<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FIRST AMENDMENT
FORM 10-QSB/A
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________
Commission File Number 0-12214
-------
DALECO RESOURCES CORPORATION
--------------------------------------------------------------------------------
Name of small business issue as specified in Charter
Delaware 23-2860739
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
983 Old Eagle School Road, Suite 615
Wayne, Pennsylvania 19087 (610) 293-9400
---------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution under a
plan confirmed by court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date.
3,102,574 shares of common stock as of May 1, 2000
<PAGE>
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Unaudited)..................................3
Consolidated Balance Sheets.......................................3
Consolidated Statement Of Income..................................4
Consolidated Statement Of Deficit.................................5
Consolidated Statement Of Cash Flow...............................6
Notes to Consolidated Financial Statements........................7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................18
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K.................................19
SIGNATURES...................................................................20
-2-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 282,562 $ 432,400
Accounts receivable 509,084 342,581
Other 4,264 11,474
------------ ------------
Total Current Assets $ 795,910 $ 786,455
Oil and gas properties and equipment (note 3) 7,306,438 8,789,931
Property and equipment 27,633 32,632
Timber rights (note 4) 700,000 828,342
Mineral properties (note 5) -- --
Goodwill (note 15) -- 37,693
Debt Issue Costs 172,815 272,815
------------ ------------
Total Assets $ 9,002,796 $ 10,747,868
============ ============
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 2,939,390 $ 2,670,118
Current portion of long-term debt 6,675,727 200,000
Note Payables (note) 452,092 --
Due to related parties (note 7) 537,511 445,839
------------ ------------
Total Current Liabilities $ 10,604,720 $ 3,315,957
Long-term debt (note 10) -- 6,285,054
Debentures (note 9) -- --
------------ ------------
Total Liabilities $ 10,604,720 $ 9,601,011
------------ ------------
Commitments and Contingencies (note 15 and 16)
Shareholders' Equity
3,102,574 (1998--2,776,788) Common shares,
par value $0.01 per share $ 31,027 $ 31,026
16,000 Preferred Shares, par value $0.01 per share (note 7) 160 160
Additional Paid in Capital 14,451,128 14,388,255
Accumulated deficit (16,084,239) (13,272,584)
------------ ------------
Total Shareholders' Equity (1,601,924) 1,146,857
------------ ------------
Total Liabilities and Shareholders' Equity $ 9,002,796 $ 10,747,868
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-3-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS FOR THE PERIODS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross Oil and Gas Operating Revenue $616,770 $379,916 $1,186,699 $816,735
Less: Lease Operating Expenses 383,707 195,184 910,387 473,165
Severance taxes 26,824 6,425 72,885 12,550
Net Profits Interest and Related Expenses -- 167,043 (10,541) 402,249
Depletion, depreciation and amortization 29,200 55,000 56,423 120,000
---------- ---------- ---------- ----------
Net Income (Loss) from Oil and Gas Operations 177,039 (43,736) 157,545 (191,229)
---------- ---------- ---------- ----------
Timber Revenues -- -- -- 22,032
Timber Operating Costs -- 21,867 -- 54,981
---------- ---------- ---------- ----------
Net Loss From Timber Operations -- (21,867) -- (27,408)
---------- ---------- ---------- ----------
Other Activities
Management and Administrative Fees 107,140 153,844 240,056 276,289
Income from sale of Properties 408,765 -- 878,685 --
Administration Expenses (163,051) (222,969) (528,736) (403,787)
Amortization of Debenture Issue Costs -- (50,000) -- (100,000)
Amortization of Goodwill -- (100,000) -- (200,000)
Interest expense (219,552) (177,978) (1,120,913) (343,756)
---------- ---------- ---------- ----------
Net income (Loss) Other Activities 133,302 (397,103) (530,908) (771,254)
---------- ---------- ---------- ----------
Net income (Loss) for Period $ 10,341 $ (462,706) $ (373,363) $ (989,891)
========== ========== ========== ==========
PRIMARY AND FULLY Diluted NET (LOSS)
PER COMMON SHARE $0.10 $(0.14) $(0.12) $(0.32)
===== ====== ====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE PERIODS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Deficit - Beginning of Period $(16,374,580) $(12,242,693)
Net Income (loss) for the period 310,341 (989,891)
Dividends on Preferred Stock (20,000) (40,000)
------------ ------------
Deficit - End of Period $(16,084,239) $(13,272,584)
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-5-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE PERIODS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- --------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Activities
Net Income (Loss) $ 310,341 $ (462,706) $ (373,163) $ (989,891)
Items not affecting Working Capital Depletion:
Depreciation, and Amortization and Write-Downs 29,200 205,000 56,423 470,000
--------- ---------- ---------- ----------
339,541 (257,706) (316,740) (519,891)
Item affecting Working Capital Depletion:
(Increase) Decrease in Other Assets 58,880 -- 58,405 --
(Increase) Decrease in Receivables (18,616) (88,800) (64,968) (3,564)
Increase (Decrease) in Accounts Payable (117,751) 497,580 (231,917) 773,503
--------- ---------- ---------- ----------
Cash provided (used) for Operations 262,054 151,074 (555,220) 250,048
--------- ---------- ---------- ----------
INVESTMENT ACTIVITIES
Leasing Acquisition and Well Costs Incurred -- -- -- --
--------- ---------- ---------- ----------
Cash provided from/(used for) Investing Activities -- -- -- --
--------- ---------- ---------- ----------
Financing Activities
Increase (Decrease) in amounts due to Related Parties 37,972 12,010 48,972 30,010
Increase (Decrease) amounts due other notes 1,000 -- 232,092 --
Dividends Paid (20,000) (20,000) (40,000) (40,000)
Proceeds From Long-Term Debt -- -- 390,673 --
--------- ---------- ---------- ----------
Cash Provided From (used by) Financing Activities 18,972 (7,990) 631,737 (9,990)
--------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 281,026 143,084 76,517 240,058
Cash - Beginning of Period 1,536 289,316 206,045 192,342
--------- ---------- ---------- ----------
Cash - End of Period $ 282,562 $ 432,400 $ 282,562 $ 432,400
========= ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-6-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
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 March 31, 2000 the
Company has reported a gain of $133,302 of the three month
period then ending and a loss of $528,736 for the six month
period ending March 31,2000. The ability of the Company to
meet these liabilities and total liabilities of $ 10.6 Million
and to continue as a going concern is dependent upon the
availability of future funding, the successful completion of
its drilling projects (see Note 5), achieving profitable
timber operations (see Note 4) and consummation of its
acquisition of Clean Age Minerals.
As of the date of this report, certain of the Company's
subsidiaries are in default relative to certain debt
obligations.
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 proven reserves are found are
-7-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
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
proven developed leases are charged to income on the
units of production basis based upon total proved
reserves. The capitalized costs of these proven
developed leases are written down to their projected net
recoverable amount.
Costs of exploratory wells found to be dry during the
year or before the issuance of these financial
statements are charged against earnings in that year.
Costs of successful exploration wells and development
wells are capitalized. All costs of development wells
and successful exploration wells are charged to earnings
on a unit-of-production basis based upon proven
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
undiscounted 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.
-8-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
g. Debt Issue Costs
Debt issue costs as of March 31, 2000 and 1999,
represent those associated with the Heller Financial,
Inc. loan (see Note 9) and will be amortized over a
period of five years.
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. is being amortized over a three (3) year
period.
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.
-9-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
3. Oil and Gas and Equipment
<TABLE>
<CAPTION>
2000 1999
---- ----
<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 4,664,972 3,983,531
----------- -----------
$ 7,306,438 $ 8,789,931
=========== ===========
</TABLE>
4. 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 that 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 9).
5. 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.
-10-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
6. 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.
The 160,000 shares were to have been repurchased by the Company as of
August 22, 1999. (See Note 17, Litigation).
During fiscal 1998, the Company borrowed $145,000 from four (4)
persons. The debt was evidenced by Notes that 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 10(b)--Warrants).
7. Due to (from) Related Parties
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net due (from) to Amir and Erlich
Bearing interest at prime +3% $ 91,062 $ 91,062
Bearing interest at 7% 446,449 354,777
-------- --------
$537,511 $445,839
======== ========
</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.
8. Debentures
2000 1999
------- -------
8% Convertible $30,000 $30,000
------- -------
Debentures
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
-11-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
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 80,579 common shares during 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 ($1 0.171875), or (2) 75% of the
average closing bid price for the five trading days
immediately preceding the date of conversion. As of
March 31, 2000, $1,280,000 of the 8% debentures had been
converted into 981,322 common shares.
9. Debt
The 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 March 31, 1999, was $5,835,054.
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 due to the decrease in the
price for oil world wide. As a result, the full amount
of the Heller loan has been reclassified as current
debt.
-12-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
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, 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 remaining balance 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.
d. First Regional Bank
As of December 31, 1997, the Company assumed a $100,000
loan with First Regional Bank when it acquired Haly
Corporation. Interest is at 6.9% and the loan matures in
1999. The loan is secured by personal assets of an
officer of the Company.
10. Capital Stock
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES, NUMBER OF PREFERRED
PAR VALUE SHARES PAR VALUE
$0.01 PER SHARE $0.01 PER SHARE AMOUNT
--------------- --------------- ------
Authorized 20,000,000 10,000,000
---------- ----------
<S> <C> <C> <C>
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
Fractional Shares (46)
====
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 14,388,258
========= ====== ==========
Balance as of December 31, 1999 3,102,574 16,000 14,388,258
========= ====== ==========
</TABLE>
-13-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
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.
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
--------------------------------------------------------------------------
Outstanding and Exercisable
at beginning of year 35,000 700,000
--------------------------------------------------------------------------
Canceled 15,000 (350,000)
--------------------------------------------------------------------------
Granted 120,000 --
--------------------------------------------------------------------------
Exercised -- --
------- --------
--------------------------------------------------------------------------
Outstanding and Exercisable
at end of year 140,000 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.
-14-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
b. Common Stock Warrants
Common stock warrants outstanding at March 31, 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
------------------------------------------------------------------------------------------------------------------------------
Consulting Agreements May 8, 2001 to 160,000 $3.50
October 1, 2001
------------------------------------------------------------------------------------------------------------------------------
Consulting Agreement September 30, 2001 10,000 $10.00
------------------------------------------------------------------------------------------------------------------------------
8% Debenture Holders and September 11, 2001 to 186,470 $4.386 to
Placement Agents (I.) June 8, 2002 $10.81
------------------------------------------------------------------------------------------------------------------------------
$145,000 Loan November 20, 2003 263,638 $.55
------------------------------------------------------------------------------------------------------------------------------
</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.
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 period ended March 31,
2000. For the period ended March 31, 2000 and 1999 the
exercise of the options and warrants outstanding as at
year end did not have a dilutive effect on the net
income per share.
-15-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
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. 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.
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.
14. 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
-16-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
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.
The Company incurred $224,875 in costs to settle this litigation.
15. 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).
Mid Continent:
On March 27, 1998, but affective as of November 1, 1997,
Tri-Coastal Energy acquired in the States of Kansas and Oklahoma
consisting of 298 wells, 6,409 gross and 4,828 net acres. The purchase
price for the acquisition was $2,315,000. The purchase was funded by an
Amendment to the Heller Transaction, which increased the Heller
Transaction Loan Commitment to $19,000,000. An additional $2,294,397
was drawn down by Tri-Coastal at closing for development of the
Mid-Continent properties. In January 2000, the majority of these
properties were divested.
-17-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
16. Subsequent event
On December 18, 1998, an unaffiliated company agreed to purchase
1,848,566 shares of common stock for $9 Million. The Company has not
yet received the proceeds on this sale and no stock has been issued.
The Company is pursuing its options to seek performance under the terms
of the stock purchase agreement, to include filing a complaint in
Arbitration before the American Arbitration Association in
Philadelphia, Pennsylvania under the contracts dispute resolution
provisions.
17. Litigation
On January 14, 2000, Daniel Kane individually and his Trustee and
Stanley B. Kane individually and his Trustee commenced an action
against Daleco Resources Corporation, Dov Amir an individual and Louis
W. Erlich an individual to force the buyback provisions under the Loan
Conversion Agreement dated August 22, 1997. Specifically the Complaint
alleged that under the Loan Buyback Agreement, the Kanes conversion of
$800,000 in debt to equity (See Note 6, Notes Payable) was due on or
about August 22, 1999. Messrs. Amir and Erlich were sued in their
capacity as individual guarantors under the obligation, each of whom
was liable for repayment of one-half of the sum due and owing to the
Plaintiffs by Daleco Resources Corporation. On or about February 2000,
Mr. Amir satisfied his obligation to the Plaintiff's and was dismissed
from the case. The case is currently active in the Superior Court in
the Central District of California.
-18-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 (the
"Reform Act") provides a safe harbor for forward-looking
statements made by or on behalf of the Company. All
statements, other than statements of historical facts, which
address activities, event or developments that the Company
expects or anticipates will or may occur in the future,
including such things as the anticipated development of
revenues, acquisition of additional properties or the
obtaining of capital, business strategy, development trends in
the industry segments in which the Company is active,
expansion and growth of the Company's business and operations
and other such matters are forward-looking statements. To take
advantage of the safe harbor provisions provided by the Reform
Act, the Company is identifying certain factors that could
cause actual results to differ materially from those expressed
in any forward-looking statements, whether oral or written,
made by or on behalf of the Company. Many of these factors
have previously been identified in filings or statements made
by or on behalf of the Company.
All phases of the Company's operations are subject to
influences outside of the Company's control. Any one, or a
combination, of these factors could materially affect the
results of the Company's operations. These factors include:
competitive pressures, inflation, trade restrictions, interest
rate fluctuations and other capital market conditions,
weather, future and options trading in, and the availability
of natural resources and services from other sources.
Forward-looking statements are made by or on behalf of the
Company's knowledge of its business and the environment in
which it operates, but because of the factors listed above, as
well as other environmental factors over which the Company has
no control, actual results may differ from those in the
forward-looking statements. Consequently, all of the
forward-looking statements made are qualified in their
entirety by these cautionary statements and there can be no
assurance that the actual results or developments anticipated
by the Company will be realized or, even if substantially
realized, that they will have the expected effect on the
business and/or operations of the Company.
The Company's performance during its second fiscal Quarter
ended March 31, 2000, was influenced by a variety of factors:
-Oil prices improved during the quarter, which resulted
in a net gain from oil and gas operations. The Company,
like most domestic independents, is unable to influence
the price of oil. The announcements by OPEC of its
intent to reduce production and thus increase the
demand for oil on a worldwide basis should, if it
occurs, materially benefit the Company through the
resultant increase in oil pricing.
-19-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
-The Company's timber subsidiary, Sustainable Forest
Industries continues to attempt to market Guyana woods
domestically. To date, while there has been a
tremendous interest shown in the potential for Guyana
woods, especially in the railroad industry, no
substantial contracts have been obtained.
-On December 18, 1998, the Company entered into a
contract with Infinite Networks Corporation whereby the
Company agreed to sell 1, 848,566 shares of common
stock for $9 Million. This agreement has yet to be
consummated. The Company is pursuing its options to
seek performance under the terms of the stock purchase
agreement.
-The Company is investigating alternative funding
sources to near term acquisition capital needs.
With the end of the fiscal quarter ending March 31, 2000,
several elements which will affect the Company's future
economic performance improved. For example, the crude oil
prices received throughout the Company's operating areas began
to firm in response to output restriction put in place by the
OPEC nations. Early indications are that the crude price gains
experienced during the quarter will hold throughout the fiscal
year. In addition, natural gas prices have risen significantly
in response to market demand. These two price factors should
stabilize the Company's overall cash flow and operating
performance.
PART II. OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
None.
-20-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DALECO RESOURCES CORPORATION
Date: November 27, 2000 /s/ Gary J. Novinskie
--------------------------------------
Gary J. Novinskie
President
Date: November 27, 2000 /s/ Dov Amir
--------------------------------------
Dov Amir
Chairman of the Board of Directors and
Chief Executive Officer
-21-
