<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 (Fee Required)
For the fiscal year ended September 30, 1996
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( ) 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
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DALECO RESOURCES CORPORATION
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(Name of small business issuer in its charter)
DELAWARE 23-2860739
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
435 Devon Park Drive, Suite 410
Wayne, Pennsylvania 19087
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(Address of Principal Executive Offices)
Issuer's telephone number: (610)254-4199
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Securities registered under Section 12 (b) of the Exchange Act: None
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Securities registered under Section 12 (g) of the Exchange Act:
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Common Shares Par Value $.01
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Title of Class
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes __X__ No _____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[ ]
State issuer's revenues for its most recent fiscal year: $805,259
Aggregate market value of voting stock held by non-affiliates of registrant
based upon the closing NASDAQ sale price on December 1, 1996: $2,816,056
Applicable only to Corporate Registrants
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Number of shares outstanding of the
issuer's common stock as of December 1, 1996: 15,463,339 common shares.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into this report in Part III, is information to be
contained in Registrant's Proxy Statement at its Annual Meeting.
Transitional Small Business Disclosure Format: Yes ____ No __X___
<PAGE>
PART I
ITEM 1 BUSINESS
General:
Daleco Resources Corporation (hereinafter referred to as "Daleco" and,
together with its wholly owned subsidiaries Westlands Resources Corporation
("Westlands") and Sustainable Forest Industries, Inc. ("SFI") as the "Company")
was for the entirety of the reporting period an Ontario, Canada corporation
which, through its subsidiary Westlands, is primarily engaged in the
exploration, development and production of oil and gas properties primarily in
the Austin Chalk Trend of Southern Texas. (See, "Austin Chalk Trend" and "Texas
Operations".) Daleco, originally named United Westlands Resources, Inc., was
organized under the laws of the province of Ontario by amalgamation of two small
companies in 1981. In 1986, the Company changed its name to Daleco Resources
Corporation, and its province of organization to Ontario, Canada. Control of the
Company and its predecessors has been vested in Messrs: Dov Amir and Louis
Erlich (who historically served in the positions of President and Chairman,
respectively, of Daleco) since its organization. In 1992, the Company acquired
approximately 8,410 acres of partially developed oil and gas leases in the
Pickens Oil Field of Mississippi. The Company resold the Pickens properties to
CMW Oil Company effective February 1, 1995. (See, "Pickens Oil Field".) The
Company, through its wholly owned subsidiary, Westlands, a Nevada corporation,
has acquired a significant number of interests in its Texas properties from
entities owned or controlled by Messrs. Amir and Erlich. Other interests have
been acquired as a result of the failure of non-affiliated working interest
owners to maintain their interest in the properties by failing to pay their
share of costs associated with the properties. The Company owns no oil
properties in Canada. Daleco conducts no operations as such and is essentially a
holding company for Westlands, its minority interest in Minera La Yesca (a
Mexican mine) and its timber holdings in Guyana through its subsidiary SFI.
Daleco does not refine any crude oil or market, at retail, any oil or petroleum
products. The Company does not own any drilling rigs, and, generally, all of its
drilling activities are performed by independent drilling contractors on a
contract basis. (See, "Interest of Management in Certain Transactions".)
The Company owns an interest in a Mexican mining company, "Minera La
Yesca". The Company has been advised that Minera La Yesca is negotiating a joint
venture to develop certain mining properties in Mexico. The Company does not
believe that it will incur any significant costs in connection with these mining
properties in the foreseeable future. (See, "Business and Properties - Mineral
Properties".)
During February 1995, the Company acquired 109 mining claims covering
approximately 5,500 acres in the Red Mountain area, Yukon Territory Canada.
(See, "Business and Properties-Yukon Mining Exploration".)
Effective September 29, 1995 the Company acquired all of the
outstanding shares of SFI a privately owned company engaged in timber operations
in Guyana, South America. (See, "Business and Properties - Timber Rights".)
Effective October 1, 1996, the Company acquired all of the outstanding
shares of Deven Resources, Inc., a privately owned company engaged in the
acquisition, management and development of oil and gas properties and other
energy assets. (See, "Business and Properties-Deven Resources, Inc".)
During Fiscal 1996, the Company successfully issued $2,310,000 in
convertible debentures pursuant to Regulation S. This enabled the company to
proceed with redevelopment of the Austin Chalk Properties and fund current year
operations and meet other corporate obligations.
Effective October 1, 1996, the Company was re-domesticated into the
State of Delaware.
<PAGE>
Although oil and gas prices did not substantially fluctuate during the
current fiscal year, low crude and natural gas prices may place constraints on
the ability of the Company to raise the capital needed to develop its properties
and/or acquire additional properties.
Definition of Terms:
As used herein, the term:
"Gross", as it applies to acreage or wells refers to the number of
acres or wells in which the Company has a working interest.
"Net", as it applies to acreage or wells refers to the sum of the
fractional ownership interests owned by the Company in gross acres or gross
wells.
"Working interest", means the share of costs borne by an owner in the
lease or well.
"Net Revenue Interest", means the owner's share of gross income from
such lease or well.
"MMbtu", "Bbls", "Mcf" and "MMcf" mean million British thermal units,
barrels, a thousand cubic feet, and a million cubic feet, respectively.
"Proved reserves", are the estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known oil and
gas reservoirs under existing economic and operating conditions.
"Proved developed reserves", are proved reserves which are expected to
be recoverable through existing wells with existing equipment and operating
methods.
"Proved undeveloped reserves", are proved reserves which are expected
to be recovered from new wells on undrilled acreage or from existing wells where
relatively major expenditures are required for drilling and completion.
"Horizontal Well" means a well drilled vertically from its surface to
its objective depth and from that point drilled with special tools at an angle
approximating 90 degrees from the bottom of the vertical hole or drilled from
such point at an angle which approximates that at which the beds of the
objective formation lie, as opposed to a traditional vertical well, which is
drilled vertically from the surface to its objective.
Crude oil and condensate volumes are expressed in barrels which are
equivalent to 42 United States gallons. Gas volumes are expressed in Mcf or MMcf
as determined at 60 degrees Fahrenheit and the legal pressure base that prevails
in the state in which the reserves are located.
Exploration Practices and Policies:
The Company has typically maintained only a fractional working interest
in the wells drilled by it, thereby limiting its financial risk and,
concomitantly, its interest in revenues from such wells. Because of the working
capital constraints under which the Company has been operating and the cost of
drilling horizontal wells (see "Business - Definition of Terms"), the Company
previously has sold fractional interests in proposed wells to others and has
undertaken to drill such wells on a turnkey fixed cost basis retaining a carried
working interest (often up to twenty-five percent (25%)) without bearing the
drilling and completion costs associated with that interest. During the last
five fiscal years, the Company has drilled and completed wells on such basis.
(See, "Properties - Texas Operations"). The Company has been attempting to
secure sufficient funding to permit it to drill wells on its leases without
third party participation and intends to do so subject to the availability of
funds (See Item 6. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business - General and Future Operations".)
<PAGE>
The Company has engaged RWA Corporation of Houston, Texas, an
unaffiliated company, to act as the contract operator of its oil and gas
properties pursuant to an oral agreement, thereby negating the necessity to
maintain a staff of operating personnel. The Company believes that, by engaging
a contract operator, it is able to effect cost savings and acquire localized
expertise. The Company expects to continue employing contract operators until
the size of its operations justifies hiring operating personnel. (See, "Business
- - - Employees".)
Austin Chalk Trend:
The Cretaceous carbonates in south Texas are of importance as oil and
gas producing horizons. The trend of these limestones include the Austin Chalk,
Buda, Georgetown and Edwards formations, extending for approximately 300 miles
in length and 50 miles across, and encountered at depths of 5,500 to 18,000
feet. These reservoirs are generally of low permeability, and significant oil
and gas production is generally obtained only by intersecting vertical fractures
within the carbonate rocks. Historically, these formations were considered to be
economically marginal except in areas where the rocks were highly fractured. In
later years, stimulation by mechanical fracturing of the rock resulted in
increasing hydrocarbon recoveries and extensive development of the trend. Recent
developments using horizontal drilling techniques allow the wellbore to
intersect, if present, a series of vertical fracture systems instead of a single
one, thus resulting in higher rates of production and recoverable reserves, at
the cost of a more expensive drilling effort. A vertical well is normally
drilled and produces from one such fracture system and the economic success of
such well is dependent on the quality of the fracture systems that the well is
drilled into. Recently developed horizontal drilling techniques allow the
wellbore to intersect, if present, a number of vertical fracture systems instead
of a single one, thus having the potential for higher production and recoverable
reserves. (See, "Business - Definition of Terms".) Whether an individual well
will be economic, even if horizontally drilled, depends largely upon
intersecting fractured portions of the formation, which cannot be predicted.
Certain locales appear to contain more fracturing than others, and the Company
believes that it's Texas leases are located in areas of better fracturing. It is
not unusual for an individual well to produce as much as forty percent (40%) of
the primary recoverable reserves during the first two years of production and
the remainder over a period of ten to fifteen years. Prior to 1996, the Company
has drilled and successfully completed ten horizontal wells. (See, "Properties -
Texas Operations".) During 1996, the Company's operations included the fracture
stimulation of three wells and the drilling of a new horizontal lateral in
another well. Because maximum production levels are currently regulated by
government in the portion of Texas in which the Company has its leases, wells
which penetrate a highly fractured system may be subject to production
curtailments. (See "Government Regulation - Texas Regulation".)
Operating Hazards and Uninsured Risks:
The Company's operations are subject to all of the risks normally
incident to the exploration for and production of oil and gas, including
mechanical failures, blow-outs, cratering, pollution and fires, each of which
could result in damage to or destruction of oil and gas wells or production
facilities or damage to persons and property. While the Company maintains a
$1,000,000 all risks liability policy which it believes is adequate, the
insurance may not cover all potential calamities. The occurrence of a
significant event not fully insured against could have a material adverse effect
the Company's financial position. (See, for example "Properties - Texas
Operations" and "Litigation".)
Title to Properties:
The Company's interests in producing and non-producing acreage are in
the form of direct or indirect interests in leases. Such properties are subject
to customary royalty interests generally contracted for in connection with
acquisition of properties, liens incident to operating agreements, liens for
current taxes and other burdens and mineral encumbrances and restrictions. The
Company believes that none of these burdens materially interferes with the use
of such properties in the operation of the company's business.
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As is customary in the oil and gas industry, little or no investigation
of title is made at the time of acquisition of undeveloped properties (other
than a preliminary review of local minerals records). Investigations are
generally made, including, in most cases, receiving a title opinion of local
counsel, before commencement of drilling operations. A thorough examination of
title has been performed with respect to substantially all of the Company's
producing properties and the Company believes that it has defensible title to
such properties.
The Company believes that it has good title to its timber concessions,
and mining claims.
Employees:
At September 30, 1996, the Company had no full-time employees. All
personnel engaged in the Company's offices were provided to it by Haly
Corporation pursuant to an oral arrangement. (See, "Interest of Management in
Certain Transactions".) The Company employs the services of consulting
geologists and engineers as well as those of a nonaffiliated operating company
which conducts the actual oil field operations of the Company. The Company
considers its relations with its consultants to be satisfactory. (See, "Business
and Properties - Exploration Practices and Policies".)
Competition:
The Company encounters strong competition from other independent
operators and from major oil companies in acquiring properties suitable for
development, in contracting for drilling equipment and in securing trained
personnel. Many of these competitors have financial resources and staffs
substantially larger than those available to the Company. The availability of a
ready market for oil and gas discovered by the Company depends on numerous
factors beyond its control, including the extent of production and imports of
oil and gas, the demand for its products from the United States and Canada, the
proximity and capacity of natural gas pipelines and the effect of state and
federal regulations. (See, "Properties Marketing of Productions".)
Competition in the acquisition of oil and gas prospects and properties
in the area of the Company's operations in Texas had been intense during periods
of high oil and gas prices. Recently, the oil and gas industry has been
depressed, and while competition has lessened, the Company's ability to discover
and/or acquire reserves in the future depends on various factors which involve
its ability to select and acquire and pay for suitable prospects for future
exploration and development.
The Company competes with other oil and gas concerns and other
investment companies, whether or not related to the petroleum industry in
raising capital. The Company's ability to access the capital markets is largely
dependent on the success of its oil and gas exploration activities and the
economic environment in which it operates.
Government Regulations:
In most, if not all, areas where the Company conducts activities, there
are statutory provisions regulating oil and gas operations. These provisions
allow administrative agencies to promulgate regulations in connection with the
development, production and sale of oil and gas, and to establish allowable
rates of production.
The Company's activities also are subject to laws and regulations
relating to environmental quality and pollution control. Although the cost of
compliance with such legislation and regulations has not been material to date,
such laws and regulations may substantially increase the cost of carrying on
these activities and may prevent or delay the commencement or continuance of a
given operation. The Company believes that such legislation and regulations have
had no material adverse effect on its present method of operations. In the
future, federal, state and local environmental controls may require the Company
to make significant expenditures, but neither the probability nor the magnitude
of the expenditures, if any, can be predicted.
<PAGE>
Dependence on a Few Major Customers: See, "Properties - Marketing of
Production".
ITEM 2 PROPERTIES
Texas Operations:
The Company holds approximately 7,145 gross (2,953 net) acres in
Burleson, Brazos, Austin, and Lee Counties, Texas. Of such amount, approximately
5,728 gross (2,219 net) acres are classified as presently developed, and 1,417
gross (734 net) acres are classified as proven undeveloped. The Company owns
interests varying from nine and six one-hundredths percent (9.06%) to
seventy-five percent (75.0%) net revenue interests in forty-one wells which have
been drilled on this acreage. Gross production ranges from one barrel of oil and
one Mcf of natural gas to 120 barrels of oil and 180 Mcf per day per well. The
foregoing data is for the month of September 1996.
The Company has identified a number of proposed drilling locations on
the leases identified above, of which six such locations have been classified as
proven undeveloped by the Company's independent engineering consultant. In
addition, the Company owns seven (7) idle or marginal wells which were completed
in the Austin Chalk as vertical and which the Company believes are suitable for
redrilling as horizontal wells. Additionally, the Company believes that some of
its currently producing horizontal wells can be re-completed in additional
zones.
Except for ten (10) horizontal wells, all of the Company's wells have
been drilled and completed in a traditional vertical manner. During Fiscal 1996,
the Company participated in the drilling and completion of one vertical gas well
in Austin County in which it retained a 45.0% working interest and 34.0% net
revenue interest. During Fiscal 1996, the Company's operations included new
fracture stimulation of three wells and the drilling of a new horizontal lateral
in another well.
As indicated under the caption "Business - Exploration Practices and
Policies", the Company historically has financed its drilling activities by
permitting others ("Participants") to pay approximately all of the drilling and
completion costs in exchange for an approximate 75% working interest in the
related well. Often the Company agrees with the Participants that the well will
be drilled for a fixed or turnkey cost. Thus, if the well's cost is less than
the fixed cost, the Company profits, and if the well's cost exceeds the turnkey
cost the Company suffers a loss. Generally, the Company has caused the wells to
be drilled for less than the related turnkey cost and has recorded profits.
However, in the drilling of the Tom Moore 3-H well in 1993, a string of casing
was lost in the hole requiring the well to be redrilled. In the redrilled hole
failures were encountered in the tubular goods run in the hole with the result
that the well was not drilled as projected and substantial cost overruns were
experienced. As a result thereof, as of September 30, 1995, the Company had
earlier charged $787,986 to earnings (representing the difference between the
present worth of the Future Net Revenues and the cost of the well). In Fiscal
1996, the Company was successful in its litigation with respect to this well and
received a settlement of $630,000 in cash and the elimination of accrued
liability and claims of approximately $485,000. (See, "Litigation".)
The Company plans to continue additional horizontal well development on
its Texas properties during Fiscal 1997, most of which will test the Austin
Chalk formation. The Company's ability to drill such wells is dependent upon
arranging financing, either in the form it has historically done (i.e. obtaining
"Participants" in the well) or securing corporate financing. The estimated cost
of each horizontal well is in the range of $800,000 as a completed well and
$600,000 as a dry hole. The cost to drill and complete a horizontal well using
the existing vertical well bore is estimated at $400,000. Although the locations
for each well to be drilled have been classified as proven by the Company's
independent petroleum engineers and the Company expects that each well will be
completed as a commercial producer of oil and gas, there is always the risk that
one or all of such wells will encounter drilling problems which will increase
the cost, or that the wells may be dry or non-commercial. The Company plans to
acquire additional acreage in the vicinity of its
<PAGE>
existing holdings, but has not yet budgeted funds for such purpose. (See,
"Business Competition".)
The Company entered into an agreement with a non-affiliated entity
farming out a portion of its undeveloped gas acreage in Brazos County, Texas.
Under the agreement, the farmee drilled and completed two horizontal gas wells
on 1,710 acres and carried the Company to the tanks for a 5% working interest in
each well at no cost to the Company. The farmee has the option to develop an
additional 800 acre tract in which the Company will be carried free for 5%
working interest and has the right to participate at cost for an additional 15%
working interest. The Company's oil and gas reserves have been adjusted to
reflect this agreement. As stated above, two wells were drilled and completed
and in both wells the Company was carried free to the tanks for a 5% working
interest.
Mississippi Properties:
The Acquisition:
In May 1992, the Company entered into an agreement with CMW Oil Company
and certain of its affiliates, all of which are small privately owned companies
and individuals, to acquire approximately 8,410 acres of oil and gas leases
(collectively the "Mississippi Properties") located in or adjacent the Pickens
Oil Field, Madison and Yazoo Counties, Mississippi ("Pickens Oil Field"). Since
the acquisition, the Company has released approximately 2,590 acres. The Pickens
Oil Field was discovered in 1940 and produces from the Eutaw Sand and the Selma
Chalk at depths ranging from 4,000 to 4,800 feet. Pursuant to this agreement, as
amended, the Company in July, 1992 acquired the Mississippi Properties for a
consideration of 2,560,000 shares of the Common Stock and warrants to purchase
500,000 shares of Common Stock at a purchase price of $1.00 per share. Of the
2,560,000 shares, 1,280,000 shares were issued and an additional 1,280,000
shares were to have been issued upon completion of a proposed public offering of
Company common stock. Of the warrants to purchase 500,000 shares, a warrant to
purchase 250,000 shares was granted on July 22, 1992 and an additional warrant
to purchase 250,000 shares was to have been granted upon completion of such
public offering. Each warrant was to expire one year from the date of grant. In
addition, the Company agreed to issue to a non-affiliated company 180,000 shares
of Common Stock. Of such shares, 90,000 were issued in July, 1992 and an
additional 90,000 were to have been issued upon completion of the proposed
public offering. If the public offering was not completed and the Common Stock
was issued at a gross price of not less than $2.00 per share, no additional
shares were to be issued to the sellers or the non-affiliated party. The
offering was not completed and no additional shares were issued to the sellers
and the non-affiliated party. The warrants were not exercised within the one
year period and expired on July 23, 1993.
In each instance, the shares issued and issuable, were restricted and
may not be transferred except in compliance with applicable securities laws.
Under the terms of the Acquisition Agreements the sellers were required
to cure certain title deficiencies and remove liens against the properties in
order to deliver clear title to the acquired assets. In view of the fact that
the sellers failed to fulfill their obligations and deliver good and marketable
title to the properties, the Company reconveyed the Mississippi Properties to
the sellers. In consideration for the reassignment, CMW returned 1,000,000
shares of Daleco's common stock which were cancelled. The reassignment reduced
the Company's net equivalent oil reserves by 34.7% and will reduce the estimated
projected future net cash flow discounted at 10% using unescalated oil and gas
prices by 31.2% as determined as of October 1, 1994. As result of the
reassignment, the Company recorded a non-cash loss of $532,854 or $0.05 per
share as well as a reduction of $1,395,711 in oil and gas property and equipment
cost, including $163,499 in accumulated depletion and depreciation charges, all
of which are reflected in the financial statements for Fiscal 1995.
Marketing of Production:
The Company does not refine any petroleum products. All of its
production is sold to a variety of customers, which include pipelines, oil and
gas gathering firms and other purchasers, pursuant to oral or written
agreements. Generally, sales of oil and gas are made at prevailing market
prices. (See, "Business - Effect of
<PAGE>
Failing Prices".) Typically, oil purchase agreements are of short duration, and
provide for market sensitive prices. The Company is a party to two long term gas
sales contracts, which may be terminated on short notice if a price adjustment
is unacceptable to the Company. (See, "Gas Sales" below.) The Company is not
obligated to provide a fixed and determinable quantity of oil and gas in the
future under existing contracts or agreements.
The availability of a market for oil and gas produced from the
properties of the Company and prices received therefor are dependent upon
numerous factors, most of which are beyond the control of the Company. Such
factors include the level of domestic production, the availability of imported
oil and gas, actions taken by foreign producing nations, the availability of
distribution and transportation facilities and capacity thereon, the
availability and price of fuels competitive with oil and gas, demand for oil and
gas and refined products and governmental regulation and taxation. Such factors
make it impracticable to predict with any degree of certainty future demand for
or prices of oil or gas produced by the Company.
Production of oil and gas is generally not considered to be of a
seasonal nature, although severe weather conditions temporarily can curtail or
preclude producing activities. Historically, the demand for natural gas
decreases during the summer months and increases during winter months.
The following table identifies customers of the Company which purchased
during the fiscal year ended September 30, 1996 in excess of ten percent (10) of
the oil or gas produced by the Company.
Production Area Name and Location Percentage of
of Operations of Purchaser Production Purchased
------------- ------------ --------------------
Oil Production
Texas Pride Pipeline Company 100.00
Abilene, Texas
Gas Production 35.7
Texas Aquila Southwest
Pipeline Corporation *
San Antonio, Texas
Austin Chalk Natural Gas 59.1
Marketing Services **
Houston, Texas
* A portion of the Company's production of gas from its wells in the Giddings
Field (presently 20 wells) is sold to Aquila Southwest Pipeline Corporation
("Aquila"), pursuant to a long term contract expiring January 31, 2010,
which covers a number of the Company's Texas leases. Subject to various
conditions, Aquila has agreed to buy all of the Company's gas produced from
the Giddings Field. The Company receives eighty percent (80%) of the
weighted average monthly sales price for liquid products extracted from gas
delivered and eighty percent (80%) of the resale prices for dry gas. Prices
received by the Company are subject to deductions for taxes, compression
and similar charges.
** Gas production from the remaining wells in the Giddings Field is sold under
a contract ending in April, 2000, at a base price of $2.00 per Mmbtu on a
month-to-month contract to Austin Chalk Natural Gas Marketing Services. The
effect of these contracts is that gas is sold at a market base price, which
may be adjusted by the purchaser; if the Company disagrees with a price
adjustment, the sales contract may be terminated by the Company or the
purchaser.
<PAGE>
The Company does not believe that the loss of any one of these
customers would have a material adverse effect upon the Company's revenues,
since there are numerous purchasers of oil and gas in the areas in which the
Company operates.
Production:
The following table summarizes the Company's net oil and gas production
for the periods indicated, shown in Bbls and Mcf, and the weighed average sales
prices for the periods indicated.
Fiscal year Ended September 30
1996 1995 1994
---- ---- ----
Mississippi
Oil (Bbls.) ----- 4,149* 15,129
Average Barrels per Day ----- 34 41
Texas
Oil (Bbls.) 17,637 18,126 28,420
Gas (Mcf) 205,983 184,223 268,541
Average Barrels per Day 48 50 78
Average Mcf per Day 564 505 736
Combined
Oil 17,637 22,275 43,549
Gas 205,983 184,223 268,541
Average Barrels per Day 48 84 119
Average Mcf per Day 564 505 736
* The Mississippi Properties were sold effective February 1, 1995. (See,
"Properties - Mississippi: Properties".)
The following table summarizes for the period indicated the average
price per Bbl and average price per Mcf of natural gas and the average
production (lifting) costs per barrel of oil and per Mcf of gas produced. In
determining the price received by the Company and costs incurred, all expenses
of operation have been attributed to the working interests but revenues
attributed are solely of the Company's net revenue interests.
Fiscal year Ended September 30
1996 1995 1994
---- ---- ----
Mississippi
Average Sale Price per Barrel ----- $15.74 $14.63
Average Production Cost per ----- 8.90 9.55
Barrel
Texas
Average Sale Price per Barrel 19.41 17.15 15.46
Average Sale Price per Mcf 2.64 2.30 2.45
Average Production Cost per
Equivalent Barrel 2.81 6.80 4.37
Combined
Weighted Average Sale Price 19.41 17.07 15.46
per Barrel
Weighted Average Sale Price 2.64 2.30 4.37
per Mcf
Weighted Average Production 2.81 6.86 4.72
Cost per Equivalent Barrel
For purpose of determining "Equivalent Barrels", gas has been converted
to oil at the rate of 6 Mcf per Barrel.
<PAGE>
Wells and Acreage:
The following tables set forth certain information as of September 30,
1996:
<TABLE>
<CAPTION>
Productive Wells and Acreage
Gross Oil Wells Net Oil Wells
Year Ended September 30 Year Ended September 30
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Mississippi 0 0 16 0 0 14.73
Texas 36 39 41 14.62 14.06 15.78
Gross Gas Wells Net Gas Wells
Year Ended September 30 Year Ended September 30
1996 1995 1994 1996 1995 1994
Mississippi 0 0 0 0 0 0
Texas 5 2 2 1.94 1.49 .63
Developed Acreage
Gross Acres Net Acres
Year Ended September 30 Year Ended September 30
1996 1995 1994 1996 1995 1994
Mississippi 0 0 640 0 0 589
Texas 5,728 6,438 4,977 2218 2,075 1,718
Undeveloped Acreage
Gross Acres Net Acres
Year Ended September 30 Year Ended September 30
1996 1995 1994 1996 1995 1994
Mississippi 0 0 5,180 0 0 5,180
Texas 1,417 1,473 2,613 734 1,073 2,583
</TABLE>
* The Mississippi properties were resold effective February 1, 1995 (See,
"Mississippi Properties".)
Drilling Activity:
The following table shows the number of wells drilled by or on behalf
of the Company and the results thereof for the period indicted. Such information
should not be considered indicative of future performance of prospects of the
Company. There is no necessary correlation between the number of producing
wells, whether developmental, or exploratory, completed during any period and
the aggregate reserves or future net income generated therefrom.
<PAGE>
<TABLE>
<CAPTION>
Exploratory Wells
Producers Dry Holes Total
Year Texas Miss. Texas Miss. Texas Miss.
Drilled
<S> <C> <C> <C> <C> <C> <C>
1996 -- -- -- -- -- --
1995 -- -- -- -- -- --
1994 -- -- -- -- -- --
Development Wells
Producers Dry Holes Total
Year Texas Miss. Texas Miss. Texas Miss.
Drilled
1996 1 -- -- -- 1 --
1995 3 -- -- -- 3 --
1994 2 -- -- -- 2 --
</TABLE>
As of September 30, 1996 no well was being drilled or reworked or in
the process of being completed. (See, "Business" and "Properties - Texas
Operations".)
Proved Reserves:
The Company causes to be prepared an annual estimate of oil and gas
reserves. Other than the acquisition of the Mississippi Properties which were
included in the 1994 tables and the subsequent disposition of the Properties in
February 1995, there have been no purchases or sales of reserves or other events
that would materially affect the reported reserves as of September 30, 1996. The
Company has not filed reserves estimates with any United States authority or
agency, other than estimates previously filed with the Commission.
The following table sets forth the proved reserves of the Company as of
September 30, 1994, September 30, 1995 and September 30, 1996. The 1994 data was
estimated by R.A. Lenser & Associates, Inc., independent petroleum engineers as
of September 30 date of that year. Estimated quantities for the year 1995 were
prepared by management of the Company using the following procedure. The Company
adopted the quantities as of September 30, 1994 as accurate and reduced such
quantities of proved reserves for production during Fiscal 1995. The Company
then verified and adjusted its reserves for performance based on decline curves
for each well. The result was employed as an estimate of quantities of proved
reserves as of September 30, 1995. While there may be some deficiencies in the
procedure adopted by the Company, the Company believes that the result obtained
by the application of such procedure is consistent with that which would have
been obtained by employing an independent engineer to estimate its reserves at
year end. The Company adopted this method since production levels and declines
were consistent with prior periods and prices of oil and gas were not materially
different than in earlier periods.
The figures as of September 30, 1996, were taken from the reserve
report dated October 1, 1996, prepared by R. A. Lenser & Associates, Inc.,
independent petroleum engineers as of September 30, 1996.
<PAGE>
September 30
1996 1995 1994
Oil and Condensate (Bbls)
Texas 112,963 131,793 37,369
Mississippi * 20,995
------- ------- ------
112,963 131,793 58,364
Proved undeveloped reserves
Texas 850,605 693,420 960,162
Mississippi * 1,211,250
------- ------- ---------
850,605 693,420 2,171,412
Gas (Mcf)
Proved developed reserves
Texas 750,537 1,633,612 482,970
--------- --------- ---------
Mississippi * 750,537 1,633,612 482,970
Proved undeveloped reserves
Texas 7,989,223 6,403,034 7,409,933
Mississippi * --------- --------- ---------
7,989,223 6,403,034 7,409,933
All of the above stated reserves are located on-shore within the United
States.
* The Mississippi Properties were resold to CMW effective February 1, 1995.
Consequently, estimates of the net oil and gas reserves were adjusted to
reflect such sale. (See, "Properties - Mississippi Properties".)
Estimated Future Net Revenues and Present Worth:
Estimated future net revenues of the Company's net oil and gas reserves
at the date indicated and the present worth thereof employing a ten percent (10)
discount factor is set forth in the following tabulation:
<TABLE>
<CAPTION>
Future Net Revenues
September 30
1996 1995 1994
<S> <C> <C> <C>
Proved Oil and Gas Reserves $27,010,449 $18,512,310 $35,199,195
Proved Developed Oil and Gas Reserves $2,618,571 $1,545,735 $1,189,325
</TABLE>
<TABLE>
<CAPTION>
Present Worth
September 30
1996 1995 1994
<S> <C> <C> <C>
Proved Oil and Gas Reserves $17,854,662 $13,402,604 $23,269,212
Proved Developed Oil and Gas Reserves $2,038,260 $1,324,567 $995,573
</TABLE>
The present value of estimated future net revenues set forth above is
computed using the estimated future net revenues and a discount factor of ten
percent (10) over the projected life of each property. (See, "Consolidated
Financial Statements - Supplemental Financial Information".)
<PAGE>
Future net revenues and present worth values as of September 30, 1994
and September 30, 1995 were computed using crude oil prices of $17.00 per barrel
unescalated, while the price of $21.00 per barrel unescalated was used in 1996
calculations. Gas prices of $2.50 per Mcf unescalated were used in all three
years.
Future net revenues and discounted net revenues for the year-end
September 30, 1995 reflect the re-assignment of the Mississippi Properties to
CMW Oil Company.
Estimates of proved reserves and the present value of future net
revenues at September 30, 1994 and September 30, 1996 were prepared by R.A.
Lenser & Associates Inc. Quantities and values included herein at September 30,
1996 were extrapolated by the Company from such data. (See above.) Proved
reserves and future net revenues were computed applying prices of oil and gas in
effect as of the date of each estimate (with consideration of price changes only
to the extent provided by contractual arrangements or law) to estimated future
production of proved oil and gas reserves and then deducting estimated future
expenditures (based on current costs and excluding income taxes) to be incurred
in producing and developing the proved reserves. If the proved reserves and
future net revenues had been computed using oil and gas prices currently in
effect, the results obtained would have been materially different than those
shown above. Future prices to be received from such production and future
production costs may vary, perhaps significantly, from the prices and costs
assumed for purposes of these estimates. Present value of future net revenues
were calculated by discounting the future net revenues at the rate of ten
percent (10%) per year over the expected period of realization. The engineering
estimates do not include the cost of abandoning wells at the end of their
productive lives, since the Company believes that the salvage value of equipment
will approximate the cost of abandonment. The Company believes that the cost
(net of estimated salvage) of Company's wells should range from $7,000 to
$10,000 per well for a one hundred percent (100%) working interest depending
upon depth and locale. Historically, the Company has arranged with independent
contractors to undertake the abandonment of wells, including the required filing
of forms with the proper regulatory agencies. Under these arrangements, the
contractor takes full responsibility for such operations in return for salvage
of casing and tubing it recovers from the abandoned well or wells at no cost to
the Company; however, the Company normally retains possession of the surface
equipment and facilities. The Company intends to continue such practice in the
future.
Petroleum engineering is not an exact science. Information relating to
the Company's oil and gas reserves is based upon engineering estimates.
Estimates of economically recoverable oil and gas reserves and of the future net
revenues therefrom are based upon a number of variable factors and assumptions,
such as historical production from the subject properties compared with
production from other producing properties, the assumed effects of regulation by
governmental agencies and assumptions concerning future oil and gas prices and
future operating costs, severance and excise taxes, development costs, work-over
and remedial costs, all of which may in fact vary considerably from actual
results. All such estimates are to some degree speculative, and classifications
of reserves are only attempts to define the degree of speculation involved. For
these reasons, estimates of the economically recoverable reserves of oil and gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net revenues
expected therefrom, prepared by different engineers or by the same engineers at
different times, may vary substantially. The Company emphasizes that the actual
production, revenues, severance and excise taxes, development expenditures and
operating expenditures with respect to its reserves will likely vary from such
estimates, and such variances may be material.
The present values shown above should not be construed as the current
market value of the estimated oil and gas reserves attributable to the Company's
properties. In accordance with applicable requirements of the Securities and
Exchange Commission ("Commission"), the estimated discounted future net revenues
from proved reserves are based, generally, on prices and costs as of the date of
the estimate, whereas actual future prices and costs may be materially higher or
lower. Actual future net revenues also will be affected by factors such as
actual production, supply and demand for oil and gas, curtailments or increases
in consumption by gas purchasers, changes in governmental regulations or
taxation, the impact of inflation on costs, general and administrative costs and
interest expense. The timing of actual
<PAGE>
future net revenues from proved reserves, and thus their actual present value,
will be affected by the timing of the incurrence of expenses in connection with
development of oil and gas properties. In addition, the ten percent (10%)
discount factor, which is required by the Commission to be used to calculate
discounted future net revenues for reporting purposes, is not necessarily the
most appropriate discount factor based on interest rates in effect from time to
time and risks associated with the oil and gas industry. Discounted future net
revenues, no matter what discount rate is used are materially affected by
assumptions as to the timing of future production and future expenses which may
and often do prove to be inaccurate. (See "Business - Effect of Falling
Prices".)
Reserves Reported To Other Agencies:
There were no estimates or reserve reports of the Company's proved
domestic net oil or gas reserves filed with any governmental authority or
agency, other than the Commission, during the years ended September 30, 1994,
September 30, 1995 or September 30, 1996.
Delivery Commitment:
The Company is not obligated to provide a fixed and determinable
quantity of oil and gas in the future under existing contracts or agreements.
Mineral Properties:
Minera La Yesca Ownership Interest:
The Company owns twenty-five percent (25%) of the issued shares of
Minera La Yesca ("Yesca"), a Mexican mining corporation which owned the Pinabete
Silver Mine in Nayarit, Mexico. Through September 30, 1993 total advances by the
Company to Yesca to help finance the cost of placing the Pinabete Silver Mine
into production were approximately $1,800,000. In September 1990, Yesca
discontinued operations at the Pinabete Silver Mine due to the heavy losses
suffered as a result of depressed silver prices.
Due to the significant losses incurred by Yesca and the uncertainty of
obtaining any future profitable operations, the Company wrote-off its investment
in Yesca in Fiscal 1996 down to $100,000. The Company has no plans to invest or
loan further funds to Yesca.
Yukon Gold Exploration:
In February 1995, the Company acquired from Messrs. Amir and Erlich 109
mining claims totalling approximately 5500 acres in the Red Mountain area,
located at the headwaters of the Klondike River, Dawson and Mayo mining
districts of the Yukon Territory, Canada. The Company paid Messrs. Amir and
Erlich $15,487 which was their cost of acquiring the claims. The claims adjoin
properties owned by Regent Ventures Ltd., a small non-affiliated Canadian
company which has been conducting exploration work on its holdings for the last
two years. During the period, Regent conducted geochemical and geophysical
surveys as well as trenching and corehole drilling. Regent reported that during
the period, it had drilling 27 corehole and intersected significant gold varies
in 11 of such holes. Assays of core samples confirmed values ranging from a low
of 0.020 oz/ton to a high of 0.810 oz/ton of gold, at depths of 110 to 600 feet.
During Fiscal 1996, the Company did not conduct any significant work on its
claims other than work required to maintain the claims in good standing.
Recent surface work on the Company's acreage showed the same high
values on silt soil samples as those obtained on the Regent acreage, which,
coupled with the geochemical and geophysical work done by Regent on the
adjoining acreage, indicate that the same high intensity structure extends into
and across the Company's acreage.
Timber Rights:
Effective September 29, 1995 the Company acquired all of the
outstanding shares of SFI, a privately held Delaware company. SFI owns the
rights to an 1800 acre hardwood timber concession in Guyana, South America. The
concession was inspected by
<PAGE>
an independent consultant, Ceso International Service, a Canadian government
affiliate providing advisory services to developing countries. Based on its
evaluation, the commercial volume of merchantable logs is 40,000 units or
approximately 1,400,000 cubic feet in the stand with an uncut market value of
$8,000,000. A greater value can be realized should the timber be cut, processed
and marketed as lumber.
In consideration for all of the capital stock of SFI, the Company
issued 1,500,000 shares of its Common Stock, and warrants to purchase 500,000
shares of Common Stock at a price of $0.25 per share. The warrants will expire
on September 30, 2000. Under the Agreement, the Company has the option to
acquire additional hardwood timber rights in Guyana.
Due to limited financial resources during Fiscal 1996, the Company was
unable to begin any meaningful utilization of the timber concession. Total
revenues were less than $15,000. The Company is in the process of developing a
formal business plan for SFI in order to generate commercial quantities of
timber sales in fiscal 1997.
Deven Resources, Inc.:
Effective October 1, 1996, the Company acquired all of the outstanding
shares of Deven Resources, Inc. for 2,600,000 shares of the Company's common
stock. Deven was founded in March, 1991, to invest in the acquisition,
management and development of oil and gas properties. Through a combination of
ownership, management and consulting services, Deven controls net reserves of
approximately 4.4 million barrels.
ITEM 3 LEGAL PROCEEDINGS
As a consequence of the problems encountered in drilling the Tom Moore
3-H well on the Company's Texas Properties, the Company, in 1993, commenced an
action in the District Court of Harris County, Texas, styled Westlands Resources
Corporation v. Questor Drilling Corporation, et al. and Westlands Resources
Corporation v. System Pipe & Supply, Inc., et al. being numbers 93-23884 and
93-038866, respectively, of said court.
In December 1995, Daleco's subsidiary obtained favorable settlements in
the two lawsuits which resulted in a net settlement of $769,780 to the Company
will result in its receipt of $630,000 in cash and the elimination of accrued
liabilities and claims amounting to $485,000 approximately.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Two matters were submitted to a vote of security holders through
solicitation of proxies during the fourth quarter of Fiscal 1996: (1) re-
domestication of the Company into the United States; and, (2) the acquisition of
100% of the outstanding stock of Deven Resources, Inc.
The result of such vote was as follows(1):
FOR WITHHELD
(1) Re-Domestication of the Company into 6,796,231 24,139
the United States.
- - --------
1 The Special Meeting was conducted pursuant to the rules and regulations of
the Ontario Business Corporations Act. As such, there were only two (2)
voting choices for the shareholders, either "FOR" or to "WITHHOLD" one's
vote on the matter under consideration.
<PAGE>
(2) Acquisition of 100% of the outstanding 6,788,611 31,751
stock of Deven Resources, Inc.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS
The Company's common stock trades on the NASDAQ. Effective with the
Company's re-domestication into the United States as of October 1, 1996, the
symbol for the Company's shares on NASDAQ became DLOV. As of December 1, 1996
there were 1,133 record owners of the Company's common stock.
The range of the high and low bid prices, by quarters, commencing with
the first quarter of the fiscal year ended September 30, 1995 for the Company's
common stock is as follows:
NASDAQ
(Bid Prices)
Fiscal Year End US $
September 30
High Low
1995 - 1st Qtr. 5/16 3/16
1995 - 2nd Qtr. 31/32 3/16
1995 - 3rd Qtr. 31/32 7/16
1995 - 4th Qtr. 29/32 1/4
1996 - 1st Qtr. 5/8 3/16
1996 - 2nd Qtr. 7/16 1/8
1996 - 3rd Qtr. 1-3/4 9/32
1996 - 4th Qtr. 17/16 19/32
These quotations represent prices between dealers, do not include
retail mark-ups, markdowns or commissions, and may not represent actual
transactions. The prices set forth above may not be representative of prices in
a more active market for the Company's common stock.
The Company has never paid any cash dividends. For the foreseeable
future, the Company intends to retain any earnings to finance the growth of its
business.
Sales Of Securities:
In Fiscal 1996, the Company conducted two sales of Securities pursuant
to Regulation S.
During the third quarter, the Company concluded a foreign placement of
$1,000,000 of three (3) year 7% convertible debentures. Under the terms of this
offering dated May 31, 1996 the foregoing investor was capable of converting up
to fifty percent (50%) at any time from and after the 40th day following May 31,
1996 and one hundred percent (100%) at any time from and after the 60th day
following May 31, 1996 into shares of common stock of the Company at a
conversion price per share equal to the lesser of (i) the average closing bid
price (as reported by NASDAQ) of the Company's common stock for the five trading
days immediately prior to the date of the Debenture (which was $1.19 per share)
(the "Closing Price") or, (ii) sixty-
<PAGE>
five percent (65%) of the average closing bid price (as reported by NASDAQ) of
the Company's common stock for the five (5) trading days immediately prior to
the conversion date. The foreign investor also received a warrant for 100,000
shares of common stock at an exercise price of $1.00 per share. The Warrant
expires May 31, 2001, and contains adjustments in the exercise price and the
warrant shares upon the occurrence of certain provisions.
As of December 1, 1996, $900,000 of the 7% convertible debentures had
been converted into 1,825,815 shares of common stock.
The Company completed a second securities offering under Regulation S
on September 6-11, 1996. The second offering was for $1,310,000 of 8%
convertible debentures due September 6, 1998. Under the terms of the debentures,
the debenture could be converted into common stock of the Company commencing 45
days following the closing of the offering as to 50% of their principal amount
of the debenture plus accrued interest through the date of conversion, and after
the 65th day following the closing as to 100% of the outstanding amount of the
debenture plus accrued interest through the date of conversion. The foreign
investor is authorized to convert at a price equal to 75% of the average closing
bid price of the Company's common stock for the five (5) trading days
immediately preceding the date of conversion. The foregoing investor also
received warrants for 50 of the face amount of the Debenture owned by the
foregoing investor on the date of exercise ("Exercise Amount"). The Warrants are
five (5) year warrants and permit the exercise of the warrants in three tranches
as follows: (i) Tranche one, equals to one-third of the Exercise Amount on the
closing date of the Regulation S offering ("Closing Date") (ii) Tranche two,
equals one-third of the Exercise Amount computed on the 75th day after the
Closing Date; and, (iii) Tranche three equals one-third of the Exercise Amount
on the 270th day after the Closing Date. The exercise price for each Tranche is
115% of the average closing bid price of the Company's common stock for the five
(5) trading days immediately preceding the 45th, 75th and 270th day following
the Closing Date. As of December 1, 1996, $130,000 of the Debentures have been
converted into 494,794 shares of common stock. No warrants have been exercised.
Warrants, under the same terms, amounts, and of like duration were
issued to the foreign investment advisor for each foreign investor ("Investor
Advisor Warrants"). The Investor Advisor Warrants were tied to the face amount
of their foreign investor's debentures outstanding from time to time. As of
December 1, 1996, none of these warrants have been exercised.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General - Trends:
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
<PAGE>
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 fiscal year ended September 30, 1996, was marked by a number of
events which in the opinion of management will strengthen the Company and ensure
an aggressive continuous growth pattern.
During the early part of the period, the Company's wholly-owned
subsidiary, Westlands Resources Corporation, settled its two lawsuits against
the drilling contractor and service companies in connection with the drilling of
the Tom Moore 3-H gas well. Under the settlements, Westlands received the sum of
$630,000 in cash and eliminated approximately $485,000 of accrued liabilities
and claims.
The Company signed definitive consulting agreements with Avonwood
Capital Corporation, an investing banking firm and Deven Resources, Inc.
("Deven"), a natural resources management company specializing in the
acquisitions management and development of oil and gas reserves. Both Avonwood
and Deven are located in the Philadelphia area, Pennsylvania, and were retained
to assist Daleco's management in the planning and implementation of a corporate
strategy designed to maximize the Company's assets and ensure continuous growth.
As originally envisioned, effective October 1, 1996, Daleco acquired all the
outstanding shares of Deven in exchange for 2,600,000 of Daleco's common shares.
On August 29, 1996, Daleco's shareholders overwhelming approved the
re-domiciling of the Company from Canada to the State of Delaware and the
acquisition of Deven Resources, Inc. as proposed by management. Mr. Gary
Novinskie was elected President and Chief Operating Officer and Mr. David
Lincoln was elected Vice Chairman of the Board. Additionally, Mr. C. Warren
Trainor, Esquire was elected Director and Assistant Secretary and Mr. Mark
DeNino was elected a Director.
During the third quarter of the fiscal year, the Company concluded the
foreign placement of $1,000,000 of three (3) year 7% convertible debentures
while during the fourth quarter the Company successfully completed the foreign
placement of $1,310,000, 8% convertible debenture. The net proceeds were used
for drilling and workovers and satisfaction of corporate obligations. As of
December 1, 1996, $1,030,000 of these debentures were converted into 2,320,609
common shares.
During Fiscal 1996, crude oil prices averaged $19.41 per barrel for the
Company's Texas crude production compared with an average of $17.15 per barrel
during the previous fiscal year. The average price the Company received for its
natural gas production increased to $2.64 per mcf compared with $2.30 per mcf
for the same period last year.
The Company intends to continue to pursue the raising of equity capital
during Fiscal 1997, in order to enable it to accelerate the development of its
oil and gas properties as well as seek additional profitable opportunities in
the three areas of natural resources in which the Company is now involved.
The Company does not record any significant deferred tax provisions,
since it has a substantial loss carry-forward, both in the United States and
Canada. the Company considers all of its operations to be fully integrated. All
items in foreign currencies have been translated using the temporal method.
Translation gain and loss are recognized currently in earnings. Since the
Company was a Canadian company in Fiscal 1996, the financial statements are
prepared in accordance with Canadian GAAP. With the re-domestication of the
Company in Delaware on October 1, 1996, the Company's financial statements for
Fiscal 1997 and subsequent years will be prepared in accordance with United
States GAAP.
As indicated elsewhere in this report, the Company does not include a
provision for abandonment or restoration costs in its financial statements,
since historically the costs of abandonment of wells have been offset by the
salvage value of the related well. The Company believes that it has not incurred
any
<PAGE>
environmental remediations costs of a consequential nature and makes no
provisions therefore.
Fiscal 1996
The Company was unsuccessful in its efforts to raise the capital
required to carry out its drilling and workover programs in order to maximize
the potential of its properties. However, in spite of the capital constraints,
net production rates were maintained at the same level averaging 142 barrels of
oil equivalent per day compared with 145 for Fiscal 1995. Gross operating
revenues amounted to $805,259 in Fiscal 1996 as compared with $799,397 for
Fiscal 1995, year while lease operating expense increased by $119,727 (25.2%)
due to higher maintenance costs of older wells and well rework expense.
Administrative expenses amounted to $810,495 for Fiscal 1996 as
compared to $575,650 for the prior Fiscal year. Included in the increased costs
are $32,995 of bad debt expenses and $56,750 for shareholder services
information in connection with the re-domestication of the Company as a Delaware
corporation and the acquisition of Devon Resources, Inc.
In connection with the Company's timber operations in Guyana, the
Company incurred $192,141 in advances and accrued expenses.
Liquidity and Capital Resources
The Company historically has financed its operations through cash flow
from operating activities. Well drilling costs have historically been met by
selling interests in a well to be drilled on a turnkey or fixed costs basis to a
few individuals having close ties to the Company and its founders. Typically,
the Company has recognized a profit in these turnkey arrangements; since it has
been able to contract for the drilling of the wells on a costs basis less that
the turnkey price. The Company has also been able to secure a free or "carried
interest" in these wells as part of the arrangement.
During the 1994 and 1995 fiscal years the Company experienced
difficulties in selling working interests to outside investors, resulting in
also a slower pace of drilling activities. During the same period the Company
farmed out some of its undeveloped acreage to other operators resulting in the
drilling of two gas wells and one oil well being drilled and completed on such
leases and the Company was carried free into the tanks for working interest in
each of the wells ranging from 5% to 11% at no cost to itself. (See, "Texas
Operations".)
During the third quarter of Fiscal 1996, the Company sold $1,000,000 of
a 7% convertible debenture to foreign investors under a Registration "S"
Offshore Subscription Agreement. A second Registration "S" 8% convertible
debenture in the amount of $1,310,000 was successfully placed with foreign
investors during the fourth quarter. The net proceeds from both debentures were
used to re-drill a horizontal oil well and rework three other oil wells in the
Austin Chalk trend, as well as to retire trade accounts and meet other corporate
obligations. Funds when needed were made available to the Company by its
controlling shareholders, Messrs. Amir and Erlich in the form of unsecured loans
and deferral of payments for administration service charges. (See, "Certain
Relationships" and "Related Transactions".) At the end of Fiscal 1996, the
amount owed to such individuals was $384,906.
An increase of $58,764 (22.4%) was recorded in depletion, depreciation
and amortization costs. The increase reflects an additional write-down charge of
$81,050 of the Company's Clay area leases.
The Company believes that its relations with trade creditors are good
and foresees no immediate problems in deferring payments for a short time or
making other necessary arrangements to meet its obligations. The Company
continues to seek additional capital with which to continue the development of
its holdings as well as acquire producing oil and gas properties having a good
development potential. Management is considering both debt and equity additional
financing during Fiscal 1997, however there are no assurances that such efforts
will be successful.
<PAGE>
Capital Expenditures
During the fiscal year ended September 30, 1996, the Company
participated in the drilling of one gas well in which it has a 45% working
interest. The Company's share of drilling and completing the well was $277,162.
Acquisitions
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.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and schedules are included herein.
Audited Financial Statements and Supplemental Financial Information
* Independent Auditors' Report or Audited Consolidated Financial Statements
* Comments by Independent Auditors for United States Readers on Canada - United
States reporting Differences
* Consolidated Balance Sheet
* Consolidated Statement of Loss
* Consolidated Statement of Deficit
* Consolidated Statement of Cash Flow
* Notes to Consolidated Financial Statements
* Auditors' Report on Supplemental Financial Information
* Schedule II - Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties
* Schedule IV - Non-Current Indebtedness of and to Related Parties
* Schedule V - Property, Plant and Equipment
* Schedule VI - Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
* Schedule IX - Short-Term Borrowings
* Schedule X - Supplementary Income Statement Information
Other Supplemental Data
* Estimated Net Quantities of Proven Oil and Gas Reserves
* Standardized Measure of Discounted Future Net Cash Flow from Estimated
Production of Proved Oil and Gas Reserves
* Summary of Changes in Standardized Measure of Discounted Future Net Cash
Flows
<PAGE>
| Coopers
| & Lybrand
- - --------------------------------------------------------------------------------
Daleco Resources Corporation
Consolidated Financial Statements
For the Years Ended September 30, 1996, 1995 and 1994
- - --------------------------------------------------------------------------------
<PAGE>
[COOPERS AND LYBRAND LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF DALECO RESOURCES
CORPORATION
We have audited the consolidated balance sheets of Daleco Resources Corporation
as at September 30, 1996 and 1995 and the consolidated statements of loss,
deficit and cash flow for each of the three years in the period ended September
30, 1996. 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.
We conducted our audits in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at September 30,
1996 and 1995 and the results of its operations and the changes in its cash
flows for each of the three years in the period ended September 30, 1996 in
accordance with accounting principles generally accepted in Canada.
/S/ Coopers & Lybrand
- - --------------------------
Chartered Accountants
Toronto, Canada
December 4, 1996
<PAGE>
[COOPERS AND LYBRAND LETTERHEAD]
COMMENTS BY INDEPENDENT AUDITORS FOR UNITED STATES
READERS ON CANADA - UNITED STATES REPORTING
DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant doubt about the company's ability to
continue as a going concern such as that referred to in the attached balance
sheet as at September 30, 1996 and as described in Note 1 of the financial
statements.
Our report to the shareholders dated December 4, 1996 is expressed in accordance
with Canadian reporting standards which do not permit a reference to such doubt
in the audit report when the matter is adequately disclosed in the financial
statements.
/S/ Coopers & Lybrand
- - --------------------------
Chartered Accountants
Toronto, Canada
December 4, 1996
<PAGE>
Daleco Resources Corporation
Consolidated Balance Sheets
As at September 30, 1996 and 1995
(Expressed in United States dollars)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 268,185 $ 80,012
Accounts receivable (net of provision) 983,130 750,879
------------------------------------------
1,251,315 830,891
Investment in and Advances to Mining Joint
Venture (note 3) 100,000 300,000
Oil and Gas Properties and Equipment (note 4) 3,765,127 3,958,712
Timber Rights (note 6) 1,028,342 1,028,342
Mineral Properties (note 7) 15,673 15,487
Debenture Issue Costs 268,732 -
------------------------------------------
$ 6,429,189 $ 6,133,432
==========================================
Liabilities
Current Liabilities
Accounts payable and accrued liabilities (note 15) $ 1,316,404 $ 2,190,872
Notes payable (note 8) 800,000 1,100,000
Drilling deposits 29,000 51,000
Due to Related Parties (notes 9 and 10) 384,906 129,730
------------------------------------------
2,530,310 3,471,602
Debentures (note 11) 1,710,000 -
------------------------------------------
4,240,310 3,471,602
------------------------------------------
Capital Stock less Deficit
13,154,854 common shares without par value
(1995 - 12,077,732) (note 12) 8,860,984 8,360,126
Deficit (6,672,105) (5,698,296)
------------------------------------------
2,188,879 2,661,830
------------------------------------------
Total Liabilities and Shareholders' Equity $ 6,429,189 $ 6,133,432
==========================================
</TABLE>
Contingencies (note 15)
APPROVED ON BEHALF OF THE BOARD
________________________________
Director
________________________________
Director
(See accompanying notes to financial statements)
<PAGE>
Daleco Resources Corporation
Consolidated Statements of Loss
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross Operating Revenue $ 805,259 $ 799,397 $ 1,271,571
Loss on Development and Resale
of Wells (note 4) - (46,449) (39,786)
-----------------------------------------------------
805,259 752,948 1,231,785
Less: Lease operating expenses 593,149 473,422 663,045
Severance taxes 25,827 28,593 32,825
Depletion, depreciation and amortization 321,002 262,238 421,988
-----------------------------------------------------
(134,719) (11,305) 113,927
-----------------------------------------------------
Loss on disposal of Mississippi oil and gas
rights (note 5) - 532,854 -
Net loss (gain) on sale of assets 21,057 (19,529) -
Exchange loss (gain) (386) 2,492 58,022
Administration expense 810,495 575,650 613,745
Amortization of debenture issue costs 12,305 - -
Financial advisory expenses 207,946 28,264 72,705
Timber operation costs (note 6) 192,141 - -
Interest expense 165,312 108,131 134,049
Write-down of advances to mining joint venture 200,000 - 100,000
-----------------------------------------------------
1,608,870 1,227,862 978,521
Other Income
Gain on litigation settlement (note 15) (769,780) - -
-----------------------------------------------------
839,090 1,227,862 978,521
-----------------------------------------------------
Net Loss for the Year $ (973,809) $ (1,239,167) $ (864,594)
=====================================================
Basic and Fully Diluted Net Loss
per Common Share (note 12(d)) $ (0.08) $ (0.10) $ (0.08)
=====================================================
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
Daleco Resources Corporation
Consolidated Statements of Deficit
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deficit - Beginning of Year $ (5,698,296) $ (4,459,129) $ (3,594,535)
Net loss for the year (973,809) (1,239,167) (864,594)
-----------------------------------------------------
Deficit - End of Year $ (6,672,105) $ (5,698,296) $ (4,459,129)
=====================================================
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
Daleco Resources Corporation
Consolidated Statements of Cash Flow
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net loss for the year $ (973,809) $ (1,239,167) $ (864,594)
Items not affecting working capital
Depletion, depreciation and amortization 321,002 262,238 421,988
Amortization of debenture issue costs 12,305 - -
Write-down of advances to
mining joint venture 200,000 - 100,000
Loss on development and resale of wells - 46,449 39,786
Loss on disposal of Mississippi oil and
gas rights - 532,854 -
Loss (gain) on sale of oil and gas properties 21,057 (19,529) -
Gain on litigation settlement (769,780) - -
Accrued interest on conversion of debt 8,017 - -
-----------------------------------------------
(1,181,208) (417,155) (302,820)
Increase in accounts receivable (82,251) (476,499) (87,369)
(Decrease)/increase in accounts payable (390,756) 95,140 622,267
(Decrease)/increase in advances received on
well costs (22,000) 51,000 -
Drilling and work over costs (818,139) (212,038) (1,863,738)
Net proceeds from settlement of litigation 611,573 - -
Proceeds of drilling program 525,500 - 1,350,000
-----------------------------------------------------
Cash used for operating activities (1,357,281) (959,552) (281,660)
-----------------------------------------------------
Investing Activities
Drilling and lease acquisition costs incurred (344,704) (29,822) (38,367)
Mineral properties acquisition (186) (15,487) -
Timber rights acquisition - (1,028,342) -
Proceeds from sale of oil and gas properties 4,500 130,374 -
Increase in advance to Deven Resources Inc. (150,000) - -
Decrease in lease acquisition and well costs 158,864 699,308 -
-----------------------------------------------
Cash used for investing activities (331,526) (243,969) (38,367)
-----------------------------------------------------
Financing Activities
(Decrease) increase in notes payable (300,000) 800,000 300,000
Increase (decrease) in amounts due to related
parties 255,176 83,237 (1,292,192)
Issuance of stock - 1,024,881 1,309,737
Redemption of stock - (699,358) -
Issuance of convertible debentures 2,310,000 - -
Debenture issue costs (388,196) - -
-----------------------------------------------
Cash provided from financing activities 1,876,980 1,208,760 317,545
-----------------------------------------------------
Increase (Decrease) in Cash and
Cash Equivalents 188,173 5,239 (2,482)
Cash and Cash Equivalents -
Beginning of Period 80,012 74,773 77,255
-----------------------------------------------------
Cash and Cash Equivalents -
End of Period $ 268,185 $ 80,012 $ 74,773
=====================================================
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
1. Continued Operations
The financial statements have been prepared on the basis of a going
concern, which contemplates that the Company will be able to realize
assets and discharge liabilities in the normal course of business.
Accordingly, they do not give effect to adjustments that would be
necessary should the Company be required to liquidate its assets. As at
September 30, 1996 the Company has reported a loss of $973,809 and had
net current liabilities of $1,278,995. The ability of the Company to
meet these liabilities and to continue as a going concern is dependent
upon the availability of future funding and the continued financial
support from parties related to the Company.
Management has taken significant steps to generate positive cash flow
and improve operations. As discussed in Note 19, the Company completed
its merger with Deven Resources Inc. effective October 1, 1996. In
conjunction with this merger, the Company redomesticates into the United
States. Deven Resources Inc. provides the Company with oil and gas
management and operations experience in four states. In addition,
effective November 27, 1996, the Company signed a binding letter of
intent to acquire oil and gas properties with approximately 3 million
barrels of oil equivalent in exchange for cash consideration of
$5,000,000. Negotiation is underway to obtain loan facility to finance
the acquisition. Management believes these steps, along with the
proposed development of existing reserves, will result in a positive
cash flow and improved liquidity for fiscal 1997.
2. Summary of Significant Accounting Policies
(a) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(b) Basis of consolidation
These consolidated financial statements of Daleco Resources
Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles in Canada and include
the accounts of the Company and its wholly-owned subsidiaries in
the United States, Westlands Resources Corporation and
Sustainable Forest Industries Inc. ("SFI"). 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.
- 1 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (cont'd)
(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. Costs of undeveloped leases on which proved reserves
are found are transferred to proven oil and gas properties. Each
undeveloped lease with significant acquisition cost 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.
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
cost 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.
Provisions are made to write the investment down to this net
recoverable value.
(f) Mineral Properties
The Company has recorded the acquisition of mineral claims at
cost. These costs along with any future exploration and
development 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.
- 2 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (cont'd)
(h) Foreign exchange
As the Company considers all of its operations to be fully
integrated and its functional currency to be the United States
dollar, all items in foreign currencies have been translated
using the temporal method. Under this method, monetary assets and
liabilities and non-monetary items carried at market values are
translated at the year-end exchange rate or at the appropriate
hedge rate. Other non-monetary items, revenues and expenses are
translated at approximate rates in effect at dates of
transactions, except depreciation, depletion, and amortization
which are translated at the same rates as the related assets. The
books and records of the foreign operations are not maintained in
the Company's functional currency and any gains and losses from
remeasurement in the functional currency are recognized currently
in earnings.
(i) Cash and cash equivalent
Cash and cash equivalent includes cash and investments with
original maturities of three months or less.
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 cost 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 1991.
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.
Investment in and advances to Minera La Yesca were as follows:
1996 1995
Shares $ 168,213 $ 168,213
Advances 1,762,205 1,762,205
Interest charged on advances 1,393,729 1,393,729
Provisions (3,224,147) (3,024,147)
----------------------------------
$ 100,000 $ 300,000
==================================
- 3 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - -------------------------------------------------------------------------------
4. Oil and Gas Properties and Equipment
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Proven lease acreage costs $ 2,428,092 $ 2,364,087
Proven undeveloped lease acreage costs 1,906,220 2,065,084
Well costs 1,500,942 1,484,916
----------------------------------
5,835,254 5,914,087
Accumulated depletion, depreciation and amortization 2,075,581 1,960,829
----------------------------------
3,759,673 3,953,258
----------------------------------
Other equipment 6,060 6,060
Accumulated depreciation 606 606
----------------------------------
5,454 5,454
----------------------------------
$ 3,765,127 $ 3,958,712
==================================
</TABLE>
The wholly-owned subsidiary Westlands Resources Corporation
("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 year ended September 30, 1996, Westlands farmed out
additional undeveloped gas acreage in Brazos County, Texas to a
non-affiliated entity. The farmee has drilled two successful horizontal
wells on such acreage and exercised its right to drill another 794 acre
tract for a consideration of $158,864. The undeveloped lease costs were
reduced by this amount.
During 1995 and 1994, the Company incurred losses of $46,449 and $39,786
respectively on wells which were drilled at a cost in excess of the
fixed cost agreed upon between the Company and other working interests.
No such loss was incurred in 1996. Well costs financed independently by
the Company and totalling $573,337 (1995 - $165,589, 1994 - $483,520)
were capitalized. Capitalized well costs net of accumulated depreciation
and amortization are less than the estimated future revenue expected to
be generated from the Company's interests in the wells.
5. Mississippi Oil and Gas Rights
Pursuant to an agreement with CMW Oil Company, CMW Chalk Company Inc.
and CMW Energy Company ("the Vendors") dated May 26, 1992 (amended June
26, 1992 and July 22, 1992) the Company acquired in July 1992, through
its wholly-owned subsidiary Westlands, a number of oil and gas rights in
Mississippi.
- 4 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
5. Mississippi Oil and Gas Rights (cont'd)
Consideration of $2,560,000 was to be satisfied by the issue of
2,560,000 fully paid common shares of the Company and a warrant to
purchase 500,000 common shares at a purchase price of $1 per share. In
addition the Company agreed to issue to a non-affiliated company 180,000
shares of common stock.
In July 1992, 1,280,000 shares were issued under the agreement as well
as a warrant for 250,000 shares which expired on July 22, 1993
unexercised. 90,000 shares were also issued to a non-affiliated company.
The balance of the shares and warrants were to be issued before December
31, 1992. Due to the unsuccessful stock issue of the Company these
additional shares were not issued and, according to the terms of the
agreement, the Company retained its interest in the oil and gas rights.
Effective February 1, 1995, Westlands sold and reassigned its oil and
gas rights in the Mississippi properties back to the Vendors. In
consideration, Daleco received 1,000,000 of the 1,280,000 common shares
originally issued for the purchase. As a result of this transaction, the
Company recorded a loss on the resale of the oil and gas rights of
$532,854.
6. Timber Rights Acquisition
Effective September 29, 1995, the Company entered into an agreement
("Acquisition Agreement") to purchase 100% of the issued and outstanding
shares of the common stock of Sustainable Forest Industries Inc.
("SFI"), a privately held Delaware Company, in exchange for 1,500,000
shares of common stock of the Company.
Prior to this, 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.
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.
- 5 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
6. Timber Rights Acquisition (cont'd)
Under the terms of the Acquisition Agreement, the Company is obligated
to raise $1,500,000 either in the form of debt or equity, $750,000 of
which the Company must provide to support the operations of SFI. As of
September 30, 1996, this condition has been partially met. Due to excess
sawmill capacity that exists in Guyana, the Company is reassessing its
commitments and believes that the immediate cash requirement will be
lower than originally anticipated.
Due to limited financial resources during the year ended September 30,
1996, the Company was unable to generate commercial quantities of
timber.
7. 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"). The option joint venture agreement with Regent
to acquire up to an undivided 50% interest in Regent's holdings expired
on December 31, 1995. The Company is now formulating a plan of
exploration which may or may not include Regent or other parties.
8. Note Payable
During the year ended September 30, 1996, the Company repaid $300,000 on
the $1,100,000 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.
- 6 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
9. Due to (from) Related Parties
1996 1995
Net due to Haly Corporation -
Bearing interest at prime + 1% $ 175,054 $ 109,871
Bearing interest at TCD + 1.5% - 61,730
-----------------------------
175,054 171,601
-----------------------------
Net due (from) to Amir and Erlich -
Bearing interest at prime + 1.5% - (160,241)
Bearing interest at prime + 3% 90,209 151,000
Non-interest bearing - (32,630)
Bearing interest at 7% 119,643 -
-----------------------------
209,852 (41,871)
-----------------------------
$ 384,906 $ 129,730
=============================
All amounts due to related parties are denominated in U.S. dollars.
There are no fixed repayment terms for these amounts.
10. Related Party Transactions
Remuneration of directors for the year ended September 30, 1996 was
$10,989 and for the years ended September 30, 1995 and 1994 was $10,905
and $11,071. Remuneration for the years ended September 30, 1996, 1995,
1994, 1993 and 1992 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 year ended September 30, 1996 the sum of $568,000 (for the years
ended September 30, 1995 and 1994 respectively $385,000 and $369,500)
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 $11,749 for the year
ended September 30, 1996 ($6,378 for 1995 and $87,403 for 1994). Amir
and Erlich charged interest in the amount of $20,606 for the year ended
September 30, 1996 ($8,136 for 1995 and $26,646 for 1994).
- 7 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
11. Debentures
1996 1995
7% Convertible Debentures $ 400,000 $ -
8% Convertible Debentures 1,310,000 -
------------------------------
$ 1,710,000 $ -
==============================
(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 were 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 September 30, 1996 $600,000
of the 7% debentures have been converted into 1,077,122 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
years. The placement agent's fees were 10% of the gross proceeds,
and 122,111 warrants discussed in note 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 27, 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 lessor 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 September 30, 1996 none of the 8%
debentures have been converted.
The fair value of the debentures is not materially different from the
carrying amount on the balance sheet.
- 8 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
12. Capital Stock
<TABLE>
<CAPTION>
Number of Number of
common shares preferred shares
without par without par
Ref. value value Amount
Authorized 20,000,000 50,000,000
---------------------------------
<S> <C> <C> <C> <C>
Balance as at September 30, 1994 11,251,144 - $ 8,034,603
Issued in consideration for
underwriting services (1) 20,260 - 8,164
Issued in consideration for loan (2) 306,328 - 54,217
Redeemed on resale of Mississippi
properties (3) (1,000,000) - (699,358)
Consideration for Timber Properties (4) 1,500,000 - 962,500
-----------------------------------------------------
Balance as at September 30, 1995 12,077,732 - 8,360,126
Issued upon conversion of
Debentures (5) 1,077,122 - 500,858
-----------------------------------------------------
Balance as at September 30, 1996 13,154,854 - $ 8,860,984
=====================================================
</TABLE>
(1) In November 1994, the Company issued 20,260 shares in consideration
for underwriting services.
(2) In January 1995 the Company issued 306,328 shares as a bonus
consideration for a loan agreement with unrelated parties.
(3) In March 1995 the Company received 1,000,000 shares of its common
stock on the resale of its Mississippi oil and gas rights.
(4) On September 29, 1995 the Company acquired Sustainable Forest
Industries, Inc. for consideration of 1,500,000 common shares and
500,000 stock warrants each exercisable for one common share.
(5) During the fourth quarter ended September 30, 1996, $600,000 of the
7% Convertible Debentures plus $8,017 of accrued interest less
unamortised issue costs were converted into 1,077,122 common shares.
- 9 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
12. Capital Stock (cont'd)
(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
Cdn. $0.32 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 Cdn. $0.42 per share, were gifted
back to the Company and cancelled. The following summary sets out
the activity in common stock purchase options:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Outstanding at beginning of year 850,000 356,704 356,704
Cancelled (150,000) (356,704) -
Granted - 850,000 -
Exercised - - -
------------------------------------------------
Outstanding at end of year 700,000 850,000 356,704
=====================================================
</TABLE>
(b) Common stock warrants
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 US $0.25 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 US $0.35 each, and 100,000 warrants
have an exercise price of US $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:
<TABLE>
<CAPTION>
1996 1995
<S> <C>
Outstanding at beginning of year 500,000 -
Granted 2,400,000 500,000
Exercised - -
-------------------------------------
Outstanding at end of year 2,900,000 500,000
==========================================
</TABLE>
- 10 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
12. Capital Stock (cont'd)
(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 September 30, 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 debenture holders and
subagents, the warrants are granted in three equal instalments 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 U.S. $1.073, or (2)
all or a portion of the warrants may be 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 12,223,541
for the year ended September 30, 1996 (1995 - 12,030,140; 1994 -
10,214,860 shares). For the years ended September 30, 1996, 1995
and 1994 the exercise of the options and warrants outstanding as
at year end did not have a dilutive effect on the net income per
share.
- 11 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
13. 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 parent company has losses of approximately C$2 million which
can be utilized against Canadian sourced income of the parent company
following the redomestication to the United States in various years
through 1999. The subsidiary Company's tax filings show net operating
losses to be applied against future taxable income in the amount of
approximately US$25 million to be utilized in various years through
2009. The tax benefit of these losses is estimated to be approximately
US$10 million. No potential benefit of these losses has been recognized
in the accounts.
14. Interest and Taxes Paid
The Company paid interest to unrelated parties with respect to notes
payable in the amount of $110,126 (1995 - $93,617; 1994 - $20,000) and
debenture interest of $22,831 (1995 - $nil; 1994 - $nil) during the year
ended September 30, 1996. State franchise taxes of $25 were paid in the
year ended September 30, 1996 (1995 - $313; 1994 - $313).
15. Contingencies
Included in accounts payable at September 30, 1995 is $483,712 due to
Questor Drilling Corporation ("Questor") (1994 - $483,712). The
Company's subsidiary, Westlands, is 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 is also seeking damages against System Pipe & Supply Co. and
Four Star Pipe Services Inc. of 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 favourable 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
cost overrun from previous years, resulted in a gain of $769,780.
- 12 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
16. 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.
The following table identifies customers of the Company who purchased
greater than ten percent of the oil and gas produced by the Company:
<TABLE>
<CAPTION>
1996 1995
Percentage of Percentage of
total sales total sales
% %
<S> <C> <C>
Oil production -
Pride Pipeline Company 100% 100%
Petro Source (1) - -
Gas Production -
Aquila Southwest Pipeline Corporation 35.7 40.5
Austin Chalk National Gas Marketing Services 59.1 59.5
New Brenen Corporation 5.2 -
</TABLE>
(1) Petro Source purchased oil from the Mississippi properties which were
sold in 1995.
17. Differences from United States Accounting Principles
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada. United States
generally accepted accounting principles ("US GAAP") differ in the
following material area which affect the statement of cash flow.
The issuance of common shares in exchange for timber rights and debt
forgiveness would not be included in the statements of cash flow.
- 13 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
17. Differences from United States Accounting Principles (cont'd)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash Flows Provided from (Used in)
Financing Activities as Reported $ - (1) $ 1,208,760 $ 317,545
Forgiveness of amounts due to related
parties - - 1,309,737
Issuance of shares in exchange for timber
and debt forgiveness - (1,024,881) (1,309,737)
Redemption of shares - 699,358 -
-------------------------------------------------------
Cash Provided from (Used in)
Financing Activities Based on US
Accounting Principles $ - $ 883,237 $ 317,545
=======================================================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash Flows Provided from (Used in)
Investing Activities as Reported $ - (1) $ (243,969) $ - (1)
Timber rights acquisition - 1,028,342 -
Decrease in lease acquisition
and well costs - (702,819) -
-------------------------------------------------------
Cash Provided from (Used in)
Investing Activities Based on US
Accounting Principles $ - $ 81,554 $ -
=======================================================
</TABLE>
(1) There is no difference in cash flows between as reported and
based on U.S. Accounting Principles.
- 14 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
18. Additional Information on Petroleum and Natural Gas Activities
<TABLE>
<CAPTION>
Depreciation,
Property (1) depletion and
acquisition Exploration Development amortization
$ $ $ $
<S> <C> <C> <C> <C>
September 30, 1996 - - 637,343 321,002
=========== ============ ======= =======
September 30, 1995 - - 195,411 262,238
=========== ============ ======= =======
September 30, 1994 - - 512,319 421,988
=========== ============ ======= =======
</TABLE>
(1) Development costs include costs associated with the developed
leaseholds as well as tangible and intangible well costs.
19. Subsequent Event
Under the Stock Purchase Agreement, effective October 1, 1996, the
Company acquired 100% of the outstanding stock of Deven Resources, Inc.
in exchange for 2.6 million shares of common stock with a market value
of approximately $2.4 million. $150,000 was advanced to Deven Resources
Inc. at year end. The acquisition will be accounted for using the
purchase method of accounting, and, accordingly, the purchase price will
be allocated to the assets purchased and the liabilities assumed based
upon the fair values at the date of acquisition.
20. Commitment
The Company is committed under various consulting agreements dated March
27, 1996 with financial advisors for their services as follows:
1997 $209,500
1998 130,000
-------
$339,500
========
- 15 -
<PAGE>
Daleco Resources Corporation
Notes to Consolidated Financial Statements
For the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
21. Employment Contracts
(a) In connection with the acquisition of SFI and under Management
Agreement dated April 17, 1995, the Company agrees to engage two
key officers for a period of seven years ending April 17, 2002. The
two key officers are entitled to a base salary of $75,000 plus
additional incentive payments each based upon a percentage of net
income of SFI. At the time of termination for any reason, the key
officers are entitled to a severance payment equal to the total of
the annual base salary plus additional annual incentive payments he
is then receiving multiplied by the remaining years, or portions
thereof, of the contract period.
The salaries for fiscal 1996 have been accrued and included in
timber operation costs but not paid.
(b) In connection with the acquisition of Deven and under Stock
Purchase Agreement dated October 1, 1996, the Company agrees that
should certain Deven Officers be involuntarily terminated, other
than in response to the Deven Officer's gross negligence, willful
misconduct, ineptitude or inability to perform the duties of his
position, ("Involuntary Personnel Action") on or before September
30, 2001 ("Coverage Period"), the said Deven Officer who was the
object of said Involuntary Personnel Action shall be entitled to
receive a sum equal to 150% of the aggregate base salary plus the
cash equivalent of all benefits for the period of time between the
date of the Involuntary Personnel Action and the remaining portion
of the Coverage Period ("Settlement Consideration").
However, the Settlement Consideration shall not be less than two
years severance even though the period between the Involuntary
Personnel Action and the expiration of the Coverage Period be less
than two years.
- 16 -
<PAGE>
| Coopers
| & Lybrand
- - --------------------------------------------------------------------------------
Daleco Resources Corporation
Supplemental Financial Information
As at September 30, 1996, 1995 and 1994
- - --------------------------------------------------------------------------------
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
AUDITORS' REPORT
TO THE SHAREHOLDERS OF DALECO RESOURCES CORPORATION
Our report on the consolidated financial statements of Daleco Resources
Corporation is included in this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedules listed in the index to this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand
- - -----------------------------
Chartered Accountants
Toronto, Canada
December 4, 1996
Coopers & Lybrand is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland
<PAGE>
Schedule II - Amounts Receivable From Underwriters, Promoters, and Employees
Other Than Related Parties Years Ended September 30, 1996, 1995
and 1994
- - --------------------------------------------------------------------------------
Daleco Resources Corporation
This schedule has been omitted as the information required is furnished in note
3 to the consolidated financial statements. The only amounts due are those
advanced to Minera La Yesca.
The current accounts receivable include $150,000 advances to Deven Resources,
Inc. and remaining third party sales of petroleum products.
<PAGE>
Schedule IV - Noncurrent Indebtedness of and to Related Parties
Year Ended September 30, 1996
- - --------------------------------------------------------------------------------
De1eco Resources Corporation
This schedule has been omitted as there is no noncurrent indebtedness of and to
related parties.
<PAGE>
Schedule V - Property, Plant and Equipment
Year Ended September 30, 1996
(Expressed in thousands of United States dollars)
- - --------------------------------------------------------------------------------
Daleco Resources Corporation
Note: No separate disclosure given to field and office equipment included in
above noted caption as balance of such approximates only 1% of total oil
and gas properties and equipment.
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
COST
Proven Lease Acreage
Balance - beginning of year $ 2,364 $ 3,580 $ 3,551
Additions 64 30 29
Reclassification* - - -
Disposals - (1,246) -
-------------------------------------------------
Balance - End of Year 2,428 2,364 3,580
-------------------------------------------------
Proven Undeveloped Lease Acreage
Balance - beginning of year 2,065 - -
Additions - - -
Reclassification* - 2,065 -
Disposals (159) - -
-------------------------------------------------
Balance - End of Year 1,906 2,065 -
-------------------------------------------------
Unproven Undeveloped Lease Acreage
Balance - beginning of year - 2,175 2,175
Additions - - -
Reclassification* - (2,065) -
Disposals - (110) -
-------------------------------------------------
Balance - End of Year - - 2,175
-------------------------------------------------
Well Costs
Balance - beginning of year 1,485 1,475 991
Additions 585 166 484
Disposals (569) (156) -
-------------------------------------------------
Balance - End of Year 1,501 1,485 1,475
-------------------------------------------------
Total Cost $ 5,835 $ 5,914 $ 7,230
=================================================
</TABLE>
* Costs associated with proven undeveloped lease acreage that were included
as unproven in prior years have been reclassified as proven as at September
30, 1994. Costs associated with unproven undeveloped lease acreage have
been reclassified as proven undeveloped as at September 30, 1995.
<PAGE>
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment
Year Ended September 30, 1996
(Expressed in thousands of United States dollars)
- - --------------------------------------------------------------------------------
Daleco Resources Corporation
Year ended September 30,
-----------------------------
1996 1995 1994
ACCUMULATED DEPRECIATION AND DEPLETION
Proven Lease Acreage
Balance - beginning of year $ 891 $ 895 $ 778
Charge for the year 197 43 117
Reclassification -- -- --
Disposals -- (47) --
-----------------------------
Balance - End of Year 1,088 891 895
-----------------------------
Proven Undeveloped Lease Acreage
Balance - beginning of year 362 -- --
Charge for year -- -- --
Reclassification -- 362 --
Disposals -- -- --
-----------------------------
Balance - End of Year 362 362 --
-----------------------------
Unproven Undeveloped Lease Acreage
Balance - beginning of year -- 362 362
Charge for year -- -- --
Reclassification -- (362) --
-----------------------------
Balance - end of year -- -- 362
-----------------------------
Well Costs
Balance - beginning of year 708 610 305
Charge for year 124 219 305
Disposals (206) (121) --
-----------------------------
Balance - End of Year 626 708 610
-----------------------------
Total Depreciation $2,076 1,961 1,867
=============================
<PAGE>
Schedule IX - Short-term Borrowings
for the years ended September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
Daleco Resources Corporation
This schedule has been omitted as there are no short term borrowings for the
years ended September 30, 1996, 1995 and 1994.
<PAGE>
Schedule X - Supplementary Income Statement Information
- - --------------------------------------------------------------------------------
Daleco Resources Corporation
This schedule has been omitted as the information is furnished in the income
statement included with the consolidated financial statements.
<PAGE>
Daleco Resources Corporation
Supplemental Information
As at September 30, 1996, 1995 and 1994
- - --------------------------------------------------------------------------------
Estimated Net Quantities of Proven Oil and Gas Reserves
Proved reserves are the estimated quantities which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. Proved
developed reserves are the quantities expected to be recovered through existing
wells with existing equipment and operating methods. These reserve estimates
were prepared by independent engineers and are based on current technology and
economic conditions. The company considers such estimates to be reasonable;
however, due to inherent uncertainties and the limited nature of reservoir data,
estimates of underground reserves are imprecise and subject to change over time
as additional information becomes available.
The following table shows the changes in the company's proved oil and gas
reserves for the year.
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------ ------------------------
Crude oil Crude oil Crude oil
and Natural and Natural and Natural
condensate gas condensate gas condensate gas
(barrels) (mmcf) (barrels) (mmcf) (barrels) (mmcf)
<S> <C> <C> <C> <C> <C> <C>
Proven Developed and
Undeveloped Reserves
Balance - Beginning
of Year 825,213 8,037 2,229,776 8,376 2,472,732 11,648
Disposition of reserves - - (1,211,250) - - -
Revision of previous
estimates 155,992 909 (171,038) (155) (194,585) (3,004)
Production for year (17,637) (206) (22,275) (184) (48,371) (268)
------------------------------------------------------------------------------
Balance - End of Year 963,568 8,740 825,213 8,037 2,229,776 8,376
==============================================================================
Proved Developed
Reserves as at
September 30, 1996
1995 and 1994 112,963 751 131,793 1,634 58,364 483
==============================================================================
</TABLE>
- 1 -
<PAGE>
Daleco Resources Corporation
Supplemental Information
As at September 30, 1996, 1995 and 1994
(Expressed in United States dollars)
- - -------------------------------------------------------------------------------
Standardized Measure of Discounted Future Net Cash Flow From Estimated
Production of Proved Oil and Gas Reserves
The standardized measure of discounted future net cash flows from estimated
production of proven oil and gas reserves after income taxes is presented in
accordance with the provisions of Statement of Financial Accounting Standards
No. 69, "Disclosures about Oil and Gas Producing Activities" (SFAS No. 69). In
computing this data assumptions other than those mandated by SFAS No. 69 could
produce substantially different results. The company cautions against viewing
this information as a forecast of future economic conditions or revenues.
The standardized measure of discounted future net cash flows is determined by
using estimated quantities of proved reserves and taking into account the future
periods in which they have been projected to be developed and produced.
Estimated future production is priced at the year-end price. The resulting
estimated future cash inflows are reduced by estimated future costs to develop
and produce the proved reserves. The future pretax net cash flows are then
reduced further by deducting future income tax expenses as applicable. The
resultant net cash flows are reduced to present value amounts by applying the
SFAS No. 69 mandated 10% discount factor.
STANDARDIZED MEASURE OF DISCOUNTED NET CASH INFLOWS AS AT SEPTEMBER 30, 1996,
1995 AND 1994.
1996 1995 1994
Future cash inflows $ 42,084,331 $ 27,443,747 $ 57,638,441
Future production costs (8,488,124) (3,540,910) (12,850,119)
Future development costs (6,585,758) (5,390,527) (9,589,127)
Future income tax expense* -- -- --
--------------------------------------------
27,010,449 18,512,310 35,199,195
Discount factor at 10% (9,155,787) (5,109,706) (11,929,983)
--------------------------------------------
Standardized Measure of
Future Net Cash Flows $ 17,854,662 $ 13,402,604 $ 23,269,212
============================================
* Westlands presently has approximately U.S. $25 million of loss carry
forwards. Based on these carry forwards no future taxes payable have been
included in the determination of future new cash inflows. Future head
office general and administrative expenses have been excluded from the cash
flows.
- 2 -
<PAGE>
Daleco Resources Corporation
Supplemental Information
As at September 30, 1996, 1995 and 1995
(Expressed in United States dollars)
- - --------------------------------------------------------------------------------
Summary of Changes in Standardized Measure of Discounted Future Net Cash Flows
1996 1995 1994
Balance - Beginning of Year $ 13,402,604 $ 23,269,213 $ 31,674,068
Increase (decrease) in future
net cash flows:
Sales for the year net of
related costs (577,911) (572,266) --
Revisions to estimates of
proved reserves:
Prices 1,822,764 (948,257) (4,775,601)
Quantities 3,385,133 (1,072,584) (5,401,733)
Extensions and discoveries
net of related costs:
Sales of reserves in place (177,928) (7,273,502) --
Accretion of discount -- -- 1,772,479
-------------------------------------------
Balance - End of Year $ 17,854,662 $13,402,604 $ 23,269,213
===========================================
- 3 -
<PAGE>
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 9 DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The executive officers and directors of Daleco are as follows:
Dov Amir (72)
Mr. Amir is the Chairman of the Board of Directors and Chief Executive
Officer of the Company. Mr. Amir has been an officer and director of the Company
since 1977, having previously held the position of President and Director. Mr.
Amir is the Vice President and Director of Haly Corporation.
Louis W. Erlich (83)
Mr. Erlich is the Vice Chairman of the Board of Directors and Vice
President of the Company. Mr. Erlich has been an officer and director of the
Company since 1977, having previously held the positions of Chairman of the
Board of Directors and Vice President. Mr. Erlich is the President and a
Director of Haly Corporation.
Gary J. Novinskie (46)
Mr. Novinskie is a Director, President and Chief Operating Officer of
the Company. Mr. Novinskie was previously the Chief Operating Officer of Deven
Resources, Inc. and assumed his new duties with the Company in October 1996.
Prior to his employment with Deven Resources, Inc. Mr. Novinskie was the
Executive Vice President Exploration and Production for Broad Street Financial
Company, a privately held holding company in Columbus, Ohio for four (4) years.
H e also served as Vice President and Operating Officers of Broad Street's
subsidiary Red Rive Pipeline, LLC, which is located in Northern Louisiana. Mr.
Novinskie also served as the President of Omni Exploration, Inc., a public oil
and gas company for seven (7) years.
Mr. Novinskie holds a B.S. from Penn State University in Petroleum and
National Gas Engineering, and an M.B.A from Case Western Reserve University,
majoring in Banking and Financing.
David F. Lincoln (40)
Mr. Lincoln is the Vice Chairman of the Board of Directors and Vice
President of the Company. Mr. Lincoln is a Managing Director with EnerTech, a
venture capital firm specializing in technologies and services associated with
utilities and energy related industries. Prior to assuming his duties with the
Company in October, 1996, Mr. Lincoln was the President, Chief Executive Officer
and Chairman of the Board of Directors of Deven Resources, Inc. Prior to forming
Deven Resources in 1991, Mr. Lincoln was a Principal/Partner with CMS Companies,
a Philadelphia-based private investment bank and financial services firm.
Mr. Lincoln holds a B.A. with Honors in Geology from Colgate University
and a M.S. in Energy Management and Policy from the University of Pennsylvania.
<PAGE>
Robert G. Smiley (52)
Mr. Smiley has been Director of the Company since 1984. Mr. Smiley is a
barrister and solicitor with the law firm of Morton & Company, Vancouver,
British Columbia. Mr. Smiley is also a Director of First Fortune Investments,
Inc., which is engaged in mining exploration; Trust Resources Corporation which
is engaged in mining exploration; Quadrant Financial, an international financial
consulting entity; Asian Holdings Inc., a computer sales company; Equivest
International Finance and Richo Investment, Inc., a holding company.
J. Ronald Woods (61)
Mr. Woods has been a Director of the Company since 1988. Mr. Woods is a
Vice President and Director of Jascan Resources, Inc., a holding company. Mr.
Woods is also a director of Highridge Petroleum, Ltd., an oil and gas
exploration and production company; Arc International, an operator of
recreational properties and facilities; Zoom Telephonic, Inc., a manufacture of
high tech components; and Uptown Resources, an oil and gas exploration and
production company.
Eberhard Mueller (60)
Mr. Mueller has been a director of the Company since October 1995. Mr.
Mueller is the President and Director of Regent Ventures, Ltd. and a Director of
Montaro Resources, Inc., both of which are engaged in mining exploration in
Canada.
C. Warren Trainor (51)
Mr. Trainor was appointed as a Director in October 1996. As a partner
with the law firm of Ehmann, Van Denbergh & Trainor, P.C., located in
Philadelphia, Pennsylvania, specializing in Business and Oil and Gas Law, Mr.
Trainor is general counsel to the Company. (See, "Certain Relationships and
Related Transactions".) Previously, Mr. Trainor served as a Director of Deven
Resources, Inc. Also, Mr. Trainor previously served as a Vice President and
General Counsel for Omni Exploration, Inc. Presently, Mr. Trainor serves on the
Boards of Directors of North American Medical Centers, Inc. and Yocom Knitting
Company.
Mr. Trainor has a B.S. from the United States Military Academy in 1967
and a J.D. from Villanova University Law School in 1972.
Mark J. DeNino (43)
Mr. DeNino was appointed to the Board of Directors in October 1996. Mr.
DeNino is a managing director of TL Ventures, a venture capital investment firm.
Prior to his position with TL Ventures, Mr. DeNino was President of Crossroads
Capital, Inc. and President of CMS Corporate Finance, Inc.
Mr. DeNino received a B.S. from Boston College in 1975 and a M.B.A.
from Harvard Business School in 1979.
ITEM 10 EXECUTIVE COMPENSATION
The information set forth under caption "Executive
Officers-Compensation" in the Company's Proxy Statement which is to be filed
with the Securities and Exchange Commission within 120 days from the end of the
Fiscal 1996.
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1996, the Company's
Common Stock beneficially owned (i) by each person known to the Company to own
more than five percent (5%) of the Common Stock; (ii) by each director of the
Company; and (iii) by all officers and directors of the Company as a group.
<TABLE>
<CAPTION>
==================================================================================================================
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER* OF BENEFICIAL OWNER OF CLASS
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dov Amir 4,367,219 shares 28.24
Chairman of the Board of Directors (1)(4)
and Chief Executive Officer
- - ------------------------------------------------------------------------------------------------------------------
Louis Erlich 4,133,647 shares 26.73
Vice Chairman of the Board of (2)
Directors and Vice President
- - ------------------------------------------------------------------------------------------------------------------
David F. Lincoln 2,570,000 shares 16.62
435 Devon Park Drive, Suite 410 (3)
Wayne, Pennsylvania 19087
- - ------------------------------------------------------------------------------------------------------------------
All Directors and Officers of the 8,249,464 shares 53.35
Company as a Group (4)
==================================================================================================================
</TABLE>
* Except where otherwise indicated, the address of each person is: 10350
Santa Monica Boulevard, Suite 250, Los Angeles, California 90025.
(1) The stock ownership of Mr. Dov Amir includes: 895,817 shares owned directly
730 shares owned by the Amir Family Trust, dated May 13, 1991; 150,000
shares which are subject to acquisition pursuant to an option to purchase
such shares on or before January 6, 2000 at US$.25 per share; and all
3,321,402 shares held in the name of Haly Corporation, a corporation owned
equally be Messrs. Amir and Erlich, who are also directors and executive
officers of such corporation.
(2) The stock ownership of Mr. Louis Erlich includes: 659,055 shares owned
directly 3,190 shares owned by his wife; 150,000 shares which are subject
to acquisition pursuant to an option to purchase such shares, on or before
January 6, 2000 at US$.25 per share; and all 3,321,402 shares held in the
name of Haly Corporation, a corporation owned equally by Messrs. Amir and
Erlich, who are also directors and executive officers of such corporation.
(3) The stock ownership of Mr. Lincoln consists of 1,820,000 shares and
warrants for 750,000 shares at $.35 which expire October 1, 2001. Mr.
Lincoln is Vice Chairman of the Board of Directors and a Vice President of
the Company. Formerly, Mr. Lincoln was the Chairman of the Board and Chief
Executive Officer of Deven Resources, Inc. Mr. Lincoln is also a managing
partner of Energy Tech.
(4) This group consists of 8 persons. For purposes of determining the total
number of shares beneficially owned by all officers and directors of the
Company, shares which are deemed to be beneficially owned by both Mr. Amir
and Mr. Erlich and which are held by Haly Corporation are counted only once
in determining the total number of shares owned by all directors and
officers of the Company. Accordingly, although all 3,321,402 issued shares
of the Company's Common Stock held in the name of Haly Corporation are
treated as being beneficially owned by both Mr. Amir and Mr. Erlich in the
above table, such shares are counted only once in determining the total
number of shares beneficially owned by all directors and officers of the
Company as a group, and also for determining the number of shares
comprising the class of the Company's Common Stock.
<PAGE>
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Haly Corporation is a California corporation, all of the shares of
which are owned in equal proportions by Louis Erlich and Dov Amir. All
administrative personnel and facilities, including office facilities, are
provided to the Company by Haly Corporation for which the latter was paid a
monthly fee of $50,000 until February, 1996 when the monthly fee increased to
$70,000. Such fee encompasses payment for the services of all personnel engaged
at the Company's Los Angeles office, including Messrs. Erlich and Amir. While
Haly Corporation does not account to the Company for its costs in providing such
services and facilities, the Company believes that the cost to Haly Corporation,
including executive compensation, exceeds that charged the Company. All services
and facilities are provided pursuant to an oral agreement which is cancelable by
either party at will. The Company believes that the services and facilities
provided to it by Haly Corporation are being provided at rates equal to or less
than it could obtain from non-affiliated parties. While Messrs. Amir and Erlich
devote substantially all of their time to the affairs of the Company, neither is
required to devote all of their time to the activities of the Company.
During the fiscal year ended September 30, 1996, the Company was
charged $750,000 by Haly Corporation. During the same period, Westlands
Resources Corporation, the Company's wholly owned subsidiary, billed out to
unrelated third party participants in wells operated by Westlands the sum of
$182,000 as administrative overhead costs (being services provided by Haly
Corporation), reducing the Company's net amount paid for administrative services
to $568,000 (See, "Note 7 to Financial Statements - Related Party
Transactions".) As of September 30, 1996, the Company owed Haly Corporation and
Messrs. Amir and Erlich a total of $384,904. The sums owed by the Company to
Haly Corporation accrue interest at the rates represented in the Company's
audited financial statements.
Mr. Robert G. Smiley, a Director of the Company, is a partner with the
law firm of Morton & Company, which firm is retained by the Company to perform
certain legal services. During the fiscal year ended September 30, 1996, the
Company paid the firm for professional fees and disbursements an amount not
exceeding five percent (5%) of the firm's gross revenues for its last fiscal
year.
During the calendar year 1994 Messrs. Amir and Erlich and Haly
Corporation participated in the drilling of nine horizontal wells with the
Company on its Texas properties. Each well was productive and is regarded as
commercial by the Company. Each of these individuals and the Company paid its
proportionate share of the cost of acquiring the leasehold interest; costs of
each well including completing and equipping the wells, were borne by third
parties. Each of these individuals and the Company will bear their proportionate
shares of operating, reworking and abandoning each well.
Messrs. Amir and Erlich own twenty-four percent (24%) of the equity of
the Mexican Company which owns the Pinabete Silver Mine. (See, "Business and
Properties - Mining Property".) Messrs. Amir and Erlich hold no indebtedness of
such Mexican Company.
Mr. C. Warren Trainor, a Director of the Company, is a partner in the
law firm of Ehmann, Van Denbergh & Trainor, P.C., Philadelphia, Pennsylvania,
which firm has been retained as general counsel to the Company. During Fiscal
1996, the Company paid the firm $27,296.00 and incurred additional charges of
$15,725.00 unpaid as of September 30, 1996 for services rendered and the
reimbursement of costs.
ITEM 13 EXHIBITS AND REPORTS ON FORM 10-KSB
a) The following exhibits are filed as part of this report:
Exhibit Number and description
3.1 Memorandum of Incorporation of United Westlands Resources, Ltd.
dated April 20, 1982 (incorporated by reference from Registrant's
Registration Statement pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934 on Form 20-F dated May 31, 1984).
<PAGE>
3.2 Articles of United Westlands Resources, Ltd. (incorporated by
reference from Registrant's Registration Statement pursuant to
Section 12(b) or (g) of the Securities Exchange Act of 1934 on
Form 20-F dated May 31, 1984).
3.3 Certified Special Resolution and Altered Memorandum of Daleco
Resources Corporation filed May 2, 1986 (incorporated by
reference from Registrant's Annual Report Pursuant to Section 13
or 15 (d) of the Securities Exchange Act of 1934 for the fiscal
year ended September 30, 1991 on Form 10-K dated December 28,
1991.
3.4 Articles of Continuance of Daleco Resources Corporation filed
July 15, 1986 (incorporated by reference from Registrant's Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1991 on Form
10-K dated December 28, 1991).
3.5 Drilling Bid Proposal and Footage Drilling Contract dated January
8, 1993 between Westlands Resources Corporation and Questor
Drilling Corp. in connection with drilling the Tom Moore 3-H
well, Brazos County, Texas.
5.1 Form F-X, Appointment of Agent for Service of Process and
Undertaking.
10.1 Asset Purchase Agreement Among Registrant, Westlands Resources
Corporation and CMW Oil Company et. al., dated May 28, 1992
(incorporated by reference from Registrant's Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 on Form 8-K dated May 26, 1992).
10.2 Amendment of Asset Purchase Agreement (incorporated by reference
from Registrant's Current Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934 on Form 8-K dated May 26,
1992).
10.3 Second Amendment of Asset Purchase Agreement (incorporated by
reference from Registrant's Current Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 on Form 8-K dated
May 26, 1992).
10.4 Acquisition Agreement among Registrant and Joseph A. Nicolosi,
Jr. and John W. Ryan, the Shareholders of Sustainable Forest
Industries, Inc., dated April 17, 1995 (incorporated by reference
from Registrant's Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 on Form 8-K dated October
17, 1995).
10.5 Acquisition Agreement among Registrant and Deven Resources, Inc.
effective October 1, 1996 (incorporated by reference from
Registrant's Current Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 on Form 8-K dated October 7,
1996.
10.6 Form 12b-25, Notification for Late Filing, dated December 27,
1996.
22. Subsidiaries of Issuer (incorporated by reference from
Registrant's Current Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 on Form 8-K dated October 7,
1996.
22.1 Westlands Resources Corporation, Nevada Sustainable Forest
Industries, Inc., Delaware (incorporated by reference from
Registrant's Current Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 on Form 8-K dated October 7,
1996.
b) The Company filed a Form 8-K on October 27, 1994, October 17, 1995,
October 23, 1995, November 15, 1995, and October 7, 1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and Exchange
Act of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DALECO RESOURCES CORPORATION
Dated: January 10, 1997 By: /s/ Gary J. Novinskie
------------------------ ---------------------
Gary J. Novinskie
President
In accordance with the Securities and Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Dated: January 10, 1997 By: /s/ Gary J. Novinskie
------------------------ ---------------------
Gary J. Novinskie
Director, President, COO
Dated: January 10, 1997 By: /s/ Edward J. Furman
------------------------ --------------------
Edward J. Furman
Chief Financial Officer
Dated: January 10, 1997 By: /s/ Dov Amir
------------------------ ------------
Dov Amir
Chairman of the Board of Directors
and Chief Executive Officer
Dated:January 10, 1997 By: /s/ Louis Erlich
------------------------ --------------------
Louis Erlich
Vice Chairman of the Board of
Directors and Vice President
Dated: January 10, 1997 By: /s/ David F. Lincoln
------------------------ --------------------
David F. Lincoln
Vice Chairman of the Board of
Directors and Vice President
Dated: January 10, 1997 By: /s/ Mark J. DeNino
------------------------ ------------------
Mark J. DeNino
Director
Dated: January 10, 1997 By: /s/ C. Warren Trainor, Esquire
------------------------ ------------------------------
C. Warren Trainor, Esquire
Director
<PAGE>
EXHIBIT INDEX
Exhibit Number and description
3.1 Memorandum of Incorporation of United Westlands Resources, Ltd. dated April
20, 1982 (incorporated by reference from Registrant's Registration
Statement pursuant to Section 12(b) or (g) of the Securities Exchange Act
of 1934 on Form 20-F dated May 31, 1984).
3.2 Articles of United Westlands Resources, Ltd. (incorporated by reference
from Registrant's Registration Statement pursuant to Section 12(b) or (g)
of the Securities Exchange Act of 1934 on Form 20-F dated May 31, 1984).
3.3 Certified Special Resolution and Altered Memorandum of Daleco Resources
Corporation filed May 2, 1986 (incorporated by reference from Registrant's
Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1991 on Form 10-K dated
December 28, 1991.
3.4 Articles of Continuance of Daleco Resources Corporation filed July 15, 1986
(incorporated by reference from Registrant's Annual Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal
year ended September 30, 1991 on Form 10-K dated December 28, 1991).
3.5 Drilling Bid Proposal and Footage Drilling Contract dated January 8, 1993
between Westlands Resources Corporation and Questor Drilling Corp. in
onnection with drilling the Tom Moore 3-H well, Brazos County, Texas.
5.1 Form F-X, Appointment of Agent for Service of Process and Undertaking.
10.1 Asset Purchase Agreement Among Registrant, Westlands Resources Corporation
and CMW Oil Company et. al., dated May 28, 1992 (incorporated by reference
from Registrant's Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 on Form 8-K dated May 26, 1992).
10.2 Amendment of Asset Purchase Agreement (incorporated by reference from
Registrant's Current Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 on Form 8-K dated May 26, 1992).
10.3 Second Amendment of Asset Purchase Agreement (incorporated by reference
from Registrant's Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 on Form 8-K dated May 26, 1992).
10.4 Acquisition Agreement among Registrant and Joseph A. Nicolosi, Jr. and John
W. Ryan, the Shareholders of Sustainable Forest Industries, Inc., dated
April 17, 1995 (incorporated by reference from Registrant's Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on
Form 8-K dated October 17, 1995).
10.5 Acquisition Agreement among Registrant and Deven Resources, Inc. dated
October 1, 1996, (incorporated by reference from Registrant's Current
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 on Form 8-K dated October 7, 1996.
10.6 Form 12b-25, Notification for Late Filing, dated December 27, 1996.
22. Subsidiaries of Issuer (incorporated by reference from Registrant's Current
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 on Form 8-K dated October 7, 1996.
22.1 Westlands Resources Corporation, Nevada Sustainable Forest Industries,
Inc., Delaware (incorporated by reference from Registrant's Current
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 on Form 8-K dated October 7, 1996.
<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
- - --------------------------------------------------------------------------------
In accordance with Rule 202 of Regulation S-T, this Form 12b-25 is
being filed on paper pursuant to a continuing hardship exemption.
- - --------------------------------------------------------------------------------
FORM 12b-25
Notification for Late Filing
SEC FILE NUMBER
0-12214
(Check One): CUSIP NUMBER
23437PlO9
[x] Form 10-K and Form 10-KSB [ ] Form 20-F [ ] Form 11-K
[ ] Form 10-0 and Form 10-QSB [ ] Form N-SAR
For Period Ended: ...................................................
[ ] Transition Report on Form 10-K
[ ] Transition Report on form 20-F
[ ] Transition Report on Form 11-K
[ ] Transition Report on Form 10-0
[ ] Transition Report on Form N-SAR
For Period Ended September 30, 1996
- - --------------------------------------------------------------------------------
Read Attached Instruction Sheet Before Preparing Form. Please Print or Type.
Nothing in this form shall be construed to imply that the Commission
has verified any information contained herein.
If the notification related to a portion of the filing Checked above,
identify the Item(s) to which the notification relates: .......................
...............................................................................
- - --------------------------------------------------------------------------------
Part I -- Registrant Information
- - --------------------------------------------------------------------------------
Full Name of Registrant DALECO RESOURCES CORPORATION
----------------------------
Former Name of Applicable
.....................................................
Address of Principal Executive Offices 435 Devon Park
--------------
Drive, Suite-410, Wayne, PA 19087
- - ---------------------------------
<PAGE>
- - --------------------------------------------------------------------------------
Part II -- Rules 12b-2-4;(b) and (c)
- - --------------------------------------------------------------------------------
If the subject report could not be filed without unreasonable effort or expense
and the registrant seeks relief pursuant to Rule 12b-Z(b), the following should
be completed. (Check box if appropriate) [x]
(a) The reasons described in reasonable detail in Part III of this
form could not be eliminated without unreasonable effort or expense;
(b) The subject annual report, semi-annual report, transition report on
Form 10-K Form 20-F, 11-K or Form N-SAR, or portion thereof will be filed on or
before the fifteenth calendar day following the prescribed due date; or the
subject quarterly report or transition report on Form 10-Q, or portion thereof
will be filed on or before the fifth calendar day following the prescribed due
date; and
(c) The accountant's statement or other exhibit required by Rule
12b-25(c) has been attached if applicable.
- - --------------------------------------------------------------------------------
Part III -- Narrative
- - --------------------------------------------------------------------------------
State below in reasonable detail the reasons why Form 10-K and Form 10-KSB,
20-F, ll-K, 10-Q and Form 10-QSB, N-SAR, or the transition report or portion
thereof could not be filed within the prescribed period.
The Registrant is seeking the extension due to its failure to have
received its audited financial statements in a timely manner. The Registrant's
audited financial statements are being prepared by its accountants in Canada
because the Registrant was a Canadian entity during its entire 1996 fiscal year.
Commencing October 1, 1996, the Registrant redomesticated as a Delaware
corporation. The Registrant had provided to its Canadian auditors, Coopers &
Lybrand, Toronto, all information necessary for the completion of the audit,
however, the auditors have not acted in a manner which would allow the filing of
the Registrant's Form 10-KSB in a timely fashion. Although the Registrant's
specifically requested of its auditors that the audited financials be delivered
to it not later than December 27, 1996, the Registrant was advised on December
27, 1996 that its auditors had not completed their in-house review and that same
would not be completed until the week of January 6, 1997.
The Registrant believes and avers that the cause of the delay is beyond
its control, in that its auditors had been provided with all the materials
necessary to close any 'open issues' over three weeks ago.
- - --------------------------------------------------------------------------------
Part IV -- Other Information
- - --------------------------------------------------------------------------------
(1) Name and telephone number of person to contact in regard to this
notification
C. Warren Trainor, Esquire (215) 851-9800
(Name) (Area Code) (Telephone Number)
(2) Have all other periodic reports required under section 13 or 15(d)
of the Securities Exchange Act of 1934 or section 30 of the Investment Company
Act of 1940 during the preceding 12 months or for such shorter period that the
registrant was required to file such report(s) been Filed? If the answer is no,
identify report(s).
[x] Yes [ ] No
-2-
<PAGE>
(3) Is it anticipated that any significant change in results of
operation from the corresponding period for the last fiscal year will be
reflected by the earnings statements to be included in the subject report or
portion thereof? [ ] Yes [x] No
If so: attach an explanation of the anticipated change, both
narratively and quantitatively, and, if appropriate, state the reasons why a
reasonable estimate of the results cannot be made. N/A
DALECO RESOURCES CORPORATION
(Name of Registrant as specified in charter)
has caused this notification to be signed on its behalf by the undersigned
thereinto duly authorized.
Date: December 27, 1996 BY: /s/ David F. Lincoln
--------------------------
David F. Lincoln, Vice President
-3-
<PAGE>
LAW OFFICES OF
EHMANN, VAN DENBERGH & TRAINOR
A PROFESSIONAL CORPORATION
TWO PENN CENTER PLAZA, SUITE 725 TELEPHONE: 215/851-9800
PHILADELPHIA, PENNSYLVANIA 19102-1707 FAX: 215/851-9820
December 27, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Daleco Resources Corporation
-----------------------------------------
Ladies and Gentlemen:
On behalf of the above captioned registrant, enclosed please find one
manually executed original Form 12b-25, along with four conformed copies. The
enclosed Form 12b-25 is being filed on paper in accordance with Rule 202 of
Regulation S-T pursuant to a continuing hardship exemption.
Kindly date stamp the copy of this letter evidencing receipt and return
same to the undersigned in the enclosed, self addressed, stamped envelope.
Sincerely,
/s/ C. Warren Trainor
----------------------------
C. Warren Trainor
CWT:cj
Enclosures
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATION FINANCIAL STATEMENTS FOR THE YEARS ENDED
SEPTEMBER 30, 1996, 1995, AND 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000746967
<NAME> DALECO RESOURCES CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 268,185
<SECURITIES> 0
<RECEIVABLES> 983,130
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,251,315
<PP&E> 5,835,000
<DEPRECIATION> 2,075,581
<TOTAL-ASSETS> 6,429,189
<CURRENT-LIABILITIES> 2,530,310
<BONDS> 1,710,000
0
0
<COMMON> 8,860,984
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,429,189
<SALES> 805,259
<TOTAL-REVENUES> 805,259
<CGS> 618,976
<TOTAL-COSTS> 618,976
<OTHER-EXPENSES> 268,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,312
<INCOME-PRETAX> (973,809)
<INCOME-TAX> 0
<INCOME-CONTINUING> (973,809)
<DISCONTINUED> 0
<EXTRAORDINARY> (769,780)
<CHANGES> 0
<NET-INCOME> (973,809)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
