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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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, 1999
( ) 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)
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DELAWARE 23-2860739
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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983 Old Eagle School Road, Suite 615
Wayne, Pennsylvania 19087
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(Address of Principal Executive Offices)
Issuer's telephone number: (610) 293-9400
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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:
Common Shares Par Value $.01
Series A 10% Cumulative Preferred Stock 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
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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.
Yes No X
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State issuer's revenues for its most recent fiscal year: $_________
Aggregate market value of voting stock held by non-affiliates of registrant
based upon the closing NASDAQ sale price on January 12, 2000, $1,831,622.
Applicable only to Corporate Registrants
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Number of shares outstanding of the issuer's common stock as of January 12,
2000: 3,102,574 Number of shares outstanding of the issuer's preferred stock as
of January 12, 2000: 16,000
DOCUMENTS INCORPORATED BY REFERENCE
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None.
Transitional Small Business Disclosure Format: YES NO X
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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"), Sustainable Forest Industries, Inc. ("Sustainable");
Deven Resources, Inc. ("Deven"); DRI Operating Company, Inc. (DRI); Haly
Corporation ("Haly"); Tri-Coastal Energy, Inc. ("Tri-Coastal) and Tri-Coastal
Energy, L.P. ("TCELP") hereinafter sometimes collectively referred to as the
"Company") is engaged in the exploration, development and production of oil and
gas properties, the harvesting of timber concessions and the holder of mineral
interests. 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. Effective
October 1, 1996, the Company was re-domesticated into the State of Delaware. 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. Daleco conducts no operations as
such and is essentially a holding company for its oil and gas operating
subsidiaries and the mining interests and its timber holdings in Guyana. The
Company 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, "Managements discussion and Analysis- Business and
Properties".)
Effective September 30, 1997, the Company acquired all of
outstanding shares of Haly Corporation, a corporation then owned by Messes. Amir
and Erlich for common stock of the Company and $1,000 in cash. Haly has working
interests and overriding royalty interests in some of the Company's Texas
properties. (See, Business and Properties - Haly and Interests of Management in
certain transactions.)
Under the Company's agreement with Heller Financial, Inc., the
Company's Texas and Mid-Continent properties are fully pledged as security for
the Heller Loan. The pledging of these assets as collateral for existing loans
could hinder the ability of the Company to raise additional capital through the
pledging of assets. (See, Managements Discussion and Analysis - Heller
Transaction and PNC Loan.)
Deven serves as the managing general partner of two limited
partnerships, Developing Energy Partners I, L.P. ("Developing Energy") and
Deerlick Creek Partners I, L.P. ("Deerlick"). DRI, a wholly owned subsidiary of
Deven, manages 91 wells on behalf of Developing Energy in the State of West
Virginia and the Commonwealth of Pennsylvania.
As of September 30, 1999, the Company has interests in 430
wells in the States of Texas, West Virginia, New Mexico, Oklahoma, Kansas and
the Commonwealth of Pennsylvania. As of September 1, 1999, the Company sold 57
wells in Alabama (see, Business and Properties - Alabama).
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.
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"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 share of gross income from
such lease or well actually received by the owner.
"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
Texas:
Historically the Company retained and/or acquired only a
fractional working interest in the wells in which it has participated, thereby
limiting its financial risk, operating expenses and the revenues it receives
from each well. The Company's practice as operator of a well either being
drilled or re-completed as a horizontal well from a vertical well is to conduct
such operations on a "Turnkey basis".
Historically, 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. Effective October 1, 1999,
with the consent of Heller, Westland became the operator of record of the Texas
Properties. At the suggestion and request of Heller, TCELP has retained the
petroleum engineering and consulting firm of Netherland, Sewell Associates, Inc.
of Dallas, Texas, to consult on the operation and maximization of the value of
TCELP's properties. The Company expects to continue employing contract operators
and/or consultants until the size of its operations justifies hiring the
necessary staff. (See, "Business - Employees".)
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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. (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. As a result of the Heller Financing (See, "Business - Heller
Transaction"), the Company stimulated seven (7) existing vertical chalk wells
and drilled three (3) laterals in its existing horizontal wells. The Company's
plan to drill as many as twenty-two (22) new horizontal laterals was delayed due
to persistent depressed oil and gas prices. Heller has advised the Company that
it does not desire to advance further capital in the redemption of any
additional wells at this time. As such, the Company's planned development of
these additional wells has been suspended indefinitely. 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".)
West Virginia and Pennsylvania:
Appalachian Basin:
The Company's production in the States of West Virginia and
the Commonwealth of Pennsylvania are from wells completed in methane coal seems
and in traditional producing zones such as the Oriskany and Medina formations of
the Appalachian Basin's Upper Devonian Section. Through its ownership in and
management of its Developing Energy Partners I, L.P., Partnership (Developing
Energy), the Company has an undivided interest in 27 producing coal bed methane
wells in the Blacklick Creek CBM Project located in Indiana County of Central
Pennsylvania. These wells produce from multiple coal seams ranging in depth from
600 feet to 1,200 feet. The 15,000 acre Blacklick Creek project was partially
developed at the time it was acquired and is now in the second year of a
multi-well, multi-year development program. Fifteen (15) wells were drilled as
part of the development program during fiscal year 1997 and 1998 with an
addition of ten (10) wells scheduled during Fiscal 1999. The Company, through
its partnership, controls a 40% working interest in the project.
In addition, Developing Energy owns varying interest ranging
from 20% to 100% in forty (40) conventional Upper Devonian producing wells
ranging in depth from approximately 6,000 feet to 10,000 feet. Fourteen (14) of
these wells are located in Western and Central Pennsylvania and hold
approximately 18,983 gross acres. The remaining twenty-six (26) wells are
located in northern and central West Virginia and hold approximately 7,302
acres. The primary product produced from these Upper Devonian wells is natural
gas. The gas production is sold at market sensitive prices which have
historically benefited from the premiums paid for Appalachian gas supplies due
to their proximity to the end user market. These wells and their associated gas
gathering systems are operated by the Company's subsidiary, DRI. DRI is also
under contract to conduct field operations relating to the Blacklick Creek CBM
wells. All operations are controlled from the Company's Wayne, Pennsylvania
office. To assist in its operations, DRI Operating employs contract pumpers in
the vicinity of the specific wells to perform normal well tending and field
maintenance duties.
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The Company, through its subsidiary, Deven, has an economic
interest in an additional thirty-eight (38) non-operated Upper Devonian wells
located in various counties of Western Pennsylvania.
The Company's acquisition and development philosophy in the
Appalachian Basis is to acquire producing properties with exploitation
potential, either individually or in conjunction with its managed partnerships.
In addition to increasing its reserves through direct property acquisitions, the
Company actively seeks out and evaluates the potential acquisition of other oil
and gas companies and partnerships.
Alabama:
Black Warrior Basin
The Company, through its interest in Deerlick Creek Partners,
L.P. (See Managements Discussion and Analysis-Partnerships) has a non-operating
50% working interest in 54 coal bed methane wells in Tuscaloosa County, Alabama.
The Deerlick Creek properties were partially developed at the time of their
acquisition . Since its acquisition, through its Partnership, the Company has
participated in the drilling of ten (10) additional wells and in numerous
workovers to enhance gas production from the field.
The Deerlick Creek project encompasses approximately 3,026
acres and produces multiple coal seams ranging in depth from 1,000 to 3,000
feet. Gas produced from the project is sold under a long term contract with
Southern Natural Gas. Under this contract the price received for the natural gas
produced is tied, on a heating value basis, to that of No. 2 fuel oil F.O.B. New
York. The Deerlick Creed Properties were sold December 7, 1999, as of September
1, 1999, for $1,424,298.49. Of this amount, Deven Resources, Inc. anticipates
realizing approximately $22,871.03, after settlement of all outstanding
obligations secured by DRI's interest in these properties. (See Management
Discussion and Analysis--Partnership).
New Mexico:
San Juan Basin
The Company, through its interest in Developing Energy
Partners I, L.P. (See Management Discussion and Analysis - Partnership) had a
non-operated 10% Working interest in two (2) producing and two (2) pressure
observation wells located in San Juan Basin in Northwestern New Mexico. These
wells produce from the Mancos formation interval which occurs at depths ranging
from 6,000 to 7,000 feet. [The existing Mancos production is considered marginal
but is being maintained to hold acreage while a deeper Entrada prospect is
developed for sale to third parties.] Developing Energy Partners relinquished
all interest in its New Mexico properties in Fiscal 1997.
Operating Hazards and Uninsured Risks:
The Company's oil and gas 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 $4,000,000 all risks liability policy in amounts which it believes
are adequate, the insurance may not cover all potential operational risks. 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 -Operations" and "Litigation".)
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Oklahoma and Kansas:
Title to Oil and Gas Properties:
The Company's interests in producing and non-producing acreage
are in the form of direct or indirect interests in leases as well as
reversionary interests through its sponsored partnerships. Each of its
properties are subject to customary royalty interests in amounts prevailing in
the area in which the oil and gas lease is taken, overriding royalty interests,
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 or the profitability of the Company's
investment therein.
As is customary in the oil and gas industry, only a
preliminary investigation of title is made at the time of acquisition of
undeveloped properties. Detailed investigations are generally made, including,
in most cases, receiving a title opinion of local counsel, prior to the
commencement of drilling operations. A thorough examination of title was
performed with respect to substantially all of the Company's producing
properties. Also, prior to the acquisition of properties, the Company will and
has received an opinion of title, satisfactory to counsel to the Company, on a
majority (in value) of the assets to be acquired. The Company believes that it
has defensible title to substantially all of its properties. As a result of the
law prices for crude oil throughout most of FY 99, (See "Management Discussion
and Analysis"), many of the Oklahoma and Kansas Properties became uneconomic to
operate and were shut-in. With the return of higher crude oil prices, some of
these wells have come back on line. Consistent with the agreement worked with
Heller Financial, the Company is in the process of preparing these properties
for sale.
Mineral Interests:
Mining Claims
The Company owned 109 mining claims totaling approximately
5,500 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 allowed these claims to expire during the year ended September 30, 1998.
The Company also holds a 25% interest in a mining company,
Mineral La Yesca, in Mexico. Mineral La Yesca's main holding was a silver mine
in the mountains of the La Yesca in the southern State of Nayarit, Mexico. Due
to the long-term depression of silver prices, Mineral La Yesca abandoned its
mining operations and subsequently relinquished its interest in the mining
claims. Mineral La Yesca is now acting as a shell corporation which is
investigating the economic viability of other Mexican mining prospects. Due to
the lack of activity, this investment was written-off during the year ended
September 30, 1998.
Timber Interests
Tropical Hardwood Concession
The Company, through its wholly-owned subsidiary, Sustainable
Forest Industries, Inc., a Delaware company, owns two (2) timber concessions in
Guyana, South America. These concessions encompass approximately 6,000 acres of
tropical hardwoods. Sustainable intends to harvest and market its wood through
strategic alliances with its partners in Guyana and the United States.
Sustainable has received its U.S. import certificate for tropical wood in July,
1997, and has applied for its marketing trademark, HeartDex. Due to the early
development stage of Sustainable, the Company provides accounting,
administrative and financial services to support its operations.
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Sustainable has fulfilled all governmental requirements to
maintain its holdings and therefore, the Company believes that it has good title
to its two (2) hardwood timber concessions in Guyana.
Employees:
At September 30, 1999, the Company had five full-time
employees. The Company employs the services of consulting geologists and
engineers as well as those of a nonaffiliated operating companies which conducts
the actual oil field operations for the Company. The Company manages the
operation of its wells in the State of West Virginia and the Commonwealth of
Pennsylvania from its Wayne, Pennsylvania, office utilizing contract pumpers to
perform actual field operations. The Company's non-operated wells are monitored
primarily out of the Company's Wayne, Pennsylvania, office. The Company's mining
claims are monitored by its Los Angeles, California office. 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, and in contracting for drilling equipment. 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, Alabama, West
Virginia, Pennsylvania and New Mexico varies according to the prices for oil and
gas. During periods of higher prices, competition for viable prospects and
properties. The Company's ability to discover and/or acquire reserves in the
future depends on various factors which involve its ability to select, acquire
and pay for prospects suitable for 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.
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The discharge of oil, gas or the by-products of drilling,
reworking and producing oil and gas into the air, soil or water may give rise to
liabilities for the restoration of the environment and to third parties. A
variety of federal and state laws and regulations govern the environmental
aspects of the production, transportation and processing of hydrocarbons and
may, in addition to other laws and regulations, imposed liability in the event
of a discharge or seepage (whether or not accidental). Compliance with such laws
and regulations may increase the cost of the exploration, production and
development of oil and gas reserves although the Company does not currently
anticipate that compliance will have a material adverse effect on the ability of
the Company to continue in the exploration, development or production of its
existing reserves and the development and/or acquisition of new reserves.
The Company does not believe that the environmental risks are
materially different from those of comparable companies in the oil and gas
industry. The Company believes that it is in substantial compliance with all
existing rules and regulations. No assurance can be given, however, that
environmental laws will not, in the future, result in more onerous regulations
causing an market increase in the cost of production, development and
exploration or otherwise adversely affect the Company's operations or financial
ability to maintain its existing reserves. Although the Company maintains
insurance coverage for certain liabilities, to include insurance to cover
specific environmental risks, such as seepage or discharge, such environmental
risks are not fully insurable.
Transportation and Marketing:
The sale and transportation of natural gas in the interstate
market is regulated by the Federal Energy Regulatory Commission ("FERC") under
the Natural Gas Policy Act of 1983 (NGPA) and the Natural Gas Act of 1938
("NGA"). The Natural Gas Wellhead Decontrol Act of 1989 eliminated all gas price
regulation effective January 1, 1993. FERC has recently proposed several rules
or "order" concerning transportation and marketing of natural gas. The impact of
these proposed rules and/orders cannot be predicted. Order 636, pertaining to
the restructuring of the interstate transportation of natural gas was finalized
in 1992. Pipelines are now required to provide producers service on a
non-discriminatory "open access" basis, although there are provisions which
allow certain categories of gas to gain preference over others. The Company
believes that as a result of Order 636, competition has increased in the
marketplace, resulting in a greater market volatility in the price and demand
for natural gas. Currently the majority of the Company's gas is sold to
interstate carriers. (Dependence on a Few Major Customers: See, "Properties -
Marketing of Production".)
Pipelines
In connection with the completion and production of its oil
and gas properties, the Company has either constructed or participated in the
construction of gas-gathering lines. These gathering lines carry natural gas
from the wellhead to gas transmission systems through which the Company's gas is
being transported to the purchaser. The Company is not a regulated interstate
carrier of natural gas and as such it is not a regulated pipeline under the NGPA
of 1983 or the NGA. For such gas gathering services the Company may receive an
allowance from the first purchaser of its gas.
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Partnerships
Deven Resources, Inc. (Deven) has sponsored two partnerships, Deerlick
Creek Partners I, L.P. formed on August 30, 1991 and Developing Energy Partners
I, L.P. formed on October 1, 1993. Deerlick Creek and Developing Energy have
conducted business as separate limited partnerships with the Company's wholly
owned subsidiary, Deven ("Deven"), acting as managing general partner. As
managing general partner, Deven is subject to full liability for the obligations
of the partnerships although it is entitled to indemnification by each program
to the extent of the assets of the that partnership. Since "drilling programs"
constitute a "security" under the Securities Act of 1933, Deven is also subject
to potential liability for failure to compete with applicable federal and state
securities laws and regulations.
Each of the drilling programs is structured on a "payout basis" with
Deven receiving a 1% interest in all profits and losses before payout and an
increased percentage of the profits and losses of the partnership after payout.
Deerlick Creek Partners I, L.P. ("DCP")
DCP's only asset was its undivided interests in 54 coal bed methane
wells in Tuscaloosa County, Alabama ("Deerlick Creek Field"). Before payout, as
managing general partner the Company's subsidiary, Deven was entitled to receive
1% of all profits and losses of the partnership while the limited partners are
entitled to receive 99%. After-payout, the managing general partner is entitled
to receive 20% of all profits and loses while the limited partners receive 80%.
As a result of a settlement between the founders of Deven in 1995, 40% of
Deven's entitlement as the managing general partner of Deerlick has been
assigned to a third party. The Partnership's interest in the Deerlick Creek
Field were sold on December 7, 1999 effective as of September 1, 1999. Payout
accrued in Fiscal 1999. Since the Deerlick Creek Field was the only asset of
DCP, DCP has been wound up as of December 31, 1999.
Developing Energy Partners I, L.P.:
Developing Energy Partners I, L.P. owns interests in a variety of
properties located in the States of West Virginia, New Mexico and the
Commonwealth of Pennsylvania (See Business-Properties). Under the structure of
the Developing Energy partnership agreement, payout occurs in two tiers. Until
the first tier payout, Deven receives only 1% of the profits and losses of the
partnership. After the first tier payout, Deven is entitle to receive 20% of the
profits and loses of the partnership while the limited partners receive 80%.
After the second tier payout, Deven is entitled to receive 40% of the profits
and losses of the partnership while the limited partners receive 60%. In the
first five (5) years of the partnership, Deven received a management fee of
$200,000 per annum for its services as general partner. Commencing the fifth
anniversary of the partnership, the management fee dropped to 3% of the value of
the partnership's assets.
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ITEM 2 PROPERTIES
Texas Operations
The Company holds approximately 7,904 gross (4,135 net) acres
in Burleson, Brazos, and Lee Counties, Texas. Of such amount, approximately
5,659 gross (1,974 net) acres are classified as presently developed, and 2,245
gross (2,161 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. Average gross production for fiscal year 1999 was
158 barrels of oil and 1533 Mcf per day.
The Company has identified a number of potential drilling
locations on the leases identified above, of which nine such locations have been
classified as proven undeveloped by the Company's independent engineering
consultant. The Company also owns seven (7) idle or marginal wells which were
completed in the Austin Chalk as vertical and which the Company believes may be
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 1999, due to low prices for crude oil, funds were not available under the
Heller Financing for the drilling and/or completion of new wells or the
recognition of existing wells.
Prior to the Heller Financing (See, "Business - Heller
Financing"), the Company historically financed its exploration activities by
permitting third parties to pay 100% of the costs of drilling and completing a
well in exchange for 75% of the working interest. During the reworking of the
Company's Austin Chalk properties, the financing for these operations will be
provided from both the Company's own revenues and the Heller Financing (See
Managements Discussion and Analysis- Heller Financing), although the Company
does intend to continue its policy of conducting drilling operations on a
Turnkey basis or fixed costs basis for third party working interests in these
wells. If the well's costs of the operation is less than the fixed cost, the
Company profits, and if the operations costs exceeds the Turnkey cost the
Company suffers a loss. Generally, the Company has conducted its operations for
less than the Turnkey costs and has recorded a profit.
Appalachian Operations
The Company, either individually or through its sponsored
partnerships, holds 41,285 gross (21,688 net) acres in the counties of Harrison,
Logan, McDowell, Pleasant, Randolp, and Tucker, West Virginia and Armstrong,
Fayette, Clearfield, Somerset, Indiana, and Westmoreland, Pennsylvania. 12,407
acres (6,279 net) are classified as presently developed, and 28,878 acres
(15,409 net) are classified as undeveloped. The Company, either individually or
through its sponsored partnerships, holds working interests varying from 20% to
100% and net revenues interests of 15.8% to 87.4%. The Company also held a 10%
profits participation interest in 38 wells, which was sold on December 14, 1999.
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The current principal area for development within the
Appalachian area is in the Blacklick Creek coal bed methane project in which
Developing Energy Partners I, L.P. holds a 40% working interest. It is presently
planned that up to 20 wells will be drilled during the fiscal year 1998 with a
total of up to 40 wells to be drilled over the next 4 years. The Company owns
undivided interests in gathering systems in each of its producing areas for the
transportation of its gas to major transmission lines. All of the development of
the Blacklick Creek coal bed methane field will be done through the use of
partnership funds primarily generated from production from partnership
properties.
Alabama Operations
The Company, through Deerlick Creek Partners I, L.P., held
3,025 gross (1,513 net) acres in Tuscaloosa County, Alabama. Approximately 2,043
acres (1,022 net) are classified as proved producing and 982 acres (491 net) are
classified as proved non-producing. Deerlick held a 50% working interest and net
revenue interests of 36% in the project. The Deerlick Creek project produces
coal bed methane gas from multiple coal seams ranging in depth from 1,000 feet
to 3,000 feet. These properties were sold on December 9, 1999 as of September 1,
1999.
New Mexico Operation
The Company, through Developing Energy Partners I, L.P.,
originally held 37,793 gross acres (2,560 net) in the Jicarilla Prospect located
in Rio Arriba County, New Mexico. 3,779 acres (256 net) were classified as
proved producing while 35,233 acres (3,523 net) were classified as undeveloped.
Developing Energy had a 10% working interest and a 7.5% net revenue interest in
the project. Developing Energy has allowed its interest in this acreage and
prospect to lapse.
Developing Energy Partners relinquished all interests in its
New Mexico properties in Fiscal 1997.
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 written agreements.
Generally, sales of oil and gas are made at prevailing market prices. (See,
"Business - Effect of 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.
Under the terms of the Heller Financing, the Company is
required to purchase "hedges" to guarantee receipt of a specified price for the
gas sales from those properties developed with the Heller Financing.
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.
-11-
<PAGE>
The following table identifies customers of the Company which
purchased during the fiscal year ended September 30, 1999 in excess of ten
percent (10) of the oil or gas produced by the Company.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Percentage of
Production Area Name of Location Production Purchased
of Operation of Purchaser By State
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Texas Oil Production Pride Pipeline Company(2)
Abilene, Texas 100%
- -----------------------------------------------------------------------------------------------------------------------
Gas Aquila Southwest Pipeline Corp.*
Production San Antonio, Texas 59.4
- -----------------------------------------------------------------------------------------------------------------------
Austin Chalk Natural Gas Marketing Services**
Houston, Texas 40.6
- -----------------------------------------------------------------------------------------------------------------------
Pennsylvania Gas Production Peoples Natural Gas (PNG)
*** Pittsburgh, Pennsylvania 21.2
- -----------------------------------------------------------------------------------------------------------------------
Consolidated Natural Gas (CNG)
Pittsburgh, Pennsylvania 51.5
- -----------------------------------------------------------------------------------------------------------------------
Petro Bank
Denver, Colorado 27.3
- -----------------------------------------------------------------------------------------------------------------------
West Virginia Gas Production Equitable Gas Company
*** Pittsburgh, Pennsylvania 47.2
- -----------------------------------------------------------------------------------------------------------------------
Columbia Gas System
51.5
- -----------------------------------------------------------------------------------------------------------------------
Alabama(1) Gas Production Southern Natural Gas Co. ****
Birmingham, Alabama 100
- -----------------------------------------------------------------------------------------------------------------------
Oklahoma Oil Production Warren Corporation
Oklahoma City, Oklahoma 5
- -----------------------------------------------------------------------------------------------------------------------
Oil Production Tri-Power Resources 95
Ardmore, Oklahoma
- -----------------------------------------------------------------------------------------------------------------------
Kansas Oil Production Kelly Maclaskey Oilfield Services, Inc.
El Dorado, Kansas 72
- -----------------------------------------------------------------------------------------------------------------------
Oil Production Farmland Industries, Inc.
Kansas City, Missouri 28
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
- --------------------
(1) These properties were sold as of September 1, 1999.
(2) Pride Pipeline was acquired by Sun Oil Company in September 1999.
-12-
<PAGE>
*** Gas production from the Company's Appalachian Basin property are sold under
contracts which call for floating index based gas pricing. Typically the
general term. These contracts are set for periods of one year and contain
price options for the Company should local gas market conditions warrant.
**** Gas production from the Company's Black Warrior Basin properties are sold
under a long term supply contract. The pricing mechanism under this
contract ties the price of gas to that on No. 2 fuel oil FOB New York City
through September 4, 1999. Under the contract, the partnership was subject
to a make-up clause should it not have produced and delivered to the buyer
a specified quantity of gas over the life of the contract. As part of the
sale of the properties, the partnership was required to pay to the buyer of
the gas $74,417 as the partnership's portion of the make-up provision.
These properties were sold as of September 1, 1999.
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. Since Deven was acquired at the
beginning of this current fiscal year and was treated as having been an asset
acquisition, there are no historical comparison for those properties.
-13-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Fiscal Year Ended
September 30
- ----------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas
- ----------------------------------------------------------------------------------------------------
Oil (Bbls) 19,678 34,968 15,471
- ----------------------------------------------------------------------------------------------------
Gas (Mcf) 114,531 128,286 138,456
- ----------------------------------------------------------------------------------------------------
Average Bbls/day 54 96 42
- ----------------------------------------------------------------------------------------------------
Average Mcf/day 314 351 379
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Alabama (2)
- ----------------------------------------------------------------------------------------------------
Gas (Mcf) 302,465 259,658 279,172
- ----------------------------------------------------------------------------------------------------
Average Mcf/day 829 711 765
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Pennsylvania:
- ----------------------------------------------------------------------------------------------------
Gas (Mcf) 140,682 252,723 230,387
- ----------------------------------------------------------------------------------------------------
Average Mcf/day 385 692 631
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
West Virginia:
- ----------------------------------------------------------------------------------------------------
Gas (Mcf) 93,636 93,071 91,327
- ----------------------------------------------------------------------------------------------------
Average Mcf/day 256 255 250
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
New Mexico:
- ----------------------------------------------------------------------------------------------------
Oil (Bbls) -0- -0- 777
- ----------------------------------------------------------------------------------------------------
Gas (Mcf) -0- -0- 10,286
- ----------------------------------------------------------------------------------------------------
Average Bbls/day -0- -0- 2
- ----------------------------------------------------------------------------------------------------
Average Mcf/day -0- -0- 28
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Kansas:
- ----------------------------------------------------------------------------------------------------
Oil (Bbls) 14,674 23,416
- ----------------------------------------------------------------------------------------------------
Gas (Mcf) -0- -0-
- ----------------------------------------------------------------------------------------------------
Average Bbls/day 40
- ----------------------------------------------------------------------------------------------------
Average Mcf/day -0-
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Oklahoma:
- ----------------------------------------------------------------------------------------------------
Oil (Bbls) 5,408 11,533
- ----------------------------------------------------------------------------------------------------
Gas (Mcf) 13,364 -0-
- ----------------------------------------------------------------------------------------------------
Average Bbls/day 15
- ----------------------------------------------------------------------------------------------------
Average Mcf/day 37
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
TOTALS:
- ----------------------------------------------------------------------------------------------------
Oil (Bbls) 39,760 69,917 16,248
- ----------------------------------------------------------------------------------------------------
Gas (Mcfs) 664,678 733,738 749,628
- ----------------------------------------------------------------------------------------------------
Average Bbls/day 109 192 42
- ----------------------------------------------------------------------------------------------------
Average Mcf/day 1,821 2,010 2,004
- ----------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) These properties were sold as of September 1, 1999. As such, these figures
represent only eleven (11) months production.
-14-
<PAGE>
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Fiscal Year Ended
September 30
- ---------------------------------------------------------------------------------------------------
6 MCFE = 1 Bbl. 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per Bbl. $14.40 $13.43 $21.70
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per Mcf 2.05 2.54 2.84
- ---------------------------------------------------------------------------------------------------
Average Production Cost Per
Gas Equivalent (MCFE) 1.48 1.51 0.64
- ---------------------------------------------------------------------------------------------------
Alabama (3)
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per Mcf 2.44 2.71 2.66
- ---------------------------------------------------------------------------------------------------
Average Production Cost Per
Gas Equivalent 1.15 2.13 1.11
- ---------------------------------------------------------------------------------------------------
Pennsylvania
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per Mcf 2.71 2.48 2.48
- ---------------------------------------------------------------------------------------------------
Average Production Cost Per 1.39 1.38 1.20
Gas Equivalent
- ---------------------------------------------------------------------------------------------------
West Virginia
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per McF 2.38 2.31 2.76
- ---------------------------------------------------------------------------------------------------
Average Production Cost Per
Gas Equivalent (MCFE) 1.90 1.14 0.91
- ---------------------------------------------------------------------------------------------------
New Mexico
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per Bbl -0- -0- 20.76
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per Mcf -0- -0- 1.97
- ---------------------------------------------------------------------------------------------------
Average Production Cost Per
Gas Equivalent (MCFE) -0- -0- 0.91
- ---------------------------------------------------------------------------------------------------
Kansas
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per Bbl 13.75 13.65 -0-
- ---------------------------------------------------------------------------------------------------
Average Sale Price Per Mcf -0- -0- -0-
- ---------------------------------------------------------------------------------------------------
Average Production Cost Per
Gas Equivalent (MCFE) 4.45 1.67 -0-
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) These properties were sold as of September 1, 1999. As such, these figures
represent only eleven (11) months production.
-15-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Oklahoma
- ----------------------------------------------------------------------------------------------------
Average Sale Price Per Bbl 15.34 13.65 -0-
- ----------------------------------------------------------------------------------------------------
Average Sale Price Per Mcf 1.78 -0- -0-
- ----------------------------------------------------------------------------------------------------
Average Production Cost Per 1.39 1.67
Gas Equivalent (MCFE)
- ----------------------------------------------------------------------------------------------------
Combined Properties
- ----------------------------------------------------------------------------------------------------
Average Sale Price Per Bbl 14.59 13.54 21.60
- ----------------------------------------------------------------------------------------------------
Average Sale Price Per Mcf 2.35 2.55 2.68
- ----------------------------------------------------------------------------------------------------
Average Production Cost per 1.75
Gas Equivalent (MDFE) 1.4585 0.85
- ----------------------------------------------------------------------------------------------------
</TABLE>
For the purpose of determining gas equivalent, Oil has been converted
to gas at the rate of 1 Barrel per 6 Mcf.
Wells and Acreage:
The following tables set forth certain information as of
September 30, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Gross Wells Net Wells
- -------------------------------------------------------------------------------------------------------------------------------
Well Count 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Texas 41 41 40 25.78 25.78 16.99
- -------------------------------------------------------------------------------------------------------------------------------
Pennsylvania 65 55 41 28.18 24.18 18.58
- -------------------------------------------------------------------------------------------------------------------------------
West Virginia 26 26 26 9.94 9.94 9.94
- -------------------------------------------------------------------------------------------------------------------------------
Alabama (4) 57 57 54 27.0 27.00 27.00
- -------------------------------------------------------------------------------------------------------------------------------
New Mexico -0- -0- 4 -0- -0- 0.40
- -------------------------------------------------------------------------------------------------------------------------------
Kansas 199 199 -0- 167.12 167.12 -0-
- -------------------------------------------------------------------------------------------------------------------------------
Oklahoma 99 99 -0- 33.31 33.71 -0-
- -------------------------------------------------------------------------------------------------------------------------------
Total 487 477 165 291.33 287.33 72.91
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Gross Acres Net Acres
- -------------------------------------------------------------------------------------------------------------------------------
Developed Acreage 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Texas 5,659 5,819 5,808 1,974 2,064 2,600
- -------------------------------------------------------------------------------------------------------------------------------
Pennsylvania 8,160 7,860 7,440 4,828 4,708 4,540
- -------------------------------------------------------------------------------------------------------------------------------
West Virginia 4,247 4,247 4,247 1,451 1,451 1,451
- -------------------------------------------------------------------------------------------------------------------------------
Alabama (1) 2,043 2,043 1,936 1,022 1,022 968
- -------------------------------------------------------------------------------------------------------------------------------
New Mexico -0- -0- 2,560 -0- -0- 256
- -------------------------------------------------------------------------------------------------------------------------------
Kansas 4,317 4,317 -0- 3,730 3,730 -0-
- -------------------------------------------------------------------------------------------------------------------------------
Oklahoma 2,653 2,653 -0- 822 822 -0-
- -------------------------------------------------------------------------------------------------------------------------------
Total 27,079 26,939 21,991 13,827 13,797 9,815
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) These properties were sold as of September 1, 1999, however the properties
were held for the first eleven months of the fiscal year.
-16-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Gross Acres Net Acres
- -------------------------------------------------------------------------------------------------------------------------------
Undeveloped Acreage 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Texas 2,245 2,085 1,417 2,161 2,071 1,402
- -------------------------------------------------------------------------------------------------------------------------------
Pennsylvania 25,823 26,123 26,543 14,457 14,577 14,745
- -------------------------------------------------------------------------------------------------------------------------------
West Virginia 3,055 3,055 3,055 952 952 952
- -------------------------------------------------------------------------------------------------------------------------------
Alabama (5) 982 982 1,090 491 491 545
- -------------------------------------------------------------------------------------------------------------------------------
New Mexico -0- -0- 22,433 -0- -0- 2,243
- -------------------------------------------------------------------------------------------------------------------------------
Kansas 2,172 2,172 -0- 1,098 1,098 -0-
- -------------------------------------------------------------------------------------------------------------------------------
Oklahoma 870 870 -0- 103 103 -0-
- -------------------------------------------------------------------------------------------------------------------------------
Total 34,107 35,287 54,538 19,262 19,292 19,887
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
==============================================================================================================================
EXPLORATORY WELLS
- ------------------------------------------------------------------------------------------------------------------------------
YEAR DRILLED PRODUCERS DRY HOLES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
1998 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
1997 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
DEVELOPMENT WELLS
- ------------------------------------------------------------------------------------------------------------------------------
1999 10 0 10
- ------------------------------------------------------------------------------------------------------------------------------
1998 17 0 17
- ------------------------------------------------------------------------------------------------------------------------------
1997 7 0 7
==============================================================================================================================
</TABLE>
Because of the low oil prices during FY 99, the Company did
not plan to perform any reworking operations on its Texas, Oklahoma or
Kansas properties. The Company, through its Deerlick Creek Partners I, L.P.
non-consented on the drilling of five (5) infield developmental coal bed
methane wells located in Alabama in FY 98 and was under a "non-consent
penalty" until the consenting parties received back the cost of the
development wells plus a penalty percentage. In the sale of the Alabama
properties, the Company received the "after payout" value of its reserves in
the non-consent wells. In the Appalachian Basin operations, the Company,
through its Developing Energy Partners I, L.P., participated in the drilling
of ten (10) new wells to further develop its leasehold interests in the
Blacklick Creek coal bed methane project in central Pennsylvania.
("Business" and "Properties - Operations".)
Proved Reserves:
The Company causes to be prepared an annual estimate of oil
and gas reserves. The Company has not filed reserves estimates with any
United States authority or agency, other than estimates previously filed
with the Commission.
- -------------------
(1) These properties were sold as of September 1, 1999.
-17-
<PAGE>
The following table sets forth the proved reserves of the Company as of
September 30, 1999, September 30, 1998, and September 30, 1997.
The figures for Westlands as of September 30, 1999 were extrapolated by
the Company from the reserve report as of September 30, 1998, were taken from
the reserve report dated October 1, 1998, prepared by R. A. Lenser and
Associates, independent petroleum engineers, as of September 30, 1998 for the
Texas, Oklahoma and Kansas properties as received by the Company's consultants,
and from the reserve reports prepared by Huntley and Huntley, Independent
Petroleum Engineers, dated as of November 1996 for the Alabama properties,
September 30, 1996 for the Blacklick coal bed methane property, and September
30, 1997 for the remaining Appalachian properties in Pennsylvania and West
Virginia. The Company extrapolated the values for the properties by subtracting
actual production from the reserve report through September 30, 1999 and then
adjusted its reserves for performance based on decline curves for each well.
-18-
<PAGE>
<TABLE>
<CAPTION>
Net Reserves
- -------------------------------------------------------------------------------------------------------
Year Ended Reserves
September 30, 1999
- -------------------------------------------------------------------------------------------------------
Proved Developed Reserves 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C X C (BBLS)
- -------------------------------------------------------------------------------------------------------
Texas 56,760 67,125 128,029
- -------------------------------------------------------------------------------------------------------
Oklahoma 108,287 60,613 -0-
- -------------------------------------------------------------------------------------------------------
Kansas 191,123 133,135 -0-
- -------------------------------------------------------------------------------------------------------
Pennsylvania -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
West Virginia -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Alabama (6) -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
New Mexico -0- -0- 777
- -------------------------------------------------------------------------------------------------------
Total 356,170 260,973 128,806
- -------------------------------------------------------------------------------------------------------
Gas (MCF)
- -------------------------------------------------------------------------------------------------------
Texas 398,717 438,000 463,000
- -------------------------------------------------------------------------------------------------------
Oklahoma 255,391 -0- -0-
- -------------------------------------------------------------------------------------------------------
Kansas -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Pennsylvania 3,162,572 1,917,417 1,500,499
- -------------------------------------------------------------------------------------------------------
West Virginia 449,867 815,942 909,013
- -------------------------------------------------------------------------------------------------------
Alabama(1) 2,908,057 1,768,544 1,318,395
- -------------------------------------------------------------------------------------------------------
New Mexico -0- -0- 10,286
- -------------------------------------------------------------------------------------------------------
Total 7,174,604 4,939,903 4,201,193
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year End Reserves
September 30, 1999
- -------------------------------------------------------------------------------------------------------
Proved, Undeveloped Reserves 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C X C (Bbls)
- -------------------------------------------------------------------------------------------------------
Texas 629,444 1,186,187 1,276,028
- -------------------------------------------------------------------------------------------------------
Oklahoma -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Kansas 45,125 182,896 -0-
- -------------------------------------------------------------------------------------------------------
Pennsylvania -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
West Virginia -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Alabama (1) -0- -0- 1,214,417
- -------------------------------------------------------------------------------------------------------
New Mexico -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Total 674,569 1,369,083 1,276,028
- -------------------------------------------------------------------------------------------------------
Gas (Mcf)
- -------------------------------------------------------------------------------------------------------
Texas 5,577,720 10,532,000 11,482,000
- -------------------------------------------------------------------------------------------------------
Oklahoma -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Kansas -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Pennsylvania 1,770,850 808,212 1,517,536
- -------------------------------------------------------------------------------------------------------
West Virginia -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Alabama (1) 572,661 951,962 791,800
- -------------------------------------------------------------------------------------------------------
New Mexico -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
Totals 7,921,231 12,292,174 13,791,336
- -------------------------------------------------------------------------------------------------------
</TABLE>
All of the above stated reserves are located on-shore
within the United States.
- -------------
(1) These reserves were sold as of September 1, 1999.
-19-
<PAGE>
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(7)
September 30 1999 1998 1997
<S> <C> <C> <C>
Proved Oil and Gas Reserves $24,246,399 $25,869,992 $35,857,908
Proved Developed Oil and Gas Reserves $7,254,122 $6,601,604 $5,616,679
Present Worth (1)
September 30 1999 1998 1997
Proved Oil and Gas Reserves $16,444,753 $13,017,977 $22,479,971
Proved Developed Oil and Gas Reserves $4,098,145 $3,398,305 $3,678,884
</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".)
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 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".)
- -----------------
(1) These figures do not include the Alabama properties which were sold on
September 1, 1999.
-20-
<PAGE>
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 Securities and Exchange Commission, during the years
ended September 30, 1997, September 30, 1998 or September 30, 1999.
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 presently has no
assets. Yesca previously owned the Pinabete Silver Mine in the State of Nayarit,
Mexico. 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 totaling 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 drilled 27 corehole and intersected significant gold vanes 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 1997, the Company did not conduct any significant work on its
claims other than work required to maintain the claims in good standing. The
Company allowed the claims to expire during the year ended September 30, 1998.
Timber Rights:
Effective September 29, 1995, the Company acquired all of the
outstanding shares of Sustainable Forest Industries ("Sustainable"), a privately
held Delaware Company. Sustainable owns the rights to two (2) tropical hardwood
concessions in Guyana, South America. The rights to the initial concession,
which encompasses 1,800 acres was acquired in September, 1995. The concession
was inventoried and assessed by an independent consultant, CESO International
Services, (CIS) a Canadian government affiliated entity which provides advisory
services to developing countries. Based on this assessment, the commercial
quantity of merchantable logs is 25,497 units or approximately 14,233,200 board
feet equivalents. the market value of the wood in rough cut form, is estimated
at roughly $5,692,000. Sustainable acquired the second hardwood concession in
November, 1995 encompassing an additional 4,200 acres. Based on the inventory
and assessment of CIS, the commercial quantity of merchantable logs available on
that concession is 65,546 units, yielding approximately 33,671,300 board feet
equivalents. The market value of the wood is Arough cut form is estimated at
$12,671,000. The combined estimated appraisal value of the hardwoods available
on the Company's two Guyana timber concessions is roughly $18,363,000.
-21-
<PAGE>
In consideration for all of the capital stock of Sustainable, the
Company issued 150,000 shares of its Common Stock, and warrants to purchase
50,000 shares of Common Stock at a price of $2.50 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.
ITEM 3 LEGAL PROCEEDINGS
In April 1997, the Company commenced an Adversary Action styled Daleco
Resources Corporation v. Reserve Production Inc., Liquidating Trust and Leonard
Pipkin, Trustee, in the United States Bankruptcy Court for the Eastern District
of Texas, Tyler Division, Case No.97-6036. The case was commenced to enforce the
Company's rights under that certain Asset Purchase Agreement dated December 20,
1996 ("Asset Purchase Agreement") as approved by the Bankruptcy Court on
February 13, 1997. In the Adversary Action, the Company alleged that the
defendants' had failed to meet their conditions to Closing under the Asset
Purchase Agreement and were thus required to refund the Company's $100,000
Earnest Money Deposit and pay for the reworking of the Jody Well. Subsequent to
the commencement of the Company's adversary action, a case was commenced in the
United States District Court for the Eastern District of Texas, Tyler Division,
styled Reserve Production Liquidating Trust v. Daleco Resources Corporation,
Westlands Resources Corporation, David F. Lincoln, Gary J. Novinskie and C.
Warren Trainor, C.A. No: 6:97 CV 705 ("District court Action"). The District
Court Action was in essence a counter claim against the Company and three of its
directors asserting matters which should have been addressed in an answer to the
Adversary Action. The Company filed a motion to dismiss the District Court
Action; however, prior to ruling on the Company's Motion, the Adversary Action
was resolved through Court mandated mediation. Under the terms of the
settlement, the Company's Earnest Money Deposit was returned and the Reserve
Production Inc., Liquidating Trust, Reserve Production Liquidating Partnership,
and Leonard Pipkin, Trustee, were required to resolve all outstanding claims for
the reworking of the Jody Well.
On January 6, 1999, the Company authorized the Mediator to release the
various mutual settlement documents between Daleco Resources Corporation,
Reserve Production Inc., Liquidity Trust, Leonard Pipkin, Trustee, Reserve
Production Liquidity Partnership and its partners. The Advisory Action and
District Court Action have been dismissed and the matter fully resolved.
Triad Pipe & Steel, Inc. v. Westlands Resources Corporation and Daleco
Resources, Inc., In The District Court of Harris County, Texas, Case No.
97-44587. Triad Pipe & Steel, Inc. ("Triad") supplied 2-3/8th inch tubing for
the reworking of the Jody Well. Triad commenced its original suit on or about
August 25, 1997 ("Original Complaint") prior to the Settlement Agreement and its
amended complaint filed on or about November 18, 1997 ("Amended Complaint").
Reserve Production, Inc., Liquidating Trust and Reserve Production Liquidating
Partnership (collectively the "Trust") have not yet satisfied the obligations
owed to Triad in the amount of $33,514.21. The Trust has requested that the
Company contribute funds towards the satisfaction of Triad's claim which the
Company has declined to do, as the obligation to settle all costs attributable
to the Jody Well is the responsibility of the Trust. The Company filed an answer
to the Original Complaint and interrogatories filed by Triad, and cross claimed
against the Trust. By Order dated May 4, 1998, the matter was fully resolved and
the case dismissed as a result of the Trust' payment, in full, of Triad's claim.
-22-
<PAGE>
Southland Drilling Company, a Division of Triad Drilling Company v.
Westlands Resources Corporation, Daleco Resources Corporation and Tri-Coastal
Energy, L.P., Cause No. 98-34542, In the 270th Judicial District Court of Harris
County, Texas. On or about July 21, 1998, Southland Drilling Company
("Southland") commenced a lawsuit against the Company and its subsidiaries
Westlands and Tri-Coastal. The lawsuit seeks to recover the amount of
$260,577.66 allegedly due and owing for work performed on the DRC GA #3 Well and
the DRC VI #1 Well, Burleson County, Texas. Daleco has made a special appearance
in this matter for the purpose of contesting jurisdiction. Each of the
Defendants have filed answers' asserting a general denial. Discovery is on going
in this matter. Westlands is the operator of these wells on behalf of
Tri-Coastal. Both Westlands and Tri-Coastal have filed counter claims against
Southland for the cost overruns resulting from the reworking of these wells. A
trial on these matters is scheduled for the first quarter of 2000.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of Fiscal Year 1999.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS
The Company's common stock trades on the Over the Counter Market (Pink
Slips). The symbol for the Company's shares is DLOV. As of January 12, 2000,
there were approximately 1730 record owners of the Company's common stock.
-23-
<PAGE>
The range of the high and low bid prices, by quarters, for fiscal years
1998 and 1997, commencing with the first quarter of the fiscal year ended
September 30, 1999 for the Company's common stock is as follows:
Over the Counter
Fiscal Year End (Bid Prices)
September 30 US $
High Low
1998 - 1st Qtr. 2 13/16 1 1 / 4
1998 - 2nd Qtr. 2 13/16 1
1998 - 3rd Qtr. 1 7/16 27/32
1998 - 4th Qtr. 1 5/16
1999 - 1st Qtr. 9/16 17/32
1999 - 2nd Qtr. 3/4 3/4
1999 - 3rd Qtr. 5/8 1/2
1999 - 4th Qtr. 3/8 3/8
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 above prices reflect
the effect of a reverse ten-for-one stock split on February 24, 1998.
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 1999, the Company conducted no sales of Securities.
During the third quarter of Fiscal year 1996, 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
$11.90 per share) (the "Closing Price") or, (ii) sixty-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 10,000 shares of common stock at an
exercise price of $10.00 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 16, 1999, all of the 7% convertible debentures had been
converted into 240,628 shares of common stock.
-24-
<PAGE>
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 September 30, 1999, $1,280,000 of the Debentures had
been converted into 981,322 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
September 30, 1999 none of these warrants have been exercised.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General:
The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
provides a safe harbor for forward-looking statements made by or on behalf of
the Company. All statements, other than statements of historical facts, which
address activities, event or developments that the Company expects or
anticipates will or may occur in the future, including such things as the
anticipated development of revenues, acquisition of additional properties or the
obtaining of capital, business strategy, development trends in the industry
segments in which the Company is active, expansion and growth of the Company's
business and operations and other such matters are forward-looking statements.
To take advantage of the safe harbor provisions provided by the Reform Act, the
Company is identifying certain factors that could cause actual results to differ
materially from those expressed in any forward-looking statements, whether oral
or written, made by or on behalf of the Company. Many of these factors have
previously been identified in filings or statements made by or on behalf of the
Company.
All phases of the Company's operations are subject to influences
outside of the Company's control. Any one, or a combination, of these factors
could materially affecting the results of the Company's operations. These
factors include: competitive pressures, inflation, trade restrictions, interest
rate fluctuations and other capital market conditions, weather, future and
options trading in, and the availability of natural resources and services from
other sources. Forward-looking statements are made by or on behalf of the
Company's knowledge of its business and the environment in which it operates,
but because of the factors listed above, as well as other environmental factors
over which the Company has no control, actual results may differ from those in
the forward-looking statements. Consequently, all of the forward-looking
statements made are qualified in their entirety by these cautionary statements
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected effect on the business and/or operations of the
Company.
-25-
<PAGE>
The fiscal year ended September 30, 1999, was marked by a number of
events all which were beyond the control of management, primarily the world wide
decrease in the price of crude oil.
The Company does not record any significant deferred tax provisions,
since it has a substantial loss carry-forward. The Company considers all of its
operations to be fully integrated.
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 environmental remediation costs of a consequential nature and makes no
provisions therefore.
Fiscal 1999
In January 1999, Heller Financial Inc. ("Heller") declared its loan to
be in default due to the failure of the properties to generate sufficient income
to pay interest and return principal. As a result of this action, the entire
amount of the Heller loan was reclassified as a current obligation. Since the
Heller loan is "project financing", non-recourse to the Company and is only
secured only by the Company's Austin Chalk and Mid-Continent properties, Heller
must look exclusively to the properties for the satisfaction of its loan. The
Company, like the rest of the exploration and production industry, faced severe
hardships for all of Fiscal 1999 due to the world wide depression of oil prices.
The artificially low prices for crude oil forced many small producers, to
include the Company, to forgo reworking marginal wells, shutting in other wells
and curtail exploration, all of which hurt the Company's cash flow and the
properties ability to pay interest and principal currently due Heller. Since the
upturn in the price of crude oil, the performance of the Company's properties
has improved. Heller has retained the engineering consulting firm of Netherland,
Sewell and Associates of Dallas, Texas, to assist it in evaluating the Company's
pledged properties for further development or possible sale.
The Company sold, following the close of Fiscal 1999, its net profits
interest in 38 Pennsylvania wells in December 1999, but effective October 1,
1999. The Company, in accordance with generally accepted accounting principles,
recognized balance sheet and income statement effects (adjustments to depletion,
depreciation and amortization) on its September 30, 1999 statements. The cash
impact will be shown in the first quarter of Fiscal 2000 when the cash was
received. The proceeds of that sale were used to satisfy the Company's loan from
PNC National Bank.
In December 1999, the Company also sold its interest in the Alabama
coalbed methane wells to the operator. The sale was effective as of September 1,
1999. The Company believed that the sale at that time was in its best interest
in that the favorable gas contract under which it had been selling the gas since
its acquisition of the field expired on September 4, 1999. The current lower
field price for the gas plus additional transportation which the Company would
have to bear would have a negative impact on the project's economics. The
Company, in accordance with generally accepted accounting principles, recognized
balance sheet and income statement effects (adjustments to depletion,
depreciation and amortization) on its September 30, 1999 statements. The cash
impact will be shown in the first quarter of Fiscal 2000 when the cash was
received.
Sustainable Forest Industries continued to try and introduce the Guyana
hard woods to the domestic rail road industry. While the woods tested well and
received favorable reviews from the industry, sales of the timbers in commercial
quantities have not yet been realized. Quality control and capacity allocation
concerns at the third party contract saw mills are major issues which currently
have an impact on the Company's ability to secure and fulfill major contracts.
In connection with the Company's timber operations in Guyana, the Company
incurred $62,882 in advances and accrued expenses.
-26-
<PAGE>
Administrative expenses amounted to $682,835 for Fiscal 1999 as
compared to $1,280,925 for the prior Fiscal year.
As a direct result of the world wide depressed oil prices, gross oil
and gas revenues decreased by $1,070,799 in fiscal 1999, while lease operating
expenses increased by $163,654 resulted in a net loss for the year of
$1,577,233, a significant portion of which was the depletion, depreciation and
amortization taken as a result of the sale of the Alabama properties. The
Company has not yet received the proceeds of the Stock Sale Agreement between it
and Infinite Networks, Inc., although the Company is in constant contact with
the funder, Management has placed the funder on notice of its default but has
elected, for now, to forgo litigation to preserve the Company's assets.
Fiscal 1998:
On July 21, 1998, the Company borrowed a total of $145,000 from four
(4) persons. These funds were borrowed so as to allow the Company to meet its
current obligations to Heller Financial. The funds were borrowed from David F.
Lincoln, a vice-president and director of the Company ($20,000), Sonata
Investment Company, Ltd., ($75,000) Dov Amir, Chairman of the Board of Directors
and Chief Executive Officer ($25,000) and Patricia M. Trainor, wife of C. Warren
Trainor, a director of the Company ($25,000) ("July Notes"). The July Notes were
to have matured on November 20, 1998, and earnest interest at the prime rate of
interest as established by the Huntingdon Bank, Columbus, Ohio, from time to
time plus (2) percent computed on the basis of a 360 day year. Since the July
Notes were not satisfied on November 20, 1998, they have been earning interest
at 18% per annum on the basis of a 360 day year.
Additionally, each note holder was given warrants exercisable at any
time prior to November 20, 2003 at an exercise price of $.55 per share.
The significant drop in oil prices and the lack of firm purchase
commitments for its timber concession resulted in significant losses for fiscal
1998.
Despite the drilling activities of the Austin Chalk properties and the
acquisition of the Mid-Continent Properties, gross oil and gas revenues
decreased by $89,196 in fiscal 1998. In addition, due to the increased number of
wells from the Mid-Continent Acquisition and significant repairs to existing
wells, lease operating expenses increased by $483,569. This situation, in
conjunction with an $800,000 write down of the Mid-Continent properties due to
the year-end reserve values, resulted in a net loss of $726,148 from oil and gas
operations in fiscal 1998.
The Company's subsidiary, Sustainable Forrest Industries, Inc.
initiated timber sales in fiscal 1998 but has yet to obtain significant purchase
commitments. The internal marketing frame well is still being developed. As a
result, the Company has continued to incur significant losses in this segment
($454,752 loss in Fiscal 1998).
The Company reduced its administration expense by $140,898 in fiscal
1998. However, due to the Heller Financing, the amortization of debt issuer
costs and interest expense increase significantly ($415,000) in fiscal 1998.
-27-
<PAGE>
These events resulted in a loss of $3,360,735 in fiscal 1998. Due to
the continued depressed oil prices, subsequent to year-end, certain of the
Company's subsidiaries defaulted on certain of their debt obligations. On
December 18, 1998, the Company agreed to sell 1,848,566 shares of common stock
for $9 Million. The Company has not yet received the proceeds on this sale. The
Company's ability to continue as a going concern is dependent upon the
availability of future funding, the successful compensation of its drilling
properties and profitable timber operations.
Liquidity and Capital Resources
Prior to the Heller Financing, the Company historically financed its
operations through cash flow from operating activities. Well drilling costs were
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.
As a result of the Heller financing, the Company, while still conducting
drilling on a Turnkey Basis, has abandoned its former approach of funding
operations through internally generated cash flow, and accelerated the
reworking, re-completing and development of proved undeveloped reserves in an
effort to increase cash flow and increase the value of the Company's reserves.
While the Company still intends to use cash flow for operations where
appropriate, the Company believes that it was more prudent to accelerate
development to take advantage of the improved market for hydrocarbons and
realize the potential of the Company's reserves. As a result of Heller's
declaration of default in January 1999, the Company has not realized any
significant cash flow from the properties. With the increase of the world wide
prices for crude oil, the Company anticipates that it may realize cash flow from
these properties in the future.
Throughout the fiscal year, additional funds were made available to the
Company by its controlling shareholder, Mr. Amir in the form of unsecured loans
(See, "Certain Relationships" and "Related Transactions".) At the end of Fiscal
1999, the amount owed to Mr. Amir and Mr. Erlich, a former officer of the
Company, was $488,539.
An increase of $535,394 was recorded in depletion, depreciation and
amortization costs. The increase is primarily attributable to the sale of the
Alabama properties.
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.
Capital Expenditures
During Fiscal 1999, the Company through its related entities
participated in the drilling of ten (10) new wells, the Company's share of which
was $420,000. These wells were part of the continued development of the
Company's interest in the Pennsylvania coalbed methane field. The Company
through its related entities did not rework any wells.
Acquisitions:
On September 30, 1997, the Company acquired Haly Corporation ("Haly"),
a California corporation, for 3,000,000 shares of the Company's common stock. At
the time of its acquisition from Mr. Amir and Mr. Erlich, Haly's assets
consisted of 3,000,117 shares of the Company's common stock plus working
interests ranging from 1.75% to 33.3% in fourteen (14) wells. Thirteen (13) of
these wells are producing from the Austin Chalk formation of Texas while the
remaining well interest represents a small overriding royalty in a non-operated
well in California. This acquisition also eliminated amounts owed to Haly of
$364,931 less $100,000 in Haly's bank debt assumed by the Company.
-28-
<PAGE>
Year 2000 Readiness:
The Company experienced no Y2K problems as a result of the new
millenium.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and schedules are included herein.
-29-
<PAGE>
Audited Financial Statements and Supplemental Financial Information
* Independent Auditors' Report or Audited Consolidated Financial Statements
* Consolidated Balance Sheets
* Consolidated Statements of Loss
* Consolidated Statements of Deficit
* Consolidated Statements 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
-30-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Daleco Resources Corporation
We have audited the accompanying consolidated balance sheet of Daleco Resources
Corporation and subsidiaries as of September 30, 1999 and September 30, 1998,
and the related consolidated statements of loss, deficit, and cash flows for
each of the two years ended September 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Daleco Resources
Corporation and subsidiaries as of September 30, 1999 and 1998, and the results
of operations and its cash flows for each of the two years then ended September
30, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered significant recurring net losses,
negative operating cash flow, and has uncertainly relative to full
recoverability of assets, which raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 1 to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Jay J. Shapiro, C.P.A.
A Professional Corporation
Encino, California
March 15, 2000
-31-
<PAGE>
MILLER AND CO. LLP
CERTIFIED PUBLIC ACCOUNTANTS
501 SANTA MONICA BOULEVARD
SECOND FLOOR
SANTA MONICA, CALIFORNIA 90401
March 31, 2000
Gary Novinskie
Daleco Resources Corporation
435 Devon Park Drive, Suite 410
Wayne, PA 19087
Dear Gary:
We have been requested by Daleco Resources Corporation to review their Financial
Statements and 10KSB for the year ended September 30, 1999 audited by another
accounting firm, for the purpose of giving our approval to use the Financial
Statements for the year ended September 30, 1997 which were audited by us.
We have reviewed the statements and 10KSB and find no material change since our
audit as it relates to the year ended September 30, 1997. Please note our review
did not consist of any examination of the working papers for the audit of the
years ended September 31, 1998 or September 30, 1999.
Based on our review, we hereby consent to the use of the audited Financial
Statements for the year ended September 31, 1997 as it relates to the Financial
Statements and 10KSB for the year ended September 30, 1999.
If we can be of any further assistance, please give us a call.
Very truly yours,
MILLER AND CO. LLP
/s/ Morton Algaze
Morton Algaze
Partner
-32-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND 1998
================================================================================
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $206,045 $192,342
Accounts receivable 444,116 339,017
------------ -----------
Total Current Assets 650,162 531,359
Oil and gas properties and equipment (note 4) 7,362,860 9,054,930
Property and equipment 27,632 37,632
Timber rights (note 5) 700,000 828,342
Mineral properties (note 6) 0 --
Goodwill (note 19) 0 237,693
Debt Issue Costs 172,815 372,815
------------ -----------
Total Assets $8,913,469 $11,062,771
============ ===========
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $3,171,307 $1,985,078
Current portion of long-term debt (note 10) 6,285,054 200,000
Notes payable (note 7) 220,000 200,000
Drilling deposits 0 --
Due to related parties (note 8) 488,539 415,829
------------ -----------
Total Current Liabilities 10,164,900 2,600,907
Long-term debt 0 6,285,054
Debentures (note 9) 0 60,000
Total Liabilities 10,164,900 8,945,961
------------ -----------
Commitments and Contingencies (notes 13 and 16)
Shareholders' Equity
2,951,688 Common Shares, par value $0.01 per share (1996 - 2,756,788) 31,027 29,521
(note 11)
16,000 Preferred Shares, par value $0.01 per share (note 8) 160 160
Additional Paid in Capital 14,388,258 14,329,827
Accumulated deficit (15,670,876) (12,242,693)
------------ -----------
Total Shareholders' Equity (1,251,431) 2,116,810
------------ -----------
Total Liabilities and Shareholders' Equity $8,913,469 $11,062,771
============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-33-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Gross Operating Revenue $1,303,424 $2,374,223 $2,462,909
Less: Lease operating expenses 1,119,371 955,717 472,148
Severance taxes 21,190 38,598 32,079
Depletion, depreciation and amortization(4) 1,680,394 1,145,000 497,951
Net profits interest and related expenses 59,702 961,056 1,274,427
----------- ----------- -----------
Net income (loss) from oil and gas operations (1,577,233) (726,148) 186,304
Timber Sales: 34,818 46,369 --
Timber Operating Costs 62,882 501,121 249,499
----------- ----------- -----------
Net (Loss) From timber Operations (28,064) (454,752) (249,499)
----------- ----------- -----------
Net loss (gain) on sale of assets -- -- --
Administration expense 682,835 1,280,925 1,421,823
Amortization of debenture issue costs 200,000 212,000 42,865
Legal and Professional Fees 333,942 -- 287,356
Interest expense 844,193 533,626 155,371
Amortization of goodwill 237,693 575,643 416,643
Write-down of advances to mining joint venture (Note 3) -- -- 100,000
----------- ----------- -----------
3,903,960 2,602,194 2,673,557
Other Income (Expense)
Management and administrative fees 555,782 422,359 582,270
Gain (Loss) on litigation settlement (Notes 13 and 17) -- -- (224,875)
----------- ----------- -----------
555,782 422,359 2,316,162
----------- ----------- -----------
Net Loss for the Year $(3,348,178) $(3,360,735) $(2,129,858)
=========== =========== ===========
Basic and Fully Diluted Net Loss per Common Share (note 12(c)) $(1.14) $(1.14) $(0.80)
====== ====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-34-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Deficit - Beginning of Year ($12,242,698) ($8,801,963) $(6,672,105)
Net loss for the year (3,348,178) (3,360,735) (2,129,858)
Dividends on Preferred (80,000) (80,000) --
------------ ------------ -----------
Deficit - End of Year $(15,670,876) $(12,242,698) $(8,801,963)
============ ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-35-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net loss for the year $(3,348,178) $(3,360,735) $(2,129,858)
Items not affecting working capital
Depletion, depreciation, and amortization 1,680,394 1,145,000 497,951
Amortization of debenture issue costs 200,000 212,000 42,865
Write-down of advances to mining joint venture -- -- 100,000
Other (amortization of goodwill) 237,693 -- --
Loss (gain) on sale of oil and gas properties -- -- --
Loss (gain) on litigation settlement -- -- 224,875
Accrued interest on conversions of debt -- -- --
----------- ----------- -----------
(1,230,091) (2,003,735) (1,264,167)
Decrease (increase) in accounts receivable (105,099) (18,960) 663,073
(Decrease) increase in accounts payable 1,186,229 788,182 (117,508)
(Decrease) increase in advances received on well costs -- -- 239,000
Drilling and work over costs -- (3,808,754) (381,307)
Net proceeds from settlement of litigation -- -- --
Proceeds of drilling program -- (268,000) --
----------- ----------- -----------
Cash used for operating activities (2,267,359) (5,311,267) (860,909)
Investing Activities
Mineral properties expenditures/write-off -- 23,973 (8,300)
Proceeds from sale of oil and gas properties -- -- --
Increase in advances -- -- --
Decrease in lease acquisition and well costs -- -- --
----------- ----------- -----------
Cash provided by (used for) investing activities 0 23,973 (8,300)
Financing Activities
(Decrease) increase in notes payable 220,000 -- --
Increase (decrease) in amounts due to related parties 72,710 66,239 (77,216)
Dividends (80,000) (80,000) --
Proceeds from long-term debt -- 4,966,637 1,789,815
Debt issue costs -- -- (584,815)
----------- ----------- -----------
Cash provided from financing activities 212,710 4,952,876 1,127,784
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 13,703 (334,418) 258,575
Cash and Cash Equivalents - Beginning of Period 192,342 526,760 268,185
----------- ----------- -----------
Cash and Cash Equivalents - End of Period $206,045 $192,342 $526,760
=========== =========== ===========
Supplemental Information:
Issuance of stock for debt -- $273,377 $609,014
=========== =========== ===========
Income taxes paid -0- -0- -0-
=========== =========== ===========
Interest paid $844,193 $367,848 $155,371
</TABLE>
-36-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
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 it assets. As of September 30, 1999 the
Company has reported a loss of $3,348,178 and had net current
liabilities of $10,164,900. The ability of the Company to meet
these liabilities and to continue as a going concern is
dependent upon the availability of future funding, the
successful completion of its drilling projects (see Note 4),
and achieving profitable timber operations (see Note 5).
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
The consolidated financial statements of
Daleco Resources Corporation (the "Company")
have been prepared in accordance with
generally accepted accounting principles and
include the accounts of the Company and its
wholly-owned subsidiaries Westlands
Resources Corporation ("Westlands",
Sustainable Forest Industries Inc.
("Sustainable"), Deven Resources,
Inc.("Deven"), Tri-Coastal Energy, Inc., and
Haly Corp. The Company's investments in oil
and gas leases are accounted for using
proportionate consolidation whereby the
Company's prorata share of each of the
assets, liabilities, revenues and expenses
of the investments are aggregated with those
of the Company in its financial statements.
c. Oil and gas properties and equipment
The Company follows the successful efforts
method of accounting for the costs of
exploration and development activities.
Direct acquisition costs of developed and
undeveloped leases are capitalized. 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.
-37-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
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 un-discounted future net revenues
from proven reserves less operating and
production expenses.
Effective in the first quarter of 1997, the
Company began assessing the impairment of
capitalized costs of proved oil and gas
properties and other long-lived assets in
accordance with Statement of Financial
Accounting Standards No. 121 (SFAS 121),
Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be
Disposed of. Under this method, the Company
generally assesses its oil and gas
properties on a field-by-field basis
utilizing its current estimate of future
revenues and operating expenses. In the
event net un-discounted cash flow is less
than the carrying value, an impairment loss
is recorded based on estimated fair value,
which would consider discounted future net
cash flows. SFAS 121 did not have any impact
on the Company's change in method of
assessing impairment of oil and gas
properties and other long-lived assets.
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. Property and Equipment
Property and equipment are recorded at cost
and depreciated over the straight-line
method over a period of five years.
f. 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 un-discounted
future net revenues from the sale of timber
less operating and production expenses.
g. Debt Issue Costs
Debt issue costs as of September 30, 1998
and 1997, represent those associated with
the Heller Financial, Inc. loan (see Note 1)
and will be amortized over a period of five
years.
-38-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
h. Cash and Cash Equivalents
Cash and cash equivalents include cash and
investments with original maturities of
three months or less.
i. Goodwill
Goodwill associated with the acquisition of
Deven Resources, Inc. will be amortized over
a period of three (3) years.
j. Fair Value of Financial Instruments
Cash and cash equivalents, receivables, and
all liabilities have fair values
approximating carrying amounts, except for
the Heller Financial, Inc., and Sonata
Investment Company, LTD., loans for which it
is not practicable to estimate fair values.
The loans are to be repaid out of net cash
flows. Additional interest or profit
participation is payable after the payment
of principal.
k. Reverse Stock Split
Effective February 24, 1998, the majority of
stockholders of the Company approved a
reverse ten-for-one stock split. The effect
of the reverse stock split has been
retroactively reflected in these financial
statements. All reference to the number of
common and preferred shares, stock options,
warrants, and per share amounts elsewhere in
these financial statements and related
footnotes have been restated as appropriate
to reflect the effect of the reverse split
for all periods presented.
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, has been written off during fiscal 1997.
-39-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
4. Oil and Gas and Equipment
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Proven lease acreage costs $5,429,995 $6,071,637
Proven undeveloped lease acreage costs 1,745,810 1,906,220
Well costs 4,795,605 4,795,605
----------- -----------
$11,971,410 $12,773,462
Accumulated depletion, depreciation and amortization 4,608,550 3,718,532
$7,362,860 $9,054,930
=========== ===========
</TABLE>
DD&A for FY 99 included an extraordinary deduction of $802,052 resulting from
the sale of Deerlick Creek as of September 1, 1999 and the sale of the Company's
net profits interest in 39 Pennsylvania wells as of October 1, 1999.
5. 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. ("Sustainable"), a privately held Delaware
Company, in exchange for 150,000 shares of common
stock of the Company.
Prior to this, Sustainable 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, Sustainable has
been assigned the exclusive harvesting and cutting
rights for the timber concession issue 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 Sustainable. This ownership was
subsequently converted to equivalent shares of the
Company as a result of the acquisition of
Sustainable.
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 150,000
common shares of Daleco given up to acquire
Sustainable. The fair value of the net liabilities of
Sustainable acquired was $65,842 resulting in
consideration of approximately $1,028,500 which has
been recorded as timber rights.
During fiscal 1997, the Company obtained funds to
permit Sustainable to begin implementation of its
business plan (see Note 10).
-40-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
6. Mineral Properties
In February 1995, the Company acquired 109 mining
claims from shareholders of the Company for $15,673
representing their cost to acquire the claims.
Additional costs of $8,300 were incurred during
fiscal 1997 to maintain these claims. The claims were
not renewed and written-off during Fiscal 1998 and
1999.
7. Notes Payable
During the year ended September 30, 1995, the Company
received $1,100,000 in return for two notes payable,
with the producing wells of the Company used as
collateral. Interest of 10% per annum was due
monthly.
During fiscal 1996, the Company repaid $300,000 of
the outstanding balance. During fiscal 1997, the
remaining $800,000 was converted into 16,000 shares
of 10% cumulative preferred stock, at $50.00 per
share.
During fiscal 1998, the Company borrowed $145,000
from four (4) persons. The debt was evidenced by
Notes which matured on November 21, 1998. The Notes
earned interest at 2% over the prime rate charged by
the Huntingdon National Bank of Columbus, Ohio,
through the maturity date, and 18% thereafter. The
Noteholders were also given warrants. (See Note
11(b)--Warrants and Schedule IX--Short Term
Borrowings).
8. Due to (from) Related Parties
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net due (from) to Amir and Erlich
Bearing interest at prime +3% $91,062 $91,062 91,062
Bearing interest at 7% 397,477 324,767 258,528
------- -------- --------
488,539 $415,829 $349,590
======== ========
</TABLE>
The amounts due to Haly Corporation were eliminated through
the acquisition of Haly as of September 30, 1997 (see Note
18). Amir and Erlich are officers and shareholders of the
Company. These amounts have no fixed repayment terms.
1999 1998 1997
---- ---- ----
8% Convertible Debentures $30,000 $60,000 $60,000
======= ======= =======
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 10,000 warrants at
$10.00, with an expiration date of May 30,
2001 (see Note 12). The debentures could 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 day
average closing bid price at closing (May
31, 1996). As of September 30, 1996,
$600,000 of the 7% debentures had been
converted into 107,712 common shares. The
remaining balance was converted into 132,916
common shares during 1997.
-41-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
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 redemptions after the term of two
years. The placement agent's fees were 10% of the
gross proceeds and 12,111 warrants at $10.07
expiring November 16, 2001. The debentures may be
converted after a holding period of 45 days after
closing at the lessor of: (1) the fixed conversion
price ($10.171875), or (2) 75% of the average
closing bid price for the five trading days
immediately preceding the date of conversion. As of
September 30, 1999, $1,280,000 of the 8% debentures
had been converted into 981,322 common shares.
10. Long-Term Debt
Long-term debt of the Company consists of the following:
a. Heller Financial, Inc.
During the forth quarter of fiscal 1997,
the Company entered into an arrangement
with Heller Financial, Inc. ("Heller")
whereby Heller has agreed to provide the
Company with up to $15,000,000 to rework
existing horizontal wells, re-complete its
vertical wells as horizontal wells, and
develop additional acreage. Under the
terms of the agreement, all of the
properties of Westlands were transferred
to a newly formed Limited Partnership,
Tri-Coastal Energy, L.P., the general
partner of which is Tri-Coastal Energy,
Inc., (Tri-Coastal) and the sole limited
partner of which is Westlands. Westlands
is also the sole shareholder of
Tri-Coastal. The amount outstanding under
this arrangement as of September 30, 1999,
1998 and 1997, was $5,835,054, $5,835,054
and $1,139,815, respectively. Interest on
the borrowings is at prime plus 2%.
Principal is paid out of 85% of the net
cash flow from the properties. Additional
interest is payable from 50% of the net
cash flow from these properties after the
payment of principal. In January 1999,
Heller declared the loan to be in default,
as a result of the pledged properties
failure to generate the required interest
payments. This was solely attributable to
the decrease in the low worldwide prices
for oil. As a result, the full amount of
the Heller Loan has been reclassified as
current debt.
b. Sonata Investment Company, LTD.
During the third quarter of fiscal 1997,
Sustainable entered into a loan agreement
with Sonata Investment Company, LTD. for
$250,000, which remains outstanding as of
September 30, 1997. Sustainable has the
right to request an additional $250,000
prior to December 31, 1999. The Company
and Westlands are guarantors of the loan
with Westlands (now Tri-Coastal Energy,
-42-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
L.P.) wells being pledged as collateral,
subordinated to the Heller Financing. The
loan is to be repaid out of 25% of
Sustainable's net cash flow with any
remaining balance due by December 31,
1999. Interest is at 12%. In addition,
Sonata will receive a profits
participation of 25% of the net profits of
Sustainable while the loan is outstanding
and 20% after the loan is repaid (after
payout). Should Sustainable request the
additional $250,000 from Sonata and should
Sonata elect not to make said advance,
then the after payout rate reduces from
20% to 15%. The full amount of this loan
has been reclassified as current debt.
c. PNC Bank Loan
During the fourth quarter of fiscal 1998,
Deven Resources, Inc. obtained a term loan
of $300,000 with interest at prime plus
12%. Principal is due at $25,000 per
quarter. The loan is secured by specific
properties owned by Deven. This loan was
paid off on December 15, 1999 through the
sale of Deven's Net Profits interests in
certain properties in Armstrong and
Fayette Counties, Pennsylvania. In
December 1999, Deven sold its Net Profits
Interest and repaid the loan in full.
d. First Regional Bank
As of September 30, 1998, the Company
assumed a $100,000 loan with First
Regional Bank when it acquired Haly
Corporation (see Note 19). Interest is at
6.9% and the loan matures December 12,
2000. The loan is secured by personal
assets of an officer of the Company.
-43-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
11. Capital Stock
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES, PAR NUMBER OF PREFERRED SHARES
VALUE PAR VALUE $0.01 PER SHARE
$0.01 PER SHARE AMOUNT
<S> <C> <C> <C>
Authorized 20,000,000 10,000,000
---------- ----------
Balance as at September 30, 1997 2,756,988 $14,086,131
Issued for Professional services rendered 194,900 273,377
16,000 800,000
------ -------
Shares cancelled due to cancellation of (46)
==
Fractional Shares
Balance as at September 30, 1998 2,951,642 16,000 $14,329,827
------ ===========
Issued for Professional services rendered 150,932
=======
Balance as at September 30, 1999 3,102,574 16,000
========= ======
</TABLE>
Upon re-domestication of the Company into the U.S. as of October 1, 1997, par
value was established at $0.01 per share for both common and preferred stock.
On February 24, 1998, the Company conducted a reverse 10 for 1 stock split.
-44-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
a. Common Stock Options
In January 1995, the Company granted
fully vested common stock purchase
options expiring on January 6, 2000 for
85,000 common shares at $2.50 per share.
On the same date, the common stock
purchase options previously outstanding,
which expired on September 5, 1995 for
35,670 common shares at $3.20 per share,
were gifted back to the Company and
canceled. The following summary sets out
the activity in common stock purchase
options:
1999 1998 1997
- --------------------------------------------------------------------------------
Outstanding and Exercisable 155,000 35,000 700,000
at beginning of year
- --------------------------------------------------------------------------------
Canceled ----- ----- (350,000)
- --------------------------------------------------------------------------------
Granted ----- 120,000 -------
- --------------------------------------------------------------------------------
Exercised ----- ----- -------
- --------------------------------------------------------------------------------
Outstanding and Exercisable
at end of year 155,000 155,000 35,000
======= ======= ======
- --------------------------------------------------------------------------------
In October 1995, the Financial
Accounting Standards Board issued
Statement of Financial Accounting
Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123).
SFAS 123 permits the Company's continued
use of the intrinsic value based method
prescribed by Accounting Principles
Board Opinion No. 25 (APB 25). SFAS 123
requires additional disclosures,
including proforma calculations of net
earnings and earnings per share, as if
the fair value method of accounting
prescribed by SFAS 123 had been applied.
The fair value of stock options and
compensation cost are measured at the
date of grant.
The common stock purchase options were
issued for past services at an exercise
price of $2.50 per share when the
underlying stock was at $2.245 per
share. Had compensation cost been
determined based on the fair value of
the common stock purchase options using
the provisions of SFAS 123, the
Company's net loss and loss per share in
1995 would have increased by $161,500
and $0.10, respectively.
For the proforma calculation, the fair
value of each option on the date of
grant was estimated using the
Black-Scholes option pricing model and
the following assumptions for awards in
1995: zero dividend yield expected
volatility of 119.64%, risk -free
interest rate of 7.84%, and expected
life of 5 years. Using these
assumptions, the grant-date fair value
per share of the options granted in 1995
was $1.80.
-45-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
b. Common Stock Warrants
Common stock warrants outstanding at
September 30, 1999, consist of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance Expiration Date Amount Price Per Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acquisition of Sustainable September 30, 2000 50,000 $3.50
- ------------------------------------------------------------------------------------------------------------------------------------
May 8 2001 to
Consulting Agreements October 1, 2001 160,000 $3.50
- ------------------------------------------------------------------------------------------------------------------------------------
Consulting Agreement September 30, 2001 10,000 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
8% Debenture Holders and September 11, 2001 to $4.386 to
Placement Agents (I.) June 8, 2002 186,470 $10.81
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Common Stock Warrants Attached to Debenture
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.
With respect to the warrants granted to
the debenture holders and subagents, the
warrants were granted in three equal
installments of September 11, 1996;
November 26, 1996; and June 8, 1997.
These warrants will expire five years
from the date of each installment:
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 were 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 12,211
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 $10.73, 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.
-46-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
c. Net Income Per Share
Net income per share was calculated
on the basis of the weighted average
number of shares outstanding which
amounted to 3,102,574 for the year
ended September 30, 1999 (1998 -
2,951,688; 1997 - 2,756,788). For the
years ended September 30, 1999, 1998,
and 1997 the exercise of the options
and warrants outstanding as at year
end did not have a dilutive effect on
the net income per share.
12. Income Taxes
The Company has no current and deferred taxes
payable. The Company and its subsidiary have
significant tax losses to be applied against future
income. The subsidiary Company's tax filings show net
operating losses to be applied against future taxable
income in the amount of approximately $27 million to
be utilized in various years through 2009. The tax
benefit of these losses is estimated to be
approximately $10 million. No potential benefit of
these losses has been recognized in the accounts.
13. Contingencies
14. 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.
-47-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
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>
1999 PERCENTAGE OF 1998 PERCENTAGE OF 1997 PERCENTAGE OF
TOTAL SALES (%) TOTAL SALES (%) TOTAL SALES (%)
<S> <C> <C> <C>
Oil Production
Pride Pipeline Company 49.5% 50% 100%
Kelly MacClaskey Oil Field Services 11.6% 11.9%
Tri-Power Resources 20.8% 31.8%
Gas Production
Aquila Southwest Pipeline Corp. 11.3% 31.2% 11.8%
Austin Chalk National Gas 10.9% 14.5% 12.3%
Southern Natural Gas 43.0% 72.5%
Columbia Energy Services 11.0%
</TABLE>
15. Additional Information on Petroleum and Natural Gas Activities
<TABLE>
<CAPTION>
DEPRECIATION,
PROPERTY DEPLETION AND
ACQUISITION $ EXPLORATION $ (1) DEVELOPMENT $ AMORTIZATION $
<S> <C> <C> <C> <C>
September 30, 1999 ----- ----- $420,000 $585,000
September 30, 1998 $2,315,000 ----- $2,294,397 $1,145,000
September 30, 1997 $2,323,357 ----- $381,307 $497,951
</TABLE>
(1) Development costs include costs associated with
the developed leaseholds as well as tangible and
intangible well costs.
16. Employment Contracts and Commitments
In connection with the acquisition of Sustainable and
under Management Agreement dated April 17, 1995, the
Company agreed 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 Sustainable. 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. During fiscal 1997, the Company
reached a settlement with one of the officers in the
total amount of $60,000 to be paid at $5,000 per
month through February 1998.
-48-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
In connection with the acquisition of Deven and under
the 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.
The Company had two contracts with financial advisors
during fiscal 1997. The first expired in May 1997;
the second expired October 31, 1997. Neither contract
was renewed.
17. Litigation Settlement
In April 1997, the Company commenced an Adversary
Action styled Daleco Resources Corporation v. Reserve
Production Inc., Liquidating Trust and Leonard
Pipkin, Trustee, in the United States Bankruptcy
Court for the Eastern District of Texas, Tyler
Division, Case No. 97-6036. The case was commenced to
enforce the Company's rights under that certain Asset
Purchase Agreement dated December 20, 1996 (Asset
Purchase Agreement) as approved by the Bankruptcy
Court on February 13, 1997. In the Adversary Action,
the Company alleged that the defendants' had failed
to meet their conditions to Closing under the Asset
Purchase Agreement and were thus required to refund
the Company's $100,000 Earnest Money Deposit and pay
for the reworking of the Jody Well. Subsequent to the
commencement of the Company's adversary action, a
case was commenced in the United States District
Court for the Eastern District of Texas, Tyler
Division, styled Reserve Production Liquidating Trust
v. Daleco Resources Corporation, Westlands Resources
Corporation, David F. Lincoln, Gary J. Novinskie and
C. Warren Trainor, C.A. No.: 6:97 CV 705 ("District
Court Action"). The District Court Action was in
essence a counter claim against the Company and three
of is directors asserting matters which should have
been addressed in an answer to the Adversary Action.
The Company filed a motion to dismiss the District
Court Action; however, prior to ruling on the
Company's Motion, the Adversary Action was resolved
through Court mandated mediation. Under the terms of
the settlement, the Company's Earnest Money Deposit
was returned and the Reserve Production Inc.,
Liquidating Trust, Reserve Production Liquidating
partnership, and Leonard Pipkin, trustee, were
required to resolve all outstanding claims for the
reworking of the Jody Well.
-49-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
The Company incurred $224,875 in costs to settle this
litigation.
18. Acquisitions
During fiscal 1997, the Company completed the
acquisitions of Deven Resources, Inc. and Haly
Corporation.
All of the outstanding stock of Deven was acquired on
October 1, 1996 in exchange for 2.6 million shares of
Daleco stock plus $150,000 in cash. The market value
of the stock was approximately $2.4 million. The
acquisition was accounted for as a purchase resulting
in oil and gas properties of $1.5 million, goodwill
of $1.25 million less liabilities assumed of
$200,000. Deven receives an annual management fee of
$200,000 from a partnership of which it has a 1%
general partner interest.
All of the outstanding stock of Haly, a related
party, was acquired on September 30, 1997. Daleco
issued 3 million shares of common stock to Messrs.
Amir and Erlich along with $1,000 cash. In exchange,
the Company received and retired 3 million shares of
common stock owned by Haly along with interests in
wells owned by Haly. The acquisition was accounted
for as a purchase. The amounts due Haly were written
off into common stock less the First Regional Bank
loan assumed by Daleco (see Note 10).
-50-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Daleco Resources Corporation
The audits referred to in our report to the Board of Directors and Stockholders
of Daleco Resources Corporation and subsidiaries dated March 15, 2000 and April
16, 1998, relating to the consolidated financial statements of Daleco Resources
Corporation and subsidiaries included the audit of Schedule V, VI, and IX, found
on pages 55, 56, and 57, respectively, for the year ended September 30, 1999 and
1998. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules present fairly, in all
material respects, the information set forth therein.
The accompanying financial statements schedules for the year ended September 30,
1997 were not audited by us, and accordingly, we do not express an opinion on
them.
Jay J. Shapiro, CPA
A Professional Corporation
Santa Monica, California
March 15, 2000
-51-
<PAGE>
DALECO RESOURCES CORPORATION SCHEDULE II- AMOUNTS RECEIVABLES FROM UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEARS ENDED SEPTEMBER 30,
1999, 1998 AND 1997
================================================================================
This schedule has been omitted as there are no receivables.
-52-
<PAGE>
DALECO RESOURCES CORPORATION
SCHEDULE IV - NON-CURRENT INDEBTEDNESS OF AND TO RELATED PARTIES YEAR
ENDED SEPTEMBER 30, 1999, 1998 AND 1997
================================================================================
This schedule has been omitted as there are no non-current indebtedness of and
to related parties.
-53-
<PAGE>
DALECO RESOURCES CORPORATION
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT YEAR ENDED SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
1999 1998 1997
<S> <C> <C> <C>
COST
Proven Lease Acreage
Balance - Beginning of year $ 6,072 $ 3,757 $2,428
Additions ----- 2,315 1,329
Disposal (642) ----- -----
------- ------- ------
Balance - End Of Year 5,430 6,072 3,757
------- ------- ------
Proven Undeveloped Lease Acreage
Balance - Beginning of Year 1,906 1,906 1,906
Additions ----- ----- ------
Disposal (160) ----- -----
------- ------- ------
Balance - End of Year 1,746 1,906 1,906
------- ------- ------
Well Costs
Balance Beginning of Year 4,795 2,501 1,506
Additions ----- 2,294 995
Disposal ----- ----- -----
------- ------- ------
Balance - End of Year 4,795 4,795 2,501
------- ------- ------
TOTAL COST $11,971 $12,773 $8,164
======= ======= ======
</TABLE>
-54-
<PAGE>
DALECO RESOURCES CORPORATION
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT YEAR ENDED SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1999 1998 1997
<S> <C> <C> <C>
ACCUMULATED DEPRECIATION AND DEPLETION
Prove Lease Acreage
Balance - Beginning of Year $2,230 $1,386 $1,088
Charge for the Year ----- 844 298
Disposal 609 ----- -----
------ ------ ------
Balance - End of Year 2,839 2,230 1,386
------ ------ ------
Proven Undeveloped Lease Acreage
Balance Beginning of Year 362 362 362
Charge for Year ----- ----- -----
Disposal 312 ----- -----
------ ------ ------
Balance - End of Year 674 362 362
------ ------ ------
Well Costs
Balance - Beginning of Year 1,126 826 626
Charge for Year 450 300 200
Disposal 321 ----- -----
------ ------ ------
Balance - End of Year 1,897 1,126 826
------ ------ ------
TOTAL DEPRECIATION, DEPLETION AND AMORTIZATION
$5,410 $3,718 $2,574
====== ====== ======
</TABLE>
-55-
<PAGE>
DALECO RESOURCES CORPORATION
SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEARS ENDED SEPTEMBER 30, 1999,
1998 AND 1997
================================================================================
As of September 30, 1998, the Company had a $100,000 loan payable with
First Regional Bank.
On July 21, 1998, the Company borrowed $145,000 from David F. Lincoln ($20,000),
Dov Amir ($25,000), Patricia M. Trainor ($25,000) and Sonata Investment Company,
Ltd. ($75,000). The loans were evidenced by Notes maturing on November 20, 1998
earning interest at the prime rate charged by the Huntingdon Bank, Columbus,
Ohio, plus two percent (2%) per annum, computed on the basis of a 360 day year.
After November 20, 1998, the notes earn interest at the rate of 18% per annum,
computed on the basis of a 360 day year.
In addition to the Notes, the lenders were also given warrants for Company
common stock, with an exercise price of $.55. Mr. Amir and Mrs. Trainor each
received warrants for 45,455 shares, Mr. Lincoln received warrants for 36,364
shares, and Sonata Investment Company, Ltd. received warrants for 136,364
shares. Messrs. Amir and Lincoln are officers and directors of the Company. Mrs.
Trainor is the wife of C. Warren Trainor, general counsel to the Company and a
director. Sonata Investment Company, Ltd. is a lender to Sustainable Forest
Industries (See Management's Discussion and Analysis).
There were no other short-term borrowings for the years ended September 30,
1999, 1998 and 1997.
-56-
<PAGE>
DALECO RESOURCES CORPORATION
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
================================================================================
This schedule has been omitted as the information is furnished in the income
statement included with the consolidated financial statements.
-57-
<PAGE>
DALECO RESOURCES CORPORATION
SUPPLEMENTAL INFORMATION (UNAUDITED)
AS AT SEPTEMBER 30, 1998, 1998 AND 1997
================================================================================
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 operation 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>
-------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------
CRUDE OIL NATURAL NATURAL NATURAL
AND GAS CRUDE OIL AND GAS (MMCF) CRUDE OIL AND GAS (MMCF)
CONDENSATE (MMCF) CONDENSATE CONDENSATE
(BARRELS) (BARRELS) (BARRELS)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proven Developed
and Undeveloped
Reserves
-------------------------------------------------------------------------------------------------------------------------
1,562,931 13,912 1,369,917 14,069 963,586 8,740
Balance - Beginning
of Year
-------------------------------------------------------------------------------------------------------------------------
----- ----- 4,111,694 ----- ----- 2,107
Acquisition
of Reserves
-------------------------------------------------------------------------------------------------------------------------
----- 3,481 ----- ----- ----- -----
Disposition of
Reserves
-------------------------------------------------------------------------------------------------------------------------
(1) & (2) (492,432) 1,849 (148,762) (192) 421,802 3,368
Revision of
Previous Estimates
-------------------------------------------------------------------------------------------------------------------------
(39,760) (665) (69,918) (349) (15,471) (146)
Production for Year
-------------------------------------------------------------------------------------------------------------------------
1,030,739 11,615 1,562,931 13,912 1,369,917 14,069
========= ====== ========= ====== ========= ======
Balance - End of
Year
-------------------------------------------------------------------------------------------------------------------------
356,170 4,266 260,973 2,963 125,013 2,311
======= ===== ======= ===== ======= =====
Proved Developed
Reserves as at
September 30
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Revision to prior estimate reflects down time in crude price experienced in
1999.
(2) Improvement in performance of Company's Pennsylvania natural gas production.
-58-
<PAGE>
DALECO RESOURCES CORPORATION
SUPPLEMENTAL INFORMATION (UNAUDITED)
AS AT SEPTEMBER 30, 1998, 1998 AND 1997
================================================================================
Measure of Discounted Future Net Cash Flow From Estimated Production Proved Oil
and Gas Reserves Standardized
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, 1999,
1998, AND 1997.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Future cash inflows $54,946,550 $53,813,143 $64,556,336
---------------------------------------------------------------------------------------------------------------------
Future production costs (18,516,450) (9,122,759) (8,725,086)
---------------------------------------------------------------------------------------------------------------------
Future development costs (12,538,840) (18,820,392) (19,973,342)
---------------------------------------------------------------------------------------------------------------------
Future income tax expense* ----- ----- -----
----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------
23,891,260 25,869,992 35,857,908
---------------------------------------------------------------------------------------------------------------------
Discount factor at 10% (7,446,507) (12,852,015) (13,377,937)
---------------------------------------------------------------------------------------------------------------------
Standardized Measure of Future Net Cash Flows $16,444,753 $13,017,977 $22,479,971
=========== =========== ===========
---------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Company presently has approximately $27 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.
-59-
<PAGE>
DALECO RESOURCES CORPORATION
SUPPLEMENTAL INFORMATION (UNAUDITED)
AS AT SEPTEMBER 30, 1998, 1998 AND 1997
================================================================================
Summary of Changes in Standardized Measure of Discounted Future Net Cash Flows.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance - Beginning of Year $13,017,977 $22,479,971 $17,854,662
Increase (decrease) in future
net cash flows:
Sales for the year net of
related costs (103,161) (418,852) (684,255)
Revisions to estimates of
proved reserves 2,703,041 (10,678,066) 3,723,618
Acquisition of Reserves ----- 1,634,924 1,585,946
Extensions and discoveries
net of related costs: 2,303,537 -----
Sales of reserves in place $(1,476,641) ----- -----
----------- ----------- -----------
Balance - End of Year $16,444,753 $13,017,977 $22,479,971
=========== =========== ===========
</TABLE>
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
-60-
<PAGE>
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth the shares of Common Stock of the
Company beneficially owned as of the Record Date by each officer and director of
the Company and by officers and directors as a group:
<TABLE>
<CAPTION>
========================================================================================================================
AMOUNT OF PERCENT
CLASS OF NAME, AGE AND POSITION BENEFICIAL OF CLASS
STOCK WITH THE COMPANY OWNERSHIP (%)(6)
(SHARES)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Gary J. Novinskie (49) 107,724(1) 3.5%
Director, President and Chief Operating
Officer
- ------------------------------------------------------------------------------------------------------------------------
Common Dov Amir (75) 297,110(2) 9.5%
Chairman of the Board of Directors and Chief
Executive Officer
- ------------------------------------------------------------------------------------------------------------------------
Common David F. Lincoln (43) 283,682(3) 9.1%
Vice Chairman of the Board of Directors and
Vice President
- ------------------------------------------------------------------------------------------------------------------------
Common C. Warren Trainor (54) 75,955(4) --
Director
- ------------------------------------------------------------------------------------------------------------------------
Common All Directors and Officers of the Company as 764,471(5) 24.6%
a Group
========================================================================================================================
</TABLE>
(1) The stock ownership of Mr. Novinskie includes: warrants to purchase 20,000
shares of Daleco Common Stock on or before October 1, 2001 at $3.50 per
share; 80,000 options to purchase shares of Daleco Common Stock on or before
November 12, 2002 at $2.1875 per share; plus 7,724 shares owned directly.
(2) The stock ownership of Mr. Amir includes: 236,582 shares owned directly; 73
shares owned by the Amir Family Trust, dated May 13, 1991; 15,000 shares
which are subject to acquisition pursuant to an option to purchase such
shares on or before January 6, 2000 at $2.50 per share and warrant for
45,455 shares at $.55 which expire November 20, 2003. On March 27, 2000, Mr.
Amir acquired 8,000 shares of Class A 10% Cumulative Preferred Stock, face
value $50.00 per share. The Class A Preferred Stock is convertible into
Common Stock on a dollar for dollar basis. Mr. Amir's beneficial ownership
of Common Stock set forth in the table does not include figures for the
conversion of the Class A Preferred Stock into Common Stock. The Class A
Preferred Stock is non-voting stock.
-61-
<PAGE>
(3) The stock ownership of Mr. Lincoln consists of 190,500 shares and warrants
for 75,000 shares at $3.50 which expire October 1, 2001 and warrants for
18,182 shares at $.55 which expire on November 20, 2003. 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 director of
EnerTech Capital Partners, a private equity investment firm.
(4) Mr. Trainor's stock ownership consists of 500 shares owned by him directly
and 30,000 options to purchase shares of Daleco Common Stock on or before
November 12, 2002 at $2.1875 per share. The options are held by FRW, LLC, a
limited liability company of which Mr. Trainor is a one-third member. Mr.
Trainor's wife has warrants for 45,455 shares at $.55 per share which expire
on November 20, 2003. Mr. Trainor disclaims beneficial ownership of both the
options and warrants.
(5) This group consists of four persons.
(6) Percentages of less than one percent (1%) are not shown.
Section 16(a) Compliance
Based solely upon a review of Forms 3 and 4 during the fiscal year
ending September 30, 1998 and Form 5 forwarded to the Company with respect to
the fiscal year ended September 30, 1998, there were no late filing of reports
by any party required to have filed same.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
==========================================================================================
NAME AND AGE OFFICE HELD
- ------------------------------------------------------------------------------------------
<S> <C>
Dov Amir (74) Chairman of the Board and Chief Executive Officer (1)
- ------------------------------------------------------------------------------------------
Gary J. Novinskie (48) President and Chief Operating Officer and Director (1)
- ------------------------------------------------------------------------------------------
David F. Lincoln (42) Vice Chairman of the Board of Directors (1)
- ------------------------------------------------------------------------------------------
Edward J. Furman (44) Treasurer
- ------------------------------------------------------------------------------------------
Jody Spencer (54) Secretary
==========================================================================================
</TABLE>
(1) See "SECURITY OWNERSHIP OF MANAGEMENT" for positions held and experience.
EXECUTIVE COMPENSATION
----------------------
Item 10
For the period ending September 30, 1999 the Company had five (5)
full-time employees. The following table sets forth the compensation paid its
two officers for the past three (3) years.
-62-
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
- -----------------------------------------------------------------------------------------------------------------------------------
Long Term Compensations
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- -----------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
- -----------------------------------------------------------------------------------------------------------------------------------
(a) (b) 8 (d) (e) (f) (g) (h) (I)
- -----------------------------------------------------------------------------------------------------------------------------------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All other
Principal Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dov Amir 1997 99,000 0 14,100 0 0 0 0
President
- -----------------------------------------------------------------------------------------------------------------------------------
Dov Amir 1998 99,000 0 14,100 0 0 0 0
President
- -----------------------------------------------------------------------------------------------------------------------------------
Dov Amir 1999 99,000 0 14,100 0 0 0 0
President
- -----------------------------------------------------------------------------------------------------------------------------------
Gary J. 1997 100,000 0 0 0 80,000 0 0
Novinskie
President
- -----------------------------------------------------------------------------------------------------------------------------------
Gary J. 1998 100,000 0 0 0 0 0 0
Novinskie
President
- -----------------------------------------------------------------------------------------------------------------------------------
Gary J. 1999 100,000 0 0 0 0 0 0
Novinskie
President
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. As of March 1, 1997, the Company's management agreement with Haly Corporation
was terminated, with Messrs. Amir and Erlich becoming employees of Daleco.
All accounting and other functions of the Company relating to its management
were relocated to the Company's office in Wayne, Pennsylvania from Haly's
offices in California. Messrs. Amir and Erlich's offices remain, however, in
California. Mr. Amir and Erlich are reported as if they had been employees of
Daleco for the entirety of Fiscal 1997.
ITEM 11
COMPENSATION OF DIRECTORS
-------------------------
On December 6, 1996, the Board of Directors unanimously voted to
abolish fees for Directors, but agreed to reimburse Directors for travel and
lodging, if any, actually incurred by a Director in conjunction with his
attendance at a meeting of the Board. In Fiscal 1997, the Company incurred
$833.74 of costs, reimbursable to Directors, in connection with Directors
attendance at Board Meetings.
ITEM 12 RELATED TRANSACTIONS
None
-63-
<PAGE>
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).
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 Registrant's domestication in the State of Delaware effective September 30,
1996, 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 January 15, 1997, and
Registrant's form 8-K dated October 7, 1996.)
10.1 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).
10.2 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).
10.3 Acquisition Agreement among Registrant and Haly Corporation dated September
29, 1997.
16. Letter on Change in Certifying Accountant.
(a) The Company filed a Form 8-K on March 18, 1999, a First Amendment on
Form 8-K on May 5, 1999, and a Second Amendment on August 17, 1999,
relating to the change of certifying accountants.
21. 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).
21.1 Westlands Resources Corporation, a Nevada corporation, Deven Resources,
Inc., a Pennsylvania corporation and 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), Tri-Coastal Energy, Inc., a Delaware
corporation and Tri-Coastal Energy, L.P. a Texas limited partnership.
(B) The Company filed a Form 8-K on October 17, 1995, October
23, 1995, November 15, 1995, and October 7, 1996. The Company did not file any
reports on Form 8-K during the fourth quarter of Fiscal Year 1997.
-64-
<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: April 17, 2000 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Dated: April 17, 2000 By: /s/ Gary J. Novinskie
-------------------------------------------------------------
Gary J. Novinskie, Director, President, COO
Dated: April 17, 2000 By: /s/ Edward J. Furman
-------------------------------------------------------------
Edward J. Furman, Chief Financial Officer
Dated: April 17, 2000 By: /s/ Dov Amir
-------------------------------------------------------------
Dov Amir, Chairman of the Board of Directors,
and Chief Executive Officer
Dated: April 17, 2000 By: /s/ David F. Lincoln
-------------------------------------------------------------
David F. Lincoln, Vice Chairman of the Board of Directors and
Vice President
Dated: April 17, 2000 By: /s/ C. Warren Trainor, Esquire
-------------------------------------------------------------
C. Warren Trainor, Esquire, Director
</TABLE>
-65-
<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 Registrant's domestication in the State of Delaware effective September
30, 1996, 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 January
15, 1997, and Registrant's form 8-K dated October 7, 1996.)
10.1 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).
10.2 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).
10.3 Acquisition Agreement among Registrant and Haly Corporation dated
September 29, 1997.
16. Letter on Change in Certifying Accountant.
(a) The Company filed a Form 8-K on March 18, 1999, a First
Amendment on Form 8-K on May 5, 1999 and a second amendment
filed on August 17, 1999, relating to the change of certifying
accountants.
21. 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).
21.1 Westlands Resources Corporation, a Nevada corporation, Deven Resources,
Inc., a Pennsylvania corporation and 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), Tri-Coastal Energy, Inc., a
Delaware corporation and Tri-Coastal Energy, L.P. a Texas limited
partnership.
-66-
<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: By:
---------------- ----------------------------
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.
<TABLE>
<CAPTION>
<S> <C>
Dated: By:
---------------- -------------------------------------------------------
Gary J. Novinskie, Director, President, COO
Dated: By:
---------------- -------------------------------------------------------
Edward J. Furman, Chief Financial Officer
Dated: By:
---------------- -------------------------------------------------------
Dov Amir, Chairman of the Board of Directors,
and Chief Executive Officer
Dated: By:
---------------- -------------------------------------------------------
David F. Lincoln, Vice Chairman of the Board of Directors
and Vice President
Dated: By:
---------------- -------------------------------------------------------
C. Warren Trainor, Esquire, Director
</TABLE>
-67-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT'S
ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY ITS REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000746967
<NAME> DALECO RESOURCES CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 206,045
<SECURITIES> 0
<RECEIVABLES> 444,116
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 650,162
<PP&E> 0
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<TOTAL-ASSETS> 8,913,469
<CURRENT-LIABILITIES> 10,164,900
<BONDS> 0
160
0
<COMMON> 31,027
<OTHER-SE> 14,388,258
<TOTAL-LIABILITY-AND-EQUITY> 8,913,469
<SALES> 1,303,424
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<INCOME-PRETAX> (3,348,178)
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<EPS-BASIC> (1.08)
<EPS-DILUTED> (0.91)
</TABLE>
