June 9, 2005
Mr. Gary J. Novinskie
Chief Financial Officer
Daleco Resources Corporation
120 North Church Street
West Chester, PA 19380
Re: Daleco Resources Corporation
Form 10-KSB/A for Fiscal Year Ended September 30, 2004
Filed February 3, 2005
Form 10-Q for Fiscal Quarter Ended March 31, 2005
Filed May 16, 2005
Response Letter Dated May 4, 2005
File No. 0-12214
Dear Mr. Novinskie:
We have reviewed your filings and response letter and have
the
following comments. We have limited our review of your filing to
those issues we have addressed in our comments. Where indicated,
we
think you should revise your document in response to these
comments.
If you disagree, we will consider your explanation as to why our
comment is inapplicable or a revision is unnecessary. Please
provide
a written response to our comments. Please be as detailed as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may raise
additional comments.
Form 10-KSB/A for the Fiscal Year Ended September 30, 2004
Financial Statements
Note 2D. Site Restoration, Dismantlement and Abandonment Costs,
page
48
1. We note your response to our prior comment one. It remains
unclear to us why you have not recognized any liabilities
associated
with your asset retirement obligations. Please address each of
the
following:
* You indicate that you have met various state bonding
requirements
dealing with "orphan well" situations. Please explain why this is
relevant to the determination of how to account for an asset
retirement obligation. Please note that providing assurance that
your company will be able to satisfy your asset retirement
obligations, does not satisfy or extinguish the related liability.
Please refer to paragraph 16 of SFAS 143.
* You indicate that you sell or dispose of properties with the
buyer
assuming the plugging and abandonment obligations. Tell us
whether
or not the negotiated sales price takes into account the asset
retirement obligations assumed by the buyer. We would expect that
the sales price would be reduced by the fair value of the asset
retirement obligations assumed. Please explain why this is
relevant
to your determination of whether or not a liability has been
incurred.
Based on the items noted above, it appears that you need to modify
your financial statements to reflect your asset retirement
obligations based on the guidance provided in SFAS 143.
Note 5 - Mineral Properties, page 50
2. As stated in our prior comment two, we noted your auditor has
provided an explanatory paragraph within their opinion that
further
states the Company "has uncertainty relative to full
recoverability
of its assets including Clean Age Minerals, Incorporated." We
have
reviewed your response and it continues to be unclear why your
auditor has included this explanatory paragraph. Please contact
us
regarding this matter at your earliest convenience.
3. We have reviewed your response to prior comment two. Please
clarify whether the cumulative projected cash flows included in
your
supplemental analysis are on a net basis (cash inflows less
associated cash outflows).
Note 6 - Patents and Technology, page 51
4. We note your response to our prior comment three. Based on the
denial of the patent, please explain why you did not believe the
value of this technology was impaired in 2003. Please provide us
with an understanding of how you were able to conclude the book
value
was not impaired at the date of the patent denial or thereafter.
5. We have reviewed your response to prior comment three. Support
your conclusion that the consideration given in exchange for your
technology at December 1, 2004 was of equivalent value and why you
believe this transaction should be accounted for as a "swap".
6. We note in your response that you state "no specific value
could
be placed on the PSNet securities" and that "no value was assigned
to
the warrant rights ... since they were priced significantly "out
of
the money". Explain why you were not able to determine the fair
value of the shares received but were able to determine that the
warrants were "out of the money". Additionally, explain why the
intrinsic value is relevant to determining the fair value of the
warrants received as a component of the consideration you received
for your technology assets.
Report of Independent Registered Public Accounting Firm on
Supplemental Financial Information, page 65
7. We note your response to our prior comment four. Please amend
your document to provide an audit opinion that clearly indicates
the
scope of information to which it opines.
Form 10-QSB for the Fiscal Quarter Ended March 31, 2005
Note 5 - Mineral Properties, page 12
8. It appears that the dates presented in your tabular
presentation
of your mineral properties are reversed. Please modify your
document
to clarify the periods associated with the balances.
Petroleum Engineering Comments
Description of Business, page 2
Proved Reserves, page 8
9. We note your response number nine. We are not convinced that
reserves can differ "substantially" and still meet the test of
"reasonable certainty." In future filings, replace that term and
replace it with disclosure comparable to what is contained in your
supplemental response. Provide examples of some of the reasons
why
estimates prepared by different engineers might vary.
Description of Properties, page 17
Texas, page 18
10. Regarding your response number ten, we do not agree that
anectodal evidence is sufficient reason for describing potential
oil
and gas production as significant. Absent confirming offsetting
production for your specific properties, you do not appear to have
sufficient basis to suggest that your properties will result in
"significant" production when they are developed. Please revise
this
disclosure in future filings.
Estimated Net Quantities of Proved Oil and Gas Reserves, page 69
11. Regarding your response number twelve, you state that a
significant portion of the negative revision was due to "business
based" changes or specifically, sales of producing properties that
you completed in the later part of 2002. If reserves are adjusted
for property acquisitions or property sales, these changes are to
be
reflected in those line items in the reserve reconciliation table
described in FASB 69. We do not believe that it is appropriate to
account for reserve changes due to property sales under revisions
of
reserves. Please revise your document to properly account for
reserve changes in the reserve reconciliation table. Regarding
the
other "production performance based" related reserve changes, you
should disclose these reasons for the material reduction in
reserves.
Please also include these descriptions of your reserve changes in
your revised document.
Mining Engineering Comments
General
12. The response to comment 14 in regard to the location and means
of
access to the mineral properties may be addressed by referencing a
nearby city or town, then providing general directions from that
location to the mine site, referencing major roads or other means
of
access. This may be prepared with the small map illustrating the
property location.
13. The response to comment 14 in regard to the brief description
of
the rock formations and mineralization of existing or potential
economic significance on the property may be addressed by a
general
description of the geologic environment at each deposit. The type
of
mineral deposit, how minerals of economic importance were
concentrated at this location, other associated rock types or
other
pertinent features affecting the project economics may be
described.
14. The response to comment 14 in regard to the source of power
may
be resolved by disclosing that a readily available source of
electric
power in not available on site and portable electric generators
must
be used.
15. The response to comment 17 describes the mineral reserves as
proved reserves. Industry Guide 7 only designates proven or
probable
reserves. Proved reserves are more appropriate for oil & gas
reserves. When reporting the reserves, disclose the cutoff grade
or
the quality component which is used to separate ore and waste.
This
is used to evaluate the potential of the mineral properties.
Disclose
the operating costs and recovery parameters used to determine the
cutoff grade estimate. Show that this calculation demonstrates
the
cutoff grade or the quality component used to define a mineral
resource has reasonable prospects for economic extraction. In
establishing the cut-off grade, it must realistically reflect the
location, deposit scale, continuity, assumed mining method,
metallurgical processes, costs, and reasonable metal prices.
Closing Comments
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
You may contact Kevin Stertzel at (202) 551- 3723, or Jill
Davis, Branch Chief, at (202) 551- 3683 if you have questions
regarding comments on the financial statements and related
matters.
You may contact James Murphy, Petroleum Engineer, at (202) 551-
3703
with questions about petroleum engineering comments. You may
contact
Ken Schuler, Mining Engineer, at (202) 551-3718 with questions
about
mining engineering comments. Please contact me at (202) 551- 3740
with any other questions.
Sincerely,
H. Roger Schwall
Assistant Director
cc: Mr. C. Warren Trainor
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Mr. Gary J. Novinskie
Daleco Resources Corporation
June 9, 2005
page 6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0405
DIVISION OF
CORPORATION FINANCE
MAIL STOP 04-05