**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**




**(Mark
      one)**




**(X)**
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**





**For
      the quarterly period ended** **June
      30, 2007**





**(
                )**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**





**For
      the transition period from _________ to ____________**





**Commission
      File Number 0-12214**





**DALECO
      RESOURCES CORPORATION**


(exact
      name of small business issuer as specified in its charter)





**Nevada**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            **23-2860734**
              (IRS
                Employer
              Identification
                No.)





**17
                Wilmont Mews, 5****th****Floor**
              **West
                Chester, Pennsylvania 19382**
              (Address
                of principal executive offices)
            **(610)
                429-0181**
              (Issuer’s
                telephone number)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o





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**





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practical date:





Number
      of
      shares outstanding of the issuer's Common Stock as of July 31, 2007:
      43,081,346


Number
      of
      shares outstanding of the issuer’s Series A Preferred Stock as of July 31, 2007:
      0


Number
      of
      shares outstanding of the issuer’s Series B Preferred Stock as of July 31, 2007:
      145,000





**DALECO
      RESOURCES CORPORATION**





**TABLE
      OF CONTENTS**


**PAGE****PART
                  I - FINANCIAL INFORMATION**ITEM
                  1.
              
              CONSOLIDATED
                  FINANCIAL STATEMENTS
              
              3Consolidated
                  Balance Sheets
              
              3Consolidated
                  Statements of Income
              
              5Consolidated
                  Statements of Cash Flows
              
              6Consolidated
                  Statements of Shareholders’ Equity
              
              7Notes
                  to Consolidated Financial Statements
              
              8ITEM
                  2.
              
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
                  AND RESULTS OF OPERATIONS
              
              15ITEM
                  3.
              
              CONTROLS
                  AND PROCEDURES
              
              21**PART
                  II - OTHER INFORMATION**ITEM
                  1.
              
              LEGAL
                  PROCEEDINGS
              
              25ITEM
                  2.
              
              UNREGISTERED
                  SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
              
              25ITEM
                  3.
              
              DEFAULTS
                  UPON SENIOR SECURITIES
              
              25ITEM
                  4.
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              26ITEM
                  5.
              
              OTHER
                  INFORMATION
              
              26ITEM
                  6.
              
              EXHIBITS
              
              26**SIGNATURES**
              
              27




-2-


**PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1. Consolidated Financial Statements.**
 
 **DALECO
        RESOURCES CORPORATION**
 **CONSOLIDATED
        BALANCE SHEETS**


**June
                30**
              ******2007**
            
            **September
                30**
              **2006****(Unaudited)****ASSETS****Current
                Assets:**Cash
                and Equivalents
            
            $
            363,045
            
            $
            463,842Accounts
                Receivable - net of allowance for doubtfulaccounts
                of $150,000
            
            
            475,394
            
            
            394,323Other
                Current Assets
            
            
            6,700
            
            
            8,813Total
                Current Assets
            
            
            845,139
            
            
            866,978**Other
                Assets:**Technology
                and Patent Rights
            
            
            6,594,500
            
            
            6,594,500Accumulated
                Amortization
            
            
            (3,900,349
            )
            
            (3,467,260
            )Net
                Technology and Patent Rights
            
            
            2,694,151
            
            
            3,127,240Equity
                Placement Costs
            
            
            35,750
            
            
            35,750Accumulated
                Amortization of Equity Placement Costs
            
            
            (21,769
            )
            
            (13,282
            )Net
                Equity Placement Costs
            
            
            13,981
            
            
            22,468Securities
                Available for Future Sale
            
            
            3,800
            
            
            38,001Prepaid
                Mineral Royalties - Long-term
            
            
            749,835
            
            
            719,835Notes
                Receivable
            
            
            576,000
            
            
            576,000Interest
                Receivable
            
            
            85,097
            
            
            49,556Total
                Other Assets
            
            
            4,122,864
            
            
            4,533,100**Property,
                Plant and Equipment:**Oil
                and Gas Properties, at cost
            
            
            5,358,385
            
            
            5,324,222Accumulated
                Depreciation, Depletion and Amortization
            
            
            (4,309,742
            )
            
            (4,138,292
            )Net
                Oil and Gas Properties
            
            
            1,048,643
            
            
            1,185,930Mineral
                Properties, at cost
            
            
            12,609,100
            
            
            12,609,100Accumulated
                Depreciation, Depletion and Amortization
            
            
            (750,000
            )
            
            (600,000
            )Net
                Mineral Properties
            
            
            11,859,100
            
            
            12,009,100Equipment,
                Furniture and Fixtures, at cost
            
            
            191,151
            
            
            162,708Accumulated
                Depreciation
            
            
            (162,309
            )
            
            (156,782
            )Net
                Equipment, Furniture and Fixtures
            
            
            28,842
            
            
            5,926Total
                Net Property, Plant and Equipment
            
            
            12,936,585
            
            
            13,200,956**TOTAL
                ASSETS**
            
            $
            17,904,588
            
            $
            18,601,034





SEE
      ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS.


-3-


**DALECO
        RESOURCES CORPORATION**
 **CONSOLIDATED
        BALANCE SHEETS**


**June
                30**
              ******2007**
            
            **September
                30**
              **2006****(Unaudited)****LIABILITIES
                AND SHAREHOLDERS’ EQUITY****Current
                Liabilities:**Accounts
                Payable
            
            $
            1,714,723
            
            $
            1,142,398Federal
                Income Taxes Payable
            
            
            86,046
            
            
            86,046Note
                Payable
            
            
            --
            
            
            35,284Note
                Payable - Related Party
            
            
            45,485
            
            
            45,485EV&T
                Note - Current Portion
            
            
            570,187
            
            
            156,000Note
                Payable - First Regional Bank
            
            
            100,000
            
            
            100,000CAMI
                Note
            
            
            514,881
            
            
            514,881Accrued
                Interest Expense
            
            
            453,453
            
            
            420,172Accrued
                Dividends Payable
            
            
            1,602,915
            
            
            1,802,915Accrued
                Expense Reimbursements
            
            
            57,818
            
            
            100,446Accrued
                Bonus Expense
            
            
            1,327,491
            
            
            --Accrued
                Salary Expense
            
            
            1,006,819
            
            
            904,267****Total
                Current Liabilities
            
            
            7,479,818
            
            
            5,307,894**Long-term
                Liabilities:**Long-term
                Debt - EV&T
            
            
            --
            
            
            496,524**TOTAL
                LIABILITIES**
            
            
            7,479,818
            
            
            5,804,418**SHAREHOLDERS’
                EQUITY:**Preferred
                Stock - 20,000,000 shares authorizedSeries
                A Preferred Stock (outstanding: none)Series
                B Preferred Stock - par value of $0.01 per share (outstanding: June
                30,
                2007 - 145,000 shares; September 30, 2006 - 165,000 shares)
            
            
            1,450
            
            
            1,650Common
                Stock - 100,000,000 shares authorized - par
              value
                of $0.01 per share(outstanding:
                June 30, 2007 - 43,081,346 shares; September 30, 2006 - 41,423,635
                shares)
            
            
            430,813
            
            
            414,236Additional
                Paid in Capital
            
            
            44,851,524
            
            
            43,759,251Retained
                Deficit
            
            
            (34,678,187
            )
            
            (31,231,892
            )Accumulated
                Other Comprehensive Loss
            
            
            (180,830
            )
            
            (146,629
            )**TOTAL
                SHAREHOLDERS’ EQUITY**
            
            
            10,424,770
            
            
            12,796,616**TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY**
            
            $
            17,904,588
            
            $
            18,601,034





SEE
      ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.




-4-


**DALECO
      RESOURCES CORPORATION**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**(UNAUDITED)**


**Three
                Months Ended June 30**
            
            **Nine
                Months Ended June 30****2007**
            
            **2006**
            
            **2007**
            
            **2006****Revenues:**Oil
                and Gas Sales
            
            $
            239,224
            
            $
            482,835
            
            $
            676,489
            
            $
            1,414,938Royalty
                Receipts
            
            
            15,375
            
            
            14,775
            
            
            38,959
            
            
            56,516Mineral
                Sales
            
            
            22,709
            
            
            2,539
            
            
            31,020
            
            
            12,020Well
                Management Revenue
            
            
            63,878
            
            
            40,006
            
            
            191,635
            
            
            120,018Total
                Operating Revenues
            
            
            341,186
            
            
            540,155
            
            
            938,103
            
            
            1,603,492**Expenses:**Lease
                Operating Expenses - Oil and Gas
            
            
            127,932
            
            
            204,136
            
            
            377,683
            
            
            536,304Exploration
                Expenses - Minerals
            
            
            36,751
            
            
            --
            
            
            82,941
            
            
            --Lease
                Operating Expenses - Minerals
            
            
            35,640
            
            
            1,319
            
            
            55,156
            
            
            11,053Production
                and Severance Taxes - Oiland
                Gas
            
            
            12,323
            
            
            46,523
            
            
            34,104
            
            
            140,720Depreciation,
                Depletion and Amortization
            
            
            253,355
            
            
            357,700
            
            
            760,066
            
            
            1,056,209Third
                Party Distributions - Oil and Gas
            
            
            11,583
            
            
            --
            
            
            20,954
            
            
            27,636Stock
                Based Compensation Expense
            
            
            139,390
            
            
            --
            
            
            420,390
            
            
            --Bonus
                Expense
            
            
            1,197,491
            
            
            --
            
            
            1,327,491
            
            
            --General
                and Administrative Expenses
            
            
            383,686
            
            
            236,810
            
            
            971,529
            
            
            697,008Legal
                and Professional Fees and Expenses
            
            
            48,907
            
            
            65,524
            
            
            261,816
            
            
            189,634Shareholder
                Information Expenses
            
            
            4,211
            
            
            16,427
            
            
            34,710
            
            
            49,393Amortization
                of Debt Placement Costs
            
            
            --
            
            
            31,164
            
            
            --
            
            
            93,493Amortization
                of Equity Placement Costs
            
            
            2,829
            
            
            3,054
            
            
            8,487
            
            
            8,579Total
                Expenses
            
            
            2,254,098
            
            
            962,657
            
            
            4,355,327
            
            
            2,810,029**Other
                Income (Expense):**Interest
                Income
            
            
            13,235
            
            
            1,559
            
            
            39,223
            
            
            6,048Interest
                Expense
            
            
            (27,538
            )
            
            (23,658
            )
            
            (68,294
            )
            
            (83,231
            )Cost
                of Other Services Performed
            
            
            --
            
            
            --
            
            
            --
            
            
            (311,400
            )Total
                Other Income (Expense), Net
            
            
            (14,303
            )
            
            (22,099
            )
            
            (29,071
            )
            
            (388,583
            )Loss
                Before Income Taxes
            
            
            (1,927,215
            )
            
            (444,601
            )
            
            (3,446,295
            )
            
            (1,595,120
            )Taxes
                based on Income
            
            
            --
            
            
            (52,671
            )
            
            --
            
            
            (52,671
            )Net
                Loss
            
            $
            (1,927,215
            )
            $
            (497,272
            )
            $
            (3,446,295
            )
            $
            (1,647,791
            )Basic
                and Fully Diluted Net Lossper
                Share
            
            $
            (0.05
            )
            $
            (0.01
            )
            $
            (0.08
            )
            $
            (0.04
            )Weighted-average
                number of shares ofCommon
                Stock outstanding
            
            
            42,426,544
            
            
            41,126,355
            
            
            42,250,082
            
            
            40,849,217




SEE
      ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.




-5-


**DALECO
        RESOURCES CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE NINE MONTHS ENDED JUNE 30, 2007 AND 2006**
 **(UNAUDITED)**


**2007**
            
            **2006****Cash
                Flows From Operating Activities:**Net
                Loss
            
            $
            (3,446,295
            )
            $
            (1,647,791
            )Adjustments
                to Reconcile Net Loss to Net Cash Provided by(Used
                in) Operating Activities:Depreciation,
                Depletion and Amortization
            
            
            760,066
            
            
            1,056,209Amortization
                of Debt and Equity Placement Costs
            
            
            8,487
            
            
            102,072Bonus
                Expense
            
            
            1,327,491
            
            
            --Stock
                Based Compensation Expense
            
            
            420,390
            
            
            --Non-cash
                Charge for Issuance of Securities
            
            
            --
            
            
            311,400Changes
                in operating assets and liabilities:Other
                Current Assets
            
            
            2,113
            
            
            (4,950
            )Pre-paid
                Royalties
            
            
            (30,000
            )
            
            --Receivables
            
            
            (116,612
            )
            
            236,077Accounts
                Payable
            
            
            572,325
            
            
            74,982Other
                Accrued Expenses
            
            
            59,924
            
            
            (15,497
            )Net
                Cash Provided by (Used in) Operating Activities
            
            
            (442,111
            )
            
            112,502**Cash
                Flows From Investing Activities:**Purchases
                of Fixed Assets
            
            
            (62,606
            )
            
            (135,517
            )Net
                Cash Used in Investing Activities
            
            
            (62,606
            )
            
            (135,517
            )**Cash
                Flows From Financing Activities:**Payment on
                Notes due Related Parties
            
            
            --
            
            
            (25,000
            )Payments on Other
                Notes and Debt
            
            
            (117,621
            )
            
            (463,772
            )Increase
                in Accrued Interest
            
            
            33,281
            
            
            25,875Proceeds
                of Equity Issuances
            
            
            488,260
            
            
            45,307Net
                Cash Provided by (Used in) Financing Activities
            
            
            403,920
            
            
            (417,590
            )Net
                Change in Cash and Equivalents
            
            
            (100,797
            )
            
            (440,605
            )Cash
                and Equivalents at Beginning of Year
            
            
            463,842
            
            
            1,550,962Cash
                and Equivalents at End of Period
            
            $
            363,045
            
            $
            1,110,357**Supplemental
                Information:**Income
                Taxes Paid
            
            $
            --
            
            $
            52,671Interest
                Paid
            
            $
            35,013
            
            $
            57,357**Supplemental
                Disclosure of Non-cash Transactions:**Conversion
                of Debt to Equity
            
            $
            --
            
            $
            25,000Issuance
                of Common Stock for Services Performed
            
            $
            --
            
            $
            331,701Payment
                of Dividends in-kind
            
            $
            200,000
            
            $
            8,657Conversion
                from Preferred Stock to Common Stock
            
            $
            200,000
            
            $
            100,000





SEE
      ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS.


-6-


**DALECO
      RESOURCES CORPORATION**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**


**FOR
      THE NINE MONTHS ENDED JUNE 30, 2007 AND 2006**


**(UNAUDITED)**


**2007**
            
            **2006****Preferred
                Stock Outstanding:**Shares
                of Series “B”:Beginning
                of Period
            
            
            165,000
            
            
            185,000Issued
            
            
            --
            
            
            --Converted
                to Common
            
            
            (20,000
            )
            
            (10,000
            )Cancelled
            
            
            --
            
            
            --End
                of Period
            
            
            145,000
            
            
            175,000**Preferred
                Stock - Value at Par ($.01/Share)**
            
            **$**
            **1,450**
            
            **$**
            **1,750****Common
                Stock Outstanding:**Shares:Beginning
                of Period
            
            
            41,423,635
            
            
            40,343,043Issued
            
            
            1,657,711
            
            
            841,581Cancelled
            
            
            --
            
            
            --End
                of Period
            
            
            43,081,346
            
            
            41,184,624**Value
                at Par ($.01/Share)**
            
            **$**
            **430,813**
            
            **$**
            **411,846****Additional
                Paid in Capital:**Beginning
                of Period
            
            $
            43,759,251
            
            $
            42,415,834Equity
                Issuances
            
            
            480,993
            
            
            356,162Stock
                Based Compensation
            
            
            420,390
            
            
            --Preferred
                Excess Amount
            
            
            190,890
            
            
            7,888End
                of Period
            
            **$**
            **44,851,524**
            
            **$**
            **42,779,884****Accumulated
                Retained Deficit:**Beginning
                of Period
            
            $
            (31,231,892
            )
            $
            (25,062,929
            )Loss
                for the Period
            
            
            (3,446,295
            )
            
            (1,647,791
            )End
                of Period
            
            **$**
            **(34,678,187**
            **)**
            **$**
            **(26,710,720**
            **)****Accumulated
                Other Comprehensive Loss:**Beginning
                of Period
            
            $
            (146,629
            )
            $
            (25,617
            )Other
                Comprehensive Loss for the Period
            
            
            (34,201
            )
            
            (83,011
            )End
                of Period
            
            **$**
            **(180,830**
            **)**
            **$**
            **(108,628**
            **)****Total
                Equity:**Beginning
                of Period
            
            $
            12,796,616
            
            $
            17,732,568End
                of Period
            
            
            10,424,770
            
            
            16,374,132Change
                in Equity for the Period
            
            **$**
            **(2,371,846**
            **)**
            **$**
            **(1,358,436**
            **)**





SEE
      ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS.


-7-




**DALECO
      RESOURCES CORPORATION**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED JUNE 30, 2007**


**1.
      Continued Operations and Going Concern**





The
      unaudited consolidated financial statements have been prepared on the basis
      of a
      going concern which contemplates that the Company will be able to realize assets
      and discharge liabilities in the normal course of business. Accordingly, they
      do
      not give effect to adjustments that would be necessary should the Company be
      required to liquidate its assets. For the nine months ended June 30, 2007,
      the
      Company incurred a net loss of $3,446,295. The ability of the Company to meet
      its total liabilities of $7,479,818 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.





The
      Company will continue to research and entertain project specific funding
      commitments and other capital funding alternatives if and as they become
      available.





As
      of
      June 30, 2007, the Company and certain of its subsidiaries were in default
      of
      certain debt obligations. The holders of these instruments are working with
      the
      Company to achieve the ultimate extinguishment of the obligations.





**2.
      Summary of Significant Accounting Policies**





***Basis
      of Presentation***





The
      interim consolidated financial statements are unaudited but, in our opinion,
      reflect all adjustments necessary for a fair presentation of the results of
      operations and financial position for such periods in accordance with accounting
      principles generally accepted in the United Sates for interim financial
      information and with the instructions to Form 10-QSB and Item 310(b) of
      Regulation S-B. All such adjustments reflected in the interim consolidated
      financial statements are considered to be of a normal recurring nature. The
      results of operations for any interim period are not necessarily indicative
      of
      results for the full year. Accordingly, these financial statements should be
      read in conjunction with the financial statements and notes thereto contained
      in
      the Company’s Annual Report on Form 10-KSB for the year ended September 30,
      2006. 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,
      2007 refers to fiscal 2007, which is the period from October 1, 2006, to
      September 30, 2007. We have reclassified certain data in the financial
      statements of the prior periods 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 our Annual Report on Form 10-KSB for the year ended September
      30,
      2006.





-8-


**DALECO
        RESOURCES CORPORATION**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE NINE MONTHS ENDED JUNE 30, 2007**




***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.





***Impact
      of Recently Issued Accounting Standards***





In
      February 2007, the
      Financial Accounting Standards Board (“FASB”) issued Statement of Financial
      Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to
      choose to measure many financial instruments and certain other items at fair
      value in order to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. This pronouncement is effective as of the beginning
      of
      our 2009 fiscal year. We are currently evaluating the impact, if any, that
      SFAS
      159 will have on our financial position or results of operations.





In
      September 2006, the Securities and Exchange Commission issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”). SAB 108 provides guidance on how prior-year
      misstatements should be taken into consideration when quantifying misstatements
      in current-year financial statements for purposes of determining whether the
      current-year financial statements are materially misstated. SAB 108 permits
      registrants to record the cumulative effect of initial adoption by recording
      the
      necessary adjustments to the carrying values of assets and liabilities as of
      the
      beginning of that year with the offsetting adjustment recorded to the opening
      balance of retained earnings if material. This pronouncement is effective at
      the
      end of our 2007 fiscal year. We do not expect the adoption of SAB 108 to have
      a
      material impact on our financial position or results of operations.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting
      for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS
      158 requires employers to recognize the overfunded or underfunded status of
      a
      defined benefit postretirement plan as an asset or liability in its statement
      of
      financial position and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income. This pronouncement is
      effective at the end of our 2007 fiscal year. We are currently evaluating the
      impact that SFAS 158 will have on our financial position.




-9-




**DALECO
      RESOURCES CORPORATION**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED JUNE 30, 2007**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework
      for measuring fair value in generally accepted accounting principles and expands
      disclosures about fair value measurements. This pronouncement is effective
      as of
      the beginning of our 2009 fiscal year. We are currently evaluating the impact,
      if any, that SFAS 157 will have on our financial position or results of
      operations.





In
      June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB
      Statement No. 109, “Accounting for Income Taxes,” and it seeks to reduce
      the diversity in practice associated with certain aspects of measurement and
      recognition in accounting for income taxes. In addition, FIN 48 requires
      expanded disclosure with respect to the uncertainty in income taxes and is
      effective as of the beginning of our 2008 fiscal year. We are currently
      evaluating the impact that FIN 48 will have on our financial position or results
      of operations.





**3.
      Capital Stock**


***Common
                  Stock***Common
                  SharesBalance
                  as of September 30, 2006
              
              
              41,423,635Issued
                  Pursuant to a Private Placements(1)
              
              
              1,126,670Issued
                  upon conversion of Series B Preferred Stock(2)
              
              
              160,000Issued
                  for payment of dividends on Series B Preferred Stock(2)
              
              
              160,000Issued
                  to Terra Silex Holdings, LLC(3)
              
              
              200,241Issued
                  for payment of certain debt(4)
              
              
              10,800Balance
                  as of June 30, 2007
              
              
              43,081,346***Series
                  B Preferred Stock***
              
              
              Preferred
                  SharesBalance
                  as of September 30, 2006
              
              
              165,000Conversion
                  of Series B Preferred Stock to Common Stock(2)
              
              
              (20,000
              )Balance
                  as of June 30, 2007
              
              
              145.000




(1)
            In
                October 2006, the Company concluded a Private Placement of 400,000
                shares
                of Common Stock at a price of $0.51 per share. This private placement
                raised $204,000 for the Company. In June 2007, the Company concluded
                a
                Private Placement of 726,670 shares of Common Stock and Warrants
                to
                purchase 363,336 shares of Common Stock for proceeds to the Company
                of
                $218,000.


(2)
            In
                November 2006, 20,000 shares of Series B Preferred Stock were converted
                to
                160,000 shares of Common Stock and 160,000 shares of Common Stock
                were
                issued in payment of accrued but unpaid dividends due on the Series
                B
                Preferred Stock.





(3)
            In
                December 2006, the Company issued 200,241 shares of Common Stock
                at a
                price of $0.25 per share to Terra Silex Holdings, LLC, pursuant to
                the
                anti-dilution provision of the Stock Purchase Agreement dated September
                20, 2001. See Exhibit 10.13 to the Annual Report on Form 10-KSB for
                the
                year ended September 30, 2006.





(4)
            In
                November 2006, the Company issued 10,800 shares of Common Stock in
                payment
                of certain debt owed to a previous director of the
                Company.




-10-




**DALECO
      RESOURCES CORPORATION**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED JUNE 30, 2007**




***Options
      and Warrants***





The
      Company has granted the following options and warrants to purchase Common Stock
      as of June 30, 2007:





Number
                of Options/Warrants
            
            Weighted
                Average Price per ShareOptions
                and Warrants Outstanding at September 30, 2006
            
            
            14,222,305
            
            $
            1.05Stock
                Options Granted(1)
                (2)
            
            
            800,000Warrants
                Issued(3)
            
            
            363,336Options
                Cancelled(4)
            
            
            (275,000
            )Options
                and Warrants
              Outstanding
                at June 30, 2007
            
            
            15,110,641
            
            $
            1.03





(1)
            In
                October 2006, Mr. Blackstone was granted an option to purchase 200,000
                shares of Common Stock under his employment
                agreement.




(2)
            In
                March 2007, Mr. Benediktson was granted an option to purchase 600,000
                shares of Common Stock.




(3)
            In
                June 2007, the Company concluded a Private Placement which included
                warrants to purchase 363,336 shares of Common Stock at a price of
                $1.00
                per share.




(4)
            In
                June 2007, Mr. Thibault resigned as an officer of the Company;
                accordingly, a portion of his options were
                cancelled.




Summarized
      information relating to the stock options to purchase Common Stock outstanding
      as of June 30, 2007, is as follows:





Exercise
                price
            
            Options
                Outstanding
            
            Weighted
                Average Exercise
              Price
            
            Weighted
                Average Remaining Life (Years)
            
            Options
                Exercisable
            
            Weighted
                Average Exercise
              Price$0.43-$1.08
            
            
            4,925,000
            
            $
            0.69
            
            
            2.16
            
            
            4,075,000
            
            $
            0.83





***Stock
      Based Compensation***





During
      the period from October 1, 2006, through June 30, 2007, options to purchase
      800,000 shares of Common Stock were granted and options to purchase 275,000
      shares of Common Stock were cancelled. There are options for 4,925,000 shares
      of
      Common Stock outstanding as of June 30, 2007, of which 3,500,000 are held by
      current officers, Directors and employees of the Company (“Insiders”). The
      exercise prices for the options held by Insiders range from $0.43 per share
      to
      $0.85 per share.




-11-


**DALECO
        RESOURCES CORPORATION**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE NINE MONTHS ENDED JUNE 30, 2007**


In
      accordance with the provisions of SFAS 123(R), “Share-Based Payment”, the
      Company has recorded stock based compensation expense of $139,390 and $420,390
      for the three and nine months ended June 30, 2007, respectively. The stock
      based
      compensation expense is based on the fair value of the options at the grant
      date. The fair value of the options was estimated using the Black-Scholes
      option-pricing model with the following assumptions: risk free interest rates
      between 3.14% and 4.72%; expected life of three to seven years; and expected
      volatility between 56% and 184%.





***Net
      Income (Loss) Per Share***




Net
      income (loss) per share is computed in accordance with SFAS No. 128, "Earnings
      per Share". Basic net income (loss) per share is calculated by dividing the
      net
      income (loss) attributable to common shareholders by the weighted average number
      of shares outstanding during the period. Fully 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 options and warrants 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
      was
      no cash dividend payment in respect to the Series B Preferred Stock during
      the
      nine months ended June 30, 2007. A total of 160,000 shares of Common Stock
      were
      issued during the period October 1, 2006, through June 30, 2007, to a holder
      of
      the Series B Preferred Stock in satisfaction of accrued dividends.





**4.**  **Employment
      Contracts and Commitments**





Effective
      August 10, 2005 (“Effective Date”), the Company entered into employment
      contracts with Mr. Stephan V. Benediktson, Chairman of the Board of Directors
      and Chief Executive Officer of the Company, and Mr. Nathan Trynin, Vice Chairman
      of the Board of Directors (see Exhibits 10.41 and 10.42 to the Company’s Annual
      Report on Form 10-KSB for the year ended September 30, 2006). The employment
      contracts contain bonus provisions tied to the performance of the Company's
      Common Stock.




-12-




**DALECO
      RESOURCES CORPORATION**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED JUNE 30, 2007**





The
      aggregate amount of such bonuses totals $1,373,831, as approved by the Board
      of
      Directors on August 8, 2007. Payments of a portion of these bonuses ($952,137)
      are due on August 10, 2007. The balance of the bonuses ($421,694) is due August
      10, 2008. Accordingly, the Company recognized $1,197,491 and $1,327,491 of
      bonus
      expense during the three and nine months ended June 30, 2007,
      respectively.





In
      October 2006, the Company entered into an Employment Agreement with Richard
      W.
      Blackstone. Mr. Blackstone joined the Company as the Secretary and Controller.
      Under the terms of the Agreement, in addition to his base salary, Mr. Blackstone
      was granted an option to purchase 200,000 shares of Common Stock at an exercise
      price ($0.67) equal to the then market price of the Company’s Common
      Stock.





In
      October 2006, Mr. Amir and the Company entered into a Separation Agreement
      providing for Mr. Amir to receive $100,000 annually for three years (“Term”),
      $50,000 of which will be deemed salary with the remaining $50,000 reducing
      the
      debts owed to Mr. Amir (“Amir Debt”). Accordingly, the Company has recognized
      $150,000 as salary expense and such amount is included in General and
      Administrative Expenses in the Consolidated Statement of Income for the nine
      months ended June 30, 2007. Should the Amir Debt not be satisfied after the
      expiration of the Term, the Company shall continue the $100,000 annual payment,
      all of which shall be allocated to the payment of the Amir Debt until the Amir
      Debt is fully satisfied. The Company reserves the right to prepay the
      outstanding Amir Debt in full at any time. Upon satisfaction of the Amir Debt
      in
      full, all payments to Mr. Amir under the Separation Agreement will cease. The
      Company has not made certain payments required by the Separation Agreement
      applicable to the Amir Debt.





In
      April
      2007, the Company defaulted in respect to payments required by the Settlement
      Agreement with EV&T (see Note 7f. of the Notes to Consolidated Financial
      Statements included in the Company’s Annual Report on Form 10-KSB for the year
      ended September 30, 2006). As a result of the default, the interest rate
      increased from 5% to 12% and the full amount of the note and unpaid interest
      became due and payable.





During
      June 2007, the maturity date of the $100,000 note payable to First Regional
      Bank
      was extended to August 15, 2007. Mr. Amir has pledged certain of his personal
      assets as collateral for such note.





**5.**
            **Litigation
                Settlement and Pending
                Litigation**





In
      May
      2006, the Louis Erlich and Lydia O. Erlich Revocable Living Trust (“Erlich”)
      filed an action to force payment of a Note from the Company dated February
      1,
      2000 (“Note”). The Note had no stated maturity date and earned interest at a
      rate of 9% per annum. By Settlement Agreement, dated July 12, 2006, the Company
      agreed to settle the lawsuit and satisfy its obligation to Erlich under the
      Note, including all accrued and unpaid interest, by the payment of $75,000
      on
      July 7, 2006, and payments of $35,000 on or before September 5, 2006, and
      $35,284 on or before December 5, 2006. All payments have been made and the
      case
      has been dismissed.




-13-


**DALECO
        RESOURCES CORPORATION**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE NINE MONTHS ENDED JUNE 30, 2007**


**6.**
            **Subsequent
                Events**





The
      Company has accepted two offers to purchase its interests in certain
      non-operated oil and gas properties. The sale transactions are expected to
      close
      by September 30, 2007, with aggregate proceeds to the Company of approximately
      $61,000.


-14-




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





**Forward
      Looking Statements**





This
      Quarterly Report on Form 10-QSB 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.




-15-





The
      factors described under “Risk Factors” in the Company’s Annual Report on Form
      10-KSB for the period ending September 30 of each year 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.





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.


-16-


**Results
      of Operations** **:**





*For
      the three and nine months ended June 30, 2007, compared to the three and nine
      months ended June 30, 2006:*





**Three
                Months Ended**
            
            **Nine
                Months Ended****2007**
            
            **2006**
            
            **2007**
            
            **2006****Revenues**
            
            $
            341,186
            
            $
            540,155
            
            $
            938,103
            
            $
            1,603,492**Net
                Loss**
            
            $
            (1,927,215
            )
            $
            (497,272
            )
            $
            (3,446,295
            )
            $
            (1,647,791
            )**Oil
                and Gas Production and Cost Information:**Production:Oil
                (Bbl)
            
            
            1,163
            
            
            2,925
            
            
            4,053
            
            
            9,572Gas
                (Mcf)
            
            
            20,383
            
            
            33,188
            
            
            58,482
            
            
            86,043Average
                Price:Oil
                (per Bbl)
            
            $
            69.41
            
            $
            62.38
            
            $
            59.26
            
            $
            62.52Gas
                (per Mcf)
            
            $
            7.78
            
            $
            9.05
            
            $
            7.26
            
            $
            9.49Lease
                Operating Expense and Production Tax per Mcfe
            
            $
            5.13
            
            $
            4.94
            
            $
            4.97
            
            $
            4.72


_____


Bbl
      = One
      barrel of oil or condensate


Mcf
      = One
      thousand cubic feet


Mcfe
      =
      One thousand cubic feet gas equivalent





The
      decrease in oil and gas production is primarily a result of the assignment
      to
      Sonata Investment Company, LTD, of a portion of the Company’s interests in
      certain oil and gas properties (see the Notes to Consolidated Financial
      Statements included in the Form 10-KSB for the fiscal year ended September
      30,
      2006. Well management revenue has increased as a result of such
      assignment.





**Minerals
      Exploration Expenses**





Minerals
      exploration expenses were $36,751 and $82,941 for the three and nine months
      ended June 30, 2007, respectively. The Company did not incur minerals
      exploration expenses in the year ago periods. These expenses are primarily
      for
      costs associated with the exploration and quantification of mineral resources
      and mineral reserves.





**Depreciation,
      Depletion and Amortization: Oil and Gas**





Depreciation,
      depletion and amortization (“DD&A”) totaled $57,150 and $171,450 for the
      three and nine months ended June 30, 2007, and $162,917 and $471,818 for the
      three and nine months ended June 30, 2006, respectively. The decrease in
      DD&A is primarily a result of the decrease in oil and gas
      production.




-17-





**Depreciation,
      Depletion and Amortization: Minerals**





Depreciation,
      depletion and amortization totaled $194,563 and $583,689 for the three and
      nine
      months ended June 30, 2007, and $194,563 and $583,731 for the three and nine
      months ended June 30, 2006, respectively.





**Stock
      Based Compensation Expense**





The
      Company recorded stock based compensation expense of $139,390 and $420,390
      during the three and nine months ended June 30, 2007, respectively. See Note
      3
      of the Notes to Unaudited Consolidated Financial Statements included in this
      interim report.





**Bonus
      Expense**





The
      Company recognized $1,197,491 and $1,327,491 of bonus expense during the three
      and nine months ended June 30, 2007, respectively. See Note 4 of the Notes
      to
      Unaudited Consolidated Financial Statements included in this interim
      report.





**General
      and Administrative Expenses, Legal and Professional Fees and Shareholder
      Information Expenses**





These
      expenses increased $118,043 (37%) and $332,020 (35%) for the three and nine
      months ended June 30, 2007, as compared to $318,761 and $936,035 for the three
      and nine months ended June 30, 2006, respectively. These increases are primarily
      attributed to the Company’s increased staff and increased professional fees
      related to potential acquisitions, resource development and regulatory
      compliance. Also, the Company recognized $150,000 as salary expense for the
      nine
      months ended June 30, 2007, in respect to the Separation Agreement as discussed
      in Note 4 of the Notes to Unaudited Consolidated Financial Statements included
      in this interim report.





**Interest
      Expense**





Interest
      expense increased $3,880 to $27,538 for the three months ended June 30,
      2007, as compared to $23,658 for the three months ended June 30, 2006. This
      increase is primarily attributable to default interest rates associated with
      certain debt as the Company has defaulted on certain required payments.





Interest
      expense decreased $14,937 (18%) to $68,294 for the nine months ended June 30,
      2007, as compared to $83,231 for the nine months ended June 30, 2006. This
      decrease is the result of the satisfaction of the Sonata Loan and other debt
      obligations offset partially by the increased rates discussed previously. See
      the Notes to Consolidated Financial Statements included in the Form 10-KSB
      for
      the fiscal year ended September 30, 2006.




-18-





**Liquidity
      and Capital Resources**





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, through cash provided by operating activities and through borrowings
      or debt financing for certain activities.





During
      the nine months ended June 30, 2007, the Company’s cash used in operating
      activities was $442,111; however, Accounts Payable increased $572,327 during
      such period.




In
      an effort to address liquidity shortfalls, the
      Company is evaluating cost containment alternatives and the sale of certain
      oil
      and gas properties.





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.





At
      present, the Company does not have 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. With
      the
      expiration of the Sonata Loan, all of the Company’s properties are
      unencumbered.





The
      Company has accepted two offers to purchase its interests in certain
      non-operated oil and gas properties. The sales transactions are expected to
      close by September 30, 2007, with aggregate proceeds to the Company of
      approximately $61,000.





**Acquisition
      and Growth**





The
      efforts of the Company and Tecumseh Professional Associates, LLC, to evaluate
      the Sierra KaolinTM deposit have progressed during the year. The confirmation
      core evaluation program was completed and third party consultants have been
      engaged to provide certified mineral resource estimates. This work is expected
      to be completed in the next few months. The Company also initiated efforts
      to
      provide similar reserve estimates for its Marfa zeolite deposit in
      Texas.





**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.




-19-





**Historical
      Cash Flow**





The
      Company’s cash flow used in operating activities was $442,111 for the nine
      months ended June 30, 2007, as compared to cash provided of $112,502 for the
      year earlier period. 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 June 30, 2007, decreased to $363,045, of which restricted
      deposits total $145,403. The restricted deposits support financial assurance
      requirements for the Company’s operations in certain states.





**Other
      Sources of Cash**





In
      October 2006, the Company completed a private placement of equity consisting
      of
      400,000 shares of Common Stock at $0.51 per share. This private placement raised
      $204,000 for the Company. The Company utilized the proceeds of this private
      placement for its costs associated with the exploration and quantification
      of
      mineral resources and mineral reserves on a 500 acre portion of the Marfa
      zeolite deposit and to complete studies to be able to commence the production
      and delivery of ZeoCast (trademark application pending), a joint venture with
      Zinkan Enterprises, Inc., of Twinsburg, Ohio.





In
      June
      2007, the Company completed a private placement of equity consisting of 726,670
      shares of Common Stock and warrants to purchase 363,336 shares of Common Stock.
      This private placement raised $218,000 for the Company. The Company is utilizing
      the proceeds of this private placement for general working capital purposes.
      The
      Company intends to seek equity and/or debt financing, or a combination of both,
      to fund further acquisitions and continued development of its operations and
      assets.




-20-




**Item
      3. Controls and Procedures.**





***EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES***





The
      Chief
      Executive Officer and Chief Financial Officer, after evaluating the
      effectiveness of the Company's disclosure controls and procedures (as defined
      in
      Exchange Act Rule 13a-15(e) and 15d-15(e)) in effect as of the end of the period
      June 30, 2007, have concluded that its disclosure controls and procedures are
      effective to reasonably ensure that material information required to be
      disclosed by the Company in the reports that are filed or submitted under the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified by Securities and Exchange Commission’s Rules and Forms and
      that such information is accumulated and communicated to Management, including
      the Chief Executive Officer and Chief Financial Officer, as appropriate, to
      allow timely decisions regarding required disclosure.





The
      Chief
      Executive Officer and Chief Financial Officer confirm that the review of the
      Controls and Procedures was conducted at June 30, 2007.





***CHANGES
      IN INTERNAL CONTROL OVER FINANCIAL REPORTING***





There
      were no changes made during the most recently completed fiscal quarter in the
      internal control over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





All
      day-to-day financial matters are overseen by the President/CFO and Controller,
      with oversight by the Chief Executive Officer and Board of Directors. All
      contracting by the Company, for other than everyday items, is done with the
      approval of the Executive Committee of the Board of Directors or the entire
      Board of Directors.





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 (a) an Employee Manual
      outlining procedures including, but not limited to, employee dispute resolution
      and issues related to “controlled substances”, and (b) policies for handling and
      recording the 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.




-21-





***DISCLOSURE
      CONTROLS***





The
      Company carried out its annual evaluation, initially under the supervision
      of
      its President/Chief Financial Officer and Chief Executive Officer and
      subsequently by the Board of Directors and the Audit Committee of the Board
      of
      Directors, to determine the effectiveness of the Company's disclosure controls
      and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of
      1934, as Amended ("34 Act"). Based on those evaluations, the Company has
      concluded that the Company's disclosure controls and procedures were effective
      as of September 30, 2006, and the date of this Quarterly Report to provide
      reasonable assurance that information required to be disclosed by the Company
      in
      reports filed or submitted by the Company under the '34 Act is recorded,
      processed, summarized, and reported within the time periods specified in the
      rules, regulations and forms promulgated by the Securities and Exchange
      Commission and to provide reasonable assurance that information required to
      be
      disclosed by the Company is accumulated and communicated to the Company's
      management as appropriate to allow timely decisions regarding disclosure. No
      changes were made by the Company in its internal controls over financial
      reporting during the period ended June 30, 2007.





The
      Chief
      Financial Officer and the Chief Executive Officer, with the assistance of the
      Audit Committee, have established, consistent with the provisions of Rule
      13a-15(f) and Rule 15d-15 of the '34 Act, a procedure and check list for the
      filing of all information and reports required by the Securities Exchange Act
      of
      1934, as amended and the Sarbanes-Oxley Act ("SOX"). Since the Company employs
      only seven people as of the filing date, the responsibility for reporting and
      filing reports falls on the shoulders of the Company's President/Chief Financial
      Officer and its Chief Executive Officer. 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 submission 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 provide for the detailed and accurate recording of all transactions
      in which the Company is involved. They provide reasonable assurance that the
      transactions recorded permit the accurate preparation of financial statements
      in
      accordance with generally accepted accounting principles and that receipts
      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.




-22-





The
      Company's Board of Directors, Audit Committee and Chief Financial Officer have
      evaluated the Company's disclosure controls and procedures and believe that
      they
      are sound. However, the Company is always evaluating its disclosure controls
      and
      procedures to ensure that its financial statements are always presented in
      a
      clear, concise and accurate manner. To achieve that result, the Company: (1)
      has
      expanded its internal accounting staff by adding a controller; and (2), when
      confronted with an accounting presentation of a complex transaction, has sought
      the opinion of additional financial reporting advisory firms, and (3), to the
      extent permissible and permitted by regulation and law, will seek guidance
      from
      the Division of Corporate Finance of the Securities and Exchange Commission
      regarding the applicable accounting principles and presentation in
      question.




***RECENTLY
      ISSUED ACCOUNTING STANDARDS***





In
      February 2007, the
      Financial Accounting Standards Board (“FASB”) issued Statement of Financial
      Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to
      choose to measure many financial instruments and certain other items at fair
      value in order to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. This pronouncement is effective as of the beginning
      of
      our 2009 fiscal year. We are currently evaluating the impact, if any, that
      SFAS
      159 will have on our financial position or results of operations.





In
      September 2006, the Securities and Exchange Commission issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”). SAB 108 provides guidance on how prior-year
      misstatements should be taken into consideration when quantifying misstatements
      in current-year financial statements for purposes of determining whether the
      current-year financial statements are materially misstated. SAB 108 permits
      registrants to record the cumulative effect of initial adoption by recording
      the
      necessary adjustments to the carrying values of assets and liabilities as of
      the
      beginning of that year with the offsetting adjustment recorded to the opening
      balance of retained earnings if material. This pronouncement is effective at
      the
      end of our 2007 fiscal year. We do not expect the adoption of SAB 108 to have
      a
      material impact on our financial position or results of operations.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting
      for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS
      158 requires employers to recognize the overfunded or underfunded status of
      a
      defined benefit postretirement plan as an asset or liability in its statement
      of
      financial position and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income. This pronouncement is
      effective at the end of our 2007 fiscal year. We are currently evaluating the
      impact that SFAS 158 will have on our financial position.




-23-





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework
      for measuring fair value in generally accepted accounting principles and expands
      disclosures about fair value measurements. This pronouncement is effective
      as of
      the beginning of our 2009 fiscal year. We are currently evaluating the impact,
      if any, that SFAS 157 will have on our financial position or results of
      operations.





In
      June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB
      Statement No. 109, “Accounting for Income Taxes,” and it seeks to reduce
      the diversity in practice associated with certain aspects of measurement and
      recognition in accounting for income taxes. In addition, FIN 48 requires
      expanded disclosure with respect to the uncertainty in income taxes and is
      effective as of the beginning of our 2008 fiscal year. We are currently
      evaluating the impact that FIN 48 will have on our financial position or results
      of operations.


-24-


**PART
      II. OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





None





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





a. Terra
      Silex Holdings Ltd, LLC, Anti-dilution Shares.





By
      agreement dated September 20, 2001, the Company entered into a Stock Purchase
      Agreement (“SPA”) with Terra Silex Holdings, LLC (“Terra Silex”). Section
      6.3, Dilution Protection Rights, of the SPA grants Terra Silex the right to
      acquire shares of the Company at the same price as offered to third parties
      in a
“Block Sale” (as such term is defined in the SPA). As a result of the Company’s
      private placement of 6,500,000 shares of Common Stock on September 16, 2005,
      Terra Silex was entitled to acquire 200,241 shares of Common Stock under the
      formula set forth in Section 6.3 of the SPA.  Terra Silex exercised such
      right in December 2006. The purchase price for the 200,241 shares acquired
      by
      Terra Silex was $ 50,060 .





b. October
      2006 Private Placement.





In
      October 2006, the Company concluded a private placement of 400,000 shares of
      Common Stock at a price of $0.51 per share. This private placement raised
      $204,000 for the Company. The Company is utilizing the proceeds of this private
      placement for its costs associated with the exploration and quantification
      of
      mineral resources and mineral reserves on a 500 acre portion of the Marfa
      zeolite deposit and to complete studies to be able to commence the production
      and delivery of ZeoCast (trademark application pending). See the Company’s Form
      D as filed with the Securities and Exchange Commission on October 18,
      2006.





c. June
      2007 Private Placement.





In
      June
      2007, the Company concluded a private placement of equity consisting of 726,670
      shares of Common Stock and warrants to purchase 363,336 shares of Common Stock.
      This private placement raised $218,000 for the Company. The Company is utilizing
      the proceeds of this private placement for general working capital purposes.
      See
      the Company’s Form D as filed with the Securities and Exchange Commission on
      July 23, 2007.




**Item
      3. Defaults Upon Senior Securities.**





None




-25-




**Item
      4. Submission of Matters to a Vote of Security Holders.**





None





**Item
      5. Other Information.**





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
                  at10.45
              
              Sierra
                  Kaolin TM Restated Development and Operating Agreement
                  AmongTecumseh
                  Professional Associates, Inc., Tecumseh Industrial Minerals,
                  LLC,Daleco
                  Resources Corporation, Clean Age Minerals, Inc., and C.A.Properties,
                  Inc. dated June 7, 2007
              
              Filed
                  Herewith31.1
              
              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 Form
      10-KSB for the fiscal year ended September 30, 2006, filed on January 12,
      2007.


-26-





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**DALECO
                RESOURCES CORPORATION**Dated: August 9, 2007
            
            /s/ Gary
              J.
              NovinskieGary
                J. Novinskie
              President
                and Chief Financial Officer




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**DALECO
      RESOURCES CORPORATION**


Date:
              August 9, 2007
            
            /s/ Stephan
              V. BenediktsonStephan
                V. Benediktson
              Chairman
                of the Board of Directors and Chief Executive Officer Date:
              August 9, 2007
            
            /s/ Gary
              J.
              NovinskieGary
                J. Novinskie
              President
                and Chief Financial Officer


-27-