UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q


(Mark
one)




x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For
the quarterly period ended March 31,
2010




o TRANSITION REPORT
PURSUANT TO 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


(Exact
name of registrant as specified in its charter)





Nevada
                (State
      or other jurisdiction of
                incorporation
      or organization)
              23-2860734
                (I.R.S.
      Employer
                Identification
      No.)





17
      Wilmont Mews, 5th
      Floor
                West Chester, Pennsylvania
      19382
                (Address
      of principal executive offices) (Zip Code)
              (610) 429-0181
                (Registrant’s
      telephone number
                including
      are code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).     Yes x    No
o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer o (Do
      not check if a smallerreporting
      company)
              Smaller
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes o    No
x




APPLICABLE
ONLY TO CORPORATE ISSUERS:


Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:




Number of
shares outstanding of the issuer's Common Stock as of April 30, 2010: 
45,418,668


Number of
shares outstanding of the issuer’s Series B Preferred Stock as of April 30,
2010:  145,000





DALECO
RESOURCES CORPORATION AND SUBSIDIARIES





TABLE
OF CONTENTS





PAGEPART
      I - FINANCIAL INFORMATIONITEM
      1.
                          CONSOLIDATED
      FINANCIAL STATEMENTSConsolidated
      Balance Sheets
                          3Consolidated
      Statements of Operations
                          5Consolidated
      Statements of Cash Flows
                          6Notes
      to Unaudited Consolidated Financial Statements
                          7ITEM
      2.
                          MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                          14ITEM
      3.
                          QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                          19ITEM
      4.
                          CONTROLS
      AND PROCEDURES
                          19ITEM
      4T.
                          CONTROLS
      AND PROCEDURES
                          20PART
      II - OTHER INFORMATIONITEM
      1.
                          LEGAL
      PROCEEDINGS
                          21ITEM 1A.
                          RISK
      FACTORS
                          21ITEM
      2.
                          UNREGISTERED
      SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
                          21ITEM
      3.
                          DEFAULTS
      UPON SENIOR SECURITIES
                          22ITEM
      4.
                          (Removed
      and Reserved)
                          22ITEM
      5.
                          OTHER
      INFORMATION
                          22ITEM
      6.
                          EXHIBITS
                          22SIGNATURES
                          23


-2-




PART
I – FINANCIAL INFORMATION





Item
1. Consolidated Financial Statements.





DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS









March 31
                  2010
                
                
                September 30
                  2009(Unaudited)ASSETSCurrent
      Assets:Cash
      and Equivalents
                
                $
                72,907
                
                
                $
                98,336Accounts
      Receivable
                
                
                328,327
                
                
                
                296,547Other
      Current Assets
                
                
                7,424
                
                
                
                7,424Total
      Current Assets
                
                
                408,658
                
                
                
                402,307Other
      Assets:Patent
      Rights
                
                
                6,594,500
                
                
                
                6,594,500Accumulated
      Amortization of Patent Rights
                
                
                (5,488,342
                )
                
                
                (5,199,616
                )Net
      Patent Rights
                
                
                1,106,158
                
                
                
                1,394,884Patents
      License Rights
                
                
                40,907
                
                
                
                -Prepaid
      Mineral Royalties
                
                
                449,717
                
                
                
                419,879Interest
      Receivable
                
                
                160,148
                
                
                
                150,814Restricted
      Cash Deposits
                
                
                109,389
                
                
                
                109,041Securities
      Available for Future Sale
                
                
                1,583
                
                
                
                1,583Total
      Other Assets
                
                
                1,867,902
                
                
                
                2,076,201Property,
      Plant and Equipment:Mineral
      Properties, at cost
                
                
                9,877,128
                
                
                
                9,877,128Accumulated
      Depreciation, Depletion and Amortization
                
                
                (95,000
                )
                
                
                (95,000
                )Net
      Mineral Properties
                
                
                9,782,128
                
                
                
                9,782,128Oil
      and Gas Properties, at cost
                
                
                4,424,512
                
                
                
                4,424,512Accumulated
      Depreciation, Depletion and Amortization
                
                
                (3,871,895
                )
                
                
                (3,806,195
                )Net
      Oil and Gas Properties
                
                
                552,617
                
                
                
                618,317Office
      Equipment, Furniture and Fixtures, at cost
                
                
                61,502
                
                
                
                79,902Accumulated
      Depreciation
                
                
                (53,191
                )
                
                
                (67,639
                )Net
      Office Equipment, Furniture and Fixtures
                
                
                8,311
                
                
                
                12,263Total
      Net Property, Plant and Equipment
                
                
                10,343,056
                
                
                
                10,412,708TOTAL
      ASSETS
                
                $
                12,619,616
                
                
                $
                12,891,216





SEE ACCOMPANYING NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS




-3-




DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





March 31
                  2010
                
                
                September 30
                  2009(Unaudited)LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      Payable
                
                $
                2,011,379
                
                
                $
                1,839,170Federal
      and State Income Taxes Payable
                
                
                284,595
                
                
                
                277,990Preferred
      Stock Dividends Payable
                
                
                1,799,736
                
                
                
                1,741,895Accrued
      Interest Expense
                
                
                746,963
                
                
                
                705,840Accrued
      Bonus Expense
                
                
                1,373,831
                
                
                
                1,373,831Accrued
      Salary Expense
                
                
                950,379
                
                
                
                944,441Accrued
      Expense Reimbursements
                
                
                24,990
                
                
                
                24,990EV&T
      Note Payable
                
                
                567,213
                
                
                
                567,213CAMI
      Notes Payable
                
                
                514,881
                
                
                
                514,881Notes
      Payable - Related Parties
                
                
                85,485
                
                
                
                45,485Premium
      Finance Note Payable
                
                
                13,266
                
                
                
                -Note
      Payable - First Regional Bank – Current Portion
                
                
                15,000
                
                
                
                15,000Total
      Current Liabilities
                
                
                8,387,718
                
                
                
                8,050,736Long-term
      Debt:Note
      Payable – First Regional Bank – Long-term Portion
                
                
                38,159
                
                
                
                45,6597.25%
      Convertible Debentures, net of unamortized discount of $12,029 at March
      31, 2010
                
                
                17,971
                
                
                
                -Total
      Long-term Debt
                
                
                56,130
                
                
                
                45,659TOTAL
      LIABILITIES
                
                
                8,443,848
                
                
                
                8,096,395SHAREHOLDERS’
      EQUITY:Preferred
      Stock – 20,000,000 shares authorizedSeries
      A Preferred Stock (outstanding: none)
                
                
                -
                
                
                
                -Series
      B 8% Cumulative Convertible Preferred Stock – par value of $0.01 per share
      (outstanding: 145,000
                  shares
      at March 31, 2010 and September 30, 2009)
                
                
                1,450
                
                
                
                1,450Common
      Stock – 100,000,000 shares authorized – par
                  value
      of $0.01 per share (outstanding: 45,418,668 and 45,100,811 shares at March
      31, 2010 and
                  September
      30, 2009, respectively)
                
                
                454,187
                
                
                
                451,008Additional
      Paid-in Capital
                
                
                45,529,503
                
                
                
                45,402,515Accumulated
      Deficit
                
                
                (41,229,255
                )
                
                
                (40,480,035
                )Subscriptions
      Receivable
                
                
                (576,000
                )
                
                
                (576,000
                )Accumulated
      Other Comprehensive Loss
                
                
                (4,117
                )
                
                
                (4,117
                )TOTAL
      SHAREHOLDERS’ EQUITY
                
                
                4,175,768
                
                
                
                4,794,821TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                
                $
                12,619,616
                
                
                $
                12,891,216





SEE
ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS


-4-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE THREE AND SIX MONTHS ENDED MARCH 31, 2010 AND 2009


(UNAUDITED)





Three Months Ended
                  March 31
                
                
                Six Months Ended
                  March 312010
                
                
                2009
                
                
                2010
                
                
                2009Revenues:Oil
      and Gas Sales
                
                $
                81,830
                
                
                $
                74,105
                
                
                $
                161,082
                
                
                $
                200,431Well
      Management Revenue
                
                
                66,146
                
                
                
                65,699
                
                
                
                132,294
                
                
                
                131,399Royalty
      Receipts
                
                
                1,353
                
                
                
                3,900
                
                
                
                3,153
                
                
                
                8,100Mineral
      Sales
                
                
                4,947
                
                
                
                1,208
                
                
                
                8,453
                
                
                
                3,625Total
      Operating Revenues
                
                
                154,276
                
                
                
                144,912
                
                
                
                304,982
                
                
                
                343,555Expenses:Lease
      Operating Expenses - Oil and Gas
                
                
                54,440
                
                
                
                67,743
                
                
                
                95,920
                
                
                
                107,799Operating
      Expenses and Other Costs - Minerals
                
                
                9,843
                
                
                
                18,113
                
                
                
                12,092
                
                
                
                37,372Production
      and Severance Taxes – Oil and Gas
                
                
                4,101
                
                
                
                4,604
                
                
                
                8,844
                
                
                
                12,274Depreciation,
      Depletion and Amortization
                
                
                178,856
                
                
                
                191,054
                
                
                
                358,378
                
                
                
                382,110General
      and Administrative Expenses
                
                
                206,324
                
                
                
                176,913
                
                
                
                389,287
                
                
                
                357,378Total
      Expenses
                
                
                453,564
                
                
                
                458,427
                
                
                
                864,521
                
                
                
                896,933Loss
      From Operations
                
                
                (299,288
                )
                
                
                (313,515
                )
                
                
                (559,539
                )
                
                
                (553,378
                )Other
      Income (Expense):Interest
      and Dividend Income
                
                
                4,927
                
                
                
                8,214
                
                
                
                10,022
                
                
                
                15,701Interest
      Expense
                
                
                (88,038
                )
                
                
                (50,656
                )
                
                
                (141,862
                )
                
                
                (102,571
                )Total
      Other Income (Expense),Net
                
                
                (83,111
                )
                
                
                (42,442
                )
                
                
                (131,840
                )
                
                
                (86,870
                )Loss
      Before Income Taxes
                
                
                (382,399
                )
                
                
                (355,957
                )
                
                
                (691,379
                )
                
                
                (640,248
                )Taxes
      Based on Income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      Loss
                
                
                (382,399
                )
                
                
                (355,957
                )
                
                
                (691,379
                )
                
                
                (640,248
                )Preferred
      Stock Dividends
                
                
                (28,603
                )
                
                
                (29,238
                )
                
                
                (57,841
                )
                
                
                (58,476
                )Net
      Loss Applicable to Common Shareholders
                
                $
                (411,002
                )
                
                $
                (385,195
                )
                
                $
                (749,220
                )
                
                $
                (698,724
                )Basic
      and Fully Diluted Net Loss per Share
                
                $
                (0.01
                )
                
                $
                (0.01
                )
                
                $
                (0.02
                )
                
                $
                (0.02
                )Weighted-average
      Number of Shares of Common Stock Outstanding
                
                
                45,327,120
                
                
                
                43,081,346
                
                
                
                45,212,722
                
                
                
                43,081,346





SEE
ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS


-5-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED MARCH 31, 2010 AND 2009


(UNAUDITED)





2010
                
                
                2009Cash
      Flows From Operating Activities:Net
      Loss
                
                $
                (691,379
                )
                
                $
                (640,248
                )Adjustments
      to Reconcile Net Loss to Net Cash Provided by (Used in) Operating
      Activities:Depreciation,
      Depletion and Amortization
                
                
                358,378
                
                
                
                382,110Stock-based
      Compensation Expense
                
                
                26,616
                
                
                
                44,928Amortization
      of Discount on 7.25% Convertible Debentures
                
                
                828
                
                
                
                -Non-cash
      Charge as Interest Expense
                
                
                19,787
                
                
                
                -Changes
      in Operating Assets and Liabilities:Receivables
                
                
                (41,114
                )
                
                
                213,887Prepaid
      Mineral Royalties
                
                
                (29,838
                )
                
                
                (30,000
                )Restricted
      Cash Deposits
                
                
                (348
                )
                
                
                (133
                )Accounts
      Payable
                
                
                172,209
                
                
                
                (370,495
                )Accrued
      Interest Expense
                
                
                41,123
                
                
                
                57,900Other
      Accrued Expenses
                
                
                12,543
                
                
                
                (20,274
                )Net
      Cash Used in Operating Activities
                
                
                (131,195
                )
                
                
                (362,325
                )Cash
      Flows From Financing Activities:Payments
      on Notes and Debt
                
                
                (17,930
                )
                
                
                (50,916
                )Proceeds
      from Borrowings
                
                
                123,696
                
                
                
                21,860Net
      Cash Provided By (Used In) Financing Activities
                
                
                105,766
                
                
                
                (29,056
                )Net
      Change in Cash and Equivalents
                
                
                (25,429
                )
                
                
                (391,381
                )Cash
      and Equivalents at Beginning of Year
                
                
                98,336
                
                
                
                472,912Cash
      and Equivalents at End of Period
                
                $
                72,907
                
                
                $
                81,531Supplemental
      Information:Income
      Taxes Paid
                
                $
                -
                
                
                $
                -Interest
      Paid
                
                $
                52,527
                
                
                $
                44,671Supplemental
      Disclosure of Non-cash Transactions:Preferred
      Dividends Accrued, Not Paid
                
                $
                57,841
                
                
                $
                58,476Issuance
      of Common Stock for Patents License Rights
                
                $
                40,907
                
                
                $
                -Conversion
      of 7.25% Convertible Debentures into Common Stock
                
                $
                30,000
                
                
                $
                -Interest
      Expense Resulting from Beneficial Conversion Feature of Convertible
      Debentures
                
                $
                19,787
                
                
                $
                -Discount
      on 7.25% Convertible Debentures Resulting from Beneficial Conversion
      Feature
                
                $
                12,857
                
                
                $
                -





SEE
ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS


-6-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED MARCH 31, 2010 AND 2009





1.
CONTINUED OPERATIONS AND GOING CONCERN





The unaudited consolidated financial
statements have been prepared on the basis of a going concern which contemplates
that Daleco Resources Corporation and subsidiaries (the “Company”) will be able
to realize assets and discharge liabilities in the normal course of business.
Accordingly, they do not give effect to adjustments that would be necessary
should the Company be required to liquidate its assets. The Company incurred a
net loss of $691,379 for the six months ended March 31, 2010. The ability of the
Company to meet its total liabilities of $8,443,848 at March 31, 2010 and to
continue as a going concern is dependent upon the availability of future
funding, achieving profitability within its mineral segment and ongoing
profitability within its oil and gas operations. If the Company is unable to
continue as a going concern, there is uncertainty relative to full
recoverability of its assets. The financial statements do not reflect any
adjustments relating to these uncertainties.





The Company continues to seek out and
entertain project specific funding commitments and other capital funding
alternatives if and as they become available.





As of March 31, 2010, the Company and
certain of its subsidiaries were in default of certain debt and other
obligations. The holders of these instruments are working with the Company to
achieve the ultimate extinguishment of the obligations.





2.
BASIS OF PRESENTATION




Description
of Business





Daleco Resources Corporation is a
Nevada corporation and its Articles provide for authorized capital stock of
100,000,000 shares of common stock and 20,000,000 shares of preferred stock. The
Company is a natural resources holding company whose subsidiaries are engaged in
(i) the exploration, development and production of oil and gas; (ii) the
exploration for naturally occurring minerals; (iii) the marketing and sales of
such minerals; and (iv) the marketing and sales of patented products and
processes utilizing the Company’s minerals.  The Company's assets
consist of two separate categories: oil and gas and non-metallic minerals. The
Company’s wholly-owned active subsidiaries include Westlands Resources
Corporation, Deven Resources, Inc., DRI Operating Company, Inc., Clean Age
Minerals, Inc. and CA Properties, Inc.





Clean Age Minerals, Inc., through its
subsidiary, CA Properties, Inc. (collectively “CAMI”), owns fee interests,
leasehold interests and federal mining claims containing non-metallic minerals
(kaolin and zeolite) in the states of New Mexico, Texas and Utah. CAMI is
presently engaged in the exploration for such minerals and intends to mine the
minerals through the use of contract miners and arrangements with its joint
venture partners. CAMI also owns the CA Series Patented Process which utilizes
many of the minerals owned by or under lease to CAMI for the cleansing,
decontamination and remediation of air, water and soils.





The Company, through its subsidiaries,
Westland Resources Corporation, DRI Operating Company and Deven Resources, Inc.,
owns and operates oil and gas properties in Texas and West Virginia. The Company
owns (a) working interests in wells in Texas and West Virginia and (b)
overriding royalty interests in (i) seventy wells in the Deerlick Coalbed
Methane Field in Alabama and (ii) two wells and undeveloped acreage in
Pennsylvania and (iii) one well in Texas.





During February 2010, the Company
entered into a License Agreement concerning two US method patents for the
treatment of wastewaters. Such patents utilize certain of the Company’s minerals
(zeolite).  The license applies to the US and covers the use of the
technology in water, wastewater and waste treatment in animal feed operations,
agriculture, and aquaculture. In addition, the license applies to the treatment
of sanitary wastewater on Federal facilities, military bases and lands
administered by the US Bureau of Indian Affairs.


-7-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED MARCH 31, 2010 AND 2009





Basis
of Presentation





The
unaudited consolidated financial statements included herein have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X.  Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. However, except as disclosed
herein, there has been no material changes in the information disclosed in the
notes to the consolidated financial statements included in the Company’s annual
report on Form 10-K for the fiscal year ended September 30, 2009. In the opinion
of management, all adjustments (including normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six months ended March 31, 2010 are not necessarily indicative of the results
that may be expected for any other interim period or the entire year. For
further information, these unaudited consolidated financial statements and the
related notes should be read in conjunction with the Company’s audited
consolidated financial statements for the fiscal year ended September 30, 2009,
included in the Company’s annual report on Form 10-K (“2009 Annual
Report”).





Unless
otherwise noted, references to “year” pertain to the Company’s fiscal year,
which begins on October 1 and ends on September 30; for example, 2010 refers to
fiscal 2010, which is the period from October 1, 2009 to September 30,
2010.





Certain
reclassifications have been made to prior period financial statements to conform
to the current period presentation.





Significant
Accounting Policies





There
were no changes to the Company’s Significant Accounting Policies from those
disclosed in its 2009 Annual Report.





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 as of 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.





Fair
Value Measurements





The
Company’s only financial instruments are (a) cash, securities available for
future sale, and short-term trade receivables, payables and debt, and (b) a
long-term note payable to a bank. The carrying amounts reported in the
accompanying consolidated financial statements for cash, securities available
for future sale, and short-term trade receivables, payables and debt approximate
fair values because of the immediate nature of short-term maturities of these
financial instruments. Based on the borrowing rates currently available to the
Company for long-term bank loans with similar terms and average maturities, the
carrying amount of long-term bank debt of $53,159 approximates fair value at
March 31, 2010.





Subsequent
Events





We have
evaluated subsequent events after the balance sheet date of March 31, 2010
through the date the financial statements were available to be filed with
the Securities and Exchange Commission (SEC). See Note 9 – Subsequent
Events.


-8-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED MARCH 31, 2010 AND 2009





New
Accounting Standards





In April
2010, the FASB issued Accounting Standards Update 2010-14, Accounting for Extractive
Activities—Oil & Gas: Amendments to Paragraph 932-10-S99-1. The ASU
adds to the Codification the SEC’s Regulation S-X Rule 4-10, Financial Accounting and Reporting
for Oil and Gas Producing Activities Pursuant to the Federal Securities Laws and
the Energy Policy and Conservation Act of 1975. This rule was included in
the SEC’s Final Rule, Modernization of Oil and Gas
Reporting, which was published in December 2008 and became effective
January 1, 2010.   The SEC’s Final Rule included rules and
interpretations updating its oil and gas reporting requirements. Many of the
revisions are updates to definitions in the existing oil and gas rules to make
them consistent with the Petroleum Resource Management System, which is a widely
accepted standard for the management of petroleum resources that was developed
by several industry organizations. Key revisions include the ability to include
nontraditional resources in reserves, the use of new technology for determining
reserves, permitting disclosure of probable and possible reserves, and changes
to the pricing used to determine reserves based on a 12-month average price
rather than a period end spot price. The average is to be calculated using the
first-day-of-the-month price for each of the 12 months that make up the
reporting period. The new rules are effective for annual reports for fiscal
years ending on or after December 31, 2009. Early adoption is not permitted.
These reporting requirements are effective for our annual report for the fiscal
year ending September 30, 2010. We are currently assessing the impact that the
adoption of the provisions of ASU 2010-14 will have on the consolidated
financial statements and disclosures.





In April
2010, the FASB issued Accounting Standards Update 2010-13, Compensation—Stock Compensation
(Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment
Award in the Currency of the Market in Which the Underlying Equity Security
Trades.ASU 2010-13 updates ASC 718 to codify the consensus
reached in EITF Issue No. 09-J, Effect of Denominating the Exercise
Price of a Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades.   The ASU clarifies
that share-based payment awards with an exercise price denominated in the
currency of a market in which a substantial portion of the underlying equity
security trades should not be considered to meet the criteria requiring
classification as a liability.   The updated guidance is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2010.  Early adoption is
permitted.   The provisions of ASU 2010-13 is not expected to
have an impact on the Company’s financial statements.





In March
2010, the FASB issued Accounting Standards Update 2010-11, Derivatives and Hedging (Topic 815):
Scope Exception Related to Embedded Credit Derivatives.  ASU
2010-11 clarifies and amends the accounting for credit derivatives embedded in
beneficial interests in securitized financial assets.  Currently,
certain credit derivative features embedded in beneficial interests in
securitized financial assets are not accounted for as
derivatives.  The new guidance will eliminate the scope exception for
embedded credit derivatives (except those that are created solely by
subordination) and provides new guidance on the evaluation to be
performed.   Bifurcation and separate recognition may be required
for certain beneficial interests that are currently not accounted for at fair
value through earnings.   The new guidance is effective at the
beginning of the first fiscal quarter beginning after June 15,
2010.  Early adoption is permitted at the beginning of each entity’s
first fiscal quarter beginning after March 5, 2010.   At
adoption, a company may make a one-time election to apply the fair value option
on an instrument-by-instrument basis for any beneficial interest in securitized
financial assets.   The Company is determining the impact that
ASU 2010-11 may have on its financial statements.





In
February 2010, the FASB issued Accounting Standards Update 2010-10, Consolidation (Topic 10): Amendments
for Certain Funds.  ASU 2010-10 defers the effective date of
certain amendments to the consolidation requirements of ASC Topic 810, Consolidation, resulting from
the issuance of FAS 167, Amendments to FASB Interpretation
No. 46(R).Specifically, the amendments to the consolidation requirements
of Topic 810 resulting from the issuance of FAS 167 are deferred for a reporting
entity’s interest in an entity (1) that has all the attributes of an investment
company; or (2) for which it is industry practice to apply measurement
principles for financial reporting purposes that are consistent with those
followed by investment companies.    The ASU does not defer
the disclosure requirements in FAS 167 amendments to Topic 810. The amendments
in this ASU are effective as of the beginning of a reporting entity's first
annual period that begins after November 15, 2009, and for interim for interim
periods within that first annual reporting period. Early application is not
permitted.  The provisions of ASU 2010-10 are not expected to have an
impact on the Company’s financial statements.


-9-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED MARCH 31, 2010 AND 2009





In
February 2010, the FASB issued Accounting Standards Update 2010-09, Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements. ASU
2010-09 removes the requirement for an SEC filer to disclose a date through
which subsequent events have been evaluated in both issued and revised financial
statements. Revised financial statements include financial statements revised as
a result of either correction of an error or retrospective application of U.S.
GAAP. The FASB also clarified that if the financial statements have been
revised, then an entity that is not an SEC filer should disclose both the date
that the financial statements were issued or available to be issued and the date
the revised financial statements were issued or available to be issued. The FASB
believes these amendments remove potential conflicts with the SEC’s
literature.  In addition, the amendments in the ASU requires an entity
that is a conduit bond obligor for conduit debt securities that are traded in a
public market to evaluate subsequent events through the date of issuance of its
financial statements and must disclose such date.  All of the
amendments in the ASU were effective upon issuance (February 24, 2010) except
for the use of the issued date for conduit debt obligors. That amendment is
effective for interim or annual periods ending after June 15,
2010.  The Company has adopted the provisions of ASU 2010-09 and noted
no material impact on the Company’s financial statements.





In
January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06,
Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. ASU 2010-06 amends Codification Subtopic 820-10 to add two
new disclosures: (1) transfers in and out of Level 1 and 2 measurements and the
reasons for the transfers, and (2) a gross presentation of activity within the
Level 3 roll forward. The proposal also includes clarifications to existing
disclosure requirements on the level of disaggregation and disclosures regarding
inputs and valuation techniques. The proposed guidance would apply to all
entities required to make disclosures about recurring and nonrecurring fair
value measurements. The effective date of the ASU is the first interim or annual
reporting period beginning after December 15, 2009, except for the gross
presentation of the Level 3 roll forward information, which is required for
annual reporting periods beginning after December 15, 2010 and for interim
reporting periods within those years.   Early application is
permitted.  The Company is currently assessing the impact that the
adoption will have on its financial statements.





In
January 2010, the FASB issued ASU No. 2010-03, Extractive Activities - Oil and Gas
(Topic 932): Oil and Gas Reserve Estimation and Disclosures. The FASB's
objective in issuing the ASU was to align the oil and gas reserve estimation and
disclosure requirements in ASC 932 with the requirements in the SEC final
rule,Modernization of Oil and
Gas Reporting.  The amendments to the Codification in this ASU
are designed to improve the reserve estimation and disclosure requirements of
Topic 932 by: (a)
updating the reserve estimation requirements for recent changes in practice and
technology; and (b)
expanding the disclosure requirements for equity method
investments.  ASU 2010-03 is effective for annual reporting periods
ending on or after December 31, 2009. Entities should apply the adoption of the
amendments as a change in accounting principle inseparable from a change in
estimate. The amendments in ASU 2010-03 specify the required disclosures for the
effect of adoption, and early adoption is not permitted. These reporting
requirements are effective for our annual report for the fiscal year ending
September 30, 2010.  The Company is currently assessing the impact
that the adoption will have on its financial statements.





3.
MINERAL PROPERTIES





The
Company is an exploration stage company in respect to its mineral
holdings.


-10-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED MARCH 31, 2010 AND 2009





During
October 2009, the Company entered into an agreement to sell zeolite to be used
in certain agricultural applications including but not limited to feed
supplements and soil additives in a ten state area in the south-central part of
the US.





During
February 2010, the Company entered into a License Agreement concerning two US
method patents for the treatment of wastewaters.  Such patents utilize
certain of the Company’s minerals (zeolite).The license applies to the US and
covers the use of the technology in water, wastewater and waste treatment in
animal feed operations, agriculture, and aquaculture. In addition, the license
applies to the treatment of sanitary wastewater on Federal facilities, military
bases and lands administered by the US Bureau of Indian Affairs. The Company
issued 140,000 shares of its Common Stock in consideration for the License
Agreement.  The Company recorded $40,907 as Patents License Rights
based on an average price of $0.29 per share.





In
December 2009, the proposed Sierra Kaolin Open Pit Clay Mine project cleared the
regulatory review process and the project’s definitive USDA Forest Service Plan
of Operations was approved. This will facilitate the project moving to the next
phases, including site preparation for extraction operations and the continued
evaluation of potential product specific marketing arrangements with certain
third parties.





4. PREMIUM FINANCE NOTE
PAYABLE





During
November 2009, the Company entered into a Premium Finance Note Payable for
$23,696 to finance certain insurance premiums.  The maturity date of
the note is October 1, 2010 and the interest rate is 11.2%. Consistent with the
provisions of the note, the Company has been making monthly payments of
principal and interest of $2,285. The balance of the Note at March 31, 2010 is
$13,266.





5.
NOTE PAYABLE TO RELATED PARTY





In January 2010, the
Company borrowed $40,000 from a Director. The note bears interest at prime plus
2 percent and is due on demand. The Company used the funds to satisfy certain
delinquent payables.





6.
7.25% CONVERTIBLE DEBENTURES





In June
2009, the Company commenced a private placement of up to $500,000 of 7.25%
Convertible Debentures (the “Debentures”). The Debentures are convertible at a
conversion price equal to the greater of either $0.14 per share or an amount
equal to 80% of the average of the closing bid and ask prices of the Common
Stock for the 5 trading days immediately preceding the conversion date. The
Debentures are five (5) year instruments maturing on July 30, 2014, bearing
interest at 7.25 % per annum on the balance outstanding from time to
time.  Interest commences to accrue immediately upon issuance of the
Debentures and will be paid quarterly on each September 30, December 31, March
31 and June 30 for which the Debentures are outstanding.  Payment of
principal will commence on September 30 following the second anniversary of the
closing date of the offering. The Company has extended the offering period for
the Debentures until June 30, 2010, at the request of potential investors. The
Company is utilizing the proceeds of this private placement for general working
capital purposes.





During
the six months ended March 31, 2010, the Company issued Debentures totaling
$60,000 of which two Directors purchased Debentures totaling $45,000.
Purchasers, including a Director, of $30,000 of the Debentures elected to
immediately convert such holdings into Common Stock and the Company issued
177,857 shares of Common Stock at an average conversion price of $0.17 per
share. The Company recognized $19,787 as interest expense resulting from the
beneficial conversion feature of the Debentures. Such interest expense was
determined based on the fair value of the Company’s Common Stock in excess of
the conversion price per share as of the commitment date to purchase the
Debentures.


-11-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED MARCH 31, 2010 AND 2009





Debentures
held by a Director totaling $30,000 are outstanding at March 31, 2010. The
Company recorded a discount of $12,857 on the Debentures resulting from the
beneficial conversion feature. The discount will be amortized through the
maturity date of the Debentures. Such discount was determined based on the fair
value of the Company’s Common Stock in excess of the conversion price per share
as of the commitment date to purchase the Debentures. During the three and six
months ended March 31, 2010, the Company recognized $549 and $597 of contractual
coupon interest, respectively, and $685 and $828 of amortization of the
discount, respectively, and such amounts are included in interest expense. The
effective interest rate for the six months ended March 31, 2010 was 17%. The
if-converted value of the Debentures at March 31, 2010 exceeds the principal
amount of the Debentures by $7,500.





7.
CAPITAL STOCK





Common
Stock





Shares of
Common Stock issued during the six months ended March 31, 2010 totaled 317,857
as discussed in Notes 3 and 6.





Series
B 8% Cumulative Convertible Preferred Stock





No shares
of Series B Preferred Stock were issued or converted to Common Stock during the
six months ended March 31, 2010.





Options
and Warrants to Purchase Common Stock





Number of
                    Options and
                    Warrants
                  
                  
                  Weighted
                    Average Price
                    per
      ShareOptions
      and Warrants Outstanding at September 30, 2009
                  
                  
                  1,609,805
                  
                  
                  $
                  0.51Options
      Granted
                  
                  
                  1,200,000
                  
                  
                  $
                  0.21Options
      Expired
                  
                  
                  (187,500
                  )
                  
                  $
                  0.47Options
      and Warrants Outstanding at March 31, 2010
                  
                  
                  2,622,305
                  
                  
                  $
                  0.38





Summarized
information relating to the stock options to purchase Common Stock outstanding
as of March 31, 2010, is as follows:





Options Outstanding
                    
                    
                    Options ExercisableExercise
                      Price per
                      Share
                    
                    Number of
                      Shares
                      Underlying
                      Options
                      Unexercised
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                      Per Share
                    
                    
                    Weighted
                      Average
                      Remaining
                      Life
                      (Years)
                    
                    
                    Number of
                      Shares
                      Underlying
                      Options
                      Exercisable
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price Per
                      Share$0.21-$0.67
                    
                    
                    1,800,000
                    
                    
                    $
                    0.30
                    
                    
                    
                    3.67
                    
                    
                    
                    550,000
                    
                    
                    $
                    0.49





Stock-based
Compensation





During
the six months ended March 31, 2010, options to purchase 1,200,000 shares of
Common Stock were granted and options to purchase 187,500 shares of Common Stock
expired unexercised. There are options to purchase 1,800,000 shares of Common
Stock outstanding as of March 31, 2010 and all options are held by current
officers, Directors and employees of the Company (“Insiders”).  The
exercise prices for the options held by Insiders range from $0.21 per share to
$0.67 per share.





In accordance with FASB ASC Topic
718, Compensation – Stock
Compensation, the Company recorded stock-based compensation expense for
the six months ended March 31, 2010 and 2009 of $26,616 and $44,928,
respectively, relating to stock options granted to Insiders. Such expense is
included in General and Administrative Expenses. No tax benefit has been
recognized. Compensation costs are based on the fair value at the grant
date.  The fair value of the options has been estimated by using the
Black-Scholes option-pricing model with the following assumptions: risk free
interest rates between 2.43% and 4.16%; expected life of three to seven years;
and expected volatility between 37% and 106%.


-12-


DALECO
RESOURCES CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED MARCH 31, 2010 AND 2009





Net
Income (Loss) Per Share





Net
income (loss) per share is computed in accordance with FASB ASC Topic 260, Earnings per Share. Basic net
income (loss) per share is calculated by dividing the net income (loss)
available to common stockholders by the weighted average number of shares
outstanding during the year. Diluted earnings per share reflect the potential
dilution of securities that could share in earnings of an entity. In a loss
year, dilutive common equivalent shares are excluded from the loss per share
calculation as the effect would be anti-dilutive.





Options
and warrants to purchase shares of Common Stock were outstanding during the
periods but have not been included in the computation of diluted earnings per
share because such shares would have an anti-dilutive effect on net loss per
share. The shares of Common Stock issuable upon the conversion of the 7.25%
Convertible Debentures (see Note 6) have not been included in the computation of
diluted earnings per share because such shares would have an anti-dilutive
effect on net loss per share. No other adjustments were made for purposes of per
share calculations.





Payment
of Accrued Dividends





There
were no cash dividend payments in respect to either series of Preferred Stock
during the six months ended March 31, 2010 and 2009.





8.
PENDING LITIGATION





During
October 2009, a working interest owner commenced an action against a subsidiary
of the Company in the District Court of Burleson County, Texas, for an
accounting of expense and revenues for six wells.  The subsidiary,
through its Texas counsel, has filed a general denial of the
claim.  In November 2009, such subsidiary provided the plaintiff with
a complete accounting for all wells in question. The plaintiff has not responded
to the documents and information provided to it. This action is still
ongoing.





9.
SUBSEQUENT EVENTS





The
Company has evaluated subsequent events for recognition or disclosure in the
financial statements filed on Form 10-Q with the SEC and no event has occurred
that requires disclosure.


-13-


Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.





FORWARD
LOOKING STATEMENTS





This
Quarterly Report on Form 10-Q contains forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.





The
following discussion is intended to inform existing and potential security
holders generally of some of the risks and uncertainties that can affect the
Company and to take advantage of the “safe harbor” protection for
forward-looking statements afforded under Federal securities
laws.  From time to time, management or persons acting on the
Company’s behalf make forward-looking statements to inform existing and
potential security holders about the Company.  Forward-looking
statements are generally accompanied by words such as “estimate,” “project,”
“predict,” “believe,” “expect,” “anticipate,” “plan” or other words that convey
the uncertainty of future events or outcomes.





Except
for statements of historical or present facts, all other statements contained in
this report are forward-looking statements.  The forward-looking
statements may appear in a number of places and include statements with respect
to, among other things,  business objectives and strategic plans;
operating strategies; acquisition strategies; drilling of wells; oil and gas
reserve estimates (including estimates of future net revenues associated with
such reserves and the present value of such future net revenues); estimates of
future production of oil, natural gas and minerals; expected results or benefits
associated with recent acquisitions; marketing of oil, gas and minerals;
expected future revenues and earnings, and results of operations; future
capital, development and exploration expenditures; expectations regarding cash
flow and future borrowings sufficient to fund ongoing operations and debt
service, capital expenditures and working capital requirements; nonpayment of
dividends; expectations regarding competition; impact of the adoption of new
accounting standards and the Company’s financial and accounting systems; and
effectiveness of the Company’s control over financial reporting.





These
statements by their very nature are subject to certain risks, uncertainties and
assumptions and will be influenced by various factors.  Should any of
the assumptions underlying a forward-looking statement prove incorrect, actual
results could vary substantially.





Various
risk factors could cause actual results to differ materially from those
expressed in forward-looking statements, including, without limitation, the
following:





·
            volatility
      of the market price for both crude oil and natural
  gas;


·
            volatility
      of the market price for the Company’s
minerals;


·
            market
      capacity and demand for the Company’s
minerals;


·
            the
      timing, effects and success of the Company’s acquisitions, exploration and
      development activities;


·
            the
      timing, quantity and marketability of
  production;


·
            effectiveness
      of management’s strategies and
decisions;


·
            competition;


·
            changes
      in the legal and/or regulatory environment and/or changes in accounting
      standards;


·
            policies
      and practices or related interpretations by auditors and/or regulatory
      agencies;


·
            climatic
      conditions; and


·
            unanticipated
      problems, issues or events.





Many, if
not all, of these factors are beyond the Company’s control and are impossible to
predict.  These factors are not intended to represent an exhaustive
list of the general or specific facts or factors that may affect the
Company.


-14-





All
forward-looking statements speak only as of the date made.  All
subsequent forward-looking statements are expressly qualified in their entirety
by the cautionary statements above.  Except as may be required by law,
the Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the forward-looking
statement is made or to reflect the occurrence (or non-occurrence) of
anticipated or unanticipated events or circumstances.





RESULTS
OF OPERATIONS





For
the three and six months ended March 31, 2010 and 2009:





Three Months Ended
                    
                    
                    Six Months Ended2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Revenues
                    
                    $
                    154,276
                    
                    
                    $
                    144,912
                    
                    
                    $
                    304,982
                    
                    
                    $
                    343,555Net
      Loss
                    
                    $
                    (382,399
                    )
                    
                    $
                    (355,957
                    )
                    
                    $
                    (691,379
                    )
                    
                    $
                    (640,248
                    )Oil
      and Gas Production and Cost Information:Production:Oil
      (Bbl)
                    
                    
                    406
                    
                    
                    
                    791
                    
                    
                    
                    901
                    
                    
                    
                    1,809Gas
      (Mcf)
                    
                    
                    8,027
                    
                    
                    
                    9,141
                    
                    
                    
                    15,852
                    
                    
                    
                    18,167Average
      Price:Oil
      (per Bbl)
                    
                    $
                    76.70
                    
                    
                    $
                    40.18
                    
                    
                    $
                    74.65
                    
                    
                    $
                    50.17Gas
      (per Mcf)
                    
                    $
                    6.31
                    
                    
                    $
                    4.63
                    
                    
                    $
                    5.92
                    
                    
                    $
                    6.04Mcfe
                    
                    $
                    7.82
                    
                    
                    $
                    5.34
                    
                    
                    $
                    7.58
                    
                    
                    $
                    6.91Lease
      Operating Expenses and Production and Severance Taxes per
    Mcfe
                    
                    $
                    5.60
                    
                    
                    $
                    5.21
                    
                    
                    $
                    4.93
                    
                    
                    $
                    4.14





Bbl   =
One barrel of oil or condensate


Mcf   =
One thousand cubic feet


Mcfe =
One thousand cubic feet gas equivalent





OIL
AND GAS OPERATIONS





Oil
and Gas Sales





Oil and
Gas Sales increased to $81,830 for the three months ended March 31, 2010 from
$74,105 for three months ended March 31, 2009. Oil and Gas Sales decreased to
$161,082 for the six months ended March 31, 2010 from $200,431 for six months
ended March 31, 2009. The decrease in oil and gas production experienced during
the six months ended March 31, 2010 is primarily a result of wells being
“off-line” for repair and declines in the producing gas-oil ratio from certain
producing wells operated by the Company in Texas.





Well
Management Revenue





Well
Management Revenue increased to $66,146 for the three months ended March 31,
2010 from $65,699 for three months ended March 31, 2009. Well Management Revenue
increased to $132,294 for the six months ended March 31, 2010 from $131,399 for
six months ended March 31, 2009





Lease
Operating Expenses and Production and Severance Taxes





Lease
Operating Expenses and Production and Severance Taxes decreased to $58,541 for
the three months ended March 31, 2010 from $72,347 for three months ended March
31, 2009. Lease Operating Expenses and Production and Severance Taxes decreased
to $104,764 for the six months ended March 31, 2010 from $120,073 for six months
ended March 31, 2009. The increase in Lease Operating Expenses and Production
and Severance Taxes per Mcfe is primarily the result of the decrease in
production of oil and gas.


-15-


Depreciation,
Depletion and Amortization: Oil and Gas





Depreciation,
depletion and amortization totaled $32,850 and $44,850 for the three months
ended March 31, 2010 and 2009, respectively. Depreciation, depletion and
amortization totaled $65,700 and $89,700 for the six months ended March 31, 2010
and 2009, respectively. Such decrease is primarily the result of the decrease in
production of oil and gas.





MINERALS
OPERATIONS





The
Company is an Exploration Stage company in respect to its mineral
holdings.  In December 2009, the proposed Sierra Kaolin Open Pit Clay
Mine project cleared the regulatory review process and the project’s definitive
USDA Forest Service Plan of Operations was approved. This will facilitate the
project moving to the next phases, including site preparation for extraction
operations and the continued evaluation of potential product specific marketing
arrangements with certain third parties.





Minerals
Sales





Minerals
sales totaled $4,947 and $1,208 during the three months ended March 31, 2010 and
2009, respectively. Minerals sales totaled $8,453 and $3,625 during the six
months ended March 31, 2010 and 2009, respectively. During October 2009, the
Company entered into an agreement to sell zeolite to be used in certain
agricultural applications including but not limited to feed supplements and soil
additives in a ten state area in the south-central part of the US. The Company
made initial shipments during the six months ended March 31, 2010.





During
February 2010, the Company entered into a License Agreement concerning two US
method patents for the treatment of wastewaters.  The license applies
to the US and covers the use of the technology in water, wastewater and waste
treatment in animal feed operations, agriculture, and aquaculture. In addition,
the license applies to the treatment of sanitary wastewater on Federal
facilities, military bases and lands administered by the US Bureau of Indian
Affairs.





Minerals
Exploration Expenses





The
Company did not incur minerals exploration expenses during the six months ended
March 31, 2010 and 2009. These expenses are primarily for costs associated with
the exploration and quantification of mineral resources and mineral reserves.
Such expenses related to the kaolin reserves were the responsibility of the
Company’s partner.





Minerals
Operating Expenses and Other Costs





Minerals
operating expenses and other costs totaled $9,843 and $18,113 for the three
months ended March 31, 2010 and 2009, respectively. Minerals operating expenses
and other costs totaled $12,092 and $37,372 for the six months ended March 31,
2010 and 2009, respectively. The decrease is primarily attributable to the
Company incurring no expenses related to its calcium carbonate minerals in the
six months ended March 31, 2010. During the fiscal 2009, the Company determined
that additional efforts to develop its calcium carbonate minerals in New Mexico
were no longer warranted.





Depreciation,
Depletion and Amortization: Minerals





Depreciation,
depletion and amortization totaled $144,363 and $144,563 for the three months
ended March 31, 2010 and 2009, respectively. Such amounts include amortization
of Patent Rights of $144,363 and $144,363 in the three months ended March 31,
2010 and 2009, respectively.





Depreciation,
depletion and amortization totaled $289,393 and $289,126 for the six months
ended March 31, 2010 and 2009, respectively. Such amounts include amortization
of Patent Rights of $288,726 and $288,726 in the six months ended March 31, 2010
and 2009, respectively.


-16-


DEPRECIATION
AND AMORTIZATION: OTHER





Depreciation
and amortization not identified with the minerals or oil and gas segments
totaled $1,643 and $1,641 for the three months ended March 31, 2010 and 2009,
respectively. Such depreciation and amortization totaled $3,285 and $3,284 for
the six months ended March 31, 2010 and 2009, respectively.





GENERAL
AND ADMINISTRATIVE EXPENSES





General
and administrative expenses totaled $206,324 and $176,913 for the three months
ended March 31, 2010 and 2009, respectively.  The Company recorded
stock-based compensation expense of $17,197 and $22,464 for the three months
ended March 31, 2010 and 2009, respectively.





General
and administrative expenses totaled $389,287 and $357,378 for the six months
ended March 31, 2010 and 2009, respectively.  The Company recorded
stock-based compensation expense of $26,616 and $44,928 for the six months ended
March 31, 2010 and 2009, respectively.





INTEREST
EXPENSE





Interest
expense totaled $88,038 and $50,656 for the three months ended March 31, 2010
and 2009, respectively. During the three months ended March 31, 2010, the
Company recognized $549 of contractual coupon interest and $685 of amortization
of the discount relating to the 7.25% Convertible Debentures. During the three
months ended March 31, 2010, the Company recognized $19,787 as interest expense
resulting from the beneficial conversion feature of the Debentures.





Interest
expense totaled $141,862 and $102,571 for the six months ended March 31, 2010
and 2009, respectively. During the six months ended March 31, 2010, the Company
recognized $597 of contractual coupon interest and $828 of amortization of the
discount relating to the 7.25% Convertible Debentures. During the six months
ended March 31, 2010, the Company recognized $19,787 as interest expense
resulting from the beneficial conversion feature of the Debentures.





The 7.25%
Convertible Debentures are discussed in Note 6 of the Notes to Unaudited
Consolidated Financial Statements.





LIQUIDITY
AND CAPITAL RESOURCES





The
Company’s cash flow used in operating activities was $131,195 and $362,325 for
the six months ended March 31, 2010 and 2009, respectively. Funds have been and
are being deployed in efforts to enhance the commercial viability of the
Company’s existing resource assets, to identify potential expansion
opportunities and to retire obligations associated with the Company’s assets.
The Company’s net cash at March 31, 2010 was $72,907.





Liquidity
is a measure of a Company’s ability to access cash.  The Company has
historically addressed its long-term liquidity requirements through the issuance
of equity securities and borrowings or debt financing for certain
activities.





At
present, the Company does not have in place a credit facility or other line of
credit upon which it may draw. As operating activities increase, the Company
will evaluate the need for such a credit facility.   For desired
acquisitions or project enhancements, the Company must seek project specific
financing.  None of the Company’s properties are
encumbered.





The
prices the Company receives for its oil and gas and the level of production have
a significant impact on the Company’s cash flows.  The Company is
unable to predict, with any degree of certainty the prices the Company will
receive for its future oil and gas production and the success of the Company’s
exploration, exploitation and production activities.  Increases in the
sales of the Company’s minerals, which to date have not been mined in
substantial commercial quantities, will also affect cash flow.


-17-


In an
effort to address the liquidity shortfall, the Company has instituted cost
containment procedures including staff decreases, sold certain of its oil and
gas properties, and is evaluating the sale of certain additional oil and gas
properties. It may take months and possibly longer to sell these properties at a
suitable price. The market is affected by many factors, such as general economic
conditions, availability of financing, interest rates and other factors,
including supply and demand that are beyond our control. We cannot predict
whether we will be able to sell a property for the price or on terms acceptable
to us or whether any price or other terms offered by a prospective purchaser
would be acceptable to us. We cannot predict the length of time needed to find a
willing purchaser and to close the sale of any property.





In March
2008, the Company entered into an agreement to sell its interests in certain
operated gas wells and related gas gathering system in West Virginia with cash
consideration to the Company of $150,000 of which $100,000 was received in April
2008. In May 2008, the Company sold its interests in certain oil and gas
properties (primarily undeveloped acreage) in Pennsylvania for
$250,000.





During
June 2009, the Company offered a Private Placement under the provisions of
Regulation D promulgated under the Securities Act of 1933, as amended (the “2009
Private Placement”). Private Placement consists of up to Five Hundred Thousand
Dollars ($500,000) of 7.25% Convertible Debentures (“Debentures” or
“Debenture”).  The Debentures offered by the Company, are five (5)
year instruments maturing on July 30, 2014, bearing interest at seven and one
quarter percent (7.25 %) per annum on the balance outstanding from time to
time.  Interest will commence to accrue immediately upon issuance of
the Debentures and will be paid quarterly on each September 30, December 31,
March 31 and June 30, which the Debentures are outstanding.  Payment
of principal will commence on September 30 following the second anniversary of
the Closing Date of this Offering.  The Company extended the offering
period for the Debentures until June 30, 2010 at the request of potential
investors. Through March 31, 2010, this private placement raised $188,500 (net
of fees and expenses) for the Company. The Company is utilizing the proceeds of
this private placement for general working capital purposes.





In
January 2010, the Company borrowed $40,000 from a Director which the Company
used to satisfy certain delinquent payables.





In May
2010, the Company borrowed $20,000 from a Director which the Company used to
satisfy certain delinquent payables.





COMMERCIALIZATION
OF MINERAL ASSETS





During
fiscal 2009, the Company determined that additional efforts to develop its
calcium carbonate minerals in New Mexico were no longer warranted. The Company
is continuing to pursue plans to commercialize its kaolin and zeolite deposits
which are critical for the Company to achieve profitability and establishing the
Company as a market innovator in industrial minerals. Those plans have
progressed from the data acquisition and analysis phase into ongoing mineral
processing and facility design phase. The Company and its current partner and
potential other partners are actively investigating various commercial
applications for its mineral based products. The Company continues to focus on
establishing business and or financial relationships that will provide the
necessary capital to effectively exploit its kaolin and zeolite mineral resource
holdings.  With respect to the Company’s zeolite deposit, certain
initial small scale tests have progressed to the point where larger scalable
pilot tests of commercial applications are to be initiated.





Zeolite





During
October, 2009, the Company entered into an agreement to sell zeolite to be used
in certain agricultural applications including but not limited to feed
supplements and soil additives in a ten state area in the south-central part of
the US. The Company made initial shipments during the six months ended March 31,
2010.





During
February 2010, the Company entered into a License Agreement concerning two US
method patents for the treatment of wastewaters. Such patents utilize certain of
the Company’s minerals (zeolite).The license applies to the US and covers the
use of the technology in water, wastewater and waste treatment in animal feed
operations, agriculture, and aquaculture. In addition, the license applies to
the treatment of sanitary wastewater on Federal facilities, military bases and
lands administered by the US Bureau of Indian Affairs. The Company issued
140,000 shares of its Common Stock in consideration for the License
Agreement.  The Company recorded $40,907 as Patents License Rights
based on an average price of $0.29 per share.


-18-


Kaolin





The
efforts of the Company and Tecumseh Professional Associates LLC to evaluate the
Sierra Kaolin deposit are progressing. The venture’s efforts to commercialize
the Sierra Kaolin deposit have focused on an initial target area encompassing
approximately 32 acres out of the project’s 2,740 acres. The test minerals
extracted from the target area have been processed into product formulations
determined by independent consultants to be suitable for coatings, fillers and
pigments for use within the paint and paper manufacturing industries. The
analysis results of the processed minerals with respect to its physical
properties such as but not limited to, brightness, color, opacity, oil
absorption have indicated that commercially viable products can be produced from
the deposit’s extracted minerals.





The
venture, with the assistance of its consultants, has begun technical
presentations of the product formulations to entities active on both the demand
and supply sides of the coatings, fillers and pigments sectors of the paint and
paper industries. Preliminary feedback from these initial presentations has been
encouraging and has led to follow-up discussions and submission of product
samples for prospective application testing. The final results of these
inquiries and testing are expected over the next several months. Tecumseh, as
the project’s manager, is proceeding with its efforts to prepare the mineral
deposit site for production. In December 2009, the proposed Sierra Kaolin Open
Pit Clay Mine project cleared the regulatory review process and the project’s
definitive USDA Forest Service Plan of Operations was approved. This extraction
permit will facilitate the project moving to the next phases, including site
preparation for extraction operations and the continued evaluation of potential
product specific marketing arrangements with certain third parties.





OFF-BALANCE
SHEET ARRANGEMENTS





The
Company has no “off-balance sheet arrangements” and does not expect to enter
into any such arrangements in the foreseeable future.





NEW
ACCOUNTING STANDARDS





For
details of applicable new accounting standards, please, refer to Note 2 of the
Notes to Unaudited Consolidated Financial Statements.





Item
3. Quantitative and Qualitative Disclosures About Market
Risk.





None.





Item
4. Controls and Procedures.





(a) Evaluation of Disclosure Controls
and Procedures. As of the end of the period covered by this Quarterly
Report on Form 10-Q, our Interim Chief Executive Officer/President/Chief
Financial Officer evaluated, with the participation of management, the
effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)). Based upon this evaluation, our Interim Chief
Executive Officer/President/Chief Financial Officer has concluded that our
disclosure controls and procedures were effective as of March 31, 2010 to ensure
that information required to be disclosed in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms.





On March 31, 2010, the Company had two
employees and engaged the Chief Accounting Officer on a consulting
basis.  All day-to-day financial matters are overseen by the Interim
Chief Executive Officer/President/Chief Financial Officer with oversight by the
Board of Directors.  All contracting by the Company, for other than
everyday items, is done with the approval of the entire Board of
Directors.


-19-


In light of the size of the Company,
its limited cash flow and the transparency of its actions, the Company has
instituted a limited number of formal controls and procedures in addition to
those required under the Sarbanes Oxley Act of 2002 related to the composition
of its Board of Directors and the establishment of various Board Committees.
These policies include an Employee Manual outlining procedures relating but not
limited to employee dispute resolution and issues related to “controlled
substances” and policies in handling the recordation and transfer of funds. Any
problem which cannot be resolved internally or which an employee does not desire
to discuss with a superior may be discussed with counsel or an independent
member of the Board of Directors.




The Interim Chief Executive
Officer/President/Chief Financial Officer, with the assistance of the Audit
Committee, established, consistent with the provisions of Rule 13a-15(f) and
Rule 15d-15(f) of the '34 Act, a procedure and check list for the filing of all
information and reports required by the Securities and Exchange Act of 1934, as
amended and the Sarbanes-Oxley Act ("SOX"). Since the Company employs only two
people, as of the filing date, the Company's Interim Chief Executive
Officer/President/Chief Financial Officer is responsible for reporting and
filing reports. In addition to the mandatory filing requirements established by
the Securities and Exchange Commission, OTC:BB (the exchange on which the
Registrant's stock is traded) and SOX, the Registrant has taken the position
that any transaction that could impact the value of the Company or the Company's
stock by five percent or greater requires disclosure. All press releases are
published by the Company only after submittal to the Board of Directors and
counsel for review, comment and approval.





The Company's internal controls over
financial reporting and record maintenance have been developed by the Company as
approved by the Board of Directors.  These procedures are for the
detailed and accurate recordation of all transactions in which the Company is
involved and the disposition of assets. They provide reasonable assurance that
the transactions recorded permit the accurate preparation of financial
statements in accordance with generally accepted accounting principals and that
receipt and expenditures of the Company are being made only in accordance with
authorization of management.  The controls provide reasonable
assurances regarding the prevention and timely detection of unauthorized use of
Company assets and acquisition or disposition of the Company's assets that could
have a material effect on the Company's financial statements.





(b) Changes in Internal Control Over
Financial Reporting. No changes were made to our internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.





Code
of Ethics





The Board of Directors of the Company
has adopted a Code of Ethics (see Exhibit 14.1to the Company’s Annual
Report on Form 10-KSB for the fiscal year ended September 30, 2007)for
all of the Company's employees, officers and Directors.  Each officer
and Director of the Company annually affirms that he has read the Company’s Code
of Ethics and agrees to be bound thereby.





Item
4T. Controls and Procedures.





See Item
4 above.


-20-


PART
II. OTHER INFORMATION





Item
1. Legal Proceedings.





None





Item
1A. Risk Factors.





Not
required for smaller reporting companies.





Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.





June
2009 Private Placement





During June 2009, the
Company offered a Private Placement under the provisions of Regulation D
promulgated under the Securities Act of 1933, as amended (the “2009 Private
Placement”). Private Placement consists of up to Five Hundred Thousand Dollars
($500,000) of 7.25% Convertible Debentures (“Debentures” or
“Debenture”).  The Debentures offered by the Company, are five (5)
year instruments maturing on July 30, 2014, bearing interest at seven and one
quarter percent (7.25 %) per annum on the balance outstanding from time to
time.  Interest will commence to accrue immediately upon issuance of
the Debentures and will be paid quarterly on each September 30, December 31,
March 31 and June 30, which the Debentures are outstanding.  Payment
of principal will commence on September 30 following the second anniversary of
the Closing Date of this Offering. The debentures are convertible at a
conversion price equal to the greater of either $0.14 per share or an amount
equal to 80% of the average of the closing bid and ask prices of the Common
Stock for the 5 trading days immediately preceding the conversion
date.  The Company extended the offering period for the Debentures
until June 30, 2010 at the request of potential investors. Through March 31,
2010, this private placement raised $188,500 (net of fees and expenses) for the
Company. The Company is utilizing the proceeds of this private placement for
general working capital purposes.





Through
September 30, 2009, all of the purchasers of the Debentures elected to
immediately convert such holdings into shares of Common Stock at an average
conversion price of $0.14 per share and, accordingly, the Company has issued
1,019,465 shares of Common Stock. As of September 30, 2009, this private
placement had raised $128,500 (net of fees and expenses totaling $14,225) for
the Company.





During
the six months ended March 31, 2010, the Company issued Debentures totaling
$60,000. Purchasers of $30,000 of the Debentures elected to immediately convert
such holdings into Common Stock and the Company issued 177,857 shares of Common
Stock at an average conversion price of $0.17 per share.





February
2010 License Agreement





During
February 2010, the Company entered into a License Agreement concerning two US
method patents for the treatment of wastewaters.  The Company issued
140,000 shares of its Common Stock in consideration for the License
Agreement.  The Company recorded $40,907 as Patents License Rights
based on an average price of $0.29 per share.





Options
to Purchase Common Stock





In
December 2009, the Board of Directors granted options to purchase 1,200,000
shares of Common Stock to two Directors and the Interim Chief Executive
Officer/President/Chief Financial Officer/Director. The options are exercisable
through December 2014 at an exercise price of $0.21 per share.  The
options vest 50% in December 2010 and 25% in each of December 2011 and
2012.


-21-


Item
3. Defaults Upon Senior Securities.





None





Item
4. (Removed and Reserved).





Item
5. Other Information.





The
Company filed its report on Form 8-K dated May 4, 2010 reporting the results of
the election of Directors and other matters voted upon at the Company’s Annual
Meeting





The Company's Common Stock is traded on
the Over the Counter Market, Bulletin Board ("OTC:BB") symbol
“DLOV.”





Item
6. Exhibits.





ExhibitNumber
            
            Description – Located at31.1
            
            Certification
      of CEO under Section 302 of the Sarbanes-Oxley Act of 2002 - Filed
      Herewith31.2
            
            Certification
      of CFO under Section 302 of the Sarbanes-Oxley Act of 2002 - Filed
      Herewith32.1
            
            Certification
      of CEO under Section 906 of the Sarbanes-Oxley Act of 2002 - Filed
      Herewith32.2
            
            Certification
      of CFO under Section 906 of the Sarbanes-Oxley Act of 2002 - Filed
      Herewith





The Registrant incorporates by
reference its Exhibit List as attached to its annual report on Form 10-K for the
fiscal year ended September 30, 2009.


-22-


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 CORPORATIONDated:  May
      20, 2010
            /s/ Gary J. NovinskieGary
      J. NovinskieInterim
      Chief Executive Officer, President, ChiefFinancial
      Officer and Director (Principal Executive Officer
              and
      Principal Financial Officer)Dated:  May
      20, 2010
            /s/ Richard W. BlackstoneRichard
      W. BlackstonePrincipal
      Accounting Officer


-23-