<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
( ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________
Commission File Number 0-12214
DALECO RESOURCES CORPORATION
----------------------------------------------------
Name of small business issue as specified in Charter
Delaware 23-2860739
- -------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
435 Devon Park Drive, Suite 410
Wayne, Pennsylvania 19087 (610) 254-4189
- -------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution under a
plan confirmed by court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date.
25,198,526 shares of common stock as of February 1, 1997
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Unaudited)....................... 1
Consolidated Balance Sheets............................ 1
Consolidated Statement Of Income....................... 2
Consolidated Statement Of Deficit...................... 3
Consolidated Statement Of Cash Flow.................... 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................... 5
1. Reference To Audited Financial Statements.............. 5
2. Summary of Significant Accounting Policies............. 5
3. Investment In And Advances To Mining Joint Venture..... 7
4. Oil and Gas Properties and Equipment................... 8
5. Timber Rights Acquisition.............................. 8
6. Mineral Properties..................................... 9
7. Note Payable........................................... 9
8. Due to (from) Related Parties.......................... 10
9. Related Part Transactions.............................. 10
10. Debentures............................................. 11
11. Capital Stock.......................................... 12
12. Income Taxes........................................... 14
13. Interest And Taxes Paid................................ 15
14. Contingencies.......................................... 15
15. Segmented Information.................................. 15
16. Acquisition of Deven Resources Corporation............. 16
17. Commitment............................................. 16
18. Letter of Intent....................................... 16
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 18
PART II. OTHER INFORMATION................................................ 20
Item 6. Exhibits and Reports on Form 8-K....................... 20
SIGNATURES................................................................. 21
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME FOR THE
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Prepared by Management (Unaudited)
Unaudited Unaudited
December 31 December 31
1996 1995
------------ ------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents Accounts $ 77,891 $ 728,029
Receivables 1,071,115 128,411
------------
Other Current Assets 137,031
------------
1,286,037 856,440
Investments in and Advances to Mining
Joint Venture (Note 3) 100,000 300,000
Oil and Gas Properties and Equipment
(Note 4) 5,302,945 3,566,237
Property and Equipment 87,654 --
Timber Rights (Note 5) 1,028,342 1,028,342
Mineral Properties (Note 6) 15,673 15,487
Goodwill (Note 16) 1,145,834 --
Debenture Issue Costs (Note 10) 120,632 --
------------ ------------
TOTAL ASSETS $ 9,087,117 $ 5,766,506
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 2,210,553 $ 1,101,782
Notes Payable (Note 7) 800,000 1,100,000
Drilling Deposits 29,000 29,000
------------ ------------
3,039,553 2,230,782
Due to Related Parties (Note 8) 498,537 223,965
Debentures (Note 10) 880,000 --
------------ ------------
TOTAL LIABILITIES 4,418,090 2,454,747
------------ ------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK
Issued common shares (Note 11) 12,080,725 8,360,126
Accumulated Deficit (7,411,698) (5,048,367)
------------ ------------
Total Shareholders' Equity 4,669,027 3,311,759
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 9,087,117 $ 5,766,506
============ ============
See Accompanying Notes. 1
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME FOR THE
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Prepared by Management (Unaudited)
Unaudited Unaudited
December 31 December 31
1996 1995
------------ ------------
GROSS OPERATING REVENUE
Oil and Gas Sales $527,457 $192,656
Less: Operating Expenses 417,722 88,580
Severance Taxes 12,590 3,607
Depletion, Depreciation
and Amortization 92,134 69,895
------------ ------------
NET OPERATING REVENUE 5,011 30,574
------------ ------------
Management and Administrative Fee
Revenues 121,911 ---
Gain on Litigation Settlement 776,818
Administration Expense (517,851) (122,848)
Amortization of Debenture Issue Costs (17,233) ---
Financial Advisors Expenses (93,651) ---
Timber Operating Costs (89,345) ---
Amortization of Goodwill (104,166) ---
Interest Expense (44,269) (34,615)
------------ ------------
TOTAL (744,604) 619,355
------------ ------------
NET INCOME (LOSS) $(739,593) $649,929
============ ============
PRIMARY AND FULLY DILUTED
NET INCOME (LOSS) PER
COMMON SHARE $(0.04) $ 0.05
======= ========
See Accompanying Notes. 2
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME FOR THE
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Prepared by Management (Unaudited)
Unaudited Unaudited
December 31 December 31
1996 1995
------------ ------------
BALANCE - BEGINNING OF PERIOD $(6,672,105) $(5,698,296)
NET INCOME (LOSS) FOR THE PERIOD (739,593) 649,929
----------- -----------
BALANCE - END OF PERIOD $(7,411,698) $(5,048,367)
=========== ===========
See Accompanying Notes. 3
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF INCOME FOR THE
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Prepared by Management (Unaudited)
Unaudited Unaudited
December 31 December 31
1996 1995
------------ ------------
OPERATING ACTIVITIES
Net Income (Loss) $(739,593) $649,929
Items not affecting Working Capital-
Depletion, Depreciation and
Amortization 92,134 69,985
----------- -----------
(647,459) $179,824
(Increase) Decrease in Trade Receivable (87,985) 622,468
Increase (Decrease) in Accounts Payable 894,149 (1,089,090)
(Decrease) in Other Assets (338,224) (22,000)
Drilling and Workover Costs --- (11,389)
Proceeds of Drilling Program --- 525,500
----------- -----------
Cash provided from (used for) Operations (179,519) 745,313
----------- -----------
INVESTING ACTIVITIES
Lease Acquisition and Well Costs incurred (124,406) $(2,925)
Decrease in Lease Acquisition and Well
Costs --- (188,606)
----------- -----------
Cash (used for) Investing
Activities (124,406) (191,531)
----------- -----------
FINANCING ACTIVITIES
Increase in Amounts Due to
Related Parties 113,631 94,235
----------- -----------
NET INCREASE (DECREASE) IN CASH (190,294) 648,017
CASH-BEGINNING OF PERIOD 268,185 80,012
----------- -----------
CASH-END OF PERIOD $77,891 $728,029
=========== ===========
See Accompanying Notes. 4
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1. Reference To Audited Financial Statements. These Financial Statements
should be read in conjunction with the Notes to the Company's Audited
Financial Statements as of September 30, 1996.
2. Summary of Significant Accounting Policies.
a. Use of Estimates.
The preparation of financial statements in conformity with
general accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
b. Basis of Consolidation.
These consolidated financial statements of Daleco Resources
Corporation (the "Company") have been prepared in accordance
with generally accepted accounting principles and include the
accounts of the Company and its wholly-owned subsidiaries:
Westlands Resources Corporation ("Westlands"), Sustainable
Forest Industries, Inc. (SFI), and Deven Resources,
Inc.("Deven"). The Company's investments in oil and gas leases
are accounted for using proportionate consolidation whereby
the Company's prorata share of each of the assets,
liabilities, revenues and expenses of the investments are
aggregated with those of the Company in its financial
statements.
c. Oil and Gas Properties and Equipment.
The Company follows the successful efforts method of
accounting for the costs of exploration and development
activities. Direct acquisition costs of developed and
undeveloped leases are capitalized. Cost of undeveloped leases
on which proved reserves are found are transferred to proven
oil and gas properties. Each undeveloped lease with
significant acquisition costs is reviewed periodically and a
valuation allowance provided for any estimated decline in
value. Capitalized costs of proved developed leases are
charged to income on the units of production basis based upon
total proved reserves. The capitalized costs of these proved
developed leases are written down to their projected net
recoverable amount.
5
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
Costs of exploratory wells found to be dry during the year or
before the issuance of these financial statements are charged
against earnings in that year. Costs of successful exploration
wells and development wells are capitalized. All costs of
development wells and successful exploration wells are charged
to earnings on a unit of production basis based upon proved
developed reserves. Where the costs of developed wells and
successful exploration wells exceed projected net recoverable
amounts, such wells are written down to their projected net
recoverable amount. Net recoverable amount is the aggregate of
estimated undiscounted future net revenues from proven
reserves less operating and production expenses.
d. Site Restoration, Dismantlement and Abandonment Costs.
The salvage value of producing wells is expected to exceed the
cost of site restoration and abandonment. As a result, no such
costs are accrued in these financial statements.
e. Investment in Minera La Yesca.
The investment in Minera La Yesca (the "Venture") is recorded
at costs less certain impairment provisions. At each balance
sheet date the estimated net recoverable value of the
investment is calculated based upon the underlying assets of
the Venture.
f. Mineral Properties.
The Company has recorded the acquisition of mineral claims at
cost. These costs along with any future exploration and
developments costs relating to mineral properties are deferred
until the properties are brought into production, at which
time they are amortized on a unit of production basis, or
until the properties are abandoned or sold or management
determines that the mineral property is not economically
viable, at which time the deferred costs are written off.
g. Timber Rights.
The Company has recorded the acquisition of timber rights at
cost. These costs are deferred until commercial production
commences. Where the costs exceed projected net recoverable
amounts, the timber rights are written down to the projected
net recoverable amount. Net recoverable amount is the
aggregate of estimated undiscounted future net revenues from
sale of timber less operating and production expenses.
6
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
h. Cash and Cash Equivalent.
Cash and cash equivalent includes cash and investments with
original maturities of three months or less.
i. Goodwill.
Goodwill related to the acquisition of the assets of Deven
will be amortized over a period of three years.
j. Property and Equipment.
Property and Equipment are recorded at cost and will be
depreciated over a period of five years.
3. Investment In And Advances To Mining Joint Venture.
The Company participated in an agreement dated March 12, 1980, (revised
October 18, 1980) to purchase 25% of the issued shares of Minera La
Yesca, a Mexican mining corporation. Funds were advanced to Minera La
Yesca to help finance the costs of placing the Pinabete Silver Mine
(the "mine") in Mexico into production. The investment in and advances
to Minera La Yesca have been recorded at cost. Due to operating losses,
resulting from the continuing low price of silver, the mine was taken
out of production during 1990.
The investment in the advances to Minera La Yesca, which were recorded
at cost, have been written down to approximate their net recoverable
value based on the value of equipment owned by Minera La Yesca.
7
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
4. Oil and Gas Properties and Equipment.
1996 1995
------------ ------------
Proven lease acreage cost $3,726,855 $2,367,012
Proven undeveloped lease acreage
cost 1,906,220 2,065,084
Well costs 1,636,803 1,008,940
------------ ------------
7,269,878 5,441,036
Accumulated depletion,
depreciation and amortization 1,972,387 1,880,253
------------ ------------
5,297,491 3,560,783
------------ ------------
Other equipment 6,060 6,060
Accumulated depreciation 606 606
------------ ------------
5,454 5,454
------------ ------------
$5,302,945 $3,566,237
============ ============
Westlands has carried interests in producing oil wells which have been
acquired at no cost and are not included on the balance sheet.
During the years ended September 30, 1996 and 1995, Westlands farmed
out a portion of its undeveloped gas acreage in Brazos County, Texas,
to a non-affiliated entity. The farmee has drilled two successful
horizontal wells on such acreage in which the Company was carried for a
free 5% Working Interest. The farmee has the right to drill another 794
acre tract for a consideration of $158,864. The undeveloped lease costs
were reduced by this amount.
5. Timber Rights Acquisition.
SFI entered into a Timber Acquisition Agreement on September 27, 1995
with Oreu Timber and Trading Co. Ltd. ("Oreu"), a Guyana Corporation
which is an affiliate of May Joy Agricultural Cooperative Society Ltd.
("May Joy"). Under the terms of the agreement, SFI has been assigned
the exclusive harvesting and cutting rights for the timber concession
issued by Permit No. 1367. This permit was originally granted to May
Joy who subsequently assigned harvesting rights to Oreu as per an
agreement dated January 3, 1995.
In exchange for the timber rights, Oreu received a 10% ownership of
SFI. This ownership was subsequently converted to equivalent shares of
the Company as a result of the acquisition of SFI.
8
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
The acquisition has been accounted for by the purchase method. The
purchase price of $962,500 was determined based on the fair value of
the 1,500,000 common shares of Daleco given up to acquire SFI. The fair
value of the net liabilities of SFI acquired is $65,842 resulting in
consideration of approximately $1,028,500 which has been recorded as
timber rights.
Under the terms of the Company's acquisition of SFI, the Company was
obligated to contributed up to $750,000 to support the operation of
SFI. As of December 31, 1996, this condition has been partially met.
The Company has entered into new agreements with OREU for the funding
of the harvesting of the timber concessions. Due to excess sawmill
capacity in Guyana, the Company has decided not to build a sawmill at
this time and will use such excess capacity in its operations.
6. Mineral Properties.
In February, 1995, the Company acquired 109 mining claims from
shareholders of the Company for $15,487 representing their cost to
acquire the claims. These claims adjoin properties owned by Regent
Ventures, Ltd. ("Regent"). Effective February 28, 1995, the Company
entered into an option joint venture agreement with Regent to acquire
up to an undivided 50% interest in Regent's holdings by spending up to
$2,500,000 on the property. The Company did not make the investment and
the option expired on December 31, 1995. The Company is awaiting the
results of tests on adjoining claims prior to the formulation of a plan
of exploration which may or may not include third parties.
7. Note Payable.
During the year ended September 30, 1995, the Company received
$1,100,000 in return for a note payable, with the producing wells of
the Company used as collateral. Interest of 10% per annum is due
monthly. The balance outstanding on this loan as of December 31, 1996
was $800,000.
9
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
8. Due to (from) Related Parties.
12/31/96 12/31/95
------------ ------------
Net due to Haly Corporation -
Bearing interest at prime +1% $283,993 160,592
Bearing interest at TCD +1.5% --- 52,744
------------ ------------
283,993 213,336
------------ ------------
Net due (From) to Amir and Erlich
Bearing interest at prime +1.5% --- (160,241)
Bearing interest at prime +3% 91,062 151,000
Bearing interest at 7% 123,482 ---
Non-interest bearing --- 19,870
------------ ------------
214,544 10,629
------------ ------------
$498,537 223,965
============ ============
There are no fixed repayment terms for these amounts.
9. Related Part Transactions.
Remuneration of directors for the quarters ended December 31, 1996 and
December 31, 1995 was $0.00 and $2,765, respectively. Remuneration for
the years September 30, 1992 through 1996 in the amount of $54,761 have
yet to be paid to the directors.
Haly Corporation (whose shareholders are shareholders and directors of
the Company) has charged, after amounts recovered from third parties,
for the quarters ended December 31, 1996 and December 31, 1995 the sum
of $164,500 and $105,000, respectively for administrative services
including remuneration of Dov Amir and Louis Erlich who both were
officers and directors of the Company.
In February, 1995 the Company acquired 109 mining claims from Messrs.
Amir and Erlich, directors and shareholders of the Company at their
original cost of acquisition of $15,487.
Haly Corporation charged interest in the amount of $4,938 and $3,735,
respectively, for the quarters ended December 31, 1996 and December 31,
1995. Amir and Erlich charged interest in the amounts of $2,692 and
$3,154 for the quarters ended December 31, 1996 and December 31, 1995
respectively.
10
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
10. Debentures.
AS OF AS OF
12/31/96 12/31/95
------------ ------------
7% Convertible Debentures -- --
8% Convertible Debentures $880,000 --
a. 7% Convertible Debentures
On May 31, 1996 the Company issued $1,000,000 of 7%
convertible debentures with interest payable in cash or stock
on a semi-annual basis, and a term of three years. The
placement agent's fees ere 10% of the gross proceeds, and
100,000 warrants at U.S. $1.00 and a five year term (see note
12(b)). The debentures may be converted after a holding period
of: (a) as to 50% of the principal amount, 40 days (July 10,
1996), and (b) the remaining 50%, 60 days (July 30, 1996). The
debentures are convertible into the Company's common stock at
the lessor of: (1) a 35% discount on the previous five day
average closing bid price at conversion, or; (2) the previous
five day average closing bid price at closing (May 31, 1996).
As of December 31, 1996 the 7% debentures have been converted
into 2,406,285 common shares.
b. 8% Convertible Debentures
On September 11, 1996 the Company issued $1,310,000 worth of
8% convertible debentures with interest payable in stock only
and accruing until conversion or redemption after the term of
two. The placement agent's fees were 10% of the goss proceeds,
and 122,111 warrants discussed in not 12(c). the debentures
may be converted after a holding period of: (a) as to 50% of
the principal amount, 45 days after closing (October 2, 1996),
and (b) as to the remaining 50%, 65 days after closing
(November 16, 1996). The debentures and accrued interest are
convertible into the Company's common stock at the less of :
(1) the fixed conversion price ($1.0171875), or (2) 75% of the
average closing bid price for the five trading days
immediately preceding the date of conversion. As of December
31, 1996, 430,000 of the 8% debentures have been converted
into 2,146,426 shares of common stock.
The fair value of the debentures is not materially different from the
carrying amount on the balance sheet.
11
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
11. Capital Stock.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
========================================================================================================
| | NUMBER OF | NUMBER OF |
| | COMMON SHARES | PREFERRED SHARES |
| | PAR VALUE $.01 | PAR VALUE $.01 |
AUTHORIZED | Ref. | ----------------------|-------------------------| AMOUNT
| | 50,000,000 | 50,000,000 |
=========================|==========|=======================|=========================|=================
Balance as at | | 13,154,854 | -0- | $8,860,984
September 30, 1996 | | | |
- -------------------------|----------|-----------------------|-------------------------|-----------------
Issued upon conversion | (1) | 3,475,559 | -0- | 719,741
of Debentures | | | |
- -------------------------|----------|-----------------------|-------------------------|-----------------
Issued upon Acquisition | (2) | 2,600,000 | -0- | 2,500,000
of Deven Resources, Inc. | | | |
- -------------------------|----------|-----------------------|-------------------------|-----------------
Issued For Services | (3) | 265,000 | -0- | ---
- -------------------------|----------|-----------------------|-------------------------|-----------------
Exercise of Warrants | (4) | 400,000 | -0- | ---
- -------------------------|----------|-----------------------|-------------------------|-----------------
Balance as at | | 19,895,443 | -0- | $12,080,725
December 31, 1996 | | ========== | | ===========
==========================================================================================================
</TABLE>
(1) During the first quarter ended December 31, 1996, $400,000 of the 7%
Convertible Debentures plus $12,044 of accrued interest were converted
into 1,329,163 shares of common stock and $430,000 of the 8%
convertible Debentures plus $8,563 of accrued interest were converted
into 2,146,426 shares of common stock.
(2) Effective October 1, 1996, the Company acquired all of the issued and
outstanding stock of Deven Resources, Inc. ("Deven") for 2,600,000
shares of the Company's common stock. Mr. David F. Lincoln was the
principal shareholder of Deven and received 1,820,000 of the 2,600,000
shares of Daleco common stock. (See Note 16)
(3) In November, 1996, the Company issued 265,000 shares to consultants,
those included: 25,000 shares to Rodney C. Hill, Esquire, former
general counsel to the Company; 200,000 to Joel Brownstein, a financial
consultant; and, 40,000 shares to Financial Futures Corporation, a
financial consulting firm.
(4) The Company entered into a Financial Consulting Services Agreement with
Avonwood Capital Corporation ("Avonwood") which provided as part of the
compensation to Avonwood warrants for 800,000 shares at $.35 per share
expiring May 8, 2001. On October 18, 1996, Avonwood conveyed its
warrants equally to two of its principles, Thomas R. Smith
12
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
and James Porter, Jr. On November 24, 1996, Mr. Smith exercised his
warrants for 400,000 shares of common stock by issuing a Note Payable
to the Company.
(a) Common Stock Options
In January, 1995, the Company granted common stock purchase
options expiring on January 6, 2000 for 850,000 common shares
at $.25 per share. On the same date, the common stock purchase
options previously outstanding, which expire on September 5,
1995 for 356,704 common shares at $.38 per share, were gifted
back to the Company and cancelled. The following summary sets
out the activity in common stock purchase options:
1996 1995
---------- ------------
Outstanding at beginning of year 850,000 356,704
Cancelled (150,000) (356,704)
Granted --- 850,000
---------- ------------
Outstanding at end of year 700,000 850,000
========== ===========
(b) Effective September 29, 1995, the Company granted 500,000
common stock purchase warrants expiring on September 30, 2000.
Each warrant may be exercised for one common share at $.25 per
share. The Company entered into various consulting agreements
dated March 27, 1996, with financial advisors. As part of
these agreements, effective May 8, 1996, the Company granted
2,400,000 common stock purchase warrants expiring on May 8,
2001. Each warrant may be exercised for one common share;
2,300,000 warrants have an exercise price of $.35 each and
100,000 warrants have an exercise price of $1.00 each. The
exercise price of the warrants exceeded the March market value
of the Company's common stock. The following summary details
the activity of the common stock warrants:
1996 1995
---- ------
Outstanding at beginning of year 500,000
Cancelled 2,400,000 500,000
Granted 400,00
--------- ---------
Outstanding as of December 31, 1996 2,500,000 500,000
========= =========
13
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
(c) Common Stock Warrants Attached to Debentures
In connection with the issuance of the 8% convertible
debentures in September, 1996; a number of warrants were
granted to the holders of the debentures, the agents, and
subagents who placed the debentures. As of December 31, 1996,
the number of warrants outstanding is indeterminable due to
the exercise formula which is based upon a number of variables
and future transactions.
With respect to the warrants granted to the debentures holders
and subagents, the warrants are granted in three equal
installments on September 11, 1996; November 26, 1996; and
June 8, 1997. These warrants will expire five years from the
date of each instalment; September 11, 2001; November 26,
2001; and June 8, 2002. The number of shares of common stock
into which the warrants may be converted and the exercise
price of the warrants will be determined by (among other
variables and future events) the amount of debentures still
outstanding on each date of grant, and the average closing bid
price of the Company's common stock for the five trading days
immediately preceding each date of grant.
On September 11, 1996, a total of 122,111 warrants expiring on
September 11, 2001 were granted to the agents. The warrants
may be exercised at any time before the expiration date by
either of the two methods as follows: (1) each warrant may be
exercised for one common share with an exercise price of
$1.073 or (2) all a portion of the warrants may exercised on a
cashless basis where a reduced number of shares of common
stock will be issued based upon the difference between the
average closing price of the Company's common stock for the
five business days immediately preceding the date of exercise
and the exercise price, divided by the average closing market
price, times the number of warrants being exercised.
(d) Net Income Per Share
Net income per share was calculated on the basis of the
weighted average number of shares outstanding which amounted
to 19,895,443 of the quarter ended December 31, 1996
(12,077,732 shares for the quarter ended December 31, 1995).
For the quarters ended December 31, 1996 and December 31, 1995
the exercise of the options and warrants outstanding as at
year end did not have a dilative effect on the net income per
share.
12. Income Taxes.
The company has no current and deferred taxes payable. The Company and
its subsidiary have significant tax losses to be applied against future
income. The Company's tax filings
14
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
show net operating losses to be applied against future taxable income
in the amount of approximately $25 million to be utilized in various
years through 2009. The tax benefit of these losses is estimated to be
approximately $10 million. No potential benefit of these losses has
been recognized in the accounts.
13. Interest And Taxes Paid.
The Company paid interest to unrelated parties with respect to notes
payable in the amount of $15,954 and Debenture interest of $20,607
during the quarter ended December 31, 1996.
14. Contingencies.
Included in accounts payable at September 30, 1995 was $483,712 due to
Questor Drilling Corporation ("Questor"). Westlands was seeking damages
of $450,000 against Questor Drilling Corporation and Cheyenne Services
Inc. in connection with the drilling of a well in 1993. Questor
Drilling Corporation filed a counter claim against Westlands resources
Corporation for $485,000.
Westlands was also seeking damages against System Pipe & Supply Co. and
Four Star Pipe Services Inc. at least $600,000 and possible additional
damages of an additional $1.5 million plus lost profits and revenues
that are undetermined.
During December 1995, both of the Company's legal actions were settled
out of court on terms favorable to the Company and its subsidiary,
Westlands. In the action involving Questor and Cheyenne Services, Inc.
("Cheyenne"), Questor has released Westlands of all liabilities, and
Cheyenne must pay a sum of $50,000 to Westlands. In the action
involving system Pipe & Supply Co., Westlands accepted a settlement
offer of $580,000. The settlement amounts of $630,000 plus released
liabilities of $483,712 less the capitalized well costs, representing
some of the costs overrun from previous years, resulted in a gain of
$769,780.
15. Segmented Information.
Substantially all of the Company's operating activities are in oil and
gas exploration and development in the United States which is
considered to be the Company's domestic segment. In addition, the
Company has a 100% owned subsidiary involved in the harvesting of
Timber Concessions in Guyana.
15
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
The following table identifies customers of the Company who purchased
greater than ten percent of the oil and gas produced by the Company:
1996 1995
Percentage Percentage
Of Total Of Total
Sales Sales
---------- ----------
Oil Production
Pride Pipeline Company 100% 100%
Gas Production
Aquila Southwest Pipeline Corporation 16.6 40.5
Austin Chalk National Gas Marketing Services 27.4 59.5
New Brenen Corporation 1.4 ---
SONAT 56.6 ---
16. Acquisition of Deven Resources Corporation.
Under the Stock Purchase Agreement effective October 1, 1996, the
Company acquired 100% of the issued and outstanding capital stock of
Deven Resources, Inc. in exchange for 2.6 million shares of common
stock with a market value of approximately $2.5 million and cash of
$150,000. The Company accounted for the acquisition under the purchase
method of accounting with significant categories recorded as follows:
(In Millions)
Oil and Gas Properties $ 1.50
Goodwill 1.25
Less -Net Liabilities Assumed (.10)
------
$ 2.65
17. Commitment.
The Company is committed under various agreements dated March 27, 1996
with financial advisors for their services at the rate of $15,000 per
month through May, 1997.
18. Letter of Intent.
Effective November 27, 1996, a binding letter of intent was signed with
Reserve Production Inc. Liquidating Trust to acquire oil and gas
properties with approximately 3 million barrels of oil equivalent and a
projected annual operating cash flow of $1.5 million. On December 20,
1996, the Company entered into a definitive agreement for the
acquisition of these properties, subject to Bankruptcy Court approval,
at a purchase price of $5 Million. Other current assets as of
16
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
December 31, 1996 include a deposit of $100,000 required with this signing and
$37,031 in expenses incurred related to this acquisition.
17
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
provides a safe harbor for forward-looking statements made by or on behalf of
the Company. All statements, other than statements of historical facts, which
address activities, event or developments that the Company expects or
anticipates will or may occur in the future, including such things as the
anticipated development of revenues, acquisition of additional properties or the
obtaining of capital, business strategy, development trends in the industry
segments in which the Company is active, expansion and growth of the Company's
business and operations and other such matters are forward-looking statements.
To take advantage of the safe harbor provisions provided by the Reform Act, the
Company is identifying certain factors that could cause actual results to differ
materially from those expressed in any forward-looking statements, whether oral
or written, made by or on behalf of the Company. Many of these factors have
previously been identified in filings or statements made by or on behalf of the
Company.
All phases of the Company's operations are subject to influences
outside of the Company's control. Any one, or a combination, of these factors
could materially affecting the results of the Company's operations. These
factors include: competitive pressures, inflation, trade restrictions, interest
rate fluctuations and other capital market conditions, weather, future and
options trading in, and the availability of natural resources and services from
other sources. Forward-looking statements are made by or on behalf of the
Company's knowledge of its business and the environment in which it operates,
but because of the factors listed above, as well as other environmental factors
over which the Company has no control, actual results may differ from those in
the forward-looking statements. Consequently, all of the forward-looking
statements made are qualified in their entirety by these cautionary statements
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected effect on the business and/or operations of the
Company.
The Quarter ended December 31, 1996 was marked by a number of events
which, in the long run, will strengthen the Company and enable it to sustain
future growth. These events include:
1. Completion of the acquisition of Deven Resources, Inc.:
Effective October 1, 1996, the Company acquired all the
outstanding capital stock of Deven Resources, Inc. ("Deven") in exchange for 2.6
million shares of the Company's common stock plus $150,000 in cash advances.
Deven contributed over $90,000 in management and overhead fees and $288,000 in
oil and gas sales during the quarter ended December 31, 1996. In addition,
Deven's interests in oil and gas properties will provide positive cash flow in
future years.
18
<PAGE>
Consolidation of the Company's administrative and accounting functions into
Deven's operations will be completed during the second quarter of Daleco's
fiscal year ending September 30, 1997.
2. Acquisition of Oil and Gas Properties from Reserve Production Inc.
Liquidating Trust.
Effective November 27, 1996, a binding letter of intent was
signed with Reserve Production Inc. Liquidating Trust to acquire oil and gas
properties with approximately 3 million barrels of oil equivalent and a
projected annual operating cash flow of $1.5 million. On December 20, 1996, the
Company entered into a definitive agreement for the acquisition of these
properties, subject to Bankruptcy Court approval, at a purchase price of $5
million. The Company intends to finance the acquisition and development of these
properties with commercial financing. It is anticipated that this acquisition
will be completed during the Quarter ending March 31, 1997. The Company will not
realize any significant financial impact from this acquisition until the quarter
ending June 30, 1997. At present the Company has not determined whether it will
acquire 100% of the assets of Reserve Production Inc. Liquidating Trust itself
or bring in an industry partner to participate in the acquisition.
3. Timber Rights:
During the quarter ended December 31, 1996, the Company's
subsidiary, Sustainable Forest Industries, completed the development of a
business plan to utilize the 1800 acre forest concession in Guyana, South
America. This plan calls for commercial quantities of timber sales by the
quarter ending June 30, 1997.
4. Settlements.
During the quarter ended December 31, 1996, the Company issued
stock in settlement of obligations to former consultants and counsel. The
issuance of this stock was recorded as a one time charge against earnings. The
Company believed that it was in its best interest to take all possible charges
against earnings at this time instead of doing so at a later date, the result of
which should be the potential for improved earnings during the remainder of the
Company's Fiscal Year.
19
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DALECO RESOURCES CORPORATION
Date: February 14, 1997 Gary J. Novinskie
-----------------
Gary J. Novinskie
President
Date: February 14, 1997 Edward J. Furman
----------------
Edward J. Furman
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT'S
QUARTERLY FINANCIAL STATEMENTS FOR THE QUARTERS ENDED DECEMBER 31, 1996 AND 1995
AND IS QUALIFIED IN ITS ENTIRETY BY ITS REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 77,891
<SECURITIES> 0
<RECEIVABLES> 1,071,115
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,286,037
<PP&E> 7,275,938
<DEPRECIATION> 1,972,993
<TOTAL-ASSETS> 9,087,117
<CURRENT-LIABILITIES> 4,418,090
<BONDS> 0
0
0
<COMMON> 12,080,725
<OTHER-SE> (7,411,698)
<TOTAL-LIABILITY-AND-EQUITY> 9,087,117
<SALES> 527,457
<TOTAL-REVENUES> 649,638
<CGS> 522,446
<TOTAL-COSTS> 744,604
<OTHER-EXPENSES> 822,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,264
<INCOME-PRETAX> (739,593)
<INCOME-TAX> 0
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<NET-INCOME> (739,593)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
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