 2008 agreement with total potential claims of approximately $424,000 as of December 31, 2010. No requests for payment or other claims have been made against us for these amounts and, while it is possible that future claims may be made against us, in that event we would seek to immediately enforce the terms of the agreement with PBT which relieved us from those liabilities. We do not believe that there is a more than remote likelihood that a third party claim for any of these amounts would be reasonably likely to result in our liquidity increasing or decreasing in any material way.
In addition, on September 15, 2009 we received via certified mail a copy of a Final Judgment entered against Standard Drilling, Inc. on June 30, 2009 in the District Court in Johnson County, Texas in the matter of Johnson County vs. Standard Drilling, Inc., cause number T200800519. The court awarded the taxing unit plaintiffs therein, Johnson County, Texas, Joshua Independent School District, Hill County Junior College and City of Cleburne, Texas, a judgment against our company in the aggregate amount of $202,873.70 for taxes, penalties, interest and attorneys fees, including continuing interest, related to four tracts of land. The court also awarded Romfor West Africa, Ltd. judgment against our company in the amount of $8,325.00, plus additional attorneys’ fees in the conditional event of appeal. Our balance sheet at December 31, 2010 reflects contingent liabilities of approximately $248,465 related to these judgments.
Our ability to continue as a going concern in the next 12 months depends on our ability to obtain sources of capital to fund our continuing operations and to seek out potential merger and acquisition partner. As of December 31, 2010, our remaining cash balance is not sufficient to cover our current liabilities, obligations and working capital needs for 2011. We will need to raise additional capital through an interim financing, to meet our general cash flow requirements until such time as we are able to complete the acquisition of an operating company. There are no assurances, however, that we will be able raise the necessary additional capital, in which event we may be required to consider a premature reverse merger or business combination upon terms which may not be as favorable to our stockholders as a transaction in the future, or a sale of an interest in the pending litigation with Mr. Tomlinson and PBT to a third party, to provide capital to fund our company. If we are not able to raise capital as necessary, the likelihood that we can continue as a going concern is doubtful and investors could lose their entire investment in our company.
Cash Flow from Operating Activities
For 2010, net cash used by operating activities was $204,942, primarily attributed to a net loss of $182,154 and an increase in accounts payable of $35,210, partially offset by an increase in contingent liabilities in the amount of $12,422.
Cash Flow from Investing Activities
For 2010, net cash provided by investing activities was $-0-.
Cash Flow from Financing Activities
For 2010, net cash provided by financing activities was $-0-.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for a smaller reporting company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Standard Drilling, Inc.
Walnut Creek, California
(A Development Stage Company)
We have audited the accompanying balance sheets of Standard Drilling, Inc. (a development stage company) as of December 31, 2010 and 2009, and the related statements of operations, changes in stockholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements for the period from February 14, 2006 (inception) through December 31, 2007 were audited by other auditors whose report expressed an unqualified opinion on those statements
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Standard Drilling, Inc., as of December 31, 2010 and 2009, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
March 29, 2010
The accompanying notes are an integral part of these financial statements.
STANDARD DRILLING, INC.
(A Development Stage Company)
Statements of Operations
STANDARD DRILLING, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
The accompanying notes are an integral part of these financial statements.
STANDARD DRILLING, INC.
(A Development Stage Company)
Statements of Cash Flows
The accompanying notes are an integral part of these financial statements.
STANDARD DRILLING, INC.
(A Development Stage Company)
Statements of Cash Flows
STANDARD DRILLING, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Standard Drilling, a Nevada corporation (“the Company"), was originally formed as a Nevada corporation on July 27, 2001, under the name Online Holdings, Inc. Subsequently on September 1, 2006, pursuant to an Agreement and Plan of Merger dated July 24, 2006 by and among the Company, Standard Drilling Acquisition Co., a Delaware corporation (“Standard Drilling Acquisition”), and Standard Drilling, Inc., a Delaware corporation (“Standard Drilling Delaware”), Standard Drilling Acquisition was merged with and into Standard Drilling Delaware, and Standard Drilling Delaware became a wholly-owned subsidiary of the Company. As a result of the merger, the Company, which previously had no material operations, acquired the business of Standard Drilling Delaware. Standard Drilling Delaware had been formed to provide contract land drilling services to independent and major oil and gas exploration and production companies. In conjunction with the merger, the Company changed its name to Standard Drilling, Inc. As of September 30, 2007, the Company ceased all ongoing operations and is evaluating financing alternatives and strategic options.
On September 24, 2007, the Company entered into an Asset Purchase Agreement with PBT Capital Partners, LLC (“PBT”). Under the terms of the Asset Purchase Agreement, PBT assumed substantially all of the Company's assets and associated and contingent liabilities in order to improve the financial position of the Company. As of the effective date of the Asset Purchase Agreement, the Company's existing and contingent liabilities exceeded the value of its assets.
The Asset Purchase Agreement was part of a plan of restructuring which the Company anticipates will allow it to raise additional capital and pursue new business opportunities. The Company's Board of Directors will continue to evaluate the Company's strategic options.
NOTE 2 - GOING CONCERN
The Company has incurred operating losses since inception and expects to continue to incur losses. As of December 31, 2010, the Company has not established an ongoing source of revenues and has generated operating losses since inception and expects to continue to incur losses. This factor raises 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 attain additional financing and/or merge with an existing operating company. The Company’s plan is complete a merger or acquisition of an existing operating company. There is no assurance that the Company will be able to implement its business plan or obtain adequate financing to fund future operations.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Share-Based Payments - The Company has adopted the fair value-based method of accounting for stock-based employee compensation in accordance with FASB Pronouncements. Option expense of $0 and $0 was recognized for the years ended December 31, 2010 and 2009, respectively.
Fair Value of Financial Instruments - Pursuant to ASC No. 820, “Fair Value Measurements and Disclosures”, the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of December 31, 2010. The Company’s financial instruments consist of cash. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of these financial instruments.
STANDARD DRILLING, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents - For purposes of financial statement presentation, the Company considers all highly liquid investments with a maturity of three months or less, from the date of purchase, to be cash equivalents. The Company had no cash equivalents at December 31, 2010 or 2009.
Concentration of Credit Risk - Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the clients that comprise our customer base and their dispersion across different business and geographic areas. We estimate and maintain an allowance for potentially uncollectible accounts and such estimates have historically been within management's expectations. Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company occasionally maintains amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The risk is managed by maintaining all deposits in high quality financial institutions. The Company had no deposits in excess of federally insured limits at December 31, 2010 and 2009.
Basic Loss Per Share - The computation of basic and diluted loss per common share is based on the weighted average number of shares outstanding during each period.
The computation of basic loss per common share is based on the weighted average number of shares outstanding during the year. Common stock equivalents are excluded from the computation of fully diluted loss per share because they would have been anti-dilutive. The Company had 1,000,000 and 11,800,300 common stock equivalents outstanding as of December 31, 2010 and 2009, respectively.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Revenue Recognition - The Company applies FASB provisions for the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. In general, the Company recognizes revenue related to goods and services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
STANDARD DRILLING, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes - The Company accounts for income taxes under the provisions issued by the FASB which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company computes tax asset benefits for net operating losses carried forward. The potential benefit of net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Net deferred tax assets consist of the following components as of December 31, 2010 and 2009:
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended December 31, 2010 and 2009 due to the following:
At December 31, 2010, the Company had net operating loss carry forwards of approximately $17,144,024 that may be offset against future taxable income from the year 2011 through 2030. No tax benefit has been reported in the December 31, 2010 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
STANDARD DRILLING, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
Recent Accounting Pronouncements - During the year ended December 31, 2010 the Company adopted the following accounting pronouncements, which had no impact on the financial statements or results of operation:
In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167.
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166.
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1.
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.
STANDARD DRILLING, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 4 - STOCKHOLDERS’ EQUITY
Preferred Stock
The Company 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 December 31, 2010 and 2009, none of the preferred stock is outstanding.
Common Stock
The Company 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, the Company 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 $954,815. The Company recognized fees and expenses related to the offering of $1,734,710. The Company 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 $176,973. As of December 31, 2010 the warrants granted in the private offering are expired.
NOTE 5 - OPTIONS AND WARRANTS
On June 6, 2008, the Company’s Board of Directors approved the reduction of the purchase price of all warrants issued by the Company to date, totaling warrants to purchase an aggregate of 10,800,300 common shares of the Company from $1.75 per share in connection with 9,111,500 warrants and from $1.00 per share in connection with 1,688,800 warrants to $0.125 per share, while extending the exercise period from June 9, 2008 until June 9, 2010. The Company also revised the provisions for the acceleration of the termination of the warrants which would lapse in the event the common stock of the Company traded at $0.25 per share for a trading period of 20 days following notice to the warrant holders. These 10,800,000 warrants expired during the year ended December 31, 2010.
On or about June 19, 2008, the Board of Directors of the Company approved the issuance of options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.125 per share for (5) five years to the Company’s President and Chief Executive Officer, David S. Rector. The Company issued the options as consideration for services rendered to the Company by Mr. Rector. These options were valued at $112,442.
STANDARD DRILLING, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 5 - OPTIONS AND WARRANTS (Continued)
Common Stock Options
Changes in stock options and warrants issued for the years ended December 31, 2010 and 2009 are as follows:
The following table summarizes information about stock options and warrants outstanding at December 31, 2010:
NOTE 6 - CONTINGENCIES
In conjunction with the Asset Purchase Agreement with PBT certain liabilities and obligations of the Company were assumed by the PBT. The Company has not received formal releases from the liabilities assumed by PBT; however, no claims have been made against the Company for the liabilities and obligations. The Company would make a corresponding claim against PBT if any claims were made against the Company.
STANDARD DRILLING, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2010 and 2009
NOTE 6 - CONTINGENCIES (Continued)
On July 26, 2010, the Company initiated suit against a former officer, Prentis B. Tomlinson and his privately-held entity PBT, seeking damages for breach of contract, negligent misrepresentation, fraud, unjust enrichment, fiduciary misconduct, exemplary damages, and declaratory judgment with respect to certain agreements entered into between Mr. Tomlinson, PBT and the Company. A trial date has not been scheduled. The Company is vigorously prosecuting these claims. However, no assurance can be given as to the outcome of any pending legal proceedings.
In July 2009 the Company received notification of $202,874 in property taxes owed to the state of Texas, relating to the 2007 fiscal year, and a related judgment payable in the amount of $8,325 dated June 30, 2009. Accordingly, the Company has recorded contingent liabilities for these amounts, due to the fact that the Company believes these liabilities fall under the definition of those liabilities to have been legally assumed by Mr. Tomlinson pursuant to his agreement with the Company. The Company has recorded interest on these contingent liabilities at a rate of 6.0% per annum. Total accrued interest on these liabilities totaled $37,267 at December 31, 2010.
NOTE 7 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these financial statements were issued and determined that there are no subsequent events requiring disclosure.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On September 16, 2009 we engaged M&K CPAS PLLC to serve as our independent registered public accounting firm. During our two most recent fiscal years and the subsequent interim period prior to retaining M&K CPAS, PLLC (1) neither we nor anyone on our behalf consulted M&K CPAS, PLLC regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K, and (2) M&K CPAS, PLLC did not provide us with a written report or oral advice that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issue.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. We maintain "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) under the Exchange Act. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on his evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer who also serves as our Chief Financial Officer has concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. Our management concluded that our disclosure controls and procedures were not effective as a result of material weaknesses in our internal control over financial reporting. We are a small organization with only one employee. Under these circumstances it is impossible to segregate duties. We do not expect our internal controls to be effective until such time as we complete an acquisition of an operating company and even then there are no assurances that our disclosure controls will be adequate in future periods.
Management's Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Based on the assessment using those criteria, our management concluded our internal control over financial reporting was not effective at December 31, 2010. As set forth above, we are a small organization with only one employee. Under these circumstances it is impossible to segregate duties and our management has concluded that this lack of segregation of duties represents a material weakness in our internal control over financial reporting at December 31, 2010.
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. Other Information.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Executive officers and directors
Name
Age
Positions
David S. Rector
Chief Executive Officer, President, Chief Financial Officer, Secretary, Treasurer and director
Mr. Rector has served as our Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director since November 2007. Mr. Rector previously served as a member of the Board of Directors, the Chief Executive Officer, President, principal accounting officer, Secretary, and Treasurer of Nevada Gold Holdings, Inc. (OTCBB: NGHI) from April 2004 until December 2008. Mr. Rector previously served as President, Chief Executive Officer and Chief Operating Officer of Nanoscience Technologies, Inc. from June 2004 to December 2006. Since June 1985, Mr. Rector has been the principal of the David Stephen Group, which provides enterprise consulting services to emerging and developing companies in a variety of industries. From January 1995 until June 1995, Mr. Rector served as the General Manger of the Consumer Products Division of Bemis-Jason Corporation. Mr. Rector was employed by Sunset Designs Inc., a manufacturer and marketer of consumer product craft kits from June 1980 until June 1985. From June 1983 until June 1985, Mr. Rector served as President and General Manager of Sunset, from August 1981 until May 1985, Mr. Rector served as an Administrative and International Director of Sunset, and from June 1980 until August 1981, Mr. Rector served as Group Product Manager for Sunset. Mr. Rector received a Bachelor’s degree in Business Administration from Murray State University in 1969.
Mr. Rector currently serves, or has served during the last five years, on the Board of Directors of each of the following public companies for the respective tenures indicated below.
Public Company Name
Tenure as Director
Senesco Technologies, Inc. (NYSE AMEX:SNT)
February 2002-present
Dallas Gold & Silver Exchange (NYSE AMEX:DSG)
May 2003-present
Nevada Gold Holdings, Inc. (OTCBB: NGHI)
April 2004-present
US Uranium, Inc. (OTCBB: USUI)
June 2007-March 2009
California Gold Corp. (OTCBB:)
June 2007-present
Li3 Energy, Inc. (OTCBB: LIEG)
June 2008 - present
Universal Gold Mining Corp. (OTC Markets Grou:FEDS)
September 2008-November 2010
RxElite, Inc. (OTCBB: RXEI)
September 2007-February 2009
Nanoscience Technologies, Inc. (NANS.OB)
June 2004 - December 2006
Mr. Rector devotes approximately 40% of his time and attention to our company.
Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified.
Director Qualifications, Board Leadership Structure and Risk Management
Mr. Rector’s significant experience in providing enterprise level consulting services, together with his experience as a member of Boards of Directors of publicly traded companies provides the specific experience, qualifications, attributes or skills that led our Board to conclude that he should be serving as a director.
Mr. Rector serves as both our Chief Executive Officer and our sole director. The business and operations of our company are managed by Mr. Rector as our sole officer and director, including oversight of various risks, such as operational and liquidity risks, that our company faces.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during 2010.
Code of Ethics and Business Conduct
In 2002 we adopted a Code of Ethics and Business Conduct which applies to our officers, directors and employees. The Code of Ethics and Business Conduct are written standards that are reasonably designed to deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code, and accountability for adherence to the code. We will provide a copy, without charge, to any person desiring a copy of the Code of Ethics and Business Conduct, by written request to, 1640 Terrace Way, Walnut Creek, California 94597, Attention: Corporate Secretary.
Committees of our Board of Directors
Our Board of Directors has not established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee, any committee performing a similar function. The functions of those committees are being undertaken by our sole director.
We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.
Our sole director is not an "audit committee financial expert" within the meaning of Item 401(e) of Regulation S-K. In general, an "audit committee financial expert" is an individual member of the audit committee or Board of Directors who:
•
understands generally accepted accounting principles and financial statements,
•
is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
•
has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,
•
understands internal controls over financial reporting, and
•
understands audit committee functions.
Our securities are not quoted on an exchange, however, that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include "independent" directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes all compensation recorded by us in the last completed fiscal year for our principal executive officer, each other named executive officer serving as such whose annual compensation exceeded $100,000, and up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as an executive officer of our company at December 31, 2010.
Mr. Rector’s compensation includes $60,000 per year in consulting fees to an entity owned by Mr. Rector under the terms of an oral agreement as compensation for his services to us for 2010 and 2009, respectively.
How Mr. Rector’s Compensation is Determined
Mr. Rector is not a party to an employment agreement with our company. Under the terms of an oral agreement, we make periodic payments to an entity owned by Mr. Rector (The David Stephen Group) as compensation for his services to us as our sole officer and director. The amount of this compensation is determined from time to time by our Board of Directors, of which he is the sole member. Currently, the Company has been paying Mr. Rector (through the David Stephen Group) $5,000 per month for his services. Mr. Rector is presently deferring payment of his compensation so as to maximize our cash resources. The amount of compensation paid is arbitrary and such compensation is not tied to any performance goals or other traditional measurements. The Board has also, from time to time, awarded Mr. Rector with stock option grants as compensation for his services. The number and terms of the options granted to Mr. Rector is arbitrarily determined and relies on no specific formula. The amount of compensation to be paid to Mr. Rector’s company may be increased or decreased from time to time at the sole discretion of our Board. Mr. Rector provides various corporate and administrative services for the Company, including managing all accounting, auditing, banking, legal, and SEC-reporting matters, overseeing public relations / investor relations, state certifications, and transfer agent activities, and working actively on locating and negotiating with potential merger/acquisition candidate companies. Mr. Rector also provides office space, furniture, and telecommunications equipment to the Company.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2010:
OPTION AWARDS
STOCK AWARDS
Name
(a)
Number of Securities Underlying Unexercised Options
(#) Exercisable
(b)
Number of Securities Underlying Unexercised Options
(#) Unexercisable (c)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
(d)
Option Exercise Price
($)
(e)
Option Expiration Date
(f)
Number of Shares or Units of Stock That Have Not Vested (#)
(g)
Market Value of Shares or Units of Stock That Have Not Vested ($)
(h)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)
(i)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
(j)
David S. Rector
1,000,000
-
-
$0.0125
June 2013
-
-
-
-
2006 Stock Incentive Plan
In connection with our acquisition of Standard Drilling Delaware, we assumed the 2006 Stock Incentive Plan that had previously been adopted by the Board of Directors and shareholders of Standard Drilling Delaware. The plan permits grants of options or restricted stock to employees, board members, officers or consultants. The plan is administered by our Board of Directors. The Board has the authority to determine the persons to whom awards are to be granted, the time at which awards will be granted, the number of shares to be represented by each award, and the consideration to be received, if any. The committee administering the plan also has the power to interpret the plan and to create or amend its rules.
Reservation of Shares. Grants of stock options and restricted stock may be made pursuant to the plan. The number of shares of common stock issued under the plan may not exceed 9,000,000 shares. Shares shall be deemed to have been issued under the plan only to the extent actually issued and delivered pursuant to an award. To the extent that an award lapses or the rights of its holder terminate, any shares of common stock subject to the award will again be available for the grant of an award under the plan. The maximum number of shares that may be issued under the plan, as well as the number and price of shares of common stock or other consideration subject to an award under the plan, will be appropriately adjusted by the committee in the event of changes in the outstanding common stock by reason of recapitalizations, reorganizations, mergers, consolidations, combinations, split-ups, split-offs, spin-offs, exchanges or other relevant changes in capitalization or distributions to the holders of common stock occurring after an award is granted.
Stock Options. The plan provides for granting (1) “incentive” stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), and (2) stock options that do not constitute incentive stock options (“non-statutory” stock options). The exercise price for an option granted under the plan is determined by the committee but will be no less than the fair market value of the option, which will be based on the fair market value our common stock on the date the option is granted. The option price upon exercise shall be paid in the manner prescribed by the committee. Additionally, stock appreciation rights may be granted in conjunction with incentive stock options or non-statutory stock options. Stock appreciation rights give the holder, among other things, the right to a payment in cash, common stock, or a combination thereof, in an amount equal to the difference between the fair market value of our common stock at the date of exercise and the option exercise price. Non-statutory options will have an exercise price determined by the committee and such exercise price may be less than the fair market value of the common stock on the date of grant. The options granted under the plan are assignable and transferable pursuant to compensation committee approval. In the event that incentive stock option grants are made under the plan, such options will be subject to more stringent restrictions on transfer.
Restricted Stock. The plan permits the committee to grant restricted stock awards. Shares of common stock will be issued or delivered to the employee, consultant or director at the time the award is made without any payment to us (other than for any payment amount determined by the committee in its discretion), but such shares will be subject to certain restrictions on the disposition thereof and certain obligations to forfeit and surrender such shares to us as may be determined in the discretion of the committee. The committee may provide that the restrictions on disposition and the obligations to forfeit the shares will lapse based on (1) the attainment of one or more performance measures established by the committee, (2) the holder’s continued employment or continued service as a consultant or director for a specified period, (3) the occurrence of any event or the satisfaction of any other condition specified by the committee in its sole discretion or (4) a combination of any of these factors. Upon the issuance of shares of common stock pursuant to a restricted stock award, except for the foregoing restrictions and unless otherwise provided, the recipient of the award will have all the rights of our stockholders with respect to such shares, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. The committee may, in its discretion, fully vest any outstanding restricted stock award as of a date determined by the committee.
Change of Control. The plan provides that, upon a Corporate Change (as hereinafter defined), the committee may accelerate the vesting of options, cancel options and make payments in respect thereof in cash, or adjust the outstanding options as appropriate to reflect such Corporate Change (including, without limitation, adjusting an option to provide that the number and class of shares of common stock covered by such option will be adjusted so that the option will thereafter cover securities of the surviving or acquiring corporation or other property (including cash) as determined by the committee). The plan provides that a Corporate Change occurs if (1) we are not be the surviving entity in any merger or consolidation (or we survive only as a subsidiary of an entity), (2) we sell, lease or exchange or agree to sell, lease or exchange all or substantially all of our assets to any other person or entity, (3) we are to be dissolved and liquidated, (4) any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Exchange Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of our voting stock (based upon voting power), or (5) as a result of or in connection with a contested election of directors, the persons who were our directors before such election shall cease to constitute a majority of our Board of Directors.
Term and Amendment. Our Board of Directors may terminate the plan at any time with respect to any shares of common stock for which awards have not been granted. Our Board of Directors has the right to alter or amend the plan at any time, provided that no change in the plan may be made that would impair the rights of a participant in the plan with respect to an award previously granted without the consent of the participant. In addition, our Board of Directors may not, without the consent of our stockholders, amend the plan to (1) increase the maximum aggregate number of shares that may be issued under the plan or (2) change the class of individuals eligible to receive awards under the plan.
Outstanding Awards. As of December 31, 2010, the outstanding options to purchase common stock under the plan consisted of 1,000,000 options to purchase shares of common stock in the aggregate at an exercise price of $0.125 per share.
Compensation of Directors
We have not established standard compensation arrangements for our directors and the compensation, if any, payable to each individual for their service on our Board will be determined from time to time by our Board of Directors based upon the amount of time expended by each of the directors on our behalf. The sole member of our Board of Directors did not receive compensation for his services for the year ended December 31, 2010.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
At March 31, 2011, we had 33,458,880 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of March 31, 2011 by:
•
each person known by us to be the beneficial owner of more than 5% of our common stock;
•
each of our directors;
•
each of our named executive officers; and
•
our named executive officers, directors and director nominees as a group.
Unless otherwise indicated, the business address of each person listed is in care of 1640 Terrace Way, Walnut Creek, California 94597. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
Name of Beneficial Owner
Amount and Nature of
Beneficial Ownership
% of Class
David S. Rector 1
1,000,000
2.9%
All officers and directors as a group (one person)1
1,000,000
2.9%
International Capital Advisory, Inc. 2
2,000,000
6.0%
Kystie Finance Ltd. 3
2,000,000
6.0%
Morrie Tobin 4
3,980,000
11.9%
Wolverine International Holdings Ltd. 5
2,000,000
6.0%
The number of shares beneficially owned by Mr. Rector includes options to purchase 1,000,000 shares of our common stock with an exercise price of $0.0125 per share.
International Capital Advisory, Inc.’s address is 40 Bassano Road, Toronto, Ontario Canada M2N2K1.
Kystie Finance Ltd.’s address is Post Office Box 958, Pasea Estate Road, Tortola BVI.
The amount beneficially owned by Mr. Tobin includes 240,000 shares of our common stock held by the Tobin Family Trust over which Mr. Tobin has voting and dispositive control. Mr. Tobin’s address is 40 Bassano Road, Toronto, Ontario Canada M2N2K1.
Wolverine International Holdings, Ltd.’s address is Rue Barthelemy Menn 8 1205 Geneva, Switzerland.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of December 31, 2010.
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)
Weighted average exercise price of outstanding options, warrants and rights (b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Plan category
Plans approved by our shareholders:
n/a
n/a
Plans not approved by shareholders:
2006 Stock Incentive Plan
1,000,000
$0.125
8,000,000
A description of the 2006 Stock Incentive Plan is contained earlier in this report under Part III, Item 11. Executive Compensation - Stock Option Plans.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
During 2010 we paid $60,000 of consulting fees to David Stephen Group, an entity owned by Mr. Rector, our CEO, as compensation for his services to us as our sole officer and director.
We do not have a policy regarding the review, approval or ratification of transactions with related parties.
Director Independence
Our sole director is not “independent” within the meaning of Marketplace Rule 5605 of the NASDAQ Stock Market.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The firm of M&K, CPAs PLLC served as our independent registered accounting firm in 2010 and the firms of Seale & Beers and M&K, CPAs PLLC both served as our independent registered public accounting firms during 2009. The following table shows the fees that were billed for the audit and other services provided by such firm for 2010 and 2009.
Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.
Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees - This category consists of fees for other miscellaneous items.
Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. The audit and tax fees paid to the auditors with respect to 2010 were pre-approved by the Board of Directors.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
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 (1)
3.1
Amended and Restated Articles of Incorporation (2)
3.2
Bylaws (3)
10.1
Contract with Romfor West Africa Ltd., effective May 15, 2006 (4)
10.2
Standard Drilling, Inc. 2006 Stock Incentive Plan (4)
10.3
Asset Purchase Agreement dated September 24, 2007 between Standard Drilling, Inc. and PBT Capital Partners, LLC (5)
10.4
Letter Agreement dated October 9, 2008 by and between Standard Drilling, Inc., PBT Capital Partners, LLC and Prentis B. Tomlinson, Jr. (8)
16.1
Letter dated August 18, 2009 from Moore & Associates, Chartered (6)
16.2
Letter dated September 30, 2009 from Seale and Beers, CPAs (7)
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
*
filed herewith.
(1)
Incorporated by reference to the Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 27, 2006.
(2)
Incorporated by reference to the Current Report on Form 8-K as filed with the Securities and Exchange Commission on September 6, 2006.
(3)
Incorporated by reference to the Registration Statement on Form SB-2, SEC File No. 333-75434, as declared effective by the Securities and Exchange Commission on May 14, 2002.
(4)
Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 6, 2006.
(5)
Incorporated by reference the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2007.
(6)
Incorporated by reference to the Current Report on Form 8-K as filed on August 27, 2009.
(7)
Incorporated by reference to the Current Report on Form 8-K as filed on October 1, 2009.
(8)
Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2008.
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 Drilling, Inc.
March 31, 2011
By: /s/ David S. Rector
David S. Rector, Chief Executive Officer
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 in the capacities and on the dates indicated.
Name
Positions
Date
/s/ David S. Rector
David S. Rector
Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer, sole director, principal executive officer and principal financial and accounting officer
March 31, 2011